KBC Groep NV

XBRU:KBC

Earnings Call Analysis

KBC Outlines Expectations for 2024 NII

A conservative approach guides KBC's expectations for 2024, predicting net interest income (NII) will remain similar to 2023 figures at around €5.4 billion. Factors influencing this outlook include a positive boost from reinvestment yields and further commercial transformation. A significant impact is expected from shifts in deposit accounts, with a conservative estimate of €0.1 billion negative effect due to moves from current and savings accounts to term deposits. Costs from higher Minimum Required Reserves (MRR) are accounted for, as are potential bank tax increases, with an additional €54 million anticipated. The bank is also considering further impact from Belgian state notes potentially not returning to KBC, which would affect guidance values. In preparation for any Basel IV impact and changes in pass-through rates, the bank remains poised to adjust its Common Equity Tier 1 (CET1) target, updating it in tandem with new capital distribution plans.

KBC Group Presents a Robust Financial Performance amid Market Turmoil

In the face of economic headwinds, KBC Group has maintained a robust financial performance, reporting €877 million in profits, which equates to a solid 16-17% return on equity. The organization prides itself on a diversified business model not solely reliant on net interest income but also bolstered by its asset management and insurance operations.

Loan and Deposit Growth with Notable Increase in Digital Adoption

KBC Group has seen customer loans and deposits increase across all regions with the exception of Belgium, where a negative impact was observed. Additionally, the rapid adoption of KBC's digital platform KATE by customers has exceeded expectations with 3.7 million users – a testament to the digital transformation's pace at the bank.

Strong Performance in Fee and Commission Business Offset by Net Interest Income Dip

The bank's fee and commission business has shown promising growth with assets under management achieving substantial inflows. This offsets the decrease in net interest income, which dropped mainly due to specific market developments such as inflation-linked bonds and a decline in margins to 204 basis points. An important factor that will improve future earnings is the expected return of at least €50 million in quarter four due to recent inflation trends. Core customer money, which encompasses current accounts, savings accounts, and term deposits, overall shows a positive trend with a net increase of €0.2 billion when adjusting for the state note that caused significant outflows of €5.7 billion.

Profitable Insurance Business and Prudent Cost Management

The group's non-life insurance division reported an impressive 11% year-on-year growth, sustaining high-quality results with an 85% combined ratio. Life insurance on the unit-linked side grew almost 40%, while the guaranteed interest rate segment remained stable. Overall, the life insurance business has improved with a 13% increase compared to the same period last year. Cost management has been effective, demonstrating only a 1% increase in costs despite higher inflation rates. This indicates that productivity gains and prudent expense management have helped mitigate inflationary pressures. As a result, the cost-income ratio stands at 41% before bank taxes and is anticipated to rise to 48% after spreading out bank taxes over the year, which are up by 7% compared to last year.

Sustainability and Future Forward Investments

KBC Group's commitment to sustainability is evident through collaboration with third parties to reduce CO₂ emissions and promote green investment products. This aligns with both the banking and insurance sectors' move towards a more sustainable future. Additionally, the bank has strategically realized losses on the sale of lower-yielding bonds to invest in higher-yielding ones, expecting to positively affect net interest income in the following year.

Earnings Call Transcript 2023-Q3

[Operator]

Thank you. Hello, and welcome to the KBC Group Earnings Release Third Quarter 2023 Call. My name is Laura, and I will be your coordinator for today's event. Please note this call is being recorded, and for the duration of the call, your lines will be on listen-only. However, you will have the opportunity to ask questions at the end of the call. [Operator Instructions]. I will now hand you over to your host, Kurt De Baenst, Head of Investor Relations, to begin today's conference. Thank you.

[Kurt De Baenst, executive]

Thank you, operator. A very good morning to all of you from the headquarters of KBC in Brussels, and welcome to the KBC conference call. Today is Thursday, November 9, 2023, and we are hosting the conference call on the third quarter results of KBC.As usual, we have our CEO, Johan Thijs, with us; as well as Roger Popelier, our Group CFO, and they will both elaborate on the results and add some additional insights. 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, executive]

Thank you very much, Kurt, and also from my side, a warm welcome to the announcement of the third quarter results, and we will do that, as always, starting with the highlights, the key takeaways of this quarter. Let me first start with EUR 877 million of profit to be announced, which is giving circumstances and excellent results. It gives us also roughly 16%, 17% return on equity when we spread out the bank taxes on an equal basis. Now once again, the quarter shows the big advantage of KBC Group being a well-diversified group, not only depending on net interest income, but also having strong franchises on the asset management side and for sure, also on the insurance side. In this perspective, with the policy rates coming at its peak, it is indeed true at KBC, and we will come back to that later on in the call. is a very well positioned group taking into account the diversification on the insurance and on the asset management side going forward. Now talking about the banking side, well, we could clearly see also that customer loans and deposits quarter-on-quarter increased in all countries, except Belgium where there was a negative impact, a clear negative impact, which we already guided in the previous weeks of the government state note, which impacted negatively the evolution on our on our deposit side in Belgium. But nevertheless, all the other countries, and we're doing very well on the deposit side, including Belgium, everybody was doing well on the loan side.We were also having a good performance on the fee and commission business, but again, it's a strongly growing net sales side. The insurance company was performing excellently, both on the non-life side and also profit-wise, on the life side, given also a strong performance on the unit-linked side year-on-year on the life insurance company side. Costs were under control and were better than what we anticipated for with strong cost-income ratio.And then also, what we have seen is that despite the turbulence, which is ongoing in the world, the credit quality of our book remains perfectly in line with our guidance, even substantially below our guidance. And as a matter of fact, the credit cost ratio when we take everything into account results in a 0% cost ratio, no surprise that the solvency ratio, both on the banking side and on the insurance side remains solid. Obviously, the CET1 ratio on the banking side is influenced by the announcements we made earlier, that is the impact of the full deduction of the share buyback of EUR 1.3 billion and the add-on of risk-weighted assets, as indicated earlier of EUR 8.2 billion on the corporate sites in Belgium.Liquidity-wise, also, we have a very strong position with an LCR standing at 157% and NSFR of 139%, which also allows us to say that we will pay out an interim dividend of EUR 1 per share as an advance on the total dividend, that payment will be done on the 15th of November.Let me then go further and give you a couple of ideas of where we are first, a short overview, the traditional split-up we will make between the bank and insurance company stands at a traditional 84%-16%, which you can see on Slide 4, this is something which is quite normal. So let's not spend too much time on that. What is very crucial, and that is one of the reasons why the costs are remaining under control is the successful adoption KATE by our customers.To be very open, this goes much faster than we originally guided for, and the way we also anticipated for. It goes much faster. We have now 3.7 million users, which are in contact with Kate and which have established more than 30 million conversations with Kate. In terms of conversations, it also means that what we call autonomy, the fact that Kate can deliver with -- it can deliver the solution, which is fully straight-through process to those customers that out of the questions which are raised roughly 60%, 62% of those questions are answered by Kate in a straight-through process way, having a positive impact on both sales and on our cost side.So on the sustainability side, we make further progress, and we are going to -- what you also can see in the next page, we are continuously working on improvements. First of all, also working together with third parties on sustainability side, but also on our investment products on the reduction of CO2 emissions and so on and so forth on both the banking and the insurance book, but that's something which I can easily answer a question about. I will not spend too much time now on the natter because let's go into the technical numbers.In terms of the one-offs, which have been posted in this quarter. You can see on Page 6.This is something which is quite low this quarter. We are at a level of EUR 6 million after taxes, pretax is EUR 8 million as one-offs and that is something which, in comparison with the previous quarter is substantially down. It has been triggered by amongst others a couple of one-offs related to the divestments and the M&A in our group in the second quarter compared to previous year, it's actually more or less in line. So in that perspective does not impact the comparison between the 2 quarters or the 2 years.In terms of building blocks of our P&L. Let's start with the most important one, that is lower net interest income. First of all, the fact that the net interest income was 2% lower, was mainly triggered by one element, and that is something which is very particular that is the inflation-linked bonds, net interest income, which was EUR 27 million lower on the quarter. That explains the full difference between quarter 2 and quarter 3. And this is a temporary effect because of technical reasons, as you all know, inflation-linked bonds are calculated with a delay of 2 months.In that perspective, the evolution of the inflation in our European domain was slowing down and gave a difference between quarter 2 and quarter 3 of EUR 27 million. As I said, this is a temporary effect because in quarter 4, at least EUR 50 million or roughly EUR 50 million, that will return, given the evolution of the inflation in the period, which we have recently seen. So in that perspective, it already explains the full difference.What is also negatively impacting and that's something which we have guided earlier in the previous weeks as well. That is the impact of the state note, which was issued by the Belgian government, that has an impact of this quarter, minus EUR 22 million, and it will continue to have negative impacts in the quarters to come. We already guided EUR 51 million for quarter 4, and we will give also an update for what it means for quarter 1, 2, and 3 next year.In terms of further evolutions, we also see the negative impact of initiatives taken by central banks across the European domain. So we have the ECB, which has a 1% minimum reserve requirement impacting the total numbers here with roughly EUR 5 million. In conclusion, also SEC National Bank will move, but that will only happen in the fourth quarter. We do have impact in M&B Hungary and in Bulgaria, which has been taken into account, making the total difference of EUR 5 million.What is far more important that is what about the transformation result? Well, the good news here is that the transformation result increases with 4% on the quarter. And this is despite the fact of the outflows of the Belgian state note and despite the fact of ongoing shifts between current accounts, savings accounts, and term deposits. So despite those 2 effects, transformation results went up with 4%. This is a consequence, of course, of the replicating portfolio buildup done by KBC, which was explained on previous occasions, and this will continue to happen going forward in the quarters to come, also next year in the quarters there to come.In terms of the other combining elements or the other composing elements of the net interest income, well, loan lending business, we're generating roughly the same net interest income. This is thanks to increase of volumes. The volumes were up year-on-year 2%, which is quite good, and then also on the quarterly basis, it was up 1%, where there is clear margin pressure in general. Having said that, we have seen an increase of margins on the mortgage side in Czech Republic and in Belgium, also in some other countries, but on the corporate side here and there, we saw some margin pressure.Net interest margin because of the consequences I just explained, the effect all the other elements, inflation-linked bonds, and the state note has decreased to 204 basis points, which is seven basis points down compared to previous quarter. As a matter of fact, we are now back at the level of the beginning of this year. All other elements are elements which are quite obvious, given the evolution of the euro amongst others, but also the fact that we have issued more wholesale funding, and therefore, the wholesale funding cost has increased and has a slightly negative impact on our net interest income.Let's go first to the core customer money evolution, and that's a very important one. What about the evolution of the total book on current accounts, saving accounts, and term deposits, which we then define as core money. Well, if we look at 2 things, first of all, what is the core money at the beginning of the quarter. Then it's quite clear that is a negative impact of EUR 5.7 billion of outflows, which are linked to the state note. This is something which we have guided for in the, let's say, the last month. So, this is something which is already known.And as a consequence of that, if we would exclude the EUR 5.7 billion, what about the evolution of our core customer money? Well, the good news is we have no outflows regarding those monies, which were on current accounts and savings accounts to deposits. As a matter of fact, we do have shifts ongoing between current accounts, saving accounts, and term deposits.If you see the numbers on Page 8, it's quite clear that we have EUR 3.9 billion of shifts from current account saving accounts towards term deposits, plus EUR 3 billion, but also to mutual funds. So, the sum of all the moneys in KBC Group are positive EUR 0.2 billion. So that's the good news in terms of split on the P&L side, it's clear that has, of course, a negative impact on net interest income, but that money goes into a margin on the fee and commission business on the mutual fund side.Let me remind you that we also have modern branches, EUR 2.2 billion down, but this is an instrument which we use for two reasons. First of all, this is done for cash management perspective purposes and this is as a consequence, only triggered on the cash management for LCR purposes, so liquidity purposes. By the way, this is anyway low-yielding business. We talk about 5 to max 10 basis points. And in that perspective, this is a move which can be 1 quarter positive and the other quarter negative. Therefore, it's not considerable gain. So conclusion on this quarter, core money moves except for the state bond is positive with EUR 0.2 billion.If you take then the full picture into account of the first 9 months of the year, we have the outflow of the EUR 5.7 billion on the state note, which was guided before, but we also have an inflow of EUR 3.7 billion, taking into account the shift from current accounts, saving accounts towards term deposits and mutual fund business. And this is, as a matter of fact, actually a pretty positive picture given the circumstances, which we have seen in the different countries where we are present.In terms of the fee and commission business, good news is the income went up with 1% on the quarter and 6% on the year. And what is important in this one is this is mainly triggered by positive business performance. As a matter of fact, we have seen a very strong inflow of sales in this quarter. We had gross sales to the tune of more than EUR 5 billion, resulting in a net sales positive of EUR 1.1 billion. That brings the total for 9-months in this year on EUR 3.9 billion of net inflows.To give you an idea, this is 50% more than what we have seen in the same period of last year, which was a record year in terms of net sales. It also shows that we are able to transfer our customers to higher-yielding instruments on the fee and commission side when discussions are ongoing on yields on deposit side.In translation to commission business, this brings the asset management business on the management fee side upwards. We have seen a slightly lower despite the substantially higher sales. We have seen a slightly lower entry fee income; this is due to the fact that we have realized a lot of these sales on the private banking area with lower fees and also a different composition of the portfolio of underlying products. It was more tailored to the unit-linked business this time than before.Positive news is that the banking services, commission business has increased with EUR 6 million. And this is due to, amongst others, the one-off fee, which we have generated through the placement of the state note in Belgium, but also to higher network income and also higher fee on the payment business. Remember, this is a typical seasonal effect because of the holiday period, which is July, August, and to a certain extent, also September. So also taking into account that seasonal effect, this is really an excellent result to have strong sales of more than EUR 5 billion in the middle of holiday season.Let me go to the insurance business. Non-life insurance business performed super strong with a growth of 11% year-on-year, which is really good, and what is also very important that this continues to be at a very, very, very high quality with a combined ratio of 85%. So in this perspective, the non-life insurance business has performed extremely well. What is also good is the comparison of the life insurance business with the same period last year. On the unit-linked side, it was almost 40% up, which is really good. And then on the guaranteed interest rate, it was stable. It was slightly down, but it's quite stable. So in total, we do see that the year-on-year comparison is 13% higher than same period last year.The reason why there is a big difference between quarter 2 of this year and quarter 3 is the fact that we have planned a big campaign in the second quarter, which was not retaken in the third quarter, and that makes, of course, the different. What's also important to see is that the underlying quality of the life insurance business has increased significantly. We have a CSM now of 16.5%, which is in another 50-basis points improvement on what it was quarter 2, and it is a 150-basis point improvement compared to same period last year.In terms of the financial instruments at fair value, which we can see on Page 11, that is down, and this is mainly triggered by the dealing rooms with minus EUR 22 million and also by the derivative business with a decline of roughly EUR 17 million, mainly triggered by two things. That is, of course, the impact of the yields and the spreads between the Czech koruna and the euro. But let me not do out too much on this given the volatility of those elements, which is traditional.In terms of the net other income, well, that is a little bit lower than the run rate of EUR 50 million. It now stands at EUR 44 million. And this is entirely due to the fact that we have deliberately realized some losses on the sale of bonds, where we actually have swapped lower-yielding bonds with a return in the current period for higher-yielding bonds, which will be bring positive impact to our net interest income as of next year. So that has a negative impact of minus EUR 18 million. If you would correct that, then the net other income would be significantly above the run rate.What about costs? Well, the cost stands at this quarter at EUR 1.13 billion, which is only an increase of 1% and which clearly shows that despite the inflation, which is significantly higher, we talk about inflation, which is somewhat depends on the region, of course, but the annualized inflation in the Belgian side is more than 2% in Central Europe, significantly above 6%, depending on the country. So, we are able to master those costs in such a way that the increase of FTEs and the gains of productivity are offsetting that impact of inflation. And therefore, the cost rise was only up at 1%. To translate that differently is that our cost income ratio, if you exclude the bank taxes, is 41% and which is indeed better than what it was in the same period last year, which is indeed also better than what we have guided for.In terms of spreading out the bank taxes equally over the year, then the cost-income ratio stands at 48% if we exclude certain nonoperating elements, which is also better than the full year of last year with 49%. Talking about bank taxes, there are certainties in life. Unfortunately, those went up, and they went up with 7% on the year, which is indeed much more than our than our inflation and also much more than how we see our operational cost increases. It stands at EUR 693 million or that's the expectation, at least in 2023, which is indeed fundamentally more than what it was last year.On the next page, you can see what the split up and how you calculate that in comparison with the operational cost. It now stands at almost 14% of operational costs. But let me not dwell too long on that.In terms of impairments, actually, there is good news as well. We have net impairment of EUR 63 million which is actually a sum of parts. So if you look at the underlying loan book, then the loan book has an increase of impairments of EUR 95 million because we took a conservative stance given the bleak outlook for certain sectors, and that has increased provisions for certain bigger files, corporate files, resulting in a EUR 95 million loan impairment.On the other hand, given the improvement of micro and macroeconomic parameters, if we apply that into our models, we have seen a decrease of the buffer, which we put in place for the geographical and emerging risks; that decrease was EUR 57 million, resulting in a net impact of EUR 36 million. And last but not least, we have taken impairments, extra impairments on software, which happened in the business unit Belgium and in Hungary for a total of EUR 27 million, bringing the total impairments to EUR 63 million.Now if we explain that or translate that in credit cost ratios -- the credit cost ratio stands at 8 basis points. So it's clearly below our guidance, guidance which we will maintain between 10 and 15 basis points for the full year. And if you take into account the buffer of the geographically emerging risk releases, then the credit cost ratio comes to 0, which is indeed given the circumstances indeed very low. MPA ratio, good understanding stands at only 2%.On the next page, you have an explanation of the evolution of the geographically emerging risk buffer, but I already mentioned that so let's skip that and let's go immediately into the CET1 ratio and the evolution of our capital position. Well, that ratio has moved to 16.4%, and that is due to 2 things. The first one is the impact on the capital part. That is where we fully deduct the share buyback of EUR 1.3 billion. We are currently at roughly EUR 300 million already collected or bought back so the EUR 1.3 billion isn't a fully loaded impact rather than a reflection of the reality.Also, on the risk-weighted asset side, we took into account the full impact of the risk-weighted assets related in add-ons on model adjustments in corporate internal model inspections by the ECB. We announced that in the call on the second quarter results. All the rest is linked to volume increases and to improvements of quality, which are offsetting more or less all these things and which generate in total, EUR 6.3 billion risk-weighted assets. What I forgot to mention is that what we announced in the second quarter that the corporate EB add-on would be accompanied with a release of EUR 1.7 billion of risk-weighted assets add-on that is reflected in this graph as well that is referred to as a minus EUR 1.7 billion. So if we bring that all together, then the 14.6% CET1 ratio gives us an MPA buffer of 2.9%, and that is explained on the net page where KBC does not make use of the exceptions on AT1 and Tier 2. And therefore, you do have the calculation, which is mentioned on Page 17. If you go further, then you can see on the next page, the leverage ratio, which stands at 5.4%. And in the LCR ratios, 157%. So KBC has, despite the fact that we paid back our TLTRO, a full recovery of that LCR ratio. For that reason, we also issued extra instruments. We remain very, very liquid. Also, the insurance company stands with 202% at a very high level in terms of solvency ratio. It's hardly any impact of any difference compared to the previous quarter or compared to the previous year. It's more or less the same. The difference is roughly on about 2 basis points.In terms of the forward-looking part; well, there are two parts of the story. First of all, what about the economic outlook. So, we expect that the remainder of this year will be very modern in terms of growth. It's quite clear that inflation is, to a certain extent, under control, but remains elevated compared to the target of the European Central Bank being 2%. And then also the moderate growth and the tightening of the cycle by the cycle of the ECB has clearly also a weakening impact on the economic growth, which is then translated into the economic growth in different sectors.What is also important that is, of course, the interest rate environment is linked to both situations I just played and inflation, but also to a certain extent, growth. I think priority number 1 still remains inflation. But what we are going to consider very closely is what about the evolution, given the conflicts which are ongoing in the world, both on the European continent as in the Middle East.In terms of the translation of all of that into our guidance and also taking into consider a couple of other elements, we have reviewed our guidance for full year 2023. The first message is that the full total income guidance of EUR 11.15 billion ballpark is remaining intact. And this is despite the negative impact on the guidance for the net interest income, we do see that the building blocks, which were used for making that guidance, EUR 11.15 billion, being insurance, being financial instruments fair value and being asset management are substantially better than what we originally anticipated for. And therefore, this diversification, the fact that KBC is more than net interest income is allowing us to say that the total income guidance of EUR 11.15 billion remains intact.In terms of the net interest income, we have translated the impact of 3 things into our guidance for net interest income. Being, first of all, the negative impact of the issued state note in Belgium, which is in total EUR 73 million, EUR 0.1 billion rounded. We do have a negative impact from further shifts from current accounts and saving accounts to term deposits. And then thirdly, we do see, also in the fourth quarter, coming in higher costs on the minimum require or reserve requirements from the central banks, and that will be in the fourth quarter, totaling EUR 17 million in detail.If you want to have this graphically expressed and you can see that on Page 20, where the building blocks are mentioned there. And if you do the calculation, then the guidance of EUR 5.6 billion is brought back to EUR 5.4 billion in the new guidance for full year 2023. It might be a bit on the conservative side, definitely also the shifts, which we have calculated here, but we give in that perspective, an idea where we expect this to be it conservative.What about the consequences all of this for the guidance of '24? We are in the middle of the process of calculating the, what we call the budgets for '24, '25 and '26. Well, we did a fundamental review on one particular element of that exercise, and that is the net interest income side because it's clearly negative impacted by two big things that is the Belgian state note and then the MRR impact.The Belgian state note, the guidance is quite straightforward. We have EUR 73 million in the full year 2023 exposure, but we do have another eight months of exposure in 2024, and that exposure will total EUR 139 million of negative impact on our net interest income in Belgium. It is split up, as it is indicated on the slide per quarter, EUR 51 million in quarter 2 and quarter 1, and EUR 37 million in quarter 3 of 2024.Next to that, we do have an MRR impact, so a minimum reserve requirement impact of the different national banks. And in the table, which is indicated on Page 21, you can clearly see that impact. It's minus EUR 64 million, minus EUR 60 million in the ECB area, minus EUR 60 million in Bulgaria, minus EUR 65 million in Czech National Bank, so in Czech area, and Hungarian area, minus EUR 31 million; totaling EUR 220 million. This is also calculated in a kind of conservative way because we took the policy rates which are there today, and we kept them stable. So we did not lower them as is translated in potencies of forward rates. So we kept them stable.What is taken as a sensitivity is that if the ECB, what the rumor says is going to reconsider the minimum reserve requirement of 1% and potentially double it to 2%, that that will have an extra negative impact of EUR 48 million because if we take into account the rumor date of the 1st of April, then we need to add EUR 48 million. If they would apply at the 1st of January, then obviously, you double the number, which is in the table of EUR 64 million. This is what about the impact on the net interest income. We will come back in more detail in a second.Then next to that, we have 2 other elements, which are impacting the end result of 2024. First of all, what is announced, not necessarily already in approved is the evolution of the bank taxes in Belgium. We have taken here also a conservative stance. That means that what has been announced but not yet approved, we do consider it as being approved. So that has an impact on the bank tax side of EUR 40 million. And this is EUR 30 million in bank taxes and EUR 10 million in income taxes.But we also assume that the Deposit Guarantees Scheme contributions, which normally should drop away, will be further enhanced and will be further increased as was announced by the Minister of Finance and which still needs to be approved by the Belgian parliament. But anyway, we consider this to be a given, and that will result in a EUR 24 million negative impact in 2024 and a EUR 10 million in the fourth quarter of 2023. Also, what needs to be approved first before that is going to be realized.What is a positive one is an anticipated tax benefit of EUR 0.3 billion in the year 2024. This comes from the fact that in the meanwhile, we got from the Irish authorities, sufficient approvals for a full closure of our subsidiary, KBC Bank Ireland there. And that means that we can liquidate and full the bank. So, the approvals are given there and that we are allowed to, as a consequence, realize the tax-deductible losses in KBC Bank total losses of EUR 1.3 billion, which then generate a deferred tax asset, which we have to book in our P&L. So this is anticipating a potential tax benefit of roughly EUR 0.3 billion in the year 2024.Now, how does that then all sum up in the net interest income indication for 2024. Well, first of all, when we are going this guidance going to give this guidance, we are using guidance, taking into account the market forward rates as they stand today, so both for the short-term and long-term interest rates. And if we then take into consideration all the things I already said on the previous page, then we estimate the net interest income guidance for 2024 to be flattish compared to 2023, which means roughly EUR 5.4 billion net interest income.What are the underlying assumptions for that? First of all, we will see further increase our commercial transformation result benefiting for the positive impact of the increasing reinvestment yields. And we all know, we have explained that also on previous occasions, that the way we have built up our replicating portfolio is generating that commercial transformation result increase for the quarters to come in 2024. So the increase, which we have seen in this quarter 3, despite the outflows and despite the shift of a positive 4% is going to happen also in 2024.We do consider that the Belgian state note will have a negative impact on our net interest income. That is what I just explained that it will be a negative EUR 139 million impact, but we also do consider for calculation purposes that there is no money from the outflow of 2023 being EUR 5.7 billion that no money is flowing back into the accounts of KBC for calculation purposes. For good understanding, commercially, obviously, we do assume other things, and we will pursue, of course, return of those monies. But for the calculation permits, it's put at 0.We do also consider further shifts from current accounts and saving accounts to term deposits. So this will continue in the year 2024. We do see also higher than the current applied pass-through rates on saving accounts. On the current position, for instance, in Belgium, we do see a 20.5% pass-through rate. In Belgium, we consider this to go up we turn the pass-through of 85% not to be changed.We do consider and we take into account for the calculation higher cost on MRR, and that is explained, as I just said on the previous slide. And we do assume a conservative 3% loan volume growth in '24, which is the same level as this year. We currently stand at around a number of 2.7% year-on-year growth on '23. So this is the same assumption despite the fact that the economic GDP is indeed foreseen to be a bit better than what it was in 2023. Asset margins will slightly improve, and we will also for the calculation we took into account higher funding cost given the dilution of the interest rates. On the back of that, EUR 5.4 billion ballpark will be the guidance for 2024.In terms of the Basel IV impact, we also give now a full disclosure on the basis of all the information which we know to date. So, the indication takes into account what has been published until let me say, a month ago, and I guess a full idea of what we were after the review of risk-weighted assets internal models, which we have used by the ECB. So when we take all those elements into account, then, as indicated on the graph below, the impact will be starting from the third quarter end result, EUR 115.2 billion of risk-weighted assets, we will see a relief of risk-weighted assets in the next quarter of roughly EUR 2 billion. That's what we guided for in previous announcement of results, bringing total bringing the total at EUR 113 billion.Starting from that, we will have a first-time application impact of Basel IV of EUR 2.5 billion, and then further on, over a period of phase-in between 2025 and 2033, another EUR 1.5 billion of risk-weighted asset impact. That is equally spread over all these years, which brings us at the end of the implementation period of Basel IV being 2033, where we will have an impact of the output bringing it in total to EUR 2 billion.So as a matter of fact, if you make the comparison between end of quarter 3 and what we do expect understanding a static balance sheet, understanding what we know now on the basis of all the legislation, all the directors, which have been published on the Basel IV, we will have an impact of roughly EUR 4 billion of risk-weighted assets going forward because of Basel IV. All the rest, which is in the pack or reference made to the countries, which I will not develop on in the detail. I will save that for later and for your questions.On the final page, page 24, we do see the summary of all the different elements, which I referred to earlier in this call. So I suggest that I free up this time and give back the floor to Kurt, who will guide to your questions, please.

[Kurt De Baenst, executive]

Thank you, Johan. Now the floor is open for questions. I would suggest to restrict the number of questions to two, to allow for a maximum number of people to raise questions. Thank you.

[Operator]

We will now take our first question from Tarik El Mejjad at Bank of America.

[Tarik El Mejjad, analyst]

Good morning, everyone. It's been a very active year for you from NII cost to capital. We're more used to kind of a stable story from you, but here we go. Look, a couple of questions, please. I mean, do you believe this has been peaked at EUR 5.4 billion ballpark or when the government bond effects will fade from Q2 next year, then the underlying growth from reputation portfolio volume growth easing and pressure asset spread would mean that actually there will be NII picking up again. So I'm more looking here for 2025, to be honest. And then I mean you to suggest that actually insurance and asset management fees and revenues should actually be very strong already from this year to offset the lower NII. Can you maybe give us as well a bit of outlook there and where you see the growth would come from in this quite subdued environment?And then secondly, on the cost of risk, I mean, I understand you didn't want to change your guidance for this year, but that suggests more than 40 basis points cost of risk in Q4 alone. Is there anything that you see concerning you in the portfolio? Or you just didn't want to add another guidance for this quarter. Should we just assume that actually cost of rate should remain very low, which is actually a quite big tailwind for your numbers this year already.

[Johan Thijs, executive]

Thanks, Tarik, for your question. And so, I will together with Luc answer your questions. So first of all, in terms of the second part of your first question, that what about the insurance activity and what about other lines that are making up the difference between the cut on the NII guidance and the total income guidance, which we gave for 2023. Indeed, we do see for 2023, which is now 9 months down the road, we do see that the insurance business, the asset management is performing much better than we originally anticipated, and that is making up the difference. So, indeed, that really shows that KBC is more than a net interest income company. It's a diversified price income.In terms of what that brings for 2024, it's a bit too early and definitely for 2025. It's a bit too early to judge. And I do apologize because we are in the middle of an exercise, which is our budget exercise. And as you know, we conduct that taking into account all the latest information also on the economic side to have a precise as possible guidance for next year, and this exercise is, as we speak, conducted. If this call would have come four weeks later, then we would have given you some update but unfortunately, we cannot. The discussions need to take place also with our Board and therefore, this is foreseen at the announcement of the full year results in, what is that, February next year. So in terms of guidance '24, '25 at all different lines, I do hope you have still some patience.In terms of where we are for the net interest income, if it peaked. So '24, indeed, it is flattish and therefore, in that perspective, it peaked. But what is quite clear and that has already given you an indication of what it will be going forward, the transformation result has not peaked. And that is something which you have to bear in mind. But that detail, that will be provided to all of you on the back of the full-year results 2023, and that is foreseen in February next year.

[Luc Popelier, executive]

Okay. And then, Tarik, on the asset quality. Well, we have guided for 10 to 15 basis points credit cost ratio for this year, which means on a total book of EUR 202 billion of risk exposure. This is different from the gross carrying amount, EUR 202 billion risk exposures, and it's about EUR 200 million to EUR 300 million for this year. So far, we already have slightly more than EUR 100 million in the first 9 months of this year. So that means another EUR 100 million as a minimum to EUR 200 million as a maximum, and I would like to point you to the third quarter where the business-as-usual impairments is EUR 95 million. So, if we repeat that same number, then we are close to the minimum of the range. We do expect, however, a little bit more impairments in the fourth quarter compared to the third quarter, the business-as-usual impairments, as I call them, and then you come at slightly above the lower end of the range.

[Tarik El Mejjad, analyst]

But that's excluding the releases of minus overlay that you've been doing for the last...

[Luc Popelier, executive]

Of course. Yes, yes. And in the guidance, we specifically said that we always exclude any movements in this buffer, yes.

[Tarik El Mejjad, analyst]

And the full year NII '24, it includes the 2% -- I mean the change from 1% to 2%. Is that EUR 114 million impact, right?

[Luc Popelier, executive]

Yes, correct. This has a EUR 48 million impact.

[Tarik El Mejjad, analyst]

EUR 48 million, correct. Thanks.

[Operator]

We'll now move on to our next question from Flora Benhakoun Bocahut at Jefferies.

[Flora Benhakoun Bocahut, analyst]

The first question is on NII. Thank you, of course, for all the details you gave us on the slide pack. The calculation I'd like to check with you on the reasoning. If I look at the '23 guidance and try to reconcile what you imply for Q4, it points to Q4 NII declining further towards EUR 1.3 billion. That would be annualized EUR 5.2 billion and you guide for EUR 5.4 billion on the full year '24. So do I understand correctly here that the message is also somehow that the bottom in the NII will be reached in Q4? And from there, sequentially, you would expect an improvement during 2024? So that's the first question.The second question is about your Common Equity Tier 1 target. I know you usually update that target only in Q1 results. But I see you have issued in AT1 in the summer. Obviously, yesterday, we had kind of a clearing event for that market with the UBS AT1 issuance. So just asking about your thinking there as well, because you pointed in Q2 to a potential optimization in the capital structure. It looks like you're starting to get moving on that filling the AT1 bucket with AT1 as opposed to CET1. Could that impact your view on the CET1 target in Q1 results?

[Luc Popelier, executive]

Okay. So Flora, yes, well, fast calculated, if you deduct the first 9 months of NII from our guidance, you come to around EUR 1.29 billion. Having said that, the EUR 5.4 billion, we think, for this year is a little bit on the conservative side, yes. So that means that the mechanical calculation, you do gives you a very low NII for the fourth quarter. So it's probably going to be a little bit higher, which means that the increase from hence forth, there will be a little bit, but not to the extent that you deduct.

[Johan Thijs, executive]

Flora, thanks for your second question. And indeed, as you already indicated in your question, we give a full detail on the CET1 ratio target for the period to come. And that is done normally also indeed in the beginning of next year rather than today. Coming back on the second part in that question. Indeed, we have issued an AT1 of EUR 750 million in previous quarter, and this is intrinsically foreseen to be a replacement of the existing one. So as a matter of fact, this is not anticipating yet a full fill-up of our AT1 potential, which we still have, as you rightfully pointed out.Now what is the consequence? We always said, and in that perspective, we are going to repeat today, when the CET1 target and the usage of AT1 and Tier 2 potential is going hand-in-hand. So, we are not going to double up both. So, if we are going to fill up those buckets AT1 and Tier 2, that will have indeed an impact on our target. And that discussion is going to be disclosed after discussion with our Board early next year. So you can expect that in the course of what is that first or the end of first quarter?

[Flora Benhakoun Bocahut, analyst]

That's very clear. If I could just follow up on the first question because I'm not sure I was very clear. The question is not just about the Q4 NII. It's more could I consider Q4 as the trough? And then it goes up on a sequential basis during the year 2024.

[Luc Popelier, executive]

Yes. I see, I tried to answer that because you start to multiply your number by EUR 4 billion, but the number you start from was a little bit on the conservative side because given the guidance of EUR 5.4 billion. There's a range, and it's slightly higher. But to give an answer, yes, I think from fourth quarter onwards, we shall see an improvement in NII going forward for each quarter, but to a limited extent. And that will bring us to the EUR 5.4 billion for next year as well.

[Operator]

We'll now take our next question from Giulia Miotto at Morgan Stanley.

[Giulia Miotto, analyst]

On the capital discussion, can I ask a follow-up in terms of timing. So we will hear about the new capital threshold in Q1. But then, when is the first time when you will apply the threshold for considering excess capital distribution? So can that be already Q1 or in fact, that is, as usual, Q4 '24 results, which means February 25? So that's my first question.And then just for a change from NII, I'll ask a question on costs. The bank tax guidance, so, there is a clear guidance on the Belgian banking tax. But can I ask just at the group level, I guess, there are a few moving parts on the different geographies. So at the group level for 2024, where do you expect the regulatory costs to land?

[Johan Thijs, executive]

Thanks, Giulia, for your questions. Regarding the capital and the capital distribution part. So indeed, as a consequence of what I answered to Flora question, if we are going to update our capital deployment, then the capital deployment update is foreseen to be applied over book year 2024. So the distribution in the beginning of 2024, which is related to the results of 2023 and the capital position of 2023 is still on the back of the old, let's call it, the current capital deployment plan. So the update will be triggering 2024, payout in 2025.[Foreign Language] which means if the Board would have another decision, anyway regarding capital the capital deployment plan of this year, which is the discretionary position, as you know, because it is triggered by a discretionary decision of the Board if they even would reconsider that, then that is their choice. But from the normal procedure, 2024 payout is on the back of the current capital position, the reviewed capital deployment plan will be applied on the book year 2024 and therefore, pay out 2025 period. If discretionary decision of the Board is different, it will be different.

[Luc Popelier, executive]

So on the bank tax, yes, the bank tax is expected to be around EUR 693 million for '23. For next year, of course, the extra bank taxes that we've explained in our outlook will come on top of that. So in terms of bank tax, that's an extra EUR 54 million. And then you could, of course, discuss whether the European Single Resolution Fund contributions will stop at the end of '23 or not. To be on the safe side, we assume that this will not be the case. Or if it is the case that some other local governments will try to benefit from that. So we stay on the conservative side.

[Giulia Miotto, analyst]

Okay. And no assumption on changes in bank taxes in Europe?

[Johan Thijs, executive]

Well, there is one in discussion at the moment, and that is in Slovakia, as you know, but this is all very primitive discussions. We have no hard facts, no hard numbers. We do see what press says about this. But of course, we cannot judge what the ultimate outcome will be. But there is, of course, a likelihood that there will be an increase in bank taxes for the whole banking sector including SB.

[Operator]

We'll now move on to our next question from Farquhar from Autonomous.

[Farquhar Murray, analyst]

Just 2 questions. Firstly, on Slide 20, can you just elaborate on the negative impact from further deposit shifts to term of EUR 0.1 billion. In particular, does that embed a kind of step-up on the EUR 3 billion of deposit term volume shift we saw in the third quarter on Slide 8? I'm just trying to get a sense of like is the volume accelerating there a little bit and within what you've assumed for the quarter?And then secondly, just on the pass-through rates for full year '24, you indicated higher than current. I just wondered if you could outline what is being assumed for full year '24 more specifically. Then looking beyond that, is 40% still a sensible medium-term pass-through assumption or has your kind of thinking changed there a little bit over the year?

[Johan Thijs, executive]

Thanks Farquhar for your questions. So let me first tackle the first part, which is the guidance on 2023 and the reference made to the negative impact because of shifts. As I said during the call, indeed, we will see further shifts going forward. And that is something which we will see in the fourth quarter of 2023 as well. And as we will see it in the 4 quarters of next year as well. This is a given we have seen that.In terms of calculation, we indicated there around that number of EUR 0.1 billion, that's everything between EUR 50 million and EUR 99 million or even higher, even EUR 150 million -- EUR 149 million rounded number. But to be very straightforward, this is on the very conservative side. So the message I give here is we will see further shifts in the fourth quarter. We will see a negative impact of those shifts from current account, savings accounts, term deposits and to asset management. So it disappears out of the net interest income, not necessarily DPs out of the P&L. That's the message. It is on the conservative side. I cannot give you the precise number because then I give you our commercial position, and that is something which I prefer not to do.Going back to your question on 2024. Indeed, we do assume so the current pass-through of the book in for instance -- let me take the two most important countries, Belgium and Czech Republic. The pass-through on the countries, Czech Republic, both on saving accounts and on term deposits, we consider not to shift anymore. So, we are kind of a peak. I'm not talking about shifts of one or two basis points. That's not what I'm talking about and talking about the more significant impact. We don't see this happening anymore. We didn't see that for the last 14 or 15 weeks. So, in that perspective, we had at the end of the cycle there. But for the Belgium book, the current pass-through stands at 22%, 22.5% to be precise. We do expect this to shift more, but also there for commercial reasons, we do not disclose the exact detail. But we do take into account shifts and pass through in that perspective for the 4 quarters in our calculation in 2024, and they are in our consideration on the conservative side.

[Operator]

And we'll now take our next question from Johan Ekblom at UBS.

[Johan Ekblom, analyst]

Maybe just continuing on the same slide on Slide 21. When we look at the impacts you disclosed on the state bond issue, that the kind of fades in Q3 next year, and there is nothing in Q4. Am I right in assuming these are year-on-year impact because if you don't assume that the money comes back, presumably, it's a permanent loss of NII, just so that I understand that?And then if we just look below that on the MRR impact, I think you made the point that it's proportionate to rate. But surely, if rates fell, you're losing less on MRR, but the overall impact on NII should be negative if we take your total liquidity into account. So just if you can confirm those?And then maybe just maybe slightly backward looking, but a year ago, you were guiding to 12% NII impact year two from a 100-basis point rate hike. So if we just look at the rate tax we had in 2022, they should have added some EUR 1.2 billion to 24% in NII, knock off the impact that you described today, and we're kind of falling EUR 500 million, EUR 600 million short. So can you maybe help us understand, what has evolved so differently that the impact is half of what you guided to, even if we make adjustments for the MRR and the state bond issue?

[Johan Thijs, executive]

So on the state note, the guidance we give here is purely the mechanical effect quarter-by-quarter, and we assume here then that stops. And the EUR 51 million per quarter is the real effect per quarter, it's not a delta. And then in the third quarter, you have EUR 37 million because the state bonds will end before the end of the third quarter. In our guidance, however, we've assumed that the state notes, well, at the money from state note will not come back to KBC. Either because there's a new one issued, and then, of course, you continue with the numbers you see here per quarter or the first two quarters or if there's no state bond, but it goes elsewhere. That could also happen very conservative, then we would also lose that. That's in our guidance. So, this is purely mechanical effect.On the MRR impact, you're right, when the policy rates come down, on the one hand, the MRR effects will reduce as well. But indeed, also, there will be a negative effect on NII, yes. Having said that, we've taken into account in our guidance, the 5.4 million for next year, a reduction in policy rates. So, a slightly less negative effect on the MRR. But of course, we take the negative effect of lower NII into account as well in our guidance.The third question, I'm not entirely sure where you got that guidance from. So perhaps, can I suggest to take it offline to see where you got it from because that sounds unfamiliar to me. And then we can see where the reconciliation can take place.

[Johan Ekblom, analyst]

Sure. No problem. Thank you.

[Operator]

And we will now take our next question from Benoit Petrarque at Kepler Cheuvreux.

[Benoit Petrarque, analyst]

So 2 questions on my side. The first one is on the mix effect. So top down, if I look at the share of current accounts, I think you are currently at 50%, down from 56% end of 2022. So in absolute level, it's still from a historical point of view, it's still relatively high. So my question is, do you take sufficient shift going forward in your assumptions? That will be the question number one.And number two will be the -- in your guidance, I just wanted to check how much kind of rates you've taken in your South Western Europe countries. If you assumed, well, probably 200, 250 bps cut notably in Czech Republic, for example.

[Johan Thijs, executive]

Thanks, Benoit, for your questions. So Luc and myself will answer those. First of all, in terms of the analysis of the evolution of the, let's call it, composing parts of the total deposit side, your analysis is indeed correct. So, we currently stand at roughly at the end of third quarter, KBC Group level for the Euro-denominated, but also on the non-Euro-denominated countries at 50%. So that is indeed the basis. What is far more important is it's not only that what is important, but it's also how much is internal deposit, how much savings are.Precisely for that reason, we have considered for the guidance of ‘24, but also for the fourth quarter of '23. A further increase of the shift to term deposits going forward. And those shifts are indeed mostly coming from current accounts to a lesser extent, saving accounts. So yes, that shift is taken into account. And yes, that shift is taken into account in the quarter 4 guidance but definitely also in the 2024 total guidance. How much of this per quarter and what it is at the end of the year for commercial reasons, we do not disclose, but it is significant.And the second part of your question, I did not understand, but we'll give to Luc.

[Luc Popelier, executive]

Yes. So, we took into account in our guidance the forward rates also for the policy rates. So that means, for example, for the euro, by the end of '24, the market assumes around 3%, 3.08% precise as of yesterday and '25, 2.7% and then 2.7% getting '26 for the euro. And then for Czech koruna, we expect -- well, the forward rates are -- which we assumed in our guidance, 3.85% by the end of '24, 3.6% by the end of '25 and 3.7%, 3.66% by end of '26. So, these are the most important policy rates on which our guidance was based.

[Operator]

We'll now take our next question from Amit Goel at Barclays.

[Amit Goel, analyst]

Two questions from me. One, just coming back on to the '24 NII. I just wanted to understand the mix shift assumptions a little bit better. I appreciate you may not give full details. But I mean, clearly, I mean, generally, the guidance has historically been quite conservative for Q4. There's obviously a more significant impact than anticipated from mix shift effects. Just trying to think about how you calibrate the amount of shift from current and savings to term, whether you're using historic levels and what gives you confidence that the new assumptions are conservative.And then the second question is just on capital. I'm just kind of curious, I mean, last quarter, you guided to the EUR 8.2 billion being offset and you've successfully done the EUR 1.7 billion, and there's another EUR 2 billion to come in terms of offsets. I'm just wondering how the regulators and authorities see the offsetting whether it kind of creates any conflict or if it's something they expect? And then just in general, just kind of curious, it took a long time to get the buyback kind of reapproved, et cetera? Just any color on the relationship with the regulator.

[Johan Thijs, executive]

Thanks, Amit, for your questions. Coming back to my earlier answer on the mix shift. So yes, indeed, your analysis that Q4 2023 sounds a bit conservative. We agree. We took that as a deliberate stance. But also going forward in 2024, we did take into account, that's what they asked to Benoit a second ago. We did take into account a fundamental shift from current accounts, saving accounts to deposits.I repeat what I said I cannot disclose the precise number, but your question, did we take into account historical levels? The answer is positive, yes. That was the reference which was made, but also the references made to what we have seen in Central Europe, mainly in Czech Republic, where, of course, the cycle is a little bit ahead of the Eurozone. So the cycle is there. Clearly, at its peak and probably over it speak, that's what we will see in the next coming, let's say, 10 to 12 weeks. And both elements, historic and Czech Republic experience are taken into account when we calculate shifts.In terms of your question regarding capital. So what is put into the numbers in Slide 23. So also, where we take into account the impact of Basel IV, but also what we take into account in the risk-weighted assets to release the EUR 2 billion ballpark, which is mentioned there. We did include the evolutions of all things which we know today and which have been also discussed with our supervisors. So within that EUR 2 billion, that is part of it, which is related to discussions which we have had on potential releases on one particular file and compassing more than one single element. But we called it the simplification part and the part of that EUR 2 billion is related to the simplification trial.And that has been discussed through with ECB, and we know kind of what it will be. We have in that perspective, very open discussion with the ECB. We have an open discussion on all matters is that discussion is taking place not only on what happened with the previous corporates, but also on other files, including the simplification -- so in that perspective, open discussion and we do expect that to release on the simplification trial to happen in the course of the fourth quarter of this year.So, in that respect, relationship is good, which is true for all supervisory sites, which we are confronted with. I'm talking about not only the ECB, which is the majority of our banking business, but also the relationship with the Czech National Bank with the Hungarian National Bank but also with the insurance supervisor is excellent, including the relationship with financial service monitoring authorities or single resolution board authorities, an excellent relationship with all of them. And the relationship is based on openness, transparencies, and candid discussions.

[Operator]

We will now move on to our next question from Kiri at HSBC.

[Kirishanthan Vijayarajah, analyst]

A couple of questions from my side. So firstly, on capital or rather M&A, I guess. We've seen some assets change hands in the CE recently. And I wonder if do you see that as a bit of a trend, I expect maybe a bit more movement there in the coming quarters, maybe more opportunities might pop up perhaps? And does that kind of impact your views around capital deployment? Perhaps keep some powder dry if some files come along that look interesting and fit your criteria. So, first question on potential sort of M&A and some moving parts in CE.And then secondly, on the cost targets, your old jaws targets, you previously targeted this kind of compound 5 percentage points out to 2025. That seems to have been dropped. So going forward, what's your thinking on the cost side, specifically around kind of targets? Do you think you might reestablish an absolute cost target? I know that in the past has worked quite well for you, particularly at the moment, there's lots of moving parts around the revenue side. So, the absolute cost target, does that make sense? And should we expect kind of revised cost framework when you finished your big budgeting exercise. So that's my second question. What's the thing on the kind of cost side and cost target framework, please?

[Luc Popelier, executive]

Thanks, Kiri, for your question. Let me answer the first one. So, on capital and what about the potential deployment of capital in terms of acquisitions. Well, we are constantly monitoring the market. And in that perspective, looking for opportunities. Those observations have resulted in, as you know, in the last two years in a couple of acquisitions on our side. We do see now indeed in the Central European environment, a couple of assets moving.The thing is that it moves in countries where we currently are not necessarily present or when the asset moves were on the table in countries where we're present, we were not really a candidate for taking over that file, both on the bank and insurance side. But we do consider every asset, which becomes available, even if that asset is not necessarily a big one. And for sure, we will consider every asset which is sizable. So yes, we will constantly monitor market. Yes, we will look into opportunities. And yes, we will expand our positions, both on the banking and insurance side, if possible, definitely in our core countries.

[Johan Thijs, executive]

And then on the cost side, as you know, the intention is to give long-term guidance in February next year, not today. But obviously, when you refer to the previous guidance we gave, we said 2.3% CAGR between 22% and 25% and a jaw between costs and revenues of 5%. And now the jaw between cost and total income and costs, obviously, is heavily under pressure given the new guidance we gave on NII. On the cost side alone, we will make up our minds. But so far, there's nothing to suggest that there would be very heavy discrepancies between what we thought earlier and today.Then going back to -- should we go to an absolute target. It has pro and cons. We have discussed it internally as well. But there are a number of costs, and you know the cost guidance we gave is including insurance commissions. Some of the costs are variable. So, the better we do on top line, the more costs we also have on the variable side. For example, the commissions we pay to agents, but there are also other variable costs. So, it has pros and cons. So far, we've already said that it would be a CAGR, and we'll see what comes out in February.

[Operator]

And we will now take our next question from Matt Clark at Mediobanca.

[Jonathan Matthew Clark, analyst]

Good morning. So firstly, on the Irish tax benefit for next year, could you just confirm whether that will immediately benefit CET1? Or do we have to wait for that to be kind of utilized in subsequent years before that flows through to CET1? And then secondly, sorry if I missed it, but have you given any comment on storm here and impact on insurance claims in the fourth quarter? Should we be expecting something material there? Thank you.

[Luc Popelier, executive]

So, on the tax benefits that will be taken over the number of years, but very quickly because the tax base in KBC Bank NV is sufficiently high to absorb this well quite fast.

[Johan Thijs, executive]

I am going to take the second question. Thanks, Matt, for that question. What is the impact on insurance of the storm which hit the continent roughly a few days ago. Well, all in all, the impact is not material, fortunately. So, we do estimate the impact to be between EUR 7 million and EUR 10 million, roughly about 5,000 files, claim files. So, all in all, it is not material.What is important to know is that of all the files, we do see a significant impact of our chatbot Kate because the vast majority of the files, more than half of them were digitally -- was a digital modification via Kate. And it is also, as a consequence, straight reprocess, which means for notification, claims handling and so on for the started up automatically, done automatically by Kate.Why do I mention that? First of all, it has a significant positive impact on the cost price of handling this claim side that gives you immediately also a better insight on how much the claim potentially can be because we don't know the precise number per file, but we know on the historical data, what the average impact might be, and therefore, the guidance I just gave. But what is also important is because of the fact that all the claims immediately already notified, but also put into operation because of Kate the company can just continue to work like as there was no storm, and that is the big change. So operationally, this formal cost is max EUR 10 million, but it has no impact on the operation, on the commercial side of the business because it is done in a straight-through process by Kate for roughly 60% of all the claims.

[Operator]

I will now take our last question from Jason [indiscernible] of [indiscernible].

[Unknown Analyst]

A couple of quick questions. The first one is on the shift to term deposits. I understand that you are conservative in your outlook. But would you agree with what some peer say that normally, we should see a deceleration from this quarter onwards and especially in 2024? And do you take into your conservative assumptions, a deceleration still from the levels we are seeing currently?And the second quick question was on the Belgian state bond. If there is another one in December, I mean, there is no clarity exactly on if it's going to be one year, et cetera. But could you tell us what are your thoughts? And what could we assume to be priced in your outlook for NII in '24?

[Luc Popelier, executive]

Look here, I'll take the question on the shift to term deposits to have a bit of a variation on the same question. We do see some deceleration, obviously, because if you look at the current composition of our term deposits, it's about 17% of our total deposit base, if we would continue at the same pace, then you would overshoot the historical levels by far. So, there is a deceleration.

[Johan Thijs, executive]

And then I will take your second question, Jason, that is what about the state bond. As we all know, this is a decision which needs to be taken by Belgian politicians in the course of the next coming, let's say, weeks quarter. There is foreseen that there is a delay possible for that decision of 6 months, that is foreseen in the law. But that decision has not been taken yet. So, the question is, how will there be a new state bond? If there is a new state bond, then the assumption is that it's not necessarily will be uncapped like it was before.And then also in that perspective, the question is where it was in the previous release a one-year's bond? Is it still going to be a one-year bond or not? It's going to be a multiyear bond, which from a tax perspective and a Belgian budget perspective, much more sense because of the inverted interest curve. So, what is going to be, if there is a bond, yes or no? That question is in the hands of politicians. And I think we can have a lot of assumption on this matter, but the only true once will be given by Belgian politicians going forward. So let's await that.And then how is the form and the shape of the bond from a purely economical perspective, if they would generate one, it would make much more sense to have that on the longer term, that there's a bond which is uncapped -- is to be very unlikely -- and definitely also the way we are going to deal with the bond is completely different than what we have seen with the first state bond issue. That's for sure.As I also indicated earlier, in the 2024 guidance regarding the bonds, which has been issued, we took a conservative stance. But if we would have a second state bond, uncapped, whatever form, that is something unknown. We also took into account certain elements of that potential issue going forward in the guidance of 2024.

[Operator]

There are no further questions in queue. I will now hand it back to Kurt for closing remarks. Thank you.

[Kurt De Baenst, executive]

Thank you very much. This sums that for this call. I thank you for your attendance and see you soon. Cheers.

[Operator]

Thank you. Ladies and gentlemen, this concludes today's call. Thank you for your participation. Stay safe. You may now disconnect.