Good morning, ladies and gentlemen, and welcome to the KBC Group Earnings Release Third Quarter 2025. At this time, all participants are in listen-only mode. I would now like to turn the floor over to Kurt De Baenst, Head of Investor Relations. Please go ahead.
Thank you, Operator. A very good morning to all of you from the headquarters of KBC in Brussels, and welcome to the third quarter conference call. Today is Thursday, November 13, 2025, and we are hosting the conference call on the third quarter results of KBC. As usual, we have the Group CEO, Johan Thijs, as well as Group CFO, Bartel Puelinckx, with us, and they will both elaborate on the results and add some additional insight. As such, 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, Kurt. Also from my side, a warm welcome to the announcement of the third quarter results 2025. As always, we start with the net result, which stands at a very excellent EUR 1 billion and EUR 2 million. Once again, the KBC bank assurance machine has been firing on all its cylinders, which also means that all entities in our group have been contributing positively to this result. As a matter of fact, it is once again perfectly balanced: income 50/50 split over net interest income versus the non-net interest income-bearing result, which once again shows that we keep up the pace with our, let's call it, ancillary business in compensating the growth on the net interest income side. If you look at the different lines, it is very straightforward.
Once again, strong performance on the net interest income side, which has been growing despite the fact that there was a significantly lower net interest income on inflation-linked bonds. Consequently, we also increased our guidance from what it was at least EUR 5.85 billion to now at least EUR 5.95 billion. This income growth on the net interest income side has been triggered, amongst others, by a strong loan growth, but also, again, on strong performance on the transformation result. Our replicating portfolio. Coming back to the diversification, both the fee business, which is generated through the asset management and bank services, has been growing significantly, as did the insurance business. The latter was also driven by good quality with a combined ratio of 87%. That would be ridiculously low, but at 87%, which is indeed still excellent.
If you take all those income lines in consideration, you come to the conclusion that indeed we can further increase our guidance of our income side as well, which we now state at at least 7.5%. If you then know that we stick to our guidance for the cost side, which means at least, sorry, no, maximum 2.5%, we now can also conclude that the jaws will be superior to 5%, which is indeed a very strong number. Coming back to that cost side, they are perfectly under control and perfectly within our guidance. On the credit quality side, we post today a very excellent credit cost ratio of 12 basis points, which is significantly lower than the long-term average and also consequently lower than the guidance which we provided. No big surprise that our solvency position stands solid at 14.9%.
On the liquidity side, as usual, we are performing very well with numbers 158 and 134 for the LCR and the NSFR. Last but not least, we also issued the interim dividend of EUR 1 per share, which is paid on the 7th of November. We also announced two things. First of all, the acquisition of Business Lease in Slovakia and Czech Republic, but also our inaugural SRT, which is freeing up 23 basis points of capital, hereby fulfilling the promise which we made on more active management of our risk-weighted assets. When we go to the more digital side of our story, we go to page four. You can clearly see that Kate continues to grow.
As a matter of fact, 5.8 million customers of ours in the meanwhile clicked on Kate and continued to use her in the further business which they are doing with KBC. We also see clearly that the number of interactions with our customers continued to increase, and not only the number of transactions increased, but also the fact that Kate can autonomously, which means without any help of a human being, that Kate can deal with those questions and provide the customers solutions in an autonomous way 7 out of 10 times. In that perspective, it is also important to understand that since October, we start launching Kate 2.0, which is actually a fully enabled LLM, so large language model Kate, which allows us two things.
First of all, to better anticipate the questions in the context by which they're asked, therefore allowing us to provide more and better answers to our customers, which intrinsically means that more customers can be helped. Secondly, the autonomy, which now stands at 70%, will further increase. Both will have a positive effect on the two sides of the cost-to-income ratio. First of all, it allows us to sell more via Kate. Kate 1.0, so the old version, generated actually sales, which allows us to do 400,000 sales over the period of 12 months. On the cost side, as I already said, the autonomy actually creates solutions without human being interfering, which means that Kate today, Kate 1.0 today, is doing the work of roughly 360 FTEs, which is already a quite significant number, which is going to improve going forward.
Let me go into the different P&L lines because there were no exceptional items this quarter, which means that on the net interest income side, we do see overall an increase of 1% on the quarter and 10% on the year. What is far more important is that actually if you look at the underlying building blocks, then actually the net interest income on the banking side increases with 2%. Why? Because there is a very negative impact of, I mean, it has a positive impact on other things, but inflation was coming down, and therefore the income which is generated through inflation-linked bonds was significantly down as well. EUR 20 million difference on the quarter, and that obviously has some impact on the growth. A big chunk of that is booked on the insurance side, and therefore if you purely looked at the banking side, a 2% increase.
Now, that is triggered by, in essence, two things. First of all, a further increase of our transformation result, which went significantly up due to the way how we replicate our portfolios. The second one is a very strong performance on the lending side. As you know, there is still some competition on margins in the markets where we are present, but this is more than compensated by the loan growth, the loan growth which stands at 1.6% in the quarter, 8% on the year, and that is indeed a very strong number. Also, when you compare that with the guidance which we previously gave, then we also came to the conclusion that we increase our guidance to approximately 7% going forward. Year to date, so after nine months of 2025, the loan growth stands at 6.3%.
If you would include the FX effect, even at 7.3%, which is indeed a very strong number. All the other elements are mentioned on the slide, have far less impact. We are talking about better income on the dealing room side, cash management, the number of days, but let me not go into that detail. Let me go back to the margin, which now stands at 205 basis points, which is slightly down compared to previous quarter. I have to make a caveat here. First of all, the impact here is quite clear of the inflation-linked bonds. If you that in itself already expands a big chunk of that difference, but also the strong loan growth, which is done at margins which are slightly below the back book, depends a little bit on the country.
Last but not least, also on the fact that we do generate net interest income by investing liquidities in bonds, so using the higher spreads. This generates normally in net interest income, but at margins which are obviously lower than the 208 basis points of previous quarter. That has a positive effect on one side, but a slightly negative impact on the margin. Just to give you some insight how it worked. What about then the other drivers of that net interest income volume on the lending side already dwelled upon? What about the deposit side? Once again, we do see an increase of our core monies with our customers of EUR 1.1 billion in the quarter.
That is a bit of an obvious effect that we start to see the first moves of the monies which came in in Belgium as a recuperation of the state note monies that invested in 2023. While that money is coming to maturity, as you know, partially in the first part of this year, and the big chunk is going to mature in quarter four. You clearly also can see that you see some effects already in the third quarter by the savings certificates, which were entirely freed up and not reinvested again in those savings certificates. In essence, it comes down to the story that what we do see in practice is when monies which were recuperated from the state note mature, the vast majority returns in either current account saving accounts or in mutual funds, only roughly 25% is reinvested back in term deposits.
That is translated in this slide. The evolution of the current accounts here is a very specific seasonal effect in corporate deposits in Belgium. This is temporary, and this will be corrected by the natural flows in quarter four of this year. If you look at the total picture, then it is even more substantial, EUR 8.5 billion of monies flowing into our different pockets for our core customer monies. This is translated in a fundamental increase on the current account saving account side and a fundamental decrease on the term deposit sides, which in translation of margin is good news. Last but not least, I will come back to that in one second, that is the inflow of those monies which are maturing into the fee business generated through asset management and life insurance.
That has clearly also happened in quarter three, which brings me immediately to that fee and commission business. Here, once again, a very strong result, up 6% on the quarter. Let's face it, after already high quarter one, we now have a very strong quarter three. Also, if you look at the different contributor parts here, the asset management services or the banking services, both are up significantly, 7% up on the asset management services and 5% up on the banking services. Starting with the former, that is driven by two things. First of all, the fact that obviously the management services had the fees on the management service had a positive impact on the performance of the financial markets, but also clearly there was a strong net inflow again on the asset management product side.
As a matter of fact, we have seen a growth of net inflow of EUR 1.8 billion in the quarter, which is for the third quarter a very strong number, and it tops up the first half of the year to a total of EUR 5.3 billion of net sales. That is an all-time high after nine months. In terms of the buildup of those monies, we were also able to do it at a stronger management fee, but also at a stronger entry fee. In terms of the split up of responsible investments, be aware that our book now, our total book stands at roughly 50% under the umbrella responsible investments, whereas the inflow on the new monies is roughly 58% responsible investments. The other, so perhaps something on the assets under management, the consequences of all what I said obviously are positive for those assets under management.
We now stand at EUR 292 billion of assets under management, which is a strong EUR 12 billion on one quarter up. If you compare it with previous year, it is an increase of 8%, which is perfectly split 50/50 between inflows and fees, sorry, and performance also 50% being 4% in this case. Let me then go to the insurance side. Also here, very good results to use an understatement. Once again, up 8% on the quarter on the non-life side. This is due to strong performance in Belgium and our Central European countries. Split up there is Belgium a bit more on the lower side, so 5%-6%, whereas Central Europe in essence is growing more than 10% depending on the country.
The quality of that book stands at 87% combined ratio, which means excellent results again, and also a bit better than the period of nine months of last year. On the life side, the story holds as well. Again, the strong performance on the total life insurance book, we went up 29% on the quarter. If you would make the comparison with the same period last year, 7% up significantly. Now, in both quarters, 2024, 2025, quarter three, we did commercial campaigns. The commercial campaigns this year were even more successful than it was last year, and this is amongst others due to the fact that we have monies maturing on the previous state note. Split up between unit links and interest guaranteed is roughly 50% versus 43%.
Small detail, if you compare the number of after nine months with the same period last year, it's 15% up, and that is indeed something which is quite remarkable after the record of last year. Going into smaller P&L impact lines, you have the more volatile financial instruments at fair value. They are EUR 28 million lower than previous quarter. I can be very brief about this. It's mainly driven by the evolution of the mark-to-market derivatives in essence. On the net other income side, we are perfectly aligned with the run rate being roughly EUR 50 million. We now stand at 47, but if you look at the underlying building blocks, they are perfectly spot on compared to what it was before. The leasing and the assistance company have the same outcome as what it was last year and more or less the same outcome as this year.
What about the more serious stuff? That is the OpEx evolution. Let me bring it to its essence. The costs are under control. As you remember on previous call, we always highlighted the difference if you make the comparison of, for instance, 2025 with 2024, which was the trigger for the guidance, that you need to be careful that the distribution of the costs over the quarters is completely different comparison 2024, 2025. Where it was more backloaded in 2024, it was more equally spread in 2025. In that perspective, you now start to see the effect of what we always highlighted on previous quarter announcement. That is cost evolution over the quarter three with quarter three of last year is now coming if you exclude bank taxes below 1%.
That makes it quite clear that if you look at the number over nine months, that we are coming close to our range, our guidance. That is, we are now standing at, if you exclude bank taxes, at 315, which is more or less 50 basis points higher than what it was previous quarter, but it starts to come into that range. Actually, as a matter of fact, if you look at our costs compared to the budget which we had internally, we are better than our budget foreseen for nine months of 2025. We are perfectly on track to make our guidance, less than 2.5% cost increase true. Cost-to-income ratio is obviously translated. If your income is growing more than roughly 8% and your costs are only growing 3%, then your jaws are significantly up.
We are talking about 5% jaws translated in a cost-to-income ratio, which goes down from 43% in 2024 to 41% now, which I think is indeed an excellent performance. There are always certainties in life, and that is bank taxes, which are always reviewed, mostly reviewed for the upward. We do expect on the full year to pay EUR 668 million of bank taxes. Currently, we stand at EUR 615 million in the third quarter. The bank taxes were pushed up because of additional national bank taxes and deposit and guarantee scheme contributions mainly in Hungary. That is translated in more detail on what is at page 13, where you can see the split up over the different business units, but I suggest that we further continue with the credit cost ratio where other strong performance can be mentioned.
We now stand at EUR 51 million, all things combined, which is built up in essence about in three parts. The first one is the loan book with an impairment of EUR 55 million. But be aware that we deliberately took EUR 26 million to cut down the shortfall, the backstop shortfall, the tool which is imposed upon us by the ECB. We lowered that with EUR 26 million, which actually generates a positive capital impact on the C21 ratio of two basis points. If you take that into account, then the impairments on our loan book are very, very low. If you look also at the evolution of the macro parameters, which are used in our model to calculate the geopolitical and macroeconomic buffer, we came to the conclusion that it is a release to be booked for EUR 9 million, which makes the buffer now stand at EUR 103 million.
There were some EUR 5 million in asset software impairments. If you bring that all into account, then you see that our credit cost ratio now stands at 12 basis points. If you include the ECL buffer, if you would exclude that, we are at 13 basis points, which is significantly lower than the long-term average and which is perfectly in line with the guidance where we said it would be indeed better than that. In terms of quality, it is very simple. 1.8% NPL ratio, which is substantially lower than, for instance, the European average. If we would look at the EBAR definition, it would even come to 140 basis points, which is 40 basis points lower than the European average. For good understanding, if you look at the migration matrices of our PD classes, then we do see a positive shift towards an improvement of the portfolio overall.
That is some reassuring news given the circumstances we're all in. What about capital? Also there, strong performance. We now stand at 14.9% at the end of the third quarter. This is mainly triggered by an increase of our risk-weighted assets, EUR 1.6 billion. I mean, in essence, due to the growth of our lending book, EUR 1.4 billion is entirely due to that growth. It is also triggered by, obviously, the booking of our net interest, sorry, not net interest income, but net result, and of course, the accrual of our dividend. Now, going forward, what do we expect for the fourth quarter? We do still see some positive effect due to the liquidation of KBC Bank Ireland. You remember that we booked deferred tax assets. Those deferred tax assets contributed positively to the quarter three capital position. In total, EUR 166 million, bringing it to 13 basis points.
We do expect the further balance to come mainly in quarter four, a little bit in 2026, depends on the profitability in the quarter. That brings us to a positive impact. We do expect a further upstream of our Belgian GAAB insurance profit to KBC Group. Obviously, we do also still hope that we do get the approval in of 365 Bank that is in its process, and that will generate roughly max 50 basis points on the capital side. Also, in that perspective, it has nothing to do with the fourth quarter because we think that will be cleared by the first quarter next year, that the leasing side has only an immaterial impact on our C21 ratio next year of roughly four basis points.
Now, if you bring all those numbers into account, also taking into account the SREP, which was issued a couple of weeks ago, the MDA now stands at the same level as the OCR ratio, both at 10.85, and that generates a buffer of 4.1%, which is indeed quite solid. In the meanwhile, also, the National Bank Belgium has made statements about a review which they are going to put into motion as of, what is it, the 1st of July next year. That is, I mean, the sum of two parts, the kind of cyclical buffer and the systemic buffer that play around a little bit with those numbers, which has for us, given the composition of our book and given the way how it is applied, a negative impact of two basis points on our CET1 ratio, starting with the current number of risk-weighted assets.
To be remembered, strong performance and strong MDA buffer going forward. That is then also translated into the solvency of the insurance side, which is increased to 216%, and then the leverage ratio, which is also 5.8% over the quarter. In terms of liquidity ratio, already mentioned that it is managed, as you know, in a very specific way, and therefore, we do see the same solid performance on the liquidity side with around the numbers 160% and 130% respectively on the short term and on the long term. Going forward, we do expect that the economy is going to slightly pick up a little bit in 2026. That is definitely true for the Western European markets. For the Central European markets, where we are present, we do see a more fundamental growth, at least double of the amount of Western Europe.
Western Europe is estimated at roughly 1%. In terms of inflation, the European inflation hovering around 2%, and certain Central European countries like Hungary, it can be a little bit higher, but it is at least in such a way that the ECB, we do not expect further rate cuts to happen in 2025, neither in 2026. In the Central European side, we expect the Hungarian National Bank to further bring down their 6.5% policy rate. In essence, we do expect a slightly positive view on the economic side, which also gives us the certainty to adapt our guidances for 2025 upward. I already mentioned the 7.5% at least for total income and the at least EUR 5.95 billion for the net interest income side. As you remember from previous call, as always, KBC includes a certain margin of conservatism to, I mean, eliminate the uncertainty on certain parameters.
Given that uncertainty now has gone away, we have actually translated that conservatism into a more stricter guidance. We will, let me say it as follows, be sure that we will make that number happen. I would not say fingers in the nose, but with a certain margin. The insurance revenues are solid, and I already dwelled upon the 2.5% cost side. No changes on the forward-looking for 2027. This is something which we are going to provide to you, as always, on the back of the fourth quarter results, which are published in February. I will wrap it up here, and I will give back the floor to Kurt who will guide us through the questions.
Thank you, Johan. The floor is open for questions now. Please restrict the number of questions to two, to allow for a maximum number of people to raise questions. Thank you.
Thank you. The floor is now open to questions. If you have a question or comment, please press star followed by one on your touchstone telephone at this time. If at any point your question is unsaid, you may exit the queue by pressing the star two. Questions will be taken in the order they are received. Please hold while we pause for questions. Thank you. We'll now take our first question from Tarik El Mejjad of Bank of America . Please go ahead.
Hi, good morning, everyone. Thanks for taking my questions. I'll stick to two. The first one on net interest income. If we take the Q4 implied exit rates, and then we adjust for all the inflation-linked bonds, and so on, clearly the run rate is quite attractive versus consensus. Could you give us some indication in terms of 2026?
I know you're updated with the full year, but given where you see consensus, and I think I see quite a lot of upside there, if you can help on seeing the upside, you've been very helpful giving the case for 2025, but 2026 is important. The second question is on M&A, specifically on ETFs. This is clearly very important for your investment case, and you've been very always helpful giving us the latest on what government thinks and so on. Can you maybe refresh us on where we are in the process and what you think are your odds to run successfully that bid? Thank you.
Thank you very much, Tarik, for your questions, and let me provide you answers to both.
First of all, obviously, I mean, what you asked in your question, and where you're making reference to the interest rate evolution, the yield curve evolution, you're 100% spot on. They're indeed better than what it was, for instance, a year ago. We do also see that translated for sure in our results of 2025. That is also something which is indeed true for 2026 as well. Obviously, taking into account that, I mean, there are a couple of drivers in the economic environment which are crucial, for instance, the situation of the war in Ukraine, if that would escalate, then we have a completely different picture. All those parameters taken into account being stable, then you're right in your analysis that certain of those drivers of the net interest income are evolving positively compared to a year ago.
Indeed, you can expect that on the net interest income side, there is a positive fact, and I can only confirm. To provide you already the detail of what 2026 is going to be, we are going to do this on the back of our quarter four results. As a matter of fact, we will have discussions on the budget. We had a preliminary discussion on the budgets of 2026, 2027, and 2028 earlier this week, but the fundamental discussions and also the approval by the board is going to happen in the next week and the week to come. It would be a bit preliminary to already elaborate that in an analyst call.
The first part of your question, I can only confirm as having a positive impact on the evolution of our net interest income, which, as I said, for 2025 is at least EUR 5.95 billion with a certain degree of conservatism. You could say easily EUR 6 billion, and you can start to add up. Regarding your second question, the M&A, more specifically about ETFs, today, and that is something which I already indicated in, I think, previous call or two calls ago, my expectation was that ETFs would not come to the table in 2025, but it would be prepared by the government in 2026 because the urgency, Belgium is not having a favorable budget situation, nor the debt GDP situation, that that is not imminently on the table for pushing one or two assets out of the portfolio of the Belgian state. I can only confirm that today.
My guess is that ETFs, as far as ETFs is concerned, that the preparation will be done by the government in the course of 2026 and then bringing it to the markets by the end of the year, potentially even early 2027, we'll see. Depends a little bit on where the budget discussions end. On other assets, for instance, Belgium, it might be going a little bit faster, at least for a small part of it. Where are we? We are indeed fully prepared for the file. We have a clear business case for that. When you were asking about the odds, we will do our utmost without doing stupid things on pricing. As always, for us, it needs to tick a couple of boxes. On the strategic side, it makes a lot of sense for KBC to go for an acquisition of ETFs.
It is a core market for sure, and it is delivering added values, I think, for both sides. Then last but not least, it obviously needs also to tick the boxes on the return on investment, return on equity. That is something which triggers me to say we will not pay stupid prices. I recommend everybody not to pay stupid prices, but for sure, we will not do so. We are prepared and will be further continued. Thank you. Just to understand on the timing for ETFs from the government perspective, you think there will not be any decision to sell it before the next budget discussions, basically, right? With the conclusion in the second part of the year, is that what you said? That is indeed my reading of what is happening today.
Okay. Okay. Thank you.
Thank you. Our next question comes from Giulia Miotto of Morgan Stanley. Please go ahead.
Yes. Hi. Thank you very much. I'm afraid I will follow up on NII and ask about Q4 and the exit rate. So the guidance 595 is extremely conservative in my view because it would imply NII to go down in Q4, whereas I think it should increase quarter on quarter given the tailwind. And from that into next year, can you help us understand or quantify at least the benefit you see from the hedges? Some of your peers give a slide with some quite clear disclosure on benefit from hedges over the next couple of years, and also how you expect loan growth to evolve because it's very strong. And from here, perhaps it could only accelerate, I guess, with the German fiscal stimulus hopefully helping CEE countries indirectly.
Yeah, I would love your thoughts on these moving parts. And then secondly, Kate 2.0. Historically, you said that Kate helps with 1% of efficiency each year. So essentially, you manage to grow costs less than revenues. Do you already have an estimate of how much efficiency will Kate 2.0 help you with? I would expect a higher efficiency. Thank you.
Thank you. And good morning to you all. I will tackle the NII question and Q4. Indeed, the guidance that we've given is EUR 5.95 billion at least. This is a floor. It will be most likely higher. Also, as Johan was indicating, I mean, the difference indeed, if you simply add the third quarter once again to the fourth quarter, you more or less come to the analyst consensus level. There is indeed still some conservatism included in that guidance.
Now, as far as your question is concerned related to the hedges, so as you know, we are not fully disclosing how we hedge that portfolio. Part of it is, of course, considered as being non-core money, and non-core money is being replicated overnight, whilst the core money is replicated, obviously, at longer terms. These are cyclical reinvestments. The average duration, as indicated before on the current accounts, is four to four and a half years. On the saving accounts, it is two and a half years. On the excess equity, it is about five years. Now, basically, that is, if you have then a kind of sensitivity, what you can indicate is that what we can use is that for a parallel shift of 25 basis points, you can take into account roughly EUR 50 million.
Now, coming back also to the recent developments with respect to the repayment or the maturity of the term deposits that were issued back at the maturity of the state bond, you remember that we lost EUR 5.7 billion with the state bond. We recovered actually EUR 6.5 billion. Out of that EUR 6.5 billion, EUR 6 billion was reinvested in term deposits. At that time, as you will recall, negative margins. Now, we issued at that time two types of term deposits. There was a term deposit out six months and a term deposit at 13 months. That means that the six-month term deposit came to maturity in March. There what we have seen, we have seen a shift back into term deposits of only 38%. 40% went into CASA, and the remainder went to mutual funds and some outflow.
Now, in October this year, so a couple of weeks ago, we had the maturity of the most essential part of the term deposits of 13 months. There we have some positive news in the sense that it clearly demonstrated that the market has become rational again, as we actually expected, in the sense that out of the maturing deposits, 50%, 5-0, went into CASA. Only 25% went into term deposits. In term deposits, obviously at positive margins, and 25% went either into mutual funds or some part, small part exit. That is a bit what you can take into account for next year, for the head start that we will see next year. Good morning, Giulia. I will answer your second question. Kate 2.0 is indeed giving us a productivity gain.
As you rightfully pointed out in the past, Kate 1.0, I mean, generated roughly between 1% and 1.5% of productivity gains. We launched Kate 2.0 actually in October. It is very early days to make already conclusions what it will be and definitely make those conclusions public in an analyst call. What I can say, it is too early to judge, but what I can say is that given the fact that K2.0, which is actually Kate 1.0 retrained in a full LLM environment, so previously Kate was already using some LLM, but not extensively, that is that we do see in the trials which we have been running over the first five, six months that we had indeed an increase of our autonomy of roughly 15%, which is quite strong. If that will be translated in full for a productivity gain, that needs to be further fine-tuned.
What is also important to see, and that is a second element which we tend to forget, is the fact that customers are using Kate more and more because they find solutions via Kate and do not have to queue anymore in branches or whatever, do not have to take the car anymore looking for parking places. It makes them use Kate more and more, which actually means also that they are not only using it more and therefore generating cost side, but also allow us to address them more specifically, more tailor-made solutions on the back of the traces which they leave with us, so the data analysis. That is obviously triggering us more sales, which is the combined effect. When we speak about productivity gain, ultimately, it is translated in the cost-income ratio.
The outlook is positive, and the outlook is if I use the floor to play at least what we guided before.
Thank you.
Thank you. We'll now take our next question from Namita Samtani of Barclays. Please go ahead.
Good morning, and thanks for taking my questions. My first question, you flagged in your forward-looking guidance that you include no speculation on potential measures of any government. Could you please give some color on anything you're watching there that might positively or negatively impact earnings next year? Secondly, just on ETFs, if it's not coming to the market till 2027, would you consider to pay back some of the excess capital that you have as a special dividend in 2026? Otherwise, I just struggle to see how this isn't trapped capital. Thank you.
Okay. Thank you, Namita.
As far as the potential measures of the government are concerned, it might have an impact on the earnings going forward. You're mainly referring, obviously, to the banking taxes and how we see the evolution of the banking taxes. First of all, as far as Belgium is concerned, we still do not see and do not expect any significant increase in banking taxes. They already had a quite high level. Of course, also there, the question is going to be and remain still because there's still no clarity what the government is going to announce because basically, normally, the banking taxes do somehow drop as a result of the fact that, of course, the deposit guarantee fund in Belgium has now been plenished, and actually, only contributions should be limited to the increase, of course, in eligible deposits.
Were it not for that one sentence, of course, in the government agreement that indicates that banking sectors should at least remain at the same level. Due to the political situation currently in Belgium and the fact that the budget discussions have been postponed, there is no clarity yet on this side. Where there is some more clarity is the decision of the European Court of Justice with respect to the loyalty premium and, of course, also the tax benefit that you get for the first part of the saving accounts, which has been considered as indeed discriminatory. We will see what the impact of that is going to be. We are looking now at what the impact is going to be on the loyalty premium.
Most likely, an alternative version of the loyalty premium will be foreseen, but we do not expect any major impact of that for the very simple reason that actually, first of all, the loyalty premium with KBC is already low, 20 basis points. Next to that, also already 95% of our deposits are eligible for loyalty premium. The impact of that is going to be very small. Last for Belgium, at least, is also the added value tax that is under discussion, but also that has been postponed as a result of the postponement of the budget discussions because it still requires, of course, the adoption of a formal loan law to actually charge the taxes. As long as you do not have that law, you cannot charge taxes.
We are ready as KBC, so we will implement that, but it will depend, of course, on the initiatives that are being taken by the government. As far as Belgium is concerned, for the Czech Republic, we have some good news in the sense that basically we do not expect, and it's not part of the government agreement of the new established government under Babiš. Basically, there is no sign of a further increase of banking taxes in the Czech Republic. As you know, for the banking industry, the windfall tax in the Czech Republic is actually having no impact. That's good news.
Also in Bulgaria, as you know, the government for the time being is not considering implementing any banking taxes whatsoever, apart from the fact that they have established an alternative version, which is more a kind of a pre-financing of the taxes going forward. Slovakia, there basically also there is no sign of a further increase of the banking taxes. There, the government sticks to the agreement that they made with the banking sector in the sense that it will be gradually decreasing to 27. There are also some alternative measures that are being taken, such as also having a tax-free benefit on the state bonds because they are also issuing some state bonds in Slovakia. The impact of that is also limited.
Of course, we come to the cherry on the cake, which is Hungary, where indeed the windfall tax that was supposed to be temporary is far from temporary. That has been extended. The indication is that basically they consider windfall as long as the policy rate is above 3%. As they are today at 6.5%, this is still likely to last for a while. There are, however, some rumors, and there was indeed an announcement, or at least some indication by the Minister of Finance, Mr. Nudge, that there might be going forward again an increase in the banking tax, in the windfall tax, and also a limitation of the mitigating measures. That so far has not yet been confirmed. There is a risk that that would have a negative impact going forward on Hungary.
Good morning, Namita.
Also, I will take the second question. Regarding the capital position and your reference on the potential trapped capital beyond 2027, I would use the dividend policy, which probably you know as well as I do is quite explicit in that perspective. First of all, we have a couple of priorities now, and that is straightforward. First, we want to grow our book in an autonomous way. It sounds perhaps fluffy, but it is definitely not. Just look at our track record. Over the last five years, we have grown a company like Czech Republic Chairs of Bay in terms of the loan and in terms of the deposit side autonomously, so organically. If you then look very specifically at what we're doing this year, which is not included in those five years I was referring to, it's even better.
The guidance now is approximately 7.5%. Let's round the number, 8% growth on the year. That is something which we will continue to strive for going forward. The other element is, of course, that next to that organic growth, which consumes risk-weighted assets, as we all know, we will have further eye on the market in terms of M&A. ATLS is the one we are focusing on because that is the bigger one, which we can do, by the way, via a Danish compromise solution via an insurance company. Let's not forget that we recently also, and that is approval still happening as we speak, did an acquisition of a bank in Slovakia and a smaller leasing company in Czech Republic and in Slovakia. These are things which were officially not on the radar, but does not mean that they were not becoming available.
That is something which we are going to look into going forward. Capital is used for those two priorities, growth autonomously and growth by M&A going forward. Let's not forget that given the strong profitability, dividends will have a very strong position, giving our payout ratios, which has the range between 50%-65% without preempting now already on what the final dividend over 2025 is going to be. I mean, look at our track record over the last years. It is more towards the higher end of that range. All in all, given what I should say, those three components and then the fact that we want to be amongst the better capitalized financial institutions in Europe, we have a very solid position and not necessarily will have what you call trapped capital.
In the event that our minimum is 13%, and in the event that it becomes clear that, for instance, an acquisition we have in our mind is not coming to happen, the policy is quite straightforward. The board will take that decision then as a definition of capital which we no longer need because the availability of M&A is not there. The position is solid. Let's bring that capital back to shareholders because we cannot make it work within KBC. That's straightforward. The risk of having trapped capital in our company is non-existent given our policy and given how we are executing our business as we speak.
Thanks very much.
Thank you. We'll now take our next question from [Ben Rabbetrach] of Caplissure. Please go ahead.
Yes, good morning. The first question is on the Belgium deposit market.
We see a lot of discipline also in September, by the way. It is a very attractive market currently. Looking at previous cycles where we have a bit of steepening and the curve is quite attractive. Also, yeah, there is a ramp-up of the transformation results expected for next year. In such a market, would you expect discipline to be maintained? What is your kind of view on the deposit market into 2026? Do you expect discipline to be retained like this? That is number one. Number two is on the lending NI in Belgium. It is clearly turning around, let's say, more positive in the latest quarter, especially driven by very strong loan growth, 6% year on year. I was wondering where it comes from. Basically, we have seen actually the competition not at that level, and you seem to be gaining market share.
I wanted to get a bit more underlying reasons for that very strong performance. Just maybe also thinking about NI on 2026, you have been very conservative on your guidance. You could argue you have been too conservative in 2025. I just hope that there will be a bit less conservatism in a way and more accuracy in the guidance. That is just on a separate note. Thank you.
[Foreign language] . Good morning. As far as your question is concerned on the Belgian deposit market, which indeed, I concur, remains very attractive. Also, the steepening of the curve is indeed going to ramp up the deposits. In terms of potential further developments going forward, it looks like we are quite confident that we will be able to continue to move into that path and to, of course, raise additional deposits going forward.
The only thing that is popping up somewhat more that we've been reducing, and the whole market has been reducing the external rates on the saving accounts. We moved them from 90 basis points at the beginning of the year, 45 basis points loyalty premium, and 45 basis points base rate. We dropped now to 60 basis points, being 40 basis points base rate and 20 basis points loyalty premium. All banks have been following on this side, apart from some smaller banks. This has raised some attention also from the government. The Minister of Finance has indicated and has publicly stated that he will be looking into the further development of the external rates on the saving accounts. We might see some drawback from that going forward, but for the time being, there is nothing specific.
Perhaps on the guidance, the side note which you made, I obviously understand where you come from. You said too conservative, make it a bit sharper going forward. I would like to comment in two ways on this. First of all, to a certain degree, you're just purely looking. I agree with what you say. On the other hand, I would like to add that, given also the question about the discipline in, as we speak, the biggest market for us in terms of deposits, that is Belgium. The two combined actually triggered us to put the guidance where it was. There was a big, big, big amount of money being freed up, as you know, EUR 6 billion. If things would repeat what happened in 2023 or in 2024, then obviously you would have a completely different picture.
We had those term deposits at a negative margin. Fortunately, this did not materialize. I think the main trigger for that is to be found in the results of our peers which have been involved in that deposit war in 2024. That is quite straightforward that that discipline is there. It allows us indeed now to take that uncertainty out of our guidance. As of the moment that uncertainty is gone, you can make more accurate predictions. I would actually say in that perspective, we will continue to make our guidances because KBC has a track record of underpromising and over-delivering. It's better than the other way around. We take your side note or your side remark for granted. Thank you. Oh, sorry. Oh, sorry. Oh, my excitement. Yeah, sorry. I forgot about the margins on lending.
Yes, in that perspective, there are two reasons. First of all, I think there's a bit more discipline in the markets. Let's also not forget that all the banks are being pushed by the ECB on risk-weighted assets. You remember what happened to KBC two years ago. This is also happening to other banks, which you can clearly see in the announcements they all make either via the mothership or via the local entities. If you want to keep your capital ratios intact, then you need to achieve a return on risk or a risk-adjusted return on capital. Therefore, your margins cannot be lowered anymore. That is something which we see next to that, and that is what we are striving for.
KBC obviously has had this very strong loan growth in the first nine months of the year, which allows us also to be a bit more selective in terms of the margins. You can clearly see in the detail which is provided in Belgium, that is on page 25, if I do not make a mistake, that indeed we are pushing now for several quarters already to bring that margin to a more sound level given the capital consumption. That is something which is also possible given the fact of the strong performance of the loan volumes which we have year to date. Yes, we are working on the margins. Yes, there is more discipline. Yes, we are comfortable given the loan growth which we have already realized in the first nine months and the pipeline which we have for the quarters to come.
Thank you.
Thank you. We will now take our next question from Sharath Kumar of Deutsche Bank. Please go ahead.
Good morning. A couple of follow-ups. Most of my questions have been answered. Firstly, on loan growth, can you comment on the sustainability of the double-digit levels in most international markets? Also, is it a fair conclusion to say that the level of loan growth in 2026, 2025 level would be the floor? And if you can comment on the type of areas that you're getting this loan growth from, it should be useful. Secondly, on M&A, can you confirm that there are any other active files other than ETRs? Also, if you could confirm there is no interest to get back into Ireland. Thank you. Good morning. I will take the first question on the double-digit growth.
I presume that what you're mainly referring to is the double-digit growth that we see basically in Central Europe. There, of course, you have a particularly strong growth, first of all, to start with in Bulgaria, where we see a year-on-year growth of 18%, which is mainly driven by the very strong growth on the mortgage side. The mortgage side is actually due to the fact that you have the euro adoption, as you know, in Central Europe, in Bulgaria. People are more or less concerned about the potential inflation after the euro adoption. From that perspective, that explains why we see significant growth currently. We, however, expect that to continue, however, at a somewhat lower pace after the euro because, obviously, in Bulgaria, the disposable income has increased quite significantly.
Also, the quality of housing in Bulgaria is not at the same level, of course, as the level that we see in Western Europe. That is as far as Bulgaria is concerned. The Czech Republic, there, obviously, we also continue to see very strong year-on-year growth of the loans of 11%. There, what we see is that also the mortgage business is doing and continues to do very well. There is somewhat a small impact on the margins, but the margins are well above the backbook. That continues to generate quite some nice growth. Year-on-year growth on the mortgage portfolio is almost 7%. Also in the Czech Republic, we continue to expect some further loan growth due to the fact that also GDP growth continues to be quite significant. They recently increased, actually, their projections for GDP growth from 2.5% - 2.7%.
Typically, as a rule of thumb, what we use within KBC is that you can see a loan growth which is equal to the GDP growth plus inflation. Also in Slovakia, Slovakia continues to perform quite nicely, particularly on the mortgage side. Also there, at quite stable margins and nice margins. On the corporate side, they have been performing quite well as well. We expect that to continue. You know that there, the market, the growth today in Slovakia is somewhat subdued at 0.5%, but this is expected to pick up again in the next year, particularly also because Slovakia, being an open economy, would also more benefit from the German initiatives in spending. Last is Hungary. Hungary, also, despite the fact that the Hungarian economy is not growing significantly either, we continue to see quite some strong growth, particularly in the mortgage business.
Also, the recently announced new government initiative with the Homestart program is increasing the services that should help further also the mortgage growth together with also at quite attractive margins. On the corporate side, there is somewhat more competition, somewhat more pressure going forward. That is as far as the expected loan growth is concerned going forward.
Good morning, Charlotte. I will take your question regarding the M&A. First of all, we are constantly monitoring the markets. Otherwise, we would never ever have detected 365 nor the leasing activity acquisitions. Do we have interest in other files? I cannot answer those questions concretely because then it would make very obvious what we are looking into and what competition perhaps should be finding interesting as well. To be very concrete, your question on Ireland, we are not going to go back to Ireland. No.
Thank you.
Any further questions? We now will take the line off from Goldman Sachs. Please go ahead. Okay.
Thanks, everybody, for taking my questions. I just have two, one on SRTs and then one on capital. Regarding the inaugural SRT on the corporate loans, I guess that comes back to the EUR 8.2 billion RWA add-on that was imposed on KBC back in 2023. Is that the right way to think about it? That the risk weight on those corporate and SME loans was artificially high. If so, how much more is there to go on those high-risk weight loans, either in terms of the amount of relevant loans you could still SRT or the amount of that EUR 8.2 billion add-on you might look to recover via future SRTs? Secondly, on capital, you said earlier that the risk of there being trapped capital in KBC is nonexistent.
Should we interpret that as a commitment that the CET1 capital ratio at the end of 2026 will be as close as possible to the target floor of 13% pro forma for any announced acquisitions or distributions? Thank you.
Thank you for your questions. I will take your first question related to the SRTs. As indeed we announced this morning our inaugural issuance of EUR 4.2 billion SRT, leading to EUR 2 billion of risk-weighted assets relief and having a 23 basis points impact on our positive impact of your scores on the common equity tier one. Your assessment is indeed correct. Basically, the high risk-weighted asset density created due to the add-on of two years ago indeed is impacting that. Now, we always stated that we consider SRTs as a means to an end and not as a strategic development.
Basically, that means it is one of the tools that we will use to further optimize the portfolio management. If your question is, are we going to continue to do SRTs? Yes, we are continuing to launch SRTs, but we do not want to become dependent on the SRT market as some of our peers are. From that perspective, there is going to be further SRTs. These SRTs will be mainly focused indeed on those portfolios that have the highest risk-weighted asset density in view of the efficiency of those SRTs. It is not going to be a major significant increase for the years to come.
Thank you, Chris, for your questions. Let me come back to the very concrete topic. If that by the end of, let me say, 2027, it should be somewhere in the neighborhood of 13%.
What I said on the previous question, the previous, and I do not remember who asked it, actually, the dividend policy is pretty straightforward. The dividend policy in that perspective allows us to distribute capital. There is one constraint you need to take into account as well, and that is the constraint of to be among the better capitalized financial institutions in Europe. We have more freedom there to decide, are we yes or no than we did previously? Because previously it was mechanically. There is more possibility to have, in that perspective, a discretionary decision by our board. That is a trigger.
If the entire sector would go to 13%, 12.5%, whatever, and there are no M&A opportunities, there is clearly a possibility to finance our economic growth, which autonomous growth, which is quite significant in terms of percentages, which, then the board will take a decision and all discretion, all those elements into account. Can it make a hard commitment on the execution of the policy? Yes. Can I take a hard commitment that it's going to be 13%? For obvious reasons, I can't.
Okay. Super helpful. Thank you.
Thank you. We'll now take our next question from Shrey of Citi.
Very much for taking my questions. Just changing tack a little bit. On fee developments, you've actually managed to keep margins sort of broadly stable. I know the very strong inflows in higher margin direct client money.
Looking forward, how do you see net inflows in sort of this component versus the others? I suppose, in turn, what do you see as the outlook for margins in your asset management business specifically? Thanks.
Thank you, Shrey, for your question. Indeed, we've seen a 3.4% growth on our direct client money. Basically, this is on the one hand, of course, driven by the very strong net sales that we see of EUR 1.8 billion for this quarter, bringing it already to EUR 5.3 billion for the full for the nine months. What is important here is that this is for more than one-third driven actually by what we call our RIPs.
Now, this is nothing to do with rest in peace, but these are the regular investment plans whereby households continue to regularly invest on a monthly basis, a relatively small amount, but this is a sustainable amount. We actually see the number of those RIPs increasing continuously. Today, we have 2.3 million of those RIPs with an average contribution in Belgium of roughly EUR 120 per month. In the Czech Republic, roughly EUR 40 million per month. In the other countries, slightly higher than the EUR 40 million, EUR 40, of course, a month. That gives you an insight into the relatively sustainable growth of that portfolio going forward. The remainder, obviously, is going to depend on the market performance. As you know, we are not guiding on that part of the portfolio.
Thank you very much.
Thank you. There are no further questions in queue.
I will now hand it back to Kurt De Baenst for closing remarks.
Thank you, operator. This sums it up for this call then. Thank you very much for your attendance and enjoy the rest of the day. Bye-bye.
This concludes today's call. Thank you for your participation. You may now disconnect.