KBC Groep NV

XBRU:KBC

Earnings Call Transcript 2019-Q2

[Operator]

Welcome, everyone, to the KBC Group Earnings Release Second Quarter 2019 Conference Call hosted by Mr. Kurt De Baenst, Head of Investor Relations. My name is Angela, and I'm the Event Manager. [Operator Instructions] I'd like to advise all parties that this conference is being recorded. And now I'd like to hand over to Kurt. Please proceed.

[Kurt De Baenst, General Manager, Investor Relations]

Thank you. A very good morning from my side to all of you from the headquarters of KBC in Brussels and welcome to the KBC conference call. Today is Thursday, August 8, 2019. We are hosting the conference call on the second quarter results of KBC. Today, we have Johan Thijs, Group CEO, with us; as well as Hendrik Scheerlinck, Group CFO, 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.

[Johan Thijs, Group CEO, MD & Executive Director]

Thank you very much, Kurt, and also from my side, a warm welcome to all of you on the announcement of our quarterly results. And as usual, we start with the key takeaways, which you can find on the presentation on Page 3. And we are announcing a good result today of EUR 745 million in this quarter. Why good? Given circumstance in this quarter, I think indeed this is a very good result. It's translated into a return on equity of 15.4%, which I think is indeed amongst the better numbers in the European domain. In terms of translation, where it comes this result from, I would say from a good performance in the commercial side in all our bank-insurance franchises in our core markets. Let me rephrase it, I'm actually saying that the bank-insurance machine has been firing on all cylinders, and in that respect, it is translated in all the different lines which I will give you the detail in a second. It also translates itself in a good quality position in terms of liquidity. KBC is, as you know, quite a liquid institution and definitely also a good position on the capital side with a capital ratio of 15.6%. If you would translate that, as we have been translating that in the past, you know that we are in discussion with the ECB regarding the taking into account the profit -- interim profit in our capital ratio if we will do what we indeed have been doing in the previous years and even this capital ratio stands at 15.7%, clearly above our Reference Capital Position, which is 15.7%.Let me now go into the detail and as usual, I'll take you through a couple of slides, sometimes bit more details, sometimes bit faster. On the slide of the building blocks, I will not spend time. Let me spend 1 second on the exceptional items, which are mentioned I think that is Page 5. We have 2 main exceptionals. You already are aware of the impact of the consolidation of CMSS, totaling EUR 82 million profit amended to the P&L, so let's not spend time on that. But we have 2 exceptionals: The first one is the announced reorganization, which we did at the management level in the Belgium domestic area, mainly headquarters. So we have been taking EUR 10 million of reorganization costs upfront in this quarter. This is generating a saving of a multiple, let's say, 3.5x, 4x of that number which is going to be realized as of now, so in the next coming quarters and years. On average, I would say, it's about, in the next coming 3 or 4 years, about EUR 5 million a year. On the other hand, we have also a positive impact on the DTA side that has to do with the change of the FX hedging policy, which is translated up of the DTA impact of EUR 34 million. From other smaller one-offs you can read on the page, but they are of lesser significance given the amount mentioned. The split up between the bank and insurance activities is perfectly in line with the long-term average of 85% and 15%, so 83% for the banking results and 17% for the insurance results. Is very normal and then we go immediately to Page 9, which is dealing with net interest income. The net interest income is up on the year with 1%. It's slightly down compared to the previous quarter, but let me emphasize that this is due to the insurance impact and the holding company rather than the banking activity. So the net interest income is up on the quarter and on the year for the banking side, and that's the core of this net interest income, so that's quite important. This is driven by a couple of things. First of all, a good loan volume. Again, we saw a strong growth of the volume, both on the lending side commercially and on the lending -- sorry, the commercial activities and on the lending side. For the mortgages, this is again, a proof of the power of KBC in its core markets. This is underpinned by all countries and that's also good news. We also see the positive impact obviously of the short-term rate -- interest rate increases in the Czech Republic. The first -- the second quarter is the first quarter where we include 1 month of consolidation of CMSS. Net interest income-wise is EUR 7 million. It is also clear that on the lending business, we do see the positive impact of increasing interest rates in several countries. I'm talking about the main markets now, Belgium and the Czech Republic. Mainly in Belgium, interest margin is upward trending and that's good news. It's also confirmed in the last couple of months. Because of the lagging factor, you do not see that immediately translated in this quarter, but that leaves a positive trend going forward. Net interest income margin is slightly down with 4 basis points. This is a reflection of the low interest rate positions, and which is clearly translated on the reinvestments. It is obvious that the impact of the policy of the ECB has a -- is negative on the longer-term interest rates and those are kicking in on the reinvestments, which we all have to do in the banking sector and of on the insurance side and that has a negative impact on that result. But on the other hand, that has been compensated by the lending business and also the positive elements, which are amongst other funding costs.So net interest income-wise, we keep our guidance, which we have put forward in previous occasions so that the last couple of quarters, that is, we stick to the EUR 4.6 million ballpark figure, which is translated as it should be in the range between EUR 4.55 billion and EUR 4.65 billion. In terms of the fee and commission business, we have a strong quarter. And that's again good news because let's face it, there was again some turbulence on the financial market, which were triggered by trade wars, which were triggered by Brexit, fear for a hard Brexit, and which were triggered by some other statements by the American president. The impact on that matter is translated in slightly lower entry fees. So we saw in this respect about EUR 900 million of sales but that was not fully compensating the investments which were coming to maturity. So we had a slight net outflow, a bit lower than EUR 200 million for the whole book. But this is translated on entry fees and we remind you, entry fees is less than 10% of the total of the EUR 435 million, which is mentioned there. The positive news is that the management fees are more than compensating the slight decrease of the entry fees. So it's almost 60% more than the entry fees. And that has to do with the fact that first of all, the assets under management kept -- were kept stable, that's one thing, and also we saw a positive trend in the asset -- sorry, in the management fee margin despite the fact of the MiFID II, which was rumored to have a negative impact, we see a positive trend in our management fees, it was up 5 basis points. In that respect, management fees are about -- so 85% of 65% so what is that, 57% in total a year? So that's quite significant and in this respect, this is translating in the increase of the management -- the fee and commission business as depicted on Page 10. The banking services, we're doing good. We had an uptick here of 5% and also our securities business was doing significantly better than previous quarter, EUR 2 million more and that is also translation of the pipeline going forward. In terms of the insurance business. We're going to Page 11 now. We see again, a very strong performance on the insurance side. We see an increase of the premium income of 9%, which is quite significant, to use an understatement. This is translated all the -- all the countries we are talking about. A growth of Belgium, 4%. Mind you, this is obviously the biggest portfolio and 4% is a fundamental increase compared to the average growth in the Belgian market. You know that the target of KBC is growing at least 50% faster than the market. We are beating this target now for I think 11, 12 years in a row. And also this year, we are substantially higher than the average of the Belgian market. The Central European entities are growing very good. We are talking about double-digit numbers: 13% Czech Republic; 17%, Slovakia; Hungary, 13% after the adjustment for the tax; and Bulgaria, give or take 22% of growth. So that is quite significant and that is showing also that the implementation of our bank-insurance model in central Europe is coming up to speed. In terms of quality of that book, we are now standing at a combined ratio of 92%, which is very good, given the fact that the first quarter was characterized -- this is year-to-date combined ratio for good understanding. This is very good given the fact that the first quarter results were heavily impacted by exceptional storm claims and fire claims and also this quarter is impacted by readjustment on the claims provision of about EUR 60 million. So this is 92%, also substantially better than our longer -- than our retarget target of 94% and this is a perfectly sustainable number. The number is also generated by all the countries. All the countries are substantially below. I'm talking about less than 90%, or around the 94% target for Czech Republic. So we are performing substantially better, so the translation is strong portfolio in each and every country. Life side, Page 12, mixed picture. No big surprises here if you take into account the low interest rate environment, interest guaranteed products continued to struggle to grow. It's still the most important part of our book but still. And then what is growing positively definitely compared on the year-on-year results because you have seasonalities on the quarter comparison, that is unit-linked business is growing about 20% compared to last year same season. And in this respect, it's encouraging but product is hampered by the heavy taxing in the Belgian situation, 2%, and it's of course not comparable to the numbers which we have seen 5 years ago, to say something. On Page 13, we give you the detail on our fair value gains. This was a quarter which was also rough on the edges, let's call it like that. It is a quarter which is characterized by a strong decline -- further strong decline on the long-term interest rate and that has had a negative impact on the long start of our dealing-room results and our ALM derivatives, which were tailored to an increase of interest rates. So if I would combine the 2 then the difference of EUR 100 million between this quarter and previous quarter is explained for almost EUR 90 million. The other parts [indiscernible] on the equity side so we realized less equity surpluses than in previous quarter and the negative change in the market, credit and funding value was only EUR 5 million of difference, and this is just a correction on the number. So there's volatility on the interest. The long-term interest rate has kicked in and has had a negative impact. In terms of net other income, you see the main contributor here to be the one-off on CMSS, EUR 82 million positive contribution. We also added another EUR 4 million on the tracker mortgage examination provision, which now stands at EUR 124 million and the examination in itself is concluded and finalized by the Central Bank of Ireland. In terms of the other contributors to that model -- sorry, to net other income, they are more or less in line, slightly up compared to the previous quarters. So that is perfectly normal. That's the run rate as you know of around EUR 50 million, EUR 45 million, EUR 50 million, and this is exactly the same thing as what we see this quarter so let's not waste too much time here. Let's come to other bigger building blocks in our P&L result and that is cost management. We are on Page 14. In terms of the cost management, we are, and I'm actually quite pleased with that, we are having clearly the impact of what we did over the last couple of quarters. We see the impact on our cost management. It's evolving, if you take the numbers without any adjustment then it is even evolving with the growth level of less than 0.5% year-on-year. So I'm talking about year-to-date, year-to-date, so it is very good because you need to be aware that the cost side is influenced -- heavily influenced by wages and we see strong wage inflation in Central Europe. And in Belgium, we have a system where we just are automatically indexed by inflation and that is also quite strong. Belgium inflation was more or less 1.6% earlier this year. So that is fully compensated by savings in other domains. It means lower FTEs in all countries. And clearly also, lower costs on the other side. Next to that, we have been continuing investing on the digital transformation. As you know, we invest sizable amounts, EUR 250 million. In quarters for that it's also fully compensated by the other savings, making clear that the cost increase, if you clear out the bank, if you also take out the CMSS impact and so on and so forth, it's less than 1%. We're talking about 0.8% in total, which is indeed contained in the strict cost management. Also going forward, we expect to happen the same things. We are continuously managing this side. As I already indicated it was a one-off of EUR 10 million included here because of the reorganization of the management level in Belgium. The benefits which are generated, which are at least triple this amount, will be generated as of now and going forward on a yearly basis, more or less give-and-take EUR 5 million. In terms of the cost-income ratio, we are now at 59%. If you flatten out the banking taxes, if you would not do that, then the cost-income ratio stands at 53%. Flattening out the cost income -- sorry, flattening out the bank taxes, cost income at 59% is clearly impacted by the income rather than the cost side. It's also clear that in this respect, the 50.4 -- sorry, the 54% target cost, income target for 2020 given also the rumors on the next step of the ECB going forward. It will be a difficult one and therefore, the emphasis remains on strongly and dedicatedly managing the cost side as we have been doing over the last -- as we have been showing the results in the last couple of quarters. In terms of banking taxes. Again, we saw an increase. We are totaling for the year '19, more or less EUR 0.5 billion of bank taxes to be paid. Bulk of that is already contributed in the first quarter as you know, and it starts to become annoying because it's 11.6% of our total cost. If we would not have those, then our cost income ratio would stood -- would stand at 51%. And I mean, this is a very good number. In terms of asset impairment, Page 16. We see that KBC has again a good quarter because credit cost ratio stands only at 12 basis points, which is good news. And that also reflects the underlying quality of the book. The one-off which we saw in the first quarter in the business unit Belgium have been shown to be one-off, so we have EUR 36 million credit impairments out of the EUR 40 million, which means EUR 30 million in Belgium, EUR 4 million in Czech Republic, and International Markets minus EUR 6 million. The EUR 12 million impairment releases which we have seen in Ireland were offset by the sale of part of the legacy loan portfolio in the same country. You know that we sold a chunk of the portfolio and the corporate book was sold and the compensation on that sale was netting the EUR 12 million releases on the impairment side. The loan loss -- sorry, the impairment loans ratio so the MBL book is further reduced and further improve now to 3.7% as a consequence of further write off of certain fully-provisioned legacy loans in Ireland. This is called Residual Mortgage Balances we wrote down EUR 522 million of those loans which were fully provisioned in our book. We have still outstanding claims on those customers but we have taken them out of our books. In terms of business profile, you can see Page 18 what it means for those who are interested. I leave them all the time to read that but I'm not going to spend time on this. In terms of contribution, allocation, [indiscernible] capital you see it on Page 37 what it means. I'm skipping the business units Belgium and all the others. If you have any question, we will be happy to answer them but let's not spend too much time there. This brings me to the capital position and hopefully here, I think we can bring some good news. We have been performing strongly on the capital side because the capital ratio of KBC is 15.6%. You have to be aware, if you compare that to the previous quarter, and net the consolidation of CMSS has costed us 30 basis points. So intrinsically, the capital position has improved. This is due to a series of elements but it's clear that KBC's capital position is extremely strong. If we would consolidate or if you would take into account the interim profit, I explained previous quarter the discussions with the ECB so let's not do it again, but if you take into account the interim profit and we would take into account the same payout ratio as last year 59%, then the capital ratio stands at 15.9% and then you can make a comparison with the full year 2018 in a more efficient and a more correct way. So solid capital position, which is also translated in the total capital ratio of more than 19% and also translated in the strong leverage ratio, which we have at group and at bank level, 6.1%. So further increase. The drop of 9 basis points in the solvency ratio on the insurance side has to do with again, of valuations and impact obviously, on our own funds. That has nothing to do with the solvency capital requirements of which intrinsic underlying quality of the book. Actually that position improved slightly but it was because of, amongst others, sovereign spreads moves, that we had a slight drop of 9 basis points in the solvency to capital ratio. In terms of the liquidity position, KBC Group has always had that position of good liquidity ratios that has repeated in this quarter as well. We stand at least 33% above the regulatory targets, both on the long and the short-term liquidity targets. The funding of KBC remains to be customer-driven and remains to be driven by the retail and the SME segment, which have been proving in the past financial crisis is to be very soft. In terms of the guidance going forward, Page 45. Actually, we stick to what we said in the previous quarters that is in terms of performance, the business units continued to do -- to drive their businesses as we have seen in the previous quarter, and I would even say in the previous years. The Basel IV impact is rather -- is there obviously but is rather limited, given the profile and -- I mean the risk profile of KBC Group. And then on the interim policy -- on the dividend policy, sorry, we continue to repeat what we said. At least 50% of the consolidated profit, including the AT1 coupon and we pay an interim dividend of EUR 1 per share in November 2019. On the economic growth side, if we had to give a guidance there. It's a bit more challenging because we have couple of big elephants in the room, the biggest one -- or the 2 biggest ones are obvious the trade war between China and United States and that is the Brexit and the looming consequences of that. Anyway, let's assume that we -- we'll see what is going to happen, and we're obviously going to manage our situation according to the observations which we make in a month. I leave the floor now to Kurt back again to guide us through the questions which you all probably will have.

[Kurt De Baenst, General Manager, Investor Relations]

Thank you. Now the floor is open for questions. May I kindly ask you to restrict the number of questions to 2 to allow for maximum number of people to raise questions. Thank you.

[Operator]

[Operator Instructions] Our first question comes from the line of Omar Fall from Barclays.

[Omar Fall, Analyst]

Just recently on NII, how difficult do you think it will be for it to be up next year? NII in Belgium is falling, Czech swap rates have collapsed 100 bps in the last couple of months and volume growth isn't quite accelerating. That's the first question. And then the second question is just what's your estimate at this stage for the impact of the ECB's MTE calendar provisioning. I'm sorry if you have given this in the past but I imagine there would be some effect on the -- just on the EUR 1.5 billion of uncovered Irish impaired loans given how old they are.

[Johan Thijs, Group CEO, MD & Executive Director]

Thank you, Omar, for your questions. Let me take the first one on net interest income. So you just highlighted a couple of things. So let me give a bit more color on that. It's -- I mean, you know that we only give guidance for the first year, so you're now actually asking -- that means 2019 in this case, you're now asking on guidance for 2020, which we in principle do not do. Let me give you first some insights on how do we expect '19 to evolve further. Actually we are sticking, as I earlier said, to our guidance giving in the first quarter and also at the end of the fourth quarter that is ballpark of EUR 4.6 billion. Now the consolation of ballpark EUR 4.6 million, we all know, that is the spread between rounded number EUR 4.55 billion and EUR 4.65 billion, somewhere in between. We -- I mean if you look at the results that we published today, and you take into account also the statements of Mr. Draghi and the -- that those statements are going to be crystallized in early September in another positioning. And also the impact of this stays in on the long-term interest rates, then it's quite clear that what you've seen in the second quarter, that is probably going to be the same thing in quarter 3 and quarter 4. So in terms of the evolution of the interest rates and the impact on our reinvestment is we do not expect anything to improve. So if you put that forward, then you have to make a small adjustment. And in that case, you have a downward adjustment. On the other hand, what we have seen is again, in this quarter, a 4% growth of the volumes and that is something which is group wide, the case we have that in all the countries. All the details is by the way provided in the back, so you can read it yourself per country. But also let me focus on the big countries, Belgium and Czech Republic, we are doing exactly the same thing happening there. So growth is strong and continues to be strong. And also that you can expect going forward. In terms of margins, and that's something which we should indeed give a bit more color on. The margin is clearly trending upward. We have in Belgium, you can see the detail on the business unit Belgium part in the back, we have an upward trend. What you don't see yet is that the margin on the Belgium mortgage book is substantially higher than what we have disclosed today. How come? That is because those mortgages have already been concluded but we have to wait for a final conclusion that is done by a notary deed in Belgium. That is -- I mean, that's law. So interest margins are Belgium are up and they are significantly up again in the sales, which have been already concluded, we just had to be finalized in a notary deed, and which will be in the third and in the fourth quarter. So actually, this is not a guess, this is a certainty. So the mitigants on the long-term interest rate positions are strong growth but also interest -- net interest margin which are going up significantly in the business unit Belgium. In Czech Republic, if you compare it with the first quarter, also there we saw the interest margin going up significantly, and with significantly I'm not talking about 10 basis points, I'm talking but substantially more. So in this respect, what we saw in the second quarter was a slight decrease of that interest margin but that was on a voluntary basis, we drove our market share up with more than 400 basis points in Czech Republic. So on the mortgage business, yes, volumes remained strong. Second thing is that the margins are trending upwards and what we have seen in the sales in the second quarter which will be included -- which will be in the results of the third quarter. That this is a fundamental uptick, that's good news. On the commercial loans, it's just hovering always around the same level of margins. So in this respect, this is also something which we continued to see going forward. So if add up all those numbers and you take into account what I just said, you adjust a little bit here and there with the funding cost so on and so forth, then our guidance of EUR 4.6 billion ballpark remains valid. The only thing I'm saying to you guys is be careful, don't put it at the higher end of that range. It will be somewhere in between EUR 4.55 billion and EUR 4.6 billion. Now for 2020, I leave you a challenge to see what that means if you can predict me what it's going to be, the Brexit. If you predict me what's going to be the next step of Mr. Draghi, and you give me that's a deal, I will give you my guidance, but I cannot give you that number without even adding to that a big disclaimer saying listen, it is worth what it's worth. So we stick to what we said and we prefer not to give an explicit guidance on EUR 4.6 billion going forward to 2020.

[Omar Fall, Analyst]

That's very helpful. And a slight follow-up to that. How should we think of the sensitivity on the deposit side in the Czech Republic to what's going on in swap rates? Is it -- do you think that it's not particularly material, the fall in bond yields that you can offset that?

[Johan Thijs, Group CEO, MD & Executive Director]

So that is a very short answer, that's almost, I would say, peanuts. It's a relative small impact and that has to do with the fact that also the Czech Republic, we have been shifting quite a lot of deposits to fund business, to money market fund business, as well, so impact is rather limited.

[Hendrik Scheerlinck, CFO & Executive Director]

Good morning, from my side also to everybody. And to come back to your second question, Omar, on the European parliament rules on provisioning and then the ECB guidelines and supervisory expectations on the stock off provision. So first of all, on the stock off provisions, the methodology on that delinquent stock is still unclear. There are still discussions going on between the banking sector and the SSM, so on that side the methodology is not fixed and we will see how that pans out further. For the rest, if you look at indeed the loans that became delinquent past April 2018. And again, the big impact will only click in beyond 2022, 2023. So we will of course do as we have done in the past, and you have seen our NPL ratio decline quite substantially, dynamic management of our nonperforming loan book so that will continue. Second of all, of course we have no view on what the macroeconomic environment will look like beyond 2021, 2022 and what differentiate us from some other players who may have given guidance on this one is that we don't have a large exposure to large corporates. So as you know, most of the activity that we do is retail and SME and small-cap related. And in that sense, we can do more active management of those loans.

[Operator]

Next question comes from Robin van den Broek with Mediobanca.

[Robin van den Broek, Research Analyst]

So a follow-up on NII. I think if you add 2 quarters of CMSS, you get to, and assume the current run rate to be flat, I think you get to the EUR 4.55 billion for full year '19. I was just wondering if you could talk a little bit about volume versus margin. I mean, your narrative on margin obviously is -- it seems to be a bit more positive, so do you think that volumes will still offset basically the headwinds from the replicating portfolio given the narrative you gave on lending margins? And perhaps, you can add a sensitivity to actual Czech Central Bank rate cuts rather than just the swap curve move, and what's your -- yes, what kind of probability it would add to that? I think in the past, you've always given your own Czech Republic outlook. And secondly, on costs. It seems to me that your like-for-like is now below 1% for the year and you've always said that cost savings will be back-end loaded in the program. In the past, you've always touched upon the 1.6% CAGR. If you just look at reported costs in 2016 and you translate that to 2020, you would get to EUR 4.2 billion. Now that could be a bit ambitious given the acquisitions you've done and the other regulatory headwinds we've seen across the years. But consensus is now modeling for 2.5% cost CAGR. I was just wondering how do you look at that at the moment.

[Hendrik Scheerlinck, CFO & Executive Director]

All right. Thank you very much, Robin, for the question. So first of all, indeed, as you mentioned the impact of CMSS has to be added for the second quarter so if you just extrapolate EUR 7 million per month for the rest of the year, you have a ballpark figure of EUR 42 million that is added in the second quarter. And as Johan guided before, so we still expect NII to come in, in the range of EUR 4.6 billion, meaning probably the lower end of the range indeed between the EUR 4.55 that you mentioned and the EUR 4.6 billion. On the margin evolution in Belgium as Johan mentioned...we have seen and you see also in our slide pack on business unit in Belgium a further uptick in the margin for mortgage loans in Belgium and second of all, we have also seen a very good volume growth if you just look at our book year-over-year, so first half '19 compared to first half '18, the production volume in Belgium mortgages was up 25%, and we have restored our market share of close to 20%. So that is definitely positive evolution. On the short-term interest rate expectations of the Czech National Bank, so first of all, last quarter, we were still expecting that the Czech National Bank was going to add another 25 basis points between now and the end of 2020. Actually, if you look at the PRIBOR curve, there is still a forward curve so the 3-month PRIBOR is still recorded at 225. If you look at the website of the Czech National Bank they have updated it from the 1st of August and their expectation is that the short-term rate will remain at 2% in 2020 into 2021, so again this is what we took of the website of the Czech National Bank. And that is also our expectation given the strong underlying inflation that continues in the Czech Republic. We do not expect short-term rates to come down.

[Johan Thijs, Group CEO, MD & Executive Director]

Thanks, Robin. I will answer your second question on the cost side. So indeed, we guided at that time the cost income ratio and as a consequence of the guidance which we gave on the income side, the implicit guidance for the cost evolution was a CAGR of 1.6%. Now if you do the calculation and apparently you can -- I'm sure you have done them, as you explained then indeed 2016, 2020 gives us a little bit of different numbers. There's a small but: in the meanwhile, we are what, 4 years down the road, and obvious things have changed so the assumptions which we have in 2016 were not necessarily taking into account what we have today in our numbers. I give you one example, the consolidation of CMSS is clearly not foreseen. We took into account some other elements, amongst others, assumptions on bank tax and regulatory costs. Unfortunately, the bank taxes and the regulatory costs are higher than also on the regulatory cost side, and that's what we, amongst others, have to pay to the regulators to be supervised. It's substantially higher than what was already anticipated and so on and so forth. So that's couple of elements which are different. Now what is clearly the target which we've already mentioned I think on the last 3 or 4 announcement -- quarterly results announcements that is we stick to that guidance of 1.6% per quarter and that is something which we are managing downwards because last quarter, this quarter, we are at half of that guidance CAGR and that is something that we are also going to do going forward. You are right that indeed, some of the investments which we did in the past are paying off now. One of the elements I want to give and that's also a one-off cost in this quarter that is for instance, the reorganization of the management layers and that has a negative impact now, but clearly has a positive impact going forward. So that needs to be translated indeed on the elements going forward. Honestly, we do not think it's realistic to get to our long-term target of 54% starting from the position 2016 to now and that has nothing to do with the cost side because in terms of cost maintenance and cost savings, we have actually compensated all the elements of wage inflation, all the elements of regulatory costs, all the elements of investments by FTE reductions in our cost position of today. But we cannot compensate for the income, which was assuming a rate increase in '19 and 2020 and that is probably going to be confirmed by Mr. Draghi in, let's say, a couple of weeks’ time, that indeed that rate increases is not from tomorrow. So guidance is below 1.6% and the reality is there's going to be expense at half of that number in the first half of this year.

[Operator]

The next question comes from Pawel Dziedzic from Goldman Sachs.

[Pawel Dziedzic, Equity Analyst]

I have 2 follow-up questions, one on NII and the second on cost. So on NII, I understand you don't want to give too much on 2020 but would you be able to quantify run rate of the adjustments associated with the reinvestment -- lower reinvestment yields in the first half of the year and what do you see it being the second half of the year? This would be within your 2019 guidance so hopefully you can give more precise answer here. And the second part is just on your comments on volume growth. I think we can all appreciate that it's been a factor that really make your NII much resilient. But you also talked about more challenging outlook and your outlook statement now contains also a reference to a slowdown in Europe. So maybe with that aspect, can you talk a little bit about 2020? What do you expect? Is 4% still achievable for instance given trends in Belgium? That would be on NII. And then the follow-up on costs. Again, thank you for your comments on CAGR, on growth and so on. Can you give us a more specific idea about potential incremental costs that could come back -- come on the back of various initiatives related to KYC and AML that European authorities are now focusing on? How much of a change that could make for you going forward?

[Hendrik Scheerlinck, CFO & Executive Director]

Pawel, on the NII side. So first of all, how do we tackle the lower -- the investment yields? As you know, we don't give guidance on the level at which they are. But as I have mentioned to you in the past, one of the elements we take into account when we look at our replication strategy is the stickiness of money so the behavior of the client, and it's clear that in the lower interest rate environment, that stickiness is higher. And as a result of that, we have taken action. As I have mentioned a couple of months ago, we have taken actions at the time that it was still a good time to increase the portion of replication of our portfolio. And in that sense, that's definitely going to be helpful for us. In terms of volume growth for next year, again, it's too early to give guidance. You see that indeed the macroeconomic outlook, if you look at the 2 main countries, in Belgium we expect economic growth next year to slow down to 1.2%, in the Czech Republic we expect economic growth will slow down to a 2.5%. I was just referring to the website of the Czech National Bank. They still have GDP growth for next year at 2.9% so they are more bullish than we are. But if we then look at the fabric of the loan growth, the reality is that than in our Czech Republic after the acquisition of CMSS, 53% of the loans that we have the on the books are housing-related loans and a slowdown is in the short production which we have seen in Germany and which we see in Germany -- I'm sorry, in the Czech Republic does not have an impact on that number given the full employment that we see in the Czech Republic and the continued wage inflation. We actually see that, indeed, higher demands for housing-related cash loans as people use the savings they have to also further improve their houses. So in that sense again, no guidance at this stage of the loan growth that we project for 2020. We will do that at the back of the first quarter results. But it is clear that in Belgium and the Czech Republic we're going to see some economic slowdown, while in the other countries at this stage, GDP growth is still expected to be in the range of what we see this year.

[Johan Thijs, Group CEO, MD & Executive Director]

And, Pawel, let me take your second question. So on the cost side, it is clear that of KBC has been ramping up its investments on the KYC and on the money -- anti-money laundering side. So we have been already doing this for a couple of years and those investments are already into the costs, which we are announcing today. So when I was speaking about cost maintenance and strict cost management, then it already included the compensation for the rising costs on the, let's call it, compliance side of our story. What is going to happen going forward, this is also a continued effort in the next, let's say, coming quarters and next coming probably years. But I'm sticking to what I said in my guidance. We already took into account those increasing costs when I said that our guidance is 1.6% max going forward and that our current position, which stands at half of that, is also taking into account that rising increase of the compliancy costs. So all in all, we stick to what I just said even giving the particular emphasis of your question.

[Pawel Dziedzic, Equity Analyst]

That's very helpful. Maybe just a very short follow-up on compliance costs. So they are in guidance, so that's very good to know. But what is the -- is there a -- you are saying you are ramping up that you need -- how big it will grow going forward? What are your expectations? What is currently anticipated? Would you be able to talk about that in FTEs for instance and a measure that is, let's say, nonrelated to costs in Euros?

[Johan Thijs, Group CEO, MD & Executive Director]

Let me try to wrap it up, as with respect to the time as possible. So we give you -- by the way, if you want to, we can give afterwards far more flavor. But the investments which we have been doing already take place for more than 2 years. The investments are on 2 sides. What you pointed out is true, and we have more FTEs in the compliance domain, that is true for headquarters, which is supervising the policies group-wide. The policies by the way, are enormously -- unanimously and uniformly implemented so we have everywhere the same country -- the same policy. That is one side of the story. We have been investing -- give you one quarter -- one example this quarter or, let's say, the last 3 months that is part quarter 1, part quarter 2, we have been, for instance, hiring 60 people on a particular domain on the compliance client side for -- and that has been included in the cost ratios as I already indicated. So that's part one of the investment. But the other part of the investment is dealing with automation of this whole story. KBC has already, for a long period, an automated system in place obviously. But we are now investing, and I guess some other of our peers, quite significant matters -- moneys in artificial intelligence and robotics in precisely the compliance domain, precisely AML and related stuff. But those investments have been already taken into account quarter 4 last year and quarter 1 this year so they are already part of it and those 2 elements, as I indicated, would be exactly same thing going forward. So we will continue to make investments there and will continue to compensate them in other domains, working far more efficient. For good understanding, Pawel, Investments in AI means that ultimately, you will have higher output with lower amount of FTEs and lower amount of FTEs mean lower cost.

[Operator]

Next question comes from Bart Jooris from Banque Degroof Petercam.

[Bart Jooris, Analyst]

2 questions from my side. First on capitalization. Despite the quarter-on-quarter loan growth you reported, your RWAs dropped this quarter, quarter-on-quarter. Have you taken specific measures there? Are there been model updates? Could you give some more color on that? And then secondly, sorry to come back on costs. You do not mention a lot of extra IT investments in your cost growth. Does that mean that they were seasonally or exceptionally lower this quarter or is that just a run rate going further? Moreover in the press release, you say now that after the reorganization of management, you will look at further measures on operating efficiency in the whole organization. Is that added to what you have been saying? Could we see some costs on that in the next quarter? Thank you for giving some explanation on that.

[Hendrik Scheerlinck, CFO & Executive Director]

Thank you for your questions, Bart. On the first question on the risk-weighted asset, indeed, there were a number of moving parts. So first of all, what increased risk-weighted assets that we have announced in the past with the acquisition of CMSS, so there was an increase of EUR 0.8 billion. And then we commented on the good loan growth, so EUR 6.4 billion year-over-year loan growth and that has added about EUR 700 million in risk-weighted assets in the second quarter of this year. So this increase of EUR 1.5 billion has been offset by a number of elements. So first of all, the sale of our corporate portfolio in Ireland so that reduced risk-weighted assets by about EUR 0.3 billion. And then we have seen a positive PD and LGD migration in our books, so we see that the overall quality of our retail customers has improved. We have also seen rating upgrades in Hungary for instance, that was EUR 0.3 billion reduction in risk-weighted assets. Then we had some model reviews that comes on the back of -- basically the back test thing of the models that we do on an annual basis. And then we had a small decrease also in our market risk-weighted assets and -- that then the sum of all that came then to reduction of risk-weighted assets of EUR 0.1 billion.

[Johan Thijs, Group CEO, MD & Executive Director]

Thank you, Bart, for your questions. I will take the second one on the cost side. Indeed, as you rightly pointed out, we didn't mention the IT cost on the operating expenses explanation. Apparently, we get used to it because we continue to do the same efforts every quarter again. Let me refer also to Slide 60 at the back where as indicated what we invest on a yearly basis, and you could actually start on the assumption that it's more or less equally stretched throughout the year, so we do not have peaks which are taking, let me say, something 50% of the total amount which we are going to spend is about EUR 250 million a year. But apparently we get used to it and we don't even mention that in our explanation. So, yes, IT was also further impacting the quarter costs. But we have managed downwards the other elements of our cost side in order to compensate for that. A good understanding as also is the case. But other things, once all those new development are taken into production, we start depreciating them, so the activation of those costs and depreciation kicking in and that's clearly also the case in the second quarter, we see that rising. So the answer is, yes, IT kicks in, in the second quarter as well but compensated by other mitigating factors. And then the second thing on governance. Yes, indeed, we have the full impact of the cost side of the already implemented and announced, I think it was in May, reorganization of the management layer. As just for the sake of clarity and completeness, it's EUR 10 million again in explanation in this quarter cost side and then the benefits will be multiple of that going forward. But indeed, we discussed that one and we have been conducting in the last couple of months indeed a further exercise. So we start with the management layer and we are doing exactly the same thing with the rest of the organization. The outcome of that will be announced in the next coming weeks and months and it will be implemented as of the next coming year and next coming quarters. So that will be a follow-up going forward. And by the way, the ambition is there exactly the same thing that is give the organization increased decision of speed and as a consequence as an outcome lowering the cost and that's what we're starting.

[Operator]

Next question comes from Stefan Nedialkov from Citigroup.

[Stefan Rosenov Nedialkov, Director]

It's Stefan from Citi. 2 questions on my side. The first one is on fees. You mentioned the management fee margin went up by 5 basis points. Look, could you give some color in terms of what's happening here? Are we seeing an AUM mix shift from lower margin products maybe to easy invest? Or are we just talking about pure repricing? What are you seeing in terms of the competitive dynamics in the asset management space in Belgium specifically? And the second question is just to come back on the NIM and especially for the new production of mortgages and SMEs/corporate lending. Clearly, mortgage margins in Belgium are on the up very strongly. How -- do you expect this to continue to be the case for the next few quarters? What is driving this? Is there structurally lower competition? Are banks becoming more rational in terms of pricing given regulatory headwinds coming up on Basel IV? And similarly on SME and corporate lending, do you expect this sort of stability to maybe just a small decline to persist going forward? Do you see any competitive pressure on the horizon in that regard as well?

[Hendrik Scheerlinck, CFO & Executive Director]

Stefan, so to come back on your first question. So the management fees. As you know, the management fees are the function of the volume and it is clear that in the second quarter of this year on average, the volumes were higher than in the first quarter. You may remember that we started the year at assets under management of EUR 200 billion. And then that was increased again to EUR 210 billion by the end of the first quarter. So that means that the management fees in the second quarter were on a higher base. Second of all, indeed, as you rightfully say, there has been an asset reallocation. As you know, that has gone in a dynamic way and if we use this have always done in the past, the CPPI as a benchmark, what we have seen in the second quarter is that the position of the cash position that we have in this product, the CPPI, decreased from 33% in the first quarter to 21% in the second quarter, and then the stake we had in equity increased from 43% to 48% and that comes with higher fees and that is the main reason behind the increase in the fee on the asset management side.

[Johan Thijs, Group CEO, MD & Executive Director]

Stefan, I will take your second question on the new production. So it's a difficult one to talk about because we have to be extremely careful about giving guidance to the market and then being involved in collusion, so let me try to stay away from that and give you color on your question. So it's indeed true that mortgage markets are going up and that is something which indeed is also happening in the Belgium market as a whole. What is the rationale behind that? It's clear that also the Governor of the National Bank and the Minister of Finance made a statement about that because they got concerned about the underlying quality of the book, rightfully so. And they were also concerned about the very low margin which was taken on those loans, rightly so as well. And it is clear that all the banks do see the impact of the policy of the ECB, for instance on the reinvestment side, clearly in their NII. KBC has a huge advantage of having a very diversified book. So we have a huge income on the asset management side and the insurance side, but if you have an institution which has not that kind of diversification and you're bound to net interest income only, then I mean, there's only one way out and that is to behave more rationally in the Belgium market, supported by the stance of the National Bank and I think also by common sense in general. So in that respect, I don't expect this to drastically change because the environment is not going to change in terms of the interest rate positions. On the corporate book, or the SME book if you want to, actually take the -- what is that Page 21 of our pack? 20, 21? Somewhere in that area you can find the -- it's 21, you can see the spreads on our new production. I mean over the last 5 years, it's actually been quite stable. Sometimes it goes a little bit up; sometimes it goes a little bit down, but it hasn't; it’s quite stable, and that's something which we also see today in our book. It is hovering around the same average. Competitive pressure has been there over the last 5 years, it will be there for the next 5 years for sure as well but it does not impact fundamentally our margin. So in this respect, I think it is quite stable, quite sound and the volume growth which we see in that book and that is also quite significant, 4% is something which immediately goes into the net interest income also going forward.

[Stefan Rosenov Nedialkov, Director]

Great. If I may just do a quick follow-up on the fee question that I had. Thank you for the answer. So what you seem to be suggesting is that really the CPPI reallocation is still the main driver of the management fee margin going up and down rather than more structurally as you guys have been doing, trying to shift assets under management from lower-yielding bond funds, et cetera, into the easy invest product. Is that a fair statement?

[Hendrik Scheerlinck, CFO & Executive Director]

Well actually, no. So the CPPI again, I just used it as a proxy, as an example, because as you know, the volume of CPPI further came down at the end of the first quarter, we were at EUR 12 billion, now EUR 11 billion. And indeed, there has been a shift from that product CPPI into our expertise fund, or easy invest proposition, where the volumes actually have increased by about EUR 1 billion quarter-over-quarter. So we've just used CPPI as a proxy of the overall strategy of asset allocation, which is a function of the markets and the expectation of the markets, and as you know, the outlook and performance of the stock markets were good in the second quarter. It isn't clear that the weight of equities increased to -- and of course, the weight of cash was reduced.

[Operator]

Our next question comes from Farquhar Murray.

[Farquhar Charles Murray, Partner, Insurance and Banks]

Just 2 questions if I may, and I'll try to be brief. Firstly, given the fall in interest rates has KBC seen any uptick in mortgage refinancing activity in Belgium and how far are we from perhaps from seeing customers begin to respond in that way again? And then I think lastly, when we talked about that a couple of years ago, I think you gave very useful sensitivity saying that basically EUR 1 billion of refinancing would prompt EUR 12 million of penalties and about EUR 12 million of lower NII per annum. I just wondered if you had an update on that sensitivity at all. And then secondly, KBC announced several changes to customer fees in Belgium in late June. I just wondered if you can give some detail around those changes, perhaps a sense of magnitude. And also more generally, a sense of how you're positioning your fees versus peers in the market.

[Johan Thijs, Group CEO, MD & Executive Director]

Thanks, Farquhar, for your question. So mortgage refinancing, so we have seen in the -- or was it at the beginning of the year, also some politicians in Belgium saying, "Listen, realize it is the momentum to once again refinance your mortgages." So we saw a slight increase but it is actually too clear incomparable what we see for instance 2014. We are talking about less than 10% what we have seen in the past. So the amount is a little bit up but hardly noticeable in our total results. We speak about couple of million euros extra refinancing fees. We talk about the marginal amount of refinancing. So in terms of the sensitivity you are referring to, if we would take, again, we always give it on EUR 1 billion but we are not refinancing today EUR 1 billion but if you would to go for sensitivity expressed on EUR 1 billion, for every EUR 1 billion which we have refinanced because of the net effect that the difference between the hedging loss and the higher margin which we book on the new mortgage, we would have a loss of EUR 3 million. But again, we are not talking about -- I give the reference of EUR 1 billion, we're not talk about refinancing more than EUR 1 billion.

[Hendrik Scheerlinck, CFO & Executive Director]

And then on the customer fee change that we had on our for business unit Belgium, indeed, we made the announcement in June but this is the annual actually adjustments of fees or adjustments to inflation to other cost evolutions we see. We have to announce that 3 months before they become active, so actually these fees will only start counting in the beginning of September, and again the impact is not going to be seen or be very substantial.

[Farquhar Charles Murray, Partner, Insurance and Banks]

And where do you position yourself versus the market in terms of those fees?

[Hendrik Scheerlinck, CFO & Executive Director]

Well again, we are in the market, we're not above the market, so depending on what fees you look at. So if I give one example which would be the mortgage fees, mortgage file fees. We would -- we are slightly in line with the market, some peers are higher some peers are lower, so of course it's something we take into account in our competitive position, but we definitely not be an outlier on the fee side.

[Farquhar Charles Murray, Partner, Insurance and Banks]

Okay. And just a quick follow-up on the EUR 1 billion refinancing impact on the EUR 3 million. Is that EUR 3 million the net of the penalties and the loss? Or is that just the ongoing NII degradation?

[Hendrik Scheerlinck, CFO & Executive Director]

Yes, that is indeed so. It is indeed rightfully understood.

[Operator]

Next question comes from [ Dula Miotto ].

[Unknown Analyst]

I have 2. So the first one. Cost of risk continues to be very low, 12 basis points, and asset quality benign. Do you think this is sustainable or see any deterioration? From what you said before, given you're more skewed to households -- to retailers, rather, than corporate, it seems like it is sustainable. But, yes, I want to hear your thoughts on this. And then my second question which is related to this one. Of course, your RWAs went down as a consequence of this improving asset quality because you have the migration in your credit portfolio towards better ratings. Is there more to go there or is this something that, on the other hand, could perhaps be reversed by TRIM, or I don't know, by deterioration of the asset quality in the future?

[Hendrik Scheerlinck, CFO & Executive Director]

So on the credit cost ratio, I mean, we stick to our guidance which we already gave earlier. We guided at -- I mean, you know that our long-term credit cost ratio for KBC was 30, 40 basis points. And at the time when we were giving the guidance, we were standing at 0 and I always said that for the year-end, it will be somewhere in between so let's take the middle position, which is 20 basis points. So we stick to that guidance. Currently, we are at 12 basis points, so that's costing us. And let's assume that we do not make it to the 20 basis points, but the straightforward question which we have for the longer run was is that 12 basis points sustainable? By giving the guidance that I just gave, indeed the answer is no. So we're going to so a little increase there, but the quality of the book is such a kind that we probably will not make it to the 40 basis points, which we're seeing at the moment on the longer-term average. But the 12 basis points is not the guidance which we give going forward, it's rather 20 basis points.

[Johan Thijs, Group CEO, MD & Executive Director]

And naturally on risk-weighted assets migration, indeed as I mentioned, what we have seen in the second quarter was an improvement on BDs and loss-given defaults in a number of books, not only in Belgium but also in Belgium -- in the Czech Republic, in Ireland to a certain extent. But you know this is a quite volatile item in the first quarter. We had actually an increase in risk-weighted assets as a result of deterioration of credit quality on a number of names, so it's a volatile issue that we will keep on watching. But you have seen it overall, if you look at our NPL and our NPL formation that we are at very low levels. Also if you look at NPLs of loans that are between 30 and 90 days delinquent, you see this is the first quarter since a few quarters that, that number even came down, so that is a positive evolution that we are seeing there. As you know, we have mentioned in the past that we are still awaiting the results of the TRIM for corporates that happened. We are waiting actually for the results from the ECB, but they don't seem to be moving very quickly. So it is unclear for us whether we're going to be able to give that number in the third quarter or whether it will shift to the fourth quarter. But as we have stated before, you know, we had 2 TRIM reviews on mortgage loans in Belgium and on SME in Belgium and they came in the tune of risk-weighted assets inflation of about EUR 0.4 billion and we have stated in the past that we do not expect that number for corporate to be substantially different. So we are expecting there also an impact of around EUR 400 million in risk-weighted assets inflation.

[Operator]

Next question comes from Benoit Petrarque from Kepler.

[Benoit Petrarque, Head of Benelux Equity Research]

Benoit Petrarque, Kepler Cheuvreux. A couple of questions from my side. First one was on the commercial loan margins. In your presentation you mentioned that it has been under pressure under the total portfolio. So it seems that your front book margin which you have seen improving is still below your back book margin. How far are we now today in terms of front book, back book in your different geographies? Is that a significant driver or do you think the driver will get smaller with time? And then if you look at NII expected by [ constant use ] is plus 3% in 2020. Are you comfortable with this plus 3% given what you see around with ECB lowering rate in September and also a bit of share margin pressure on the total book? So that was number 1. Number 2 is on fees. I think some banks in fee has been mentioning the introduction of the European international cross-border payment regulation as from 1st of January 2020 as being a significant drag on fees. I was wondering where you stand on that? And then maybe also on fees, we've seen a 2% outflow in the second quarter. Is that a kind of one-off you think or we will continue to see outflows so long we have this geopolitical uncertainty around?

[Johan Thijs, Group CEO, MD & Executive Director]

Thank you for question, Benoit. I'll take the first one on NII. If you look at the detail which we provide on Belgium on production, so front book and back book, then it's clear that -- if you like have a look at the graph on Page 21 that we have disclosed this morning that this is slightly below the back book. But -- and that is the positive news that is that because it is increasing, it will change as of next quarter so we will have a positive effect there. On the other stuff on the net interest income and also for the sake of time, actually I already gave an answer to your question on the first 2 questions in this conference call. So if you would like to reflect back again on that, I advise you to listen to the tape afterwards, and I'll give the floor to Rik for answering part 2.

[Hendrik Scheerlinck, CFO & Executive Director]

Thank you for your question, Benoit, on the fees for European cross-border. Indeed, we have made the analysis, as you rightfully said that this is going to impact us starting January 2020. And to give a ballpark figure, we do expect the impact of that to be around EUR 10 million to, again, to give you a very round number. The volumes of funds, so the outflows what we have seen indeed in the second quarter is an outflow, so negative net sales of about EUR 200 million, that is mostly situated in business unit Belgium. And what we see is that we still have this capital protected funds that we issued a couple of years ago. We have installments coming on those capital protected funds. So typically, these are very conservative investors and they are parking more money on their current accounts and savings accounts and that is the reason why you've seen net sales coming down and we expect that to continue in Belgium over the coming quarters. So overall, if look at the evolution so far this year, so we still have net sales of about EUR 200 million. And as mentioned in the past, the way that we tackle the movements in bigger tickets is by increasing the volumes of our regular investment plans. So we are happy to see that these regular investment plans keep on growing quite well, so the inflow in the second quarter was EUR 225 million. And if I compare that to a year ago, that is an increase of 50% year-over-year and this is actually the way that we promote regular investing with our clients in all of our home markets.

[Operator]

The next question comes from Flora Benhakoun with Deutsche Bank.

[Flora A. Benhakoun, Research Analyst]

The first question is coming back to the NII. I understand it is difficult for you to give a clear picture on 2020 given all the moving parts but let me ask you maybe this question differently. Can you give us some kind of rate sensitivity? So first of all, whether you would be more sensitive to short-term or long-term rates and then any kind of number you can give us to assess how the low rate environment can impact your NII going forward. The second question is regarding capital, which was obviously better than expected this quarter. If I remember, you know last year, we had some negative surprises coming in Q4 from TRIM, from the pension impact. You commented already on TRIM regarding the impact you expect from the corporate loan book. Can you give us a broad overview of any impact you have in mind for H2 at this stage on capital, whether TRIM related or something else?

[Johan Thijs, Group CEO, MD & Executive Director]

Thank you, Flora, for your questions. So you asked the NII question differently, let me give the answer differently. The rate sensitivity is obviously impacted by the position of Mr. Draghi and the question is how is that impact then going in the relative manner play on our book? And as I said we don't give guidance on 2020 but if I give you a little bit color. Maybe the impact on the interest rates and the position of Mr. Draghi is not having a huge impact on our book. There is -- I mean the only color I give before I go further and give you what having that kind of possibility may mean. In that respect, impact is a little bit different compared to some of our peers. But here, I will stop in terms of guidance. In terms of the capital question, also there we don't give an explicit guidance on our capital position and by year-end. So Rik has already answered on potential impacts for the TRIM output and so on and so forth, so that has already been given. You referred to the impact which we had seen at the year-end Q4 and if I give you the underlying driver of that, that was mainly driven by the interest rate position of course because that was used to calculate the sensitivity amongst others in power. In-kind benefit obligations. So that's also influenced by the position of the long-term interest rates going forward. Sensitivities are the same sensitivities as you would have seen in Q4 2018, I would stick to that.

[Operator]

Next question comes from Jean-Pierre Lambert from KBW.

[Jean-Pierre Lambert]

2 questions. The first one is the current accounts. Can you give an indication of the share or the percentage you consider volatile? And then what kind of proportion of the stable funds are allocated to the mortgage portfolio? The second question is regarding Ireland. Having invested there, the goal was to achieve EUR 130 million pre-provision profit. We know that when management changes, and it seems like it's going to be very tough to reach that target, what is your view on this domestic market, which you -- if you want to took a decision, a strategic decision? And then what actions are being taken to change the situation?

[Hendrik Scheerlinck, CFO & Executive Director]

So on the first question, the volatile deposits. As I mentioned, we do on a regular basis an analysis of the stickiness of the volatility of money. But if you look at Belgium as being our biggest market in terms of customer deposits, and as I said to you, what we have seen is that the stickiness of money has increased so that means the volatility of deposits has decreased. Just to give you a number of what we see on the retail side in Belgium in the second quarter, we have seen a further inflow in current accounts of EUR 1.2 billion. We have seen a further inflow in savings accounts of EUR 1.3 billion. So that means for the quarter, it's an inflow of customer -- very stable customer money of EUR 2.5 billion and that comes on top of the EUR 3.2 billion inflow that we had already seen in the first quarter, so we see then in a massive way retail invest -- retail people in Belgium are investing more and more money or leaving more and more money on their current and savings account and the stickiness of that money has improved dramatically. The way that we do our internal asset liability management is again, that's an internal decision and we don't give details on that.

[Johan Thijs, Group CEO, MD & Executive Director]

So thank you for your question, Jean-Pierre. Let me answer the second one regarding the Irish operations. So from a strategic perspective, Ireland has always been a particular case, as you know, we only have a bank over there. We have a collaboration agreement on the distribution side for insurances. So what we're going to do with Ireland is build further our franchise and now tailor it clearly, that's also what we indicated in the past, to a retail micro SME financial institution, and financial institution you have to indeed take care and take into account the bank and the insurance distribution of products. So the sale of the corporate book in our second quarter has to be seen in that light. And also the investments which we are doing on 2 sides. As we restructure management, as you rightly pointed out, and the investments on the platform, the ICT platform, and the digitalization in Ireland is also have to be seen in that respect. It is fully in line with building further the franchise of Ireland but only in the retail micro SME site. So in that respect, nothing new under the sun so this will continue going forward. We are speeding up in that respect a kind -- certain kinds of those investments. Just to highlight, I'm not sure you know that, but the [indiscernible] platform which we also established in other countries into Europe is now commonly shared between Ireland and all the other International markets activities, which gives us a huge benefit in terms of cost savings and synergies and that is clear that Ireland in this respect is kind of a laboratory in order to facilitate implementation group-wide. In terms of outcome this quarter, we continue to see Ireland performing quite well in sales, in commercial sales. We have been seeing growing our market share in the new production and mortgages to 13%. The average overall was 11%. We continue to see the attractiveness in customers. We continue to see the number of customers growing every quarter again. And always the feedback which we get from customers is indeed, and that's something which is a particular part of our strategy that they come to KBC Bank Ireland because of the digital position the bank takes in the Irish market.

[Kurt De Baenst, General Manager, Investor Relations]

All right. This ends it up for this call. I would like to thank you for your attendance and hope to see many of you at the sell-side equity analyst meeting tomorrow morning in London. Enjoy the rest of the day. Cheers.

[Operator]

Thank you. Ladies and gentlemen, that concludes your call for today. You may now disconnect. Thank you for joining, and have a good day.