Good morning, ladies and gentlemen, welcome to the conference call of KBC Group earnings release first quarter 2026. I would now like to turn the floor over to Kurt De Baenst, General Manager, Investor Relations. Please go ahead. Thank you.
Thank you, Operator. Also from my side, a very good morning to all of you from the headquarters of KBC in Brussels, and welcome to the KBC conference call. Today is Tuesday, May the 12th, 2026, and we are hosting the conference call on the first quarter results of KBC. As usual, we have Johan Thijs, Group CEO, with us, as well as Group CFO, Bartel Puelinckx, and they will both elaborate on the results. 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, and also from my side, a warm welcome on the announcement of the first quarter results of 2026. Despite the fact that we have been working in a very rough environment. The geopolitical turmoil was not creating the best environment for financial institutions. Despite all that turmoil, the results in the first quarter were excellent, with a return on tangible equity of 16%, totaling EUR 575 million over the quarter. This EUR 575 million is posted after paying EUR 549 million bank taxes. Now, it is quite reassuring to once again then see the machine has been firing on all cylinders, and that means that all countries have been contributed and that the bank insurance diversification has worked very well.
Let me start with indicating customer loans and customer deposit. A strong growth on the lending side, with a very strong 1.6% increase over the quarter, but also customer money inflows totaling EUR 5.4 billion in this quarter. We have seen consequently then as well a strong increase of the net interest income, which was then also completely copied by the non-interest income totaling net fee and commission and insurance income. Net fee and commission income, strong growth driven by strong performance on the sales side of direct client monies, but also on the insurance side we have seen a strong performance on the non-life side and on the life side.
In terms of the volatility, you clearly see that reflected in our financial income, our instruments of financial income at fair value, and that is totaling again, a strong growth on the total income side. On the let's say outgoing monies, we do see, first of all, that the lending book in terms of its quality has performed very well with a very good credit cost ratio standing at a like-to-like basis, 15 basis points, which is well below the 25 basis points-30 basis points. We also saw a very good combined ratio at 84% and we did in that perspective also see that costs are under control.
Be it that you need to be aware that this is the first quarter where we integrate 365.bank and Business Lease into our numbers. We'll come back to that in more detail. Solvency position, both on the bank side and the insurance side remain solid with respectively a CET1 ratio of 14.4% and a Solvency II ratio of 231%. You also know that on the AGM last week, it was decided to pay out the EUR 4.1 dividend which will be paid out on the 20th of May. Let me go immediately into the detail.
On the next slide, you can see the actually the split up in essence between our interest bearing income and our non-interest bearing income. The split up over the period was hovering around 50%, which is also the case for this quarter. This quarter it is 51%- 49%, which is pretty much in line as what we have seen on the previous quarters and years. In terms of where we are with the technology and the evolution of the innovation side in KBC, well, it is performing again on a very strong level. We have seen further increase of the usage of Kate, that is now reaching 6.1 million of our customers which are using Kate on a regular basis.
That also means that Kate is answering their questions. We have two versions of Kate out now in Belgium since the, let's say, end of last year. We have launched a full large language model-driven Kate, we call it Kate 2.0, which has a autonomy rate of roughly 80%. This quarter, a little bit lower, has to do with customers asking more and more questions which are not yet, at this stage, fully straight-through processed. When they are not straight-through processed, we don't consider this to be a provided answer, according to our standards. In the Central European countries, we still have the older version of Kate 1.0. The new version will be rolled out in the course of 2026.
We do see Czech Republic at 69%, but other countries like Hungary, Bulgaria stand at an autonomy of 75%. All of that has led to the further gains which we do on the productivity side. To say something, when we look only on the commercial side, then Kate is doing the job of roughly 400 people. If we look at how many leads are converted by Kate, then we'd speak about 420,000 sales over the last 12 months, for good understanding, we see now three consecutive quarters an increase of those converted leads driven by Kate. Last but not least, what also is happening when Kate is answering questions, processes are fully automated, which means that also back office processes are automated.
We don't take them into the number of 400. In essence, Kate is doing the work of much more than the reference made than the 400 people I was earlier referring about. On the next page, you see the other positions which we have on the sustainability side and how others are judging us in terms of innovation, but I would not dwell too much upon that. Let me go to the one-offs. There are multiple one-offs this quarter. First of all, in this quarter, after the approval of the AGM on the matter, we have booked the one-off bonus for our staff. The one-off bonus is totaling EUR 23 million ultimately, which also means that that will be part of our cost.
For good understanding, this was not part of our cost guidance for the simple reason that the decision had to be taken by the AGM. Also what we do see is in Hungary, quite a series of one-offs. The first one is linked to a correction on the subsidized loans where an interpretation was not followed by the authorities. The correction totaled EUR 10 million. More significantly is that we won a legal case against those Hungarian authorities, which ultimately delivered EUR 33 million in positive. Last, definitely not least, is that the Hungarian authorities introduced a new windfall tax, so on top of the previous one, for a whopping EUR 134 million, which completely changes the picture in the first quarter, where those majority of taxes are booked.
In terms of total amounts, we now stand after taxes as EUR 121 million exceptionals, so one-offs, which clearly more than what we have seen in the same quarter last year, and definitely also much more than what we have seen on previous quarter. Let me now go into the building blocks. First starting with Net Interest Income. Net Interest Income, as such, is up 4% on the quarter and 18% on the year. Of course, this is significantly influenced by the absorption of 365.bank and Business Lease. For good understanding, when I'm going to say further in this presentation, 365.bank, I always mean the combination of the two. The integration of both entities have triggered that strong increase.
If you would exclude them, then we would see an increase of 2% on the quarter and 15% on the year. Which actually means that underlying our Net Interest Income has been performing very well. In that perspective, to give you an idea, the strong, if we exclude 365.bank, and Business Lease, we have a strong performance of our commercial transformation result, which is benefiting further from the reinvestment yields, and then also the fact that the volumes have been on the current account/s avings account, have been continuously flowing in, and in that perspective, are prolonging our strategy. In terms of the lending income, also a slight increase. We do see in that perspective, of course, also the influence of the integration of 365.bank.
Even if you would exclude that M&A part, then we do see an increase of our lending income, which is driven by 1.6% quarter-on-quarter growth, which is very strong. Translated over the year, it means that we do see a growth of roughly 7%, to be precise, 6.6%, which is indeed, despite the political turmoil, a very good result. Part of that is offset by margin pressure. Well, we do see margin pressure on certain products. It is a bit of a mixed picture. Not all products we do see the margin going down, on the contrary. In essence, all in all, I would say commercial margins are still under pressure over the countries as a whole. Lending income slightly up, given the combination of the two.
We do also see that some other parts are indeed also increasing. They are only offset by two negative things. In essence, the number of days are lower than on the previous quarter, which has a negative impact of EUR 17 million . We do also see that the inflation-linked bonds have quarter- on- quarter delivered a difference of EUR 17 million . As you know, inflation is on the rise. The calculation of those inflation-linked bonds is always on the inflations of two months ago, which means the delay factor plays against us. We will recuperate that in the course of the year. Therefore, going forward, the inflation-linked bonds result full year will be guided for EUR 30 million -EUR 40 million. Also a negative offset is the EUR 10 million I was earlier referring to in Hungary.
How is that translated in net interest margins? Margins are up significantly, now a total 217 basis points. This is obviously influenced by the things I just mentioned. I have to add that also, for instance, the MRR in Bulgaria has a positive uptick in this quarter. If you would leave out 365.bank, even then margins would be growing to 214 basis points. On the remainder of the page, you can see the split of all the total loans. We have also seen this growth of 1% on the quarter for the mortgages, totaling 6% over the year. In terms of volumes on the deposit side, + 2% up on the quarter, 5% up on the year.
I think it's better and easier to explain it using the next slide on page eight, where you can clearly see if you exclude the foreign branches and you exclude the FX effect, that we do have an increase of deposits inflow. Or let me say it differently. We do have an increase of customer money inflows of EUR 5.4 billion. What is the split up of that EUR 5.4 billion? EUR 1.6 billion is linked to, again, a very strong net sale on the asset management product side. Mutual funds totaling EUR 1.6 billion, which actually means that roughly EUR 3.8 billion is linked to, let's call it customer deposit.
Current account/s aving account totaling EUR 1.3 billion + and term deposits do see an increase of EUR 2.4 billion. Of course, this number is also influenced by the acquisition of 365.bank. If we would exclude 365.bank, well, then the number EUR 5.4 billion will become EUR 1.9 billion net core money customer money inflow. If you translate that in a different way, the EUR 1.6 billion remains the same on the mutual fund business, which actually says that what we do see is saving accounts are unchanged, EUR 0.6 billion. Current accounts, we do see a clear shift from current accounts to term deposits, which is different than what we saw in the previous quarters. The reason behind that is actually linked to two countries, in essence, Belgium and Czech Republic.
This has to do with two completely different things. First of all, because of the war, because of the turmoil on the financial markets, we did see a pickup of the interest rates. Therefore, in private banking Belgium, some of the customers have actually split up their investments on two sides. Part of the money was shifted into asset management products. Other part of the money were locked in into term deposits. We are talking about EUR 0.7 billion, which was an anticipation on the fact that if the war is a short-lived one, then interest rates would come down again, and therefore, locking it in for a year, does make sense.
The other country where we see the effect of outflowing customer accounts, current accounts, sorry, is Slovakia, which is linked to a certain extent the retail bond which was issued in the quarter, and then a purely seasonal effect, which is linked to tax payments by micro SMEs in Slovakia. Last but not least, also in Belgium, we saw a seasonal effect that is corporate accounts, which is traditional going down every year in the first quarter, but normally picks up in the course of the year. All- in- all, customer monies have been continuously inflowing, and that, in that perspective, is creating the still solid base going forward. In terms of fee and commission income, I already mentioned that we have seen a strong sale.
That's also translated overall in the net fee and commission in total, up 1% on the quarter and up 6% on the year. If you would exclude 365.bank, then, of course, you have a little bit different numbers, -2% on the quarter, +3% on the year. Where does it come from? We have seen strong sales, which is indeed EUR 1.6 billion, quite an achievement. If you compare that with the records of last year, it's only slightly down. That is, despite the war, is an excellent result. And also we see the same more or less in the gross sales. Also in gross sales, we have the second highest first quarter ever realized in 2026.
Which means that the asset management services fees increased by 1%, but also that the entry fees went up as well. Bank services went up with 1%, which is in essence due to fees linked on the credit side, but also fees which were linked to our securities trading platform like Bolero and Patria. Bolero in Belgium, Patria in Czech Republic. To just give you an indication, the number of transactions in Bolero in the first quarter were 26% up compared with the same quarter last year. For good understanding, quarter one 2025 was a record high. We do so also see that, s orry, I made a mistake. The 26% is about customers, it's not about transactions. About transactions, it's 13% up.
What you also have to bear in mind that is in this quarter, we also deducted for the first time the SRT cost, contributing a - EUR 6 million to this fee and commission income. In terms of assets under management, well, the negative sentiment on the financial market have put down the assets under management. It's roughly 2% on the total EUR 4.5 billion, and it is only partly compensated by the net inflow of the EUR 1.6 billion, which I reflected upon earlier. Small add-on on the net sales. We also saw again a strong performance on the regular investment plans. Let's say the stable solid base of the net sales.
It is totaling EUR 450 million, which is also again translated in a further increase of the number of regular investment plans increase with 9% over the year. In terms of non-life insurance business already mentioned that it was having a strong growth of 7%. This is triggered by all countries. Belgium has having a growth in more mature market at 6%, where we do see growth of double digit in Czech Republic, Bulgaria, and 9% in Hungary. In terms of the quality, 84% combined ratio, which is an excellent result. This is true for all countries. Small caveat, we do have extra windfall taxes in Hungary. If we would exclude those windfall taxes in Hungary, the combined ratio there stands at 93%.
Also most countries are having combined ratios below even 80%. Life sales side, super strong. You can make the comparison on the previous quarter, which was indeed a record high. Even that quarter was beaten with the 9% growth. If you compare it with the same quarter last year, which is traditionally a very strong quarter, 15% up, that is quite a striking result. The split up between the products is 36% guaranteed interest product, whereas unit linked is 58%, the remainder is in the hybrid products. In terms of the financial instruments at fair value, we do see a negative evolution here of EUR 96 million compared with the previous quarter. That has to do, of course, with the volatility in the markets.
We do see the negative impact better of the increased interest rates, and the rest is linked to the hedge accounting ineffectiveness. On the dealing room, we also saw, because of the turbulence, a negative evolution there, of roughly EUR 26 million, which the sum of the two combined actually explains more than the EUR 96, I was earlier referring to. Net other income was up significantly, as you can see, actually much better than the normal run rate of let's say roughly EUR 50 million. Well, that has to do with two things in essence.
First of all, the contribution of Business Lease, which is in for the first time, it's EUR 7 million, but also the fact that we won a legal case, EUR 29 million is here in the result, and that it was already mentioned earlier with the exceptional result. If you would exclude both of them, we are closer to the run rate, a little bit higher, 10% higher, EUR 56 million. What about operating expenses? This quarter, of course, is completely different than the previous quarter because of the bank taxes.
Let me start with the real cost, that is the operating expenses, EUR 1.214 billion, which is compared to previous quarter, down EUR 10 million, despite the fact that we included in this quarter EUR 23 million of one-offs, and despite the fact that in this quarter also EUR 30 million is included because of 365.bank. More sense does make to make the comparison with previous year, same quarter. Then we do see an increase, but also here, be aware there are one-offs which you need to make the distinction between the consolidation of the different underlying assets. As I said, 365.bank is included this year, also the one-off bonus is included, you have an FX effect of roughly EUR 13 million.
What about cost income? It's 41%, which indicates already that we have been able to keep our cost well under control. As a matter of fact, if you do a comparison on a like-for-like basis between quarter one last year and quarter one this year, then we do see an increase of 3.7%, which is slightly higher than the guided 3.4%. This is 100% due to timing differences. We take into account already some costs in the first quarter, where the benefits are only going to be seen in the course of 2026. As a matter of fact, we are perfectly aligned with our planned cost evolution in this quarter.
In terms of bank taxes, well, bank taxes are at a level of EUR 549 million, which is significantly higher than last year. This is due to, in essence, two effects. First of all, we see an increase of the windfall taxes in Hungary. They added EUR 134 million. If you compare it with previous quarter, that is an increase of EUR 81 million. In total, if you take into account some SRF contributions and financial transactions levy, we end up at EUR 87 million. In terms of the Belgian situation, well, the deposit guarantee scheme in Belgium was fully filled up, so that contribution fell to zero.
What the difference was, for more than 50% filled up by the Belgian government by additional national taxes, bringing the total to a positive evolution of EUR 67 million. In total, bank taxes up are 13%. We do expect by year-end to pay EUR 724 million of taxes. The split up of the EUR 514 million on over the different countries and what that means on OpEx, you can see on slide 13. Let me go immediately to asset impairments. We do have in total EUR 165 million of impairments, which are actually split up in two parts. First is the business as usual impairment. What is the quality of the underlying lending book?
Well, EUR 89 million compares to EUR 76 million, which means that you do see an increase of EUR 13 million. There is a small but in EUR 89 million is included 365.bank for EUR 11 million. On top of that, we also took a further provision on the non-performing loans exposure of EUR 16 million. The reason why I'm mentioning that is by taking that EUR 16 million you will have a positive impact on your CET1, and it's of course a voluntary choice. If you would exclude that EUR 27 million, actually the business as usual impairments are better than what we have seen in previous quarter, but also better what we have seen in the same quarter on previous year. Quality-wise, it is actually a good quarter.
We also see that in the PD shifts in this quarter, which are actually pretty stable, which is also translated in the impaired loans ratio of 1.8%. For those who are more familiar with the EBA definition, we now stand at 148 basis points, which is substantially better than the European average of 180 basis points or the European median of 170 basis points. Another way to reflect the underlying quality of the lending book is the credit cost ratio like, for like basis, well, that stands at 15 basis points, which is perfectly comparable with the 13 basis points of last year and the 16 basis points the year before, and is definitely much better than the longer term average or the guidance which we gave 25 basis points- 30 basis points. What else?
We added, giving the very difficult situation out there, a conservatism, extra to what we already had as a buffer. The previous buffer was EUR 100 million. We now decided, giving that turbulence in the Middle East, that management overlay is indeed added to the tune of EUR 72 million. EUR 3 million was extra added because of the previous buffer. In total, we do add EUR 75 million. What is particular about this buffer is that it is one-to-one linked to the IRB shortfall, and therefore, this buffer actually adds to the CET1 ratio 4 basis points extra +.
Total buffer at the end of this quarter, EUR 175 million with the evolution of the conflict in the Middle East as we have seen it, with the evolution also of the situation in Ukraine. We do not expect to touch the EUR 72 million management overlay in the remaining part of this year. Which is then translated to page 15, where we do give you some more detail on our exposure to the Middle East, which is very limited to only 0.2% of our outstanding loan book. The same can be said about vulnerable sectors. Given the conflict in the Middle East, KBC already in the past was anticipating potential issues and therefore was scrutinizing those portfolios.
To give you an idea, we do have limited exposures on those sectors which might be vulnerable. Amongst others, oil and gas, amongst others, automotive, amongst others, chemicals, aviation and software. You can clearly see that the exposures which we have are very limited. We are talking about max 2.4% on the automotive, but most of those exposures are smaller than 1% of our outstanding loan book. In terms of, and that's just a confirmation of what we said on previous occasions, previous quarters, private credit, hardly any exposure, private equity limited to less than 0.5% of our lending book. Let me go immediately into the capital ratio. Well, the buildup of capital is definitely triggered by the net result and the upstreaming of the dividend of the insurance company.
We also added the goodwill and the intangibles of 365.bank to the tune of EUR 260 million, which actually brings capital to 19.3. In terms of the risk-weighted assets, obviously, the integration of 365.bank and Business Lease have added risk-weighted assets to this. This is EUR 2.5 billion rounded. All the rest is in essence, the vast majority of that is explained by volume increases. The strong loan growth triggers the increase of EUR 1.5 billion. All the rest is explained by model changes and also higher risk-weighted asset counterparty risk. Totaling EUR 134.5 billion of risk-weighted assets, bringing the capital ratio to 14.4%.
Let me remind you that KBC always includes in its CET1 ratio fully loaded the phased-in of Basel IV. If you would exclude that, the ratio would stand at 14.54%. In terms of the MDA position. We have a OCR 10.9%, which gives us a buffer of 3.5%. If we include the shortfall, which can be financed with CET1 on AT1 and Tier 2, the MDA level stands at 11.13%, giving us a buffer of more than roughly EUR 4.4 billion. The leverage ratio stands at 5.6%. The Solvency ratio already mentioned 231.
Let me repeat, LCR and the NSFR respectively, 159 and 135 . In terms of guidance, in essence, we never give new guidances in the first quarter. Also giving the turbulence today is extremely difficult to give any sensible comments on, for instance, net interest income, what it will be. Multiple scenarios are still possible. The guidance which you see on page 19, is unchanged. The only remark I would like to make is that be aware that we included EUR 23 million costs, which were previously not part of the guidance given the fact that decision is only taken in 2026. In wrap up, it's a pretty good quarter. A lot of things are moving on, but business-wise, the machine has been firing on all cylinders. I'll give back the floor to Kurt who will guide us through your questions.
Thank you, everyone. The floor is now open for questions. Please restrict the number of questions to two. To allow for a maximum number of people to raise questions. Thank you.
Thank you. Ladies and gentlemen if you have a question or comments, please press star followed by one on your touchtone telephone at this time. If at any point your question is answered, you may exit the queue by pressing the star key. Questions will be taken in the order they are received. Thank you. We will now take our first question from Giulia Aurora Miotto of Morgan Stanley. Your line is open. Please go ahead.
Good morning. Thank you for taking my questions. I have two on Net Interest Income. I hear you that you don't want to upgrade the guidance already given the uncertainty. However, the NII result was solid. There is very good deposit and loan growth. I would assume we get an upgrade in Q2. I don't know if you agree and if you can, you know, quantify the upside if the rate curve stays where it is. Secondly, slide eight surprised me a little bit because it's different from what you had mentioned before. I think before you mentioned that KBC was assuming a deposit mix shift towards current and savings, and this quarter we see the opposite.
What are you seeing, quarter- to- date in Q2? Is this trend towards term continuing, or in fact, you know, it is reversing towards your assumption? Does it make sense for banks to increase the cost in term deposit if the rate hikes are expected to be temporary? Thanks.
Thanks, Giulia, for your questions. I will take the first one. Actually, your question is a disguised way to ask for guidance update. Let me highlight why we're not giving you an update. First of all, I mean, the war is creating, I mean, I'm talking about the war in the Middle East. It's creating a lot of volatility, as we all know. Depending on the outcome of that conflict, is it short-lived or long-lived? I mean, it will fundamentally change the numbers and definitely also the situation for all financial institutions. Let me highlight in brief what we have in mind.
We still think that this war is a short-lived one, which means, let's say, you know, two months, three months, max four months, and then a ceasefire will be there, which intrinsically, according to the statements of the senior politicians on both sides of the conflict are today already stating. If it is a short-lived war, then we are in the situation which you see today. Okay, there is a slightly lower GDP growth. In Europe, the predictions are 0.4 percentage points, 0.5 percentage points lower GDP growth, but still it is good. In that environment, in the first quarter, we published a 1.6% lending growth. We are quite good in dealing with that kind of situation. What is also far more important is that, you know, inflation is going up.
This is what we see in this quarter. If it is short-lived, the assumption is that it will not last. In 2027, we will definitely have a normalized be roughly around 2% inflation position. As a consequence, the central banks will look through the inflation and will not start to hike, which is different as what the forwards today are saying. Forwards still are assuming three rate hikes before the end of 2026. Therefore, you know, also in our Net Interest Income, you will have a positive impact on certain things which you already saw in this quarter. We will have a positive upside on our inflation-linked bonds, which is not calculated in this quarter.
We will have the slowdown of the shifts of current and savings account to term deposits, which are part of this quarter because interest rates will not go down and customers have anticipated because of the war, the longer term interest rates, which were given in this quarter. That will shift. That shift will go down. Indeed, as you indicated, this is something which we had not seen in quarter three and four, where there was no war for good understanding. What we see now, when there is a war, that this is happening. Also in other parts of the P&L, it will have an impact. If we would now, on the other hand, a long live contract, well, then it's completely different. You will see inflation going much higher.
Probably central banks will anticipate with rate hikes, and then we probably come closer to the forward rates. When the forward rates are materializing, we see a completely different picture on Net Interest Income side. You probably will see also interest rates on other products increasing, given the fact that interest rates are in the rise, and you will have a clearly higher inflation, therefore higher inflation in bonds. It's completely different to say what it is. We will have a better view on that in the weeks to come, which means in the second quarter, and we'll clearly give you some insight where we will be at quarter two. To wrap it up, if you listen carefully to what I said, I agree with your position that the current guidance which we have given is very conservative.
Okay. Good morning also from my side to everyone. Giulia, your second question, the shift from CASA to term deposits now seems to be halted and turned around. Let me give you some exact numbers. First of all, indeed, when you look at the slides, related to the direct customer or core customer money, then you see EUR 2.4 billion increase in the term deposits. Out of those EUR 2.4 billion, EUR 1.4 billion comes from 365 in Slovakia, so you should deduct that. Secondly, we see some indeed shift, as Johan was explaining in Belgium, in private banking, from current accounts to the term deposits, for the reasons explained. This is only in Belgium.
We in the Czech Republic, actually, we continue to see a shift the other way around. That is then a net impact of EUR 0.8 billion. Then basically, we also see some increase in term deposits, but mainly driven in Slovakia by the corporates, where we had a campaign on term deposits for the corporates to attract additional deposits. That's in total EUR 2.4 billion. Is this going to continue? Actually, as Johan has been explaining, depends a bit, of course, on the duration of the war. If indeed, the situation in the Middle East lasts longer, as we have already been indicating openly that this is likely also going to indeed trigger back a shift from current accounts and saving accounts to term deposits. When the war is short-lived, we do not believe that this is going to be continue going forward.
Thanks.
Thank you. We'll now take our next question from Sharath Kumar of Deutsche Bank . Your line is open. Please go ahead.
Good morning. Thank you for taking my questions. My first one, sticking with NII, wanted to dwell a bit more on the moving parts of NII and how it progresses for the remaining quarters. I see in first quarter, we had both positives and negatives. Dealing room NII, if I have to look at positives, was elevated. Do you see risks of this reversing? On the other hand, if I account for negatives like inflation-linked bonds, lower day count, overall, I see underlying first quarter's annualized run rate closer to EUR 6.9 billion. Consensus is around EUR 6.8. If you could comment on how to think about the NII progression in the remaining quarters, it would be helpful.
You had previously shared a + EUR 50 million NII sensitivity for a 25 basis points rise in interest rates. Just wanted to check if this has changed. Second, on asset quality, you've already added EUR 75 million to your ECL buffers. Oil prices have remained elevated. I appreciate this is not 2022, where the risks were higher for Europe, but there we saw ECL buffers continuously added in all the quarters. Generally wanted to understand the risks of further additions to ECL buffers and more broadly on asset quality trends in the wake of current geopolitical risks? Thank you.
Thank you, Sharath, for your question. I will take the first one. It's a bit, continuation of what I said earlier to Giulia's question. If you go in the moving parts, I mean, on Net Interest Income, intrinsically, it's very simple. Roughly 90% of all Net Interest Income is built by two parameters, and that is the transformation result and the lending income. Now, on the transformation results, Bartel just highlighted what is crucial in that perspective, that is customer deposits inflow. As he highlighted, well, that is at least stable, but it is in reality growing.
Therefore, the positions which we take and have been taken can be continued, which actually means that transformation end results are going to increase not only in this quarter, as they did on the previous X quarters, but also in the future quarters. We do anticipate that not only for 2026 but also for 2027, 2028, we will see further continuation of that transformation result to go to go up. When I'm saying 2028, I'm saying at least 2028. What is crucial to understand that is the 90% or the roughly 90% of Net Interest Income build up a transformation result and lending income. The moving part, the really moving part is the transformation result. What is to a lesser extent the case for the lending income.
If you see this, the difference is quarter-on-quarter, far more important transformation result than lending income. On lending income, it's very straightforward. Two things are crucial, volume on one side, margin on the other side. Let me start with volumes. We had a very strong quarter in published quarter one, 1.6% growth. The good news is that if we look at the pipeline, it's quite strong from the commercial SME side going forward, and in Belgium and in Czech Republic. As a matter of fact, in all countries, except to a certain extent, Hungary, we do have a very strong commercial banking pipeline filled. The 1.6%, I do not see as an exception.
We guided for 5% currently with the evolution, which we see we are above that. Also given the fact that we have been rolling this off in a period where uncertainty was key, given the conflicts which are ongoing. We are quite confident that the 5% will be reached by us going forward. What about margins then? Well, we continue to play the game of pushing up the margins in a sound and commercial way. Sound way means acceptable for customers. Commercial way means we take also into account our market share. Where we do see a drop in our market share, for instance, which happened in the first quarter, 2026 in Belgium, where we are pushing up the margins on the mortgage side, the market was not following.
We just adapt the situation, which means that by the end of the quarter, we restored our market shares again. This is how it works. I would say depends a little bit on the market and in that perspective, I do not expect that we will see a major uplift in the commercial margin. The product of the two, what actually means that we will see a further continuation of what we have seen in quarter one of this year. Let's then discuss the remaining parts. You mentioned dealing room income. Let's face it, dealing room income has a positive contribution, of course. Let's face it's only roughly 3% of our total Net Interest Income.
Even if you have there changes which are, what, EUR 3 million, EUR 5 million, it is not going to shift the needle on Net Interest Income. The same can be said on, for instance, cash management. We don't necessarily always mention that, but cash management is a positive contribution, but it's more, I mean, an adjustment rather than a fundamental influence. You also mentioned inflation-linked bonds. That is quite crucial. In this quarter, it is negative. But we do expect the inflation-linked bonds total for the year to be at roughly EUR 30 million- EUR 40 million. That is an adjustment compared to this quarter in total of, let's say, roughly between EUR 40 million and EUR 50 million.
The same can be said also, if you want to extrapolate quarter one, be careful, number of days are different, has a negative impact, and also be careful there is a negative one-off in this quarter on the Hungarian side. All- in- all, we do see that the pickup of the Net Interest Income over the last quarters and last years is going to be continued going forward. Therefore, I said what I said to Giulia as well. The EUR 6.725 billion guidance is on the conservative side, and we will give you an update in quarter two. The last thing you mentioned was the parallel shift of 25% already on earlier occasions. Sorry. Of course, 25 basis points. 25%, that would be a nightmare.
25 basis points, we already said on earlier occasions that the impact would be roughly EUR 60 million. Be careful, parallel shift is a parallel shift. We don't see that in reality. The, the short end and the long end move in different directions, and we have more flattening of the curve. In that perspective, no change in our, in our guidance.
Good morning, Sharath. As far as your second question is concerned related to the ECL buffer, which we indeed increased to a EUR 175 million with what I would call a one-off fixed management overlay. This is bringing indeed the total buffer to EUR 175 million, which is roughly 60% of the provisions or impairments that we have as a business as usual on the year, and we feel comfortable with that. Going forward, we do not anticipate that, as I said, it is a fixed one. We do not anticipate to further increase that. What I can say as well as Johan has been highlighting as well, this is also helping us to reduce the IRB shortfall.
The impact of that is four basis points. Now, for the time being, also, as far as your question is concerned, what is the outlook? Of course, there, what we see is today we are particularly in Belgium, in what we call the review season. That means that we are incorporating in our PDs the 2025 corporate results. What we see is today the PD shifts are stable, but we do expect potentially a slight increase in the Stage 1 and Stage 2 as a result of this integration of the 2025. This is more a normalization than a structural deterioration. We do not believe or think that there will be a structural deterioration.
Of course, unless the war continues for a very long period of time because, of course, companies are suffering. If the war is certainly short- lived , I should say, then basically, we do not expect a structural deterioration. It's rather a normalization. Therefore we maintain the guidance of well below the 25 basis points-30 basis points.
Thank you.
Thank you. We'll now take our next question from Shrey Srivastava of Citi. Your line is open. Please go ahead.
Morning, thank you very much for taking my question. I'm gonna give you a break from the Net Interest Income, and ask about Kate. Thank you for your comments on the autonomy decrease in Belgium at the beginning. I want to actually shift focus to the Czech Republic, where if you compare the first quarter of last year to the first quarter of this year, I believe your autonomy rates are down something like 5%. If I could just understand what's driving that. Is it people are asking more difficult questions, or is it something else? My second question is on the amount of leads generated by Kate. It's increased to 420,000 this quarter from, I believe, 398,000 the quarter before in the last 12 months, which implies a quite substantial step up.
Sort of in the quarterly run rate, relative to a year ago. If you can just talk about what you see as the latest developments there? Thank you.
Thanks, Shrey. Sorry, we just were discussing because there was a little blip in the line. We could not understand a part of your second question. In terms of the first question about Kate and then more particular Czech Republic, well, indeed, there is a fundamental difference in the autonomy, and let me define again, autonomy is quite crucial. Autonomy means that if you ask a question to Kate provides you not only the answer, but if the answer entails a product, she also delivers the product without any human being interfering. What we call straight-through processing is a particular parameter which is judged upon when we are calculating the autonomy. In Belgium, the autonomy is hovering around 80%.
Czech Republic, which is Kate 1.0, so not the full LLM, Kate, that autonomy is now, what was it? 67%, which is indeed down compared on previous quarter. Now, how come? Actually, it's true for both countries, because also in Belgium, the autonomy was slightly down. It has to do with the type of questions customers are asking to Kate. Because first of all, more and more usage is made of Kate. We do see an increase of 11%, compared to previous year on the usage of Kate. That is first thing. Secondly, when they start using it, the NPS score is very high, which means there are much more customer using it, they're much more satisfied, and as you already indicated in your question, they start to ask questions beyond the traditional stuff.
If it is not foreseen in the solutions which we have that they are straight-through process, we can provide an answer, but we do not provide the product. For example, when customers are asking for overdrafts or for particular products which are potentially linked to fraudulent actions. We do not, of course, provide the answers, and we do not provide the solutions. In that perspective, we do not count them in the autonomy. Czech Republic is now in the process of rolling out its Kate 2.0. It is already rolled out to internal staff, and the aim is to roll it out to customers by mid of this year. We do hope to see that indeed the autonomy is increasing there as well.
In other Central European countries, Kate 2.0 will be rolled out in the course of end of 2026, early 2027. Their autonomy currently stands at 75%-77%.
As far as your second question is concerned, related to the strong increase of the leads from indeed 398,000- 420,000, this is mainly driven by Belgium and to some extent also the Czech Republic. This is entirely driven also by the stronger conversion ratio, which has increased from 13%-14%. What does that mean? That basically that is that it's a whole process. You start up with a pickup ratio, then you have the contact to pickup ratio, which means the relationship manager contacts the client. Then you of course, have the sales talk, which leads to the contact ratio, and then subsequently the final conclusion of that, which is indeed the total conversion ratio.
One of the reasons why it has significantly picked up, also compared to particularly the last quarter and the quarter three, is mainly also because in Belgium we had the maturity of the term deposits, which of course also forced our sales force to pay attention to that. That is part of having an impact on a slower conversion ratio in the last two quarters. The sales pickup now is 14%, leading indeed to a significant increase on the conversion ratio of in total 420,000. We expect that to increase further and further also for the reasons that Johan explained before.
Understood. Thank you very much.
Thank you. We'll now move on to our next question from Namita Samtani of Barclays. The line is open. Please go ahead.
Good morning and thank you for taking my questions. My first one just on Hungary, Net Interest Income in the first quarter. Even excluding a low one-off -EUR 10 million and +EUR 4 million excluding FX. Net Interest Income looks flat quarter-on-quarter. I just want to understand why this was. Because the slides point to a higher commercial transformation and all to a balance sheets quarter-on-quarter. And you see an increase competition on Hungary and why does the competitive landscape look like that. Certainly on Czech, the loans are growing a lot faster than deposits, and that's been the case for some quarters now. Do you think this is a sustainable strategy, and why do you not become more aggressive on deposit growth going forward?
If you're just able to quantify the impact on net interest income from a Czech rate hike, if there were to be one? Thank you.
Thank you. Hi, Namita. Thank you for your questions. Let me take the first one. Indeed, in Hungary, we do see a couple of one-offs, which are resulting in a slight, I mean influence of roughly EUR 6 million on the Net Interest Income side. As you pointed out, indeed, the Net Interest Income is evolving positively, but is not at the same pace growing as in the rest of the Group. In terms of the building blocks, well, here we do see the same pattern as in the Group. Commercial transformation result is performing better, which also means that on the other elements there is a compensating effect.
Well, the compensating effect has to do with the fact that, and I mentioned that earlier, that for instance, the growth on the corporate side in Hungary is below our expectation. This has to do with different elements which are part of the Hungarian domain, and that is, of course, the elections which were creating some nervousness and also in terms of the appetite for investment, sorry, of the business development, they were subdued. In that perspective, the explanation is actually pretty straightforward. What is the expectation going forward? Well, on the short term, I know that there are huge expectations regarding the Hungarian government.
Honestly, I think that the Hungarian government will need some time before they start to build up the transition, which everybody is expecting from Orbán policy, let's call it like that, to a more Europe-oriented policy. In the short term, we know that there are two deadlines on the freeing of the European budget, the European subsidies. There is a very short-term target, and there is one in August. I think the August target to free up the European subsidies for Hungary is more realistic than the upcoming one in, I think it is, in this month, in May. That might trigger, of course, further economic development and consequently further loan growth. Yes, it is flattish now, the outlook is, at least when you take into account the European subsidies, is more positive.
Good morning, Namita. On your question on the Czech Republic, basically, indeed, we have seen quite strong loan growth, a little stronger than the growth of the deposit base, bear in mind that the loan to deposit ratio in the Czech Republic today still stands at 82%. This is something that obviously we monitor closely and further efforts will be taken into within this respect. Bear in mind as well that we have been somewhat reducing the external rates on the saving accounts, notwithstanding that basically our market share has remains quite stable. Also there, the net inflow is quite positive in deposits, which is indeed a growth of 0.5% quarter-on-quarter, but still 2.2% year-on-year.
As far as your question is concerned on the sensitivity in the Czech Republic, well, a parallel shift of 25 basis points in the Czech Republic has only a very minor impact of more or less EUR 3 million.
That's helpful. Thank you.
Thank you. We'll now take our next question from Amit Ranjan of JP Morgan. Your line is open. Please go ahead.
Yes, hi. Good morning. Thank you for taking my questions. The first one is on the two acquisitions that you have done, 365.bank and Business Lease. How do the contributions in the first quarter compare to your planning or expectations, please? The second one is just a clarification on dividend accruals. What was the ratio that you accrued in the first quarter? Thank you.
Thank you, Amit, for your question. Let me take the first one. We guided for 365.bank and Business Lease. The detail is in the quarter announcement of quarter four 2025. Actually, we guided for this year Net Interest Income of EUR 157 million, EUR 104 million non-Net Interest Income, that totals EUR 261 million as total income. This is full year. For good understanding, OpEx EUR 156, and cost income ratio of 59.8%. When you translate that on a quarterly basis, you will have EUR 39 million expectation net interest income, EUR 26 million on non-NII, EUR 65 million totaling income.
On the OpEx side, EUR 39 million. You have the full split up. Where are we in reality? We are EUR 37 million on the Net Interest Income. If you combine that with businesses, it's more or less EUR 38 million, so it's, let's say, EUR 1 million lower than forecasted. The non-NII is also EUR 1 million lower, it's EUR 25 million, which brings the total income at roughly EUR 2 million lower than what it was. On the OpEx side, on the other hand, the reality was EUR 32 million, which is EUR 7 million better than what it was. Ultimately, P&L wise gives you a bit better result. Cost income ratio stands at 51.6%. Hereby you have the full detail.
As far as your second question is concerned, Amit, related to the accrual, dividend accruals. Actually we always accrue 50% in the first, second, and third quarter, and then obviously in the fourth quarter, we accrue in line with the final dividend decision.
Thank you.
Thank you. There are no further questions in queue. I will now hand it back to Kurt for closing remarks. Thank you.
Thank you, Operator. Okay, this sums it up for this call then. Thank you for your attendance and enjoy the rest of the day. Bye-bye.
Thank you. This concludes today's call. Thank you for your participation. You may now disconnect.