KBC Groep NV

XBRU:KBC

Earnings Call Transcript 2017-Q4

[Operator]

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to today's 4Q 2017 conference call. [Operator Instructions] I must also advise you that this conference is being recorded today on Thursday, the 22nd of February 2018.I now would like to hand the conference over to your first speaker today, Kurt De Baenst, Head of Investor Relations. Please go ahead.

[Kurt De Baenst]

Thank you and a very good morning to all of you from the headquarters of KBC in Brussels and welcome to the KBC conference call. Today is Thursday, the 22nd of February 2018 and we are hosting the conference call of the fourth quarter results of KBC. Today, we have Johan Thijs, Group CEO with us as well as Rik Scheerlinck, Group CFO, and they will both elaborate on results and add some additional insights. As usual, it will take roughly 0.5 hours to guide you through the presentation for the analysts, which can be found on our corporate website kbc.com. After this there is, of course, time for questions until around 10:45 a.m. Brussels Time. This conference call is taped and can be replayed via our website, kbc.com until the 9th of February -- 9th of March. Investor Relations and our CFO are organizing as usual a sell-side equity analyst meeting in London tomorrow morning at our offices in the city of Broad Street 111. This meeting starts at 8:30 a.m. local time and we would be pleased to welcome you there.And now it's my pleasure to give the floor to our CEO, Johan Thijs.

[Johan Thijs, CEO, MD & Executive Director]

Thank you very much, Kurt. Also from my side a warm welcome to the announcement of the fourth quarter and the full year results of KBC Group. Let me start with the key takeaways that you can find on Page 3. It is for the fourth quarter a result of EUR 399 million, which at first glance looks a bit low compared to the previous quarters, but we have to make clear there is a one big off, which we earlier announced after the Q2 results, that is the reform of the Belgian corporate taxes has come into play since the beginning of this year and therefore, that has a one-off negative impact on our P&L of EUR 211 million. If you would add both of them together, then our result would stand at EUR 610 million for the quarter, which is a completely different number.In terms of return on equity, if you would add up all the numbers for the full year, then we would be having EUR 2.575 billion year result, which is an excellent result, which translated in ROE it means 17% for the year. If you would make there also the adjustment for the one-off corporate tax, then the return on equity would go north of 18%.Now in terms of where we have made this result is actually quite simple. The machine, the KBC machine has been firing on all its cylinders, both the banking insurance side, dealing rooms, all activities have been doing extremely well. We saw our loan volumes going up, customer deposits coming up and dealing rooms had an excellent performance as well as in the third quarter. The net interest income has been going up. If I exclude dealing room income, it generates as you know negative NII and it's a little bit awkward situation, but this will be the last time that [ we were straining ] with that, because we are going to change that in 2018.The fee and commission business has been doing great. We have had also a good performance on our financial instruments at fair value. And last but not least, we have had strong quality in terms of our insurance performance in life, both on the sales and on the technical quality, an excellent quarter in life products. We were able to control our cost/income ratio in an excellent manner. Cost/income ratio now stands at 55% for year and we had a net release again of loan loss provisions to the total of EUR 30 million.In Ireland was -- again a substantial release of provisions, bringing the total for the full year to EUR 215 million. We also provide you a new guidance for the loan loss provisions in Ireland for the full year, it will be somewhere in the range of EUR 100 million to EUR 150 million. In Ireland, we also disclosed that earlier in previous quarter that is -- that the tracker mortgage review, which started on mortgages generated originated in 2008-2009, has been adding an additional EUR 61.5 million negative impact on the result of Ireland. That brings the total to EUR 120 million for the total review of that [ total ] tracker mortgage book in Ireland.How that translates into a capital and our liquidity position, you can find on Page 4. It is in essence all good news. The Basel III common equity Tier 1 ratio under the Danish Compromise went up and we always take into account, obviously, the fully loaded number, went up to 16.3%, which is an increase of 0.4% on the quarter and is quite significant. And other good news is that the Basel IV impact for KBC is estimated at EUR 8 billion higher risk weighted assets, which is an inflation of about 9%, which translates itself into a impact on the common equity Tier 1 ratio of minus 1.3%. This also allows us to a review our capital positions, I will come back to that later on. It will be now 14%, our own capital target at 16%, our reference capital position. We also give you insights in our -- the impact of the first-time application of IFRS 9, which will impact our fully loaded common equity Tier 1 ratio with 41 basis points. So that is also I think a quite clear statement on what impact of that first time application IFRS 9 is. The leverage ratio stands at 6.1% and I already mentioned that liquidity position is quite strong.Where that has a consequence for our capital deployment and our dividend, we proposed to the AGM a EUR 3 per share gross dividend, which means that after the interim dividend paid out in November of EUR 1, we will add a final dividend of EUR 2. But we also announced today that we are going to buy back 2.7 million shares; that will be roughly about EUR 200 million. That will be proposed to the AGM in May, which will then wipe away the -- or wipe out the dilutive effect of capital increases for staff, which is driven by incentives, tax incentives in Belgium over a longer period, but I will share some details later on. That brings the payout ratio for 2017 to 59%, which is perfectly in line with our policy, which we also confirm for the future that we are paying out at least 50% of our profits in both dividends and AT1.Let me now go a little bit more into the detail, which brings me first at the split-up between the bank and insurance company. I'm not going to waste too much time here, because it's a traditional split-up also this quarter, 81% from the banking side, 19% from the insurance side. So nothing spectacular or new there. And therefore, I propose to go to the net interest income.Once again and I do apologize this is the last time, we have the difficulty of the treatment -- the accounting treatment, the difference of hedge -- of swaps, which we used to swap euros into Czech koruna; U.S. dollars into euros. And the gain which we make on that deal is booked in 2 different legs. One leg, and that's the negative one, goes into net interest income and the positive one goes into financial instruments at fair value. The sum of the 2 parts is positive, but that is something you see in the P&L. If we are talking about P&L lines, line by line, you will have the negative impact. So let me first do the numbers as they are booked without adjustments. That's what you see on Page 8. Net interest income went slightly down, with 1% on the quarter, 3% on the year. This is due to tax, which you probably all know. Actually the biggest impact EUR 61 million, that's EUR 8 million more than previous quarter, because of that negative leg of the swaps and the dealing room activities. Lower reinvestment yields still play an important role. And then we have some pressure in some countries on some products, mainly on mortgages in Belgium, Czech Republic and in Slovakia. The impact of that is offset by lower funding costs, but also -- and that's very important -- strong growth on the volume -- on our loan book and that is true for all the countries, true for Belgium, Czech Republic, all the other countries in our core markets. And last but not least, we have obviously the positive impact both on the short and long term increasing interest rates in Czech Republic.Now if we just purely look at the net interest margins, it currently stands at 183 basis points, which is actually the same as last quarter. So that's good news. Here clearly you can see that we are able to mitigate the impact of the low reinvestment yields by our policy. And what is far more important that if we started to make the adjustments on the asymmetrical treatment of the FX swaps, which we use to play on the carry between euro, dollars and Czech koruna, let me switch to Page 9, you can see what actually is the underlying performance of our policy in terms of interest linked products.You can clearly see that on the quarter it was more or less same, but on the year, it's 3% up. The banking book is doing quite well and the insurance book is definitely suffering the low interest rate environment; 8% down on the year, fully compensated by the banking side. Also the same effect you can see in the interest margin. It goes up 199 basis points, now clearly reflecting the way how we deal with our commercial entities, commercial products and how we deal with our margins related to that.Last but not least, let me repeat -- I know that I already said it, but it's quite important. As of the first quarter of this year, so 2018, this asymmetrical treatment will be adjusted and the intrinsic rule of the FX derivatives therefore will also be booked in the NII instead of the financial instruments at fair value. So all the confusion, which we did have is gone. This means that the impact of all those derivatives will be netted in NII as of the next announcement, Q1 this year.Okay, other line, which is quite important, contributed to the income line, that is the fee and commission business. Good news here is, well, EUR 430 million net fee and commission income is quite substantial. It's 5% up in the quarter and it's even 14% up on the year. How come? It's driven by a lot of things, obviously, but let me start with asset management business, so mutual funds and unit-linked life products have been going up. So both on the entry fees side and also slightly on the quarter on the management fees side. The securities business has been performing extremely well, both on the primary market and on the secondary market. So that's very good news and it's now also something which I can say for the full year of 2017. If I compare the negatives -- mainly because of the success of the insurance business, non-life, we have paid higher commissions on the insurance sales. It's EUR 5 million extra compared to the previous quarter, and we also had slightly lower payment services fees, about EUR 2 million, not that important.But all in all, also on the quarter is good news. If you compare the year-over, I mentioned that it's significantly higher and that is mainly driven by higher management and entry fees. Those together combines EUR 31 million, quite substantial. It will be no big surprise that if you translate that into assets under management, they are up 3%. This is driven by price effects obviously, but also -- and it's quite important -- by net new sales; about EUR 3.3 billion on the year, about roughly EUR 1,974,000,000 on the quarter. Why don't you see that necessarily straight going forward? That is because of, for instance, the shrinking interest guaranteed book in Belgium in the life business, all those assets are released and that has also an impact on the assets under management. But net inflows on the sales basis are EUR 3.3 billion up full year. A slight reminder, we have also divested in the fourth quarter our asset management activities in Poland, KBC TFI, that has an impact of about EUR 0.9 billion assets under management, split up EUR 0.5 billion own assets, EUR 400 million assets under management, straightforward. So also there good news.Let me switch immediately to one of those negative contributors to the fee and commission business, namely non-life business. The insurance non-life sales increased with 6%, which is a great result. And this is also again a strong performance after the strong performance of 2016. In the life business, we have a bit of a mixed picture here. For the fourth quarter, it was superb, the sales went up with a mere 46%, which is indeed quite significant. Unfortunately, it did not compensate the first 9 months and therefore, the year-on-year result is 3% down.Other good news is that the combined ratio for the full year 2017 stands at 88%, which is very low. Some experience in the insurance business as you probably know, and for the 88% I can say this is an historic low number, which reflects 2 things. First of all it reflects the underlying quality of the book, which is good. And that's good news, because it's good in all countries. Also our Central European countries have combined ratios below 100%. And the second thing is that despite the fact that we were hampered a little bit in the fourth quarter by natural catastrophes, mainly in Belgium, little bit in Czech Republic, that still we have sufficient margin to end up with a combined ratio at 88%.On Page 12, you can see again that's the written premium, I'm going to skip that for the non-life business. You can see the life business, where you see the split-up between unit-linked and interest guaranteed products, both are up on the fourth quarter and the conclusion for the full year is more or less the same. Year-on-year interest guaranteed products were same level in unit-linked. So it was 23% up year-on-year. So here actually nothing much to add. What I can add is that the value of the new business in the life business was increasing significantly because of different reasons, but perhaps when I overview briefly the year results, I can come back to that later on.Let me switch to Page 13, where you see the fair value gains on all the different aspects, coming up 29% on the quarter, coming up 5% on the year, which is quite significant. The building blocks are always the same, but here no big surprise, you can see the positive lag of the FX swaps coming in. The dealing room activities contributed significantly to that increase; EUR 53 million better on the year, EUR 46 million better on the quarter, which is quite significant.In terms of assets mark-to-market derivatives derivatives, there is not a huge difference between the quarter, but obviously, there is a big impact difference between the year. It's minus EUR 52 million, so quite significant. But let me go through the real quality aspects, rather than standing still too long by those mark-to-market derivatives.In terms of the gains realized on the sales of AFS assets, EUR 51 million, which is comparable to previous quarter, which is indeed significantly up in comparison on previous year, mainly driven by the sale of shares, EUR 46 million [indiscernible] is due to shares. So also there, I would say, quite normal performance, given the previous quarters of this year. And last but not least, other net income significantly down. What you don't see is that the normal underlying contributors to that other net income. So the leasing business finances in Belgium, assistance company, our real estate business, so on and so forth is actually performing perfectly in line with normal run rate. But this number is heavily distorted by the provision which we booked -- the actual provision which we booked in the tracker mortgage review in Ireland. EUR 61.5 million was booked in the fourth quarter. If you add that up with the already EUR 58 million, which was booked for previous quarter and previous year, then we end up with a total of EUR 120 million before tax for that tracker mortgage book.Going further, we are going to the other important quality indicator, that is how we deal with cost and how we deal with impairments. First of all, cost side. On the cost side, we have a cost-income ratio of straightforward 54%, if you take everything into account. If you start to address specific elements, then it ends up at 55% for the full year in 2017. The increase is 9% on the quarter. But here, again, we have to add fourth quarter, third quarter typical seasonal effects, IT expenses which are booked, marketing expenses, we have been running some campaigns amongst other to support the life business in the whole Group, and we have some professional fee expenses, which are due, for instance, because of the tracker mortgage review, but also because of supervisory and regulatory initiatives, which are then -- those fees are going to [ be pushed ] upon us. Traditionally also some higher staff expenses and this is mainly linked to the wage drift in Central Europe.In terms of what is really underlying, you can also have a different view. Let me compare year-by-year to make it a bit more clear. If you just take the full year cost evolution and you compare it with 2016, we see an increase of 3.6% excluding the bank taxes, which means in nominal terms that we have an increase of EUR 125 million. Now if you would look at what we also announced earlier that the investments in the digital environment, which we are intending to do in 2017, we are perfectly on track with that EUR 250 million. If you compare that what we did in 2016, EUR 125 million, the difference is precisely EUR 125 million. So that you could say we have actually managed to keep our other cost under control and absorbing the cost of EUR 40 million adding by UBB entirely, next to our digital investments. So it's quite good In terms of how you deal with your operational activities.Bank taxes, [indiscernible] EUR 439 million, little bit higher than what it was last year, and expresses -- and that you can see on Page 15, 11% of our total expenses, it's quite a lot. If you would exclude that, then the cost-income ratio of KBC Group would stand at 48%, which is I think a number to be proud of.In terms of quality of the lending book, Page 16, good news again, loan loss release. I already mentioned that, EUR 30 million, mainly driven by Ireland, Czech Republic and Hungary has also been adding in that respect some releases. Now Ireland totals EUR 250 million. We do expect that also over the year 2018, we'll have some releases and that's probably more or less in the range EUR 100 million and EUR 150 million.In terms of other impairments, we have had some impairments on shares, the other impairments totaling EUR 29 million, which is EUR 12 million impairment in Czech Republic on ICT, but also in the revaluation of the rest value of leased cars, some facilities in Belgium were written down and also some other stuff in international markets business units, mainly ICT-driven were brought down. Let me come back to the impairments on loans, 6 basis points negative for the total year. Credit cost ratio is quite remarkable. It reflects, indeed, the quality of the book, which is also translated in the impaired loans ratio, which has substantially improved compared to the previous quarter.Let's go back to the corporate tax reform in Belgium, Page 17. We announced earlier on the basis of what was then known and some estimates of our profitability going forward that the impact would be roughly EUR 230 million. Now it has been EUR 243 million. Now the EUR 243 million is related to the decrease of the corporate taxes from what it was roughly 34% in 2 steps to 25% in 2020. Now if you translate on the DTAs, then the impact is EUR 243 million through P&L. There is -- but also in that summer agreement of the Belgian government, it was decided that not only the corporate tax would go down, but it also would be a change in how dividends received, which were based on earlier tax income, how that would be exempted from tax. Previously it was fixed for 95%, they changed that to 100% and that also brings EUR 32 million to the table in 2 steps already, booked, but reversed and the full exemption on what still remains at [indiscernible]. So combining those, EUR 243 million plus EUR 32 million, brings us at EUR 211 million. The good news is that we obviously are going to recoup that over time and that means that we are going to have more or less 2.5 years needed to recoup fully the EUR 211 million. And as of that moment, obviously, we will make profit compared to what we are paying tax today.And on Page 20, I have the countries, but I suggest to skip all of that, because of too much detail and probably my messages will be more of the same of what I already explained until now. So let me go to Page 34 -- sorry 44 where we have the balance sheet overview. Again, there you can see a good performance in terms of the loans. We have a 4% increase, If we do the exclusion of UBB. Including UBB it will be 5%. The split between mortgages and commercial loans is indicated as 3%. Deposits were growing 7%. If you would add UBB, it will be 8%.If you translate everything per country, you can see that on Page 45, I'm not going to dwell upon the details here, and I'm going to shift to Page 47, where we have the translation of the -- all those results in the capital position of KBC. Good news, 16.3% is our fully loaded capital ratio under the Basal III regime and Danish compromise, which is substantially higher than the regulatory minimum assigned, 10.6% and is also substantially higher than our own capital target. Now our own capital target was 14.6%, but we do also review that. I'll come back to that in a second.Let me first start with also indicating the impact of the first time application of Basel -- sorry, of IFRS 9. The impact is estimated at 41 basis points. We also here make a deduction of the impact of share buyback that would bring our -- if we fully implement that, that would bring our pro forma fully loaded common equity Tier 1 ratio to 15.7% at the end of 2017, which is indeed close to our reference capital position.On the next page, you can find the detail for the leverage ratio on the Group, on the bank, but also the Solvency II ratio, which stands at 212%. The decline there is almost entirely due to the fact that the corporate taxes change, indeed, the impact of the DTA here as well, and that's mainly driven by Belgium, but Belgium is the biggest part of our insurance group. So therefore the impact is almost entirely cosmetic.On the next page, you see the capital ratio, which now stands at 20.2% and all the different buckets; common equity Tier 1, AT1 and Tier 2 are perfectly in line with our guidance, which we have given before and which we prefer it to be.Let me conclude now with Basel IV on Page 50. So as I just said that the key takeaway is the Basel IV impact is minus 1.3% on the common equity Tier 1 ratio, which stands in risk weighted asset terms, equal to EUR 8 billion increase of risk weighted assets. When we make the comparison also with our peers, as we do, the impact was more or less in line with our peer group. And for that reason, we concluded that the 1% buffer for the Basel IV vulnerability, which we assume to be bigger for KBC [ than our peers ] is no longer required, so that drops away. We also review the Basel IV -- sorry, the common equity Tier 1 ratio of our peers. And if we have all those numbers together, we come to the conclusion that the current 14.6% own capital position can be lowered to 14%. As a consequence, also the reference capital position is lowered from 16.6% to 16%, which will both be the new reference capital ratios.Now in terms of capital distribution, how we are going to deal with that. We reconfirm today our payout ratio of 50%, at least, to be paid out for the dividend and for the AT1 coupon. For 2017, we will apply our policy. Perfectly aligned with that we're going to pay out in total 59%, which is indeed more than 50% and which is split up in 2 parts; dividend EUR 3 per share and a buyback of 2.7 million shares equaling more or less EUR 200 million. Now the latter is due to the fact that we have been -- for Belgium that's tax incentivized, we have been increasing capital for our staff. So employees can subscribe to that and they get a tax benefit for that. Now if we take into account the period since 2012, we take it forward also next couple of years, then we are having amongst -- more or less in total for that period of, let's say, 10 years, about 2.7 million shares, which is roughly 270,000 shares issued per year. And that dilution effect is taken away now, so that is completely wiped out with the buyback of those shares. So again I repeat, total payout ratio 59%, perfectly in line with the policy of at least 50%.On the next pages, 54, 55, you can see the liquidity position. Let me summarize that in one single word, it is very good. It's much better than the regulatory minimum and also our buffers remain quite solid. We have on the short-term funding EUR 43 billion of buffer and the ratios change a little bit, but that's purely cosmetic. So for that respect, I suggest to skip that part.So that was the fourth quarter. And I would say for the year, it's more of the same. It was an excellent year, [ 2-point ] -- almost EUR 2.6 billion of profits, 18% return on equity, if you adjust the impact of the taxes. And all the rest is actually the same.If I go to Page 61, where we have the forward guidance for 2018, then we expect 2018 to be a year of again good economic growth and we think that's true definitely for the euro area, but also for the U.S. and definitely for our core markets. We guide also that -- as a consequence of that we will have, again, solid returns for all the business units, including the internationalized market business units. Already mentioned the range for the impairment releases in Ireland, up to EUR 100 million and EUR 150 million for the full year, for good understanding. We will have the negative impact of the first-time application of IFRS, which I have highlighted at 41 basis points. And we will have the positive impact of the tax reform in Belgium going forward. Also, we called the CoCo in January 2018, which will have a positive contribution of EUR 54 million and Basel IV impact I just described. So in that respect, we can clearly indicate that 2018 will be a continuation of 2017 in terms of performance, set aside all the details.The -- all the other numbers, which I'm not going to follow, are full year numbers. But what I suggest is to skip those and just focus on Q&A, because there I think you will be having more interest in our comments on your question than me explaining slides, which we have already read.So I give back the floor to Kurt, or to you. Okay, please. We are free for all your questions.

[Kurt De Baenst]

Now the floor is open for questions and please restrict the number of questions to 2, to allow for a maximum number of people to raise their questions. Thank you.

[Operator]

[Operator Instructions] And your first question comes from the line of Pawel Dziedzic.

[Pawel Dziedzic, Equity Analyst]

Two questions from me. The first one is just clarification on your dividend policy for 2018. So obviously you reiterated that you will pay at least 50%, but how will that work in practice, if I may ask? So you clearly are at or very close to your target capital. Will you aim to distribute possibly anything above that level and will it be a mix of dividends or buybacks, and when will the decision be taken? Is it only to be taken towards the end of 2018 or you perhaps can initiate buybacks as you go through the year? So that's the first question. And the second question is just on your NII trends. So previously you have been still a bit cautious and I think you told us last time that you would still expect relatively flat NII trends in 2018 and this is adjusted for dealing room and despite UBB acquisition. So I'm wondering if you're thinking there changed at all. Your NII is up this quarter, I think around [ 1.5% ] year-on-year and in the banking we've seen even higher growth and obviously volumes and margins seem to be a little bit more supportive. So how do you think about that would be very useful to know.

[Johan Thijs, CEO, MD & Executive Director]

Thank you, Pawel, for your questions. Let me answer the first one. So indeed, if we take into account all the elements now, Basel IV, impact of IFRS 9, then our pro forma result is [ 15.7% ], the common equity Tier 1 ratio, the Danish compromise end of year 2017, by lowering indeed the reference capital position, we come very close. Our dividend policy, the guidance remains the same, this -- at least 50% and we translated now what that means., And so we can clearly exceed that -- we can use the definition at least and clearly exceed the 50%. That's what we'll now do in the full year 2017. The same is true for 2018. So in principle it is indeed -- and this is the confirmation for what I said earlier, that if we do exceed the own reference capital targets position, so the 16%, that will create surplus capital. And what means surplus capital is that capital can be freed up for distribution to shareholders. How we can do that, it's also a confirmation of what I said earlier. In essence, we have the options. So we have as an option, the dividends, increasing the dividend payout, or we have a super-dividend, is intrinsically the same, but it's a different way of doing it. And then we have potential share buyback. We have already indicated that it is a potential way of capital distribution. We assume today that we're willing to do so with the 2.7 million share buyback which we announced today. And the same is true for 2018 going forward. How does that work? Whenever we are in a position that we have surplus capital, we can take a decision as a management board, propose it to our board and then obviously at their discretionary, decision to take and to announce when they're going to do it. When, how, is something which is at the discretion of our board. I cannot step into their shoes now. But it's something which can be translated, for instance, in an interim dividend and ultimately can be translated in a final dividend.

[Hendrik Scheerlinck, CFO & Executive Director]

To come back on your second question Pawel on the NII trends. As you know, it's a little bit complicated. And as Johan rightfully said, we can deal with the FX swaps in a different way. So that means that you have to take your starting base, your NII 2017 and then you reverse the negative impact of dealing room, which for the year was EUR 187 million, and then you have to add also the profit that you make on those strategies, which for the year was EUR 70 million. We have in the past said in the first quarter EUR 15 million, in the second quarter also EUR 15 million, the third quarter was EUR 10 million. The fourth quarter, given also the year-end effect was EUR 30 million. So that is then your start base. And above that start base we now guide for an NII increase of 2%.

[Pawel Dziedzic, Equity Analyst]

That's very clear. And can I just come back with one detail follow-up on your 15.7% pro forma capital ratio. So this obviously excludes the buyback. But if you issue shares to your employees, would that have a positive effect on the capital ratio?

[Johan Thijs, CEO, MD & Executive Director]

No, no, it includes the share buyback. It's the impact of both the FTA, first-time application of IFRS 9 and the share buyback, that's included in the 15.7%.

[Pawel Dziedzic, Equity Analyst]

But when you issue shares, so buyback is obviously negative, but if you -- when you issue shares to employees, would that element have a positive contribution to core Tier 1? I'm just wondering if there is one more, let's say, element to it, or maybe I'm thinking about this wrong. Will [indiscernible] employees have a positive impact on [indiscernible]?

[Johan Thijs, CEO, MD & Executive Director]

In principle no.

[Operator]

Your next question comes from the line of Tarik El Mejjad.

[Johan Thijs, CEO, MD & Executive Director]

Apparently, there is something going wrong here, because I would be utterly surprised if there were no further questions.

[Operator]

Please bear -- the next question will be announced shortly.[Technical Difficulty]

[Operator]

The next question comes from the line of Jean-Pierre Lambert.

[Jean-Pierre Lambert]

Two questions, please. The first one is on capital. You have excess capital, probably in insurance, with the solvency ratio, as you pointed out, to 212%. At what time will you evaluate the possibility of upstreaming capital? And then related to capital as well, the EUR 8 billion risk weighted asset inflation under Basel IV, is there any mitigation efforts you can undertake to bring this down? The second question is regarding volatility. Has it had an impact on fees and commission so far this year, or is the economic confidence dominant factor for inflows and is the trading room continue to deliver, thanks to this volatility?

[Hendrik Scheerlinck, CFO & Executive Director]

Thank you, Jean-Pierre. Let me first apologize for the technical issues which we had with the line. We really apologize, this was extremely annoying, but it is what it is. Let me answer your question Jean-Pierre, the capital question, the Basel IV inflation, how can we mitigate that. Obviously, what we have disclosed today is without mitigating actions, so with the same portfolio end-of-year results -- end of year position, static balance sheet 2017, Pierre, those does not include potential impact of TRIM exercises, EBA actions and so on so forth. What all of that together will be, we'll see in the future, and obviously, we have been managing our capital position for the last, let's say, 8 years and we will continue to do so in the future. Referencing to the insurance company, we have indeed got position of 212%, which is above -- clearly above the regulatory minimum. But I would say the regulatory minimum is not really a reference position. We are always considering our position in terms of our peers. As you know, with that position, we are amongst the better capitalized insurance group and we have possibilities indeed going forward to reconsider our upstreaming policy. Capital is managed at Group level, then that's true for both capital position of the bank and the insurance company. For the short term, there is no idea to change our current position at the insurance company.

[Johan Thijs, CEO, MD & Executive Director]

And then Jean-Pierre on the volatility side, on the asset management side, we have indeed seen a certain asset mix. So in that sense, again, given the volatility in the markets, there is lower weight for equities than we had in the past and there's a little bit more in cash. But as we explained in the past, the expertise product gives us actually more flexibility to move back and to take advantage of the momentum. On the dealing room side, we see that indeed the volatility -- especially the volatility on the interest rate side is actually leading to more and more customers hedging their positions. We see that in Belgium, but we definitely see that in Central Europe as well.

[Operator]

Your next question comes from the line of Sofie Peterzens.

[Sofie Caroline Elisabet Peterzens, Analyst]

I was wondering if you could just talk about your M&A plans. You still have the 2% M&A buffer. Do you have any M&A transactions in the pipeline, or do you have any markets that you're currently considering or looking at, and how should we think about M&A in 2018 and also potentially in '19 or in '20? And you also briefly mentioned that you have not included EBA or TRIM impacts in your EUR 8 billion RWA inflation from Basel IV. Could you just briefly discuss how you think about TRIM? How have your discussions with the ECB gone? And on the EBA guidelines, do you expect any big impact on your capital from potentially a different discount rate or any of the other measures that was highlighted in the EBA guideline paper?

[Johan Thijs, CEO, MD & Executive Director]

Thank you for your question. I'll take the first one, in terms of the M&A position. Indeed, we keep our buffer of 2%. We are constantly approached by third parties if we are interested in acquiring assets. So we have been looking into, let's say, last quarter at several files. The position remains the same. We are not going to expand in non -- what we call non-core countries. So all the countries, but the ones we are currently present. So honestly and straightforward we have been approached several times to acquire assets in the Balkans, the answer is always no. Is there any big file currently on the table of our core countries? We are at this moment not looking at any big file, I mean in terms of capital deployment, more than a EUR 1 billion. The position, which we have for instance in Hungary, it could be the change, because as you probably know, there is a rumor that in the course of this year, perhaps, Budapest Bank may come to the market and that stuff is definitely something which we would be interested in. We're also looking to small add-on acquisitions in companies, but in our core markets. But as I said, these have no big impact on capital as -- up to date.

[Hendrik Scheerlinck, CFO & Executive Director]

And then on the TRIM side, indeed there have been reviews going on. Actually in the second quarter, there was a review of our SME portfolio in Belgium, in the fourth quarter review of the mortgage portfolio in Belgium. We do expect recommendations from the ECB sometime at the end of the first quarter or the beginning of the second quarter. But so far, there is actually nothing we can comment on.

[Operator]

The next question you have comes from the line of Farquhar Murray.

[Farquhar Charles Murray, Partner, Insurance and Banks]

Just 2 questions if I may. On the share buyback of EUR 0.2 billion, you just explained it covers 10 years of employee dilution and I took much as 6 historic and 4 future. Should I take it that the outstanding share count will fall for the 6-year component and that you'll retain 4 years in treasury? I'm just trying to understand how -- what we will expect to see in terms of share count. And then secondly, just on -- you've done a base dividend of around 50% payout ratio, plus a top-up share buyback. Should we read into that a generalized preference to do share buybacks beyond that 50% level? I'm just trying to understand what your preference is between those 2 elements in terms of capital return.

[Hendrik Scheerlinck, CFO & Executive Director]

So basically, on the share buyback, we -- our proposition is and we've to propose it to an extraordinary general assembly to basically destroy those shares. So in that sense, they will be completely bought back and then destroyed.

[Farquhar Charles Murray, Partner, Insurance and Banks]

Is that all the 2.7 million?

[Hendrik Scheerlinck, CFO & Executive Director]

Yes correct, all the 2.7 million.

[Johan Thijs, CEO, MD & Executive Director]

And then on the last part of your question, is there any preference for dividends or super dividend or share buyback, actually the -- there is -- with what we announced, [ nearly EUR 2.7 million ], you cannot conclude from that, that we do have any preference for share buybacks. So that will be decided on the momentum itself. We always take -- we try to take the most optimal choice and that starts from the position also from the shareholders or the investors.

[Operator]

Your next question comes from the line of Bart Jooris.

[Bart Jooris, Analyst]

Do you believe that your combined ratio of, let's say, 90% underlying is sustainable in 2018? And also you mentioned the IFRS 9 impact on your CET1 ratio, but could you also give us a view on how that will influence impairments in 2018?

[Johan Thijs, CEO, MD & Executive Director]

So thank you for your questions. So the combined ratio, let's call it indeed 90%. It would be, by the way, 90% if you would exclude the one-off of the provisions which we released in Belgium because of changing standards. Is that sustainable? Question mark. Our target is below 95%, which means that indeed we do assume it to be lower than what the long-term target was. What we have seen over the last couple of years is it's indeed close to 90%. So let me say the guidance is below 95%, but it will be indeed closer to 90% than 95%.

[Hendrik Scheerlinck, CFO & Executive Director]

And on the IFRS 9 impact, so that is actually based on the base case macroeconomic analysis where we have then -- actually, part that we look at an up scenario and part we look at the down scenario. That is of course based on the present macroeconomic position. And so our expectations for the economy is that we see good GDP growth in all of our core countries. In Belgium 1.8%, in all the others 3% or more. So in that sense, if indeed that picture remains as sunny it is on our slides, then this should not be a major impact on -- IFRS 9 impact for 2018.

[Operator]

Your next question comes from the line of Robin van den Broek.

[Robin van den Broek]

First of all, in Dublin, you obviously mentioned a far bigger impact coming from Basel IV, which I understood already included most of the watering-down elements that were anticipated at that point in time. Now it's a lot more benign than then. So I was just wondering what was driving that and maybe you could give a little bit of color on the bigger factors driving the RWA inflation in general. And secondly, coming back on the NII versus fair value item corrections for 2018. Is my math correct, if I would normalize the EUR 4.1 billion towards EUR 4.3 billion on the back of the euro-dollar arbitrage and then add 2% to get to roughly EUR 4.5 billion for 2018? And then if we strip out the fair value items from fair value, that's roughly [ EUR 270 million ] I guess for 2017. Would you believe that, that remaining fair value delivery in 2017 is sustainable going forward or should we consider further one-offs in that number?

[Johan Thijs, CEO, MD & Executive Director]

Let me answer your first question, where you reference to our announcement in Dublin. As you rightfully pointed out, we did that statement on the basis of revenue at that time. And as you know, Basel IV was at that phase still in a rumor mode, so everybody was talking about it, nobody was clearly knowing what it precisely was. So all those elements which we knew at that time, which were popping up in different documents, amongst all those documents which were written by the analyst community themselves, we've taken the account in conservative manner. All the different building blocks have now been either confirmed or changed. So it would take me too far to give you all the detail of all the things which have been changing according to our assumptions at that time. But let me highlight the biggest driver. Basel IV, when we calculated for the Dublin announcement, was actually triggering a floor of 75%, but that's what would have been implied on banking level. Whereas now it is a floor of 72.5% and that's implied on Group level and that makes a huge difference. That's one of the parameters and by far the biggest one. So I prefer to keep it there, because otherwise we will take too much time of the questioning part. I will give Rik the floor for question 2.

[Hendrik Scheerlinck, CFO & Executive Director]

Indeed as I mentioned, so the neutralization of the FX swaps would reverse the negative interest rates for dealing room of EUR 187 million. And then on top of that indeed you have to add the profit we made out of those strategies, which is EUR 70 million. Looking forward, what does it mean for dealing room results, as you know, it's very difficult to make any forecast now. It really is a matter of the volatility and the volatility of the basis swap and also the activity of the clients as a result of volatility. So we cannot guide on any stability of dealing room impact.

[Johan Thijs, CEO, MD & Executive Director]

If I can add to that, if you allow me Robin, just to avoid any kind of misunderstanding. So the netting effect of the impact of the FIFV -- of the negative impact of that part of the book, Rik gave guidance on the net interest income for 2018 of 2%, that is excluding the adjustment of the asymmetrical treatment of the FIFV. If we would indeed also take into account that -- adjustment of that asymmetrical treatment of the FX swaps, then the net interest income, all things -- other things being equal, would increase 2018, 2017, 8%. So if you would say, let assume, as an assumption that we would have a further 100 basis points shift in the interest rates, I would put on top of that another 1.5% to 2% for the first year, just for clarification purposes.

[Operator]

The next question comes from the line of Stefan Nedialkov.

[Stefan Rosenov Nedialkov, Director]

Two questions on my side. In terms of fees, can you update us on how big the CPPI product is right now and how much of that has reset, if at all, and whenever the next reset date is? More generally, what is your expectation for fees in 1Q compared to 1Q of last year? And my second question is on the buyback. So just to make sure, basically you have been paying EUR 15 million to EUR 20 million per year in terms of capital raises, mostly to employees, I would imagine. Looking at you '15 and '16 annual reports, it was between EUR 15 million and EUR 20 million. So just to make sure, going forward, you will be doing the buyback within 2018 and we'll be seeing the annual increases going for another 4 to 5 years. Is that what you are thinking about, or are we actually going to see a much higher increase in employee share issuance, because certain targets have been met or because of the tax advantage that you described?

[Johan Thijs, CEO, MD & Executive Director]

Thank you, Stefan, for your questions. Let me come back to your first question on the CPPI. Our current position has been brought down with a further EUR 4 billion for the year and that brings us now at EUR 16.4 billion, which -- and then in terms of the reset date, reset dates are actually spread perfectly in line with what we have seen last year. So more or less we will have a reset date April, May, and then all the rest are spread quite uniformly over the year. So nothing changed there. Exposure, as I said, EUR 16.4 billion. Then in terms of what it will be for the first quarter, as you know, we don't give guidance on fee and commission business. So in that respect, we are going -- not to give guidance today either on the first quarter. What I can say, probably, because De Baenst will kill me for that is that we started very well in January. Then coming back on your question on the buybacks, so indeed on average, it fluctuates a bit year-to-year. But if I would just look on average what we have been giving as tax incentivized shares, capital increase, better, to our staff in Belgium, because it's nearly -- it's only in Belgium, capital increase program, then it's on average EUR 270,000 -- 270,000 shares per year. Now if you take 2012 as a starting position, 10 years, then it brings it to 2.7 million shares, that's more or less where it comes. Are we going to issue more, are we going to -- that is actually not driven -- not entirely driven by us, because you need to take into account certain prescription rules for the tax incentive. Otherwise, it's no longer tax incentivized. So there's no idea to increase that substantially. It was also driven by the amount of our employees, obviously. And so they can subscribe to that and subscription also defines how many shares will be used. But let me conclude in one sentence more or less, the same as what we have seen over the last couple of years, depending on the stock price of KBC.

[Operator]

The next question comes from the line of Benoit Petrarque.

[Benoit Petrarque, Head of Benelux Equity Research]

Just to come back on the capital, as I wanted to better understand this EUR 8 billion figure. So did you take a kind of base estimate of the impact of TRIM, EBA and the Pillar 2 requirements upfront in the EUR 8 billion, or does that work -- because it's a big decrease indeed from roughly EUR 17 billion to EUR 8 billion. I was wondering if you -- if on the top of the EUR 8 billion, we should also expect additional risk weighted assets coming from TRIM or any Pillar 2 requirements coming from the local regulator or anything special there. So that's the first question. And then maybe the second one will be on, let's say, the CPPI mix. You mentioned that you have more-- mix more into cash versus equities currently. I mean are the CPPI products behaving now in this market and are you still able to continue the shift into discretionary management products and would be good to get the kind of -- a figure of how much you have shifted in the fourth quarter as well.

[Johan Thijs, CEO, MD & Executive Director]

Thank you, Benoit, for your question. Let me give an answer to your first question. So the EUR 8 billion risk weighted assets inflation because of Basel IV. Obviously, there is [indiscernible] taking into account the impact of TRIM, EBA or whatever. What we have done is just taken Basel IV as it is described in the document, and applied that. We have taken some interpretations obviously on how we should interpret, for instance, the Danish compromise under Basel IV. But all the other stuff is not included. Now just to highlight you, is there a potential impact of TRIM, we will see what the [indiscernible] or the original assumption of the Basel -- of TRIM was not to increase the risk weighted assets, but just make sure that how modeling is done, is done in a uniform way, let's call it European-wide. So kind of add something potentially, is it the purpose. Definitely the answer is no.

[Hendrik Scheerlinck, CFO & Executive Director]

And then on the CPPI split, Benoit, at the end of the year, so basically the composition of CPPI was 33% in fixed income, 57% in equity, 8% in cash and 2% in others. As Johan has mentioned, we have actually resets and the first reset actually was in the beginning of February. So in that sense, there was some shift, but we don't have the details yet. Shift out of equity into cash and in a lesser extent also into fixed income.

[Operator]

The next question comes from the line of Kiri Vijayarajah.

[Kirishanthan Vijayarajah, Analyst]

Just a couple of questions. Firstly on the Czech Republic, you've got 11% year-on-year mortgage growth. That's a slight slowing on where we were last quarter, but I guess my question really is rate rises are now coming through already in the Czech Republic. Where do you think that kind of volume growth kind of steadies -- settles down in the next couple of years? And then second question is really on the AFS result. That's been pretty steady the last couple of quarters, and I know a lot of it's coming from the equity side. But again as higher rates come through, should we expect that EUR 50 million a quarter to maybe decline a bit, maybe not immediately, but in 3 or 4 quarters' time?

[Johan Thijs, CEO, MD & Executive Director]

Thank you for your question. First of all on the mortgage book, so if you just compare the quarters in a row, then the growth has always been fluctuating a little bit around 11%, 12%. So previous quarter, third quarter '17 was 12%, quarter before that was 12%, 12%, and then 11%. So it has been indeed always, let's just say, hovering around 12%, 11%. So I would not see a decline in -- a straightforward decline in the new mortgage production. But one needs to be aware that obviously the Czech central bank is concerned about the impact of the increase in housing prices, and as you know that they have been imposing LTV caps on that. Until now we have not seen any impact on our production. Now the impact is an impact, which is to -- sorry LTV caps is something which is applied for the whole industry. So therefore, if there would be an impact, normally we would see it everywhere. But until now we have seen 0 impact.

[Hendrik Scheerlinck, CFO & Executive Director]

And then, Kiri, if I understand correctly, your second question was what kind of profit are we making on a quarterly basis on our swap activities. So the negative part in net interest income, the positive part [ in this ], as we have said in the past, it is in -- the first quarter was EUR 15 million, the second quarter was EUR 15 million, the third quarter was EUR 10 million and the fourth quarter was EUR 30 million, [ 3-0 ]. Can we predict what it will be this year? No, it really depends on the liquidity in the market and basically the basis swap -- dollar-euro and the basis swap on sterling-euro.

[Kirishanthan Vijayarajah, Analyst]

Actually, sorry, my question was more on the AFS gains, not the [ STIB ]. Sorry, I should have been clearer.

[Hendrik Scheerlinck, CFO & Executive Director]

Sorry. So on the AFS gains, that will be lower going forward, because on the banking side as a result of IFRS 9, we can no longer put AFS gains in P&L, they will go into equity.

[Operator]

The next question comes from the line of Matthew Clark.

[Jonathan Matthew Balfour Clark, Director]

Couple of questions, firstly on the 16% effective capital target. When will you next reevaluate the peer group CET1 ratio, or is that something that now you're going to just leave it where it is? Just want to work out whether that 16% is a moving target with respect to the peer group or not. And does that 16% target remain under Basel IV, or is that just a Basel III target and you will reevaluate that under a Basel IV framework in the future?

[Hendrik Scheerlinck, CFO & Executive Director]

Thank you for your question. So the review is done once a year and because now the announcement of the Basel IV became clear, we did a review of the peer group as well, and for that reason we indeed brought it down to what it is, 14%. The capital position, which we have, 16%, is obviously under the rules which are now applicable and therefore it's the Basel III -- full Basel III, which is applied in that respect. It's a dynamic, you call it a moving target, it's a dynamic indeed ratio and can move 2 directions. But as I just said, it is coming down 60 basis points as compared to previous quarter. And that's the most important message for today.

[Jonathan Matthew Balfour Clark, Director]

Okay. And so you mentioned earlier that an interim dividend could be one of the ways in which you return excess capital. So you would assess your excess capital position the mid-year stage relative to the peer benchmark at the start of the year, rather than a mark-to-market and then at the full year stage you would reassess your capital position relative to the peer group, then mark-to-market. Is that the right way to think about it?

[Johan Thijs, CEO, MD & Executive Director]

So we constantly monitor -- sorry -- we constantly monitor the position of our capital and that's also taking into account the position of our peers. What then will be the decision in terms of distribution, deployment of capital is obviously not done every and in constant basis. It's done once a year and we always propose that to the board. We have 2 momentums. You have the interim dividend and then obviously you have final year position. Share buybacks, as I said, is one of the options and that's always at the discretion of our board.

[Jonathan Matthew Balfour Clark, Director]

Okay. So when will the next decision on capital distribution be taken and would that be a full year 2018 point in time or on an interim basis?

[Johan Thijs, CEO, MD & Executive Director]

So as I said, the final decision is full year 2018. The interim dividend is a decision which will be taken in the course of this year and the interim dividend and the final dividend is obviously are linked to each other. So the straightforward answer is full year 2018, but we have an intermediate step with interim dividend.

[Operator]

The next question comes from the line of Alicia Chung.

[Alicia Marianne Chung, Analyst on the Pan]

Just a couple of quick questions from me. Firstly, just to go back to your capital stack and the peer bench-marking, just wondering why do you still consider your capital target in relation to benchmarking versus peers, given the significantly stronger regulation of capital [ post crisis ] and now the level of clarity we have on how much capital you need, do you think it still makes sense to consider peers in your capital target and not just the regulatory capital requirements, because I guess the way I see it is your capital target in a sense implies [ 275 bp ] management buffer which seems very high versus say [ 100 bps to 150 bps ] across other European banks. So that's my first question. And then secondly, just to go back to the capital increases to staff and the impact to core Tier 1. Can I just clarify that there is -- so there is no positive impact from the capital increase to the staff on [indiscernible]. I understood these were shares offered at a discount, that they are not free shares.

[Johan Thijs, CEO, MD & Executive Director]

So thank you for your questions. So why I always reference to the [ peer ]. That has actually to do with our policy. So KBC wants to be amongst the better capitalized institutions in Europe and as a consequence, if you want to be amongst the better capitalized, you need to take into account the comparison with peers. What our peers -- as you know, we don't disclose the names, but these are institutions which are will either present in -- some are business types as we are, as bank insurance amongst all those banks. We are also considering geographies and obviously we are considering the business model as such. So pure investment banking is not taken into account. In terms of the capital increase, I said indeed, earlier it has hardly -- it has no impact, because it's quite limited in amount and therefore the impact it would position -- it will improve your capital position, obviously. But impact on your capital ratio is almost negligible here, because the amounts are quite insignificant.

[Hendrik Scheerlinck, CFO & Executive Director]

Alicia, as you can see in our annual report or our quarterly report, so the issue for new shares for employees in the fourth quarter of 2017 was 225,000 shares.

[Operator]

The next question comes from the line of [indiscernible].

[Unknown Analyst]

I've got 2 questions left. First, just to come back on the guidance for 2% growth in underlying net interest income. Is that purely linked to volumes or is that also capturing margin improvement? In that respect, to what extent does it already take into account the recent increase in rates we've seen since the start of the year? And then just a second question is on fee and commission income. Is there anything to expect from MiFID II in 2018 or beyond?

[Johan Thijs, CEO, MD & Executive Director]

So thank you for your questions. Let me put it very straightforward. The guidance which we gave on the NII is plus 2%, when you take into account the company which we are today. So plus 2% is driven by volumes, it's driven by margins, it's driven by commercial activities and it's taken into account UBB, plus 0.5 years. So 2% NII up.

[Unknown Analyst]

So at what level of interest rate this is based? Is it start of the year interest rates or...

[Johan Thijs, CEO, MD & Executive Director]

That is indeed the current position of the interest rate. If we would have an interest hike -- for instance, if we would have an interest rate hike in Europe, which we have seen not to happen, but we think it will happen in 2019, a 100 basis point shift would generate another 1.5% up to 2% first year. So assume we have given the guidance as it is, currently [ stated as part of this ] 2%. If you would add to that a rate hike of 100 basis points, then we would add for the first year another 1.5%, up to 2%. Now the confusion probably comes from the fact that we are also giving guidance. If we would end as -- probably going to do as of the first quarter 2018, we are going to take away the asymmetrical treatment of the FX swaps and so the way we play on the carry between euro, dollar and the Czech koruna, if we take that away we make an adjustment in the first quarter of '18. You take into account the 2%, you can add on top of that another 6%, so totaling 8% NII up, but that's definitely not like-for-like obviously.

[Hendrik Scheerlinck, CFO & Executive Director]

And then [indiscernible] on the fee and commission impact of MiFID II, as you know in Belgium we have a market share on the asset management side of about 30%. Our business model is a business model where actually we add value to our customers by building portfolio. So that is an important one. We give advice on portfolios and again, given the value that we add in helping our customers build investment portfolios and given our market share, we do not expect a significant impact, or almost no impact of MiFID II for 2018.

[Operator]

And the next question comes from the line of Tarik El Mejjad.

[Tarik El Mejjad, Equity Analyst]

So I just want to clarify one question on the capital. So I'm a bit confused here. So you have 15.7%, that's post IFRS 9 and the buyback. And then when you adjust for Basel IV you fall to 14.4%. So I don't understand the debate about excess capital here, because I understand always that you wish to get to 16% before you start to talk on changing significantly your dividend policy. I mean is that right, or you're still -- am I missing something here?

[Johan Thijs, CEO, MD & Executive Director]

Let me try to clarify it. So what is our position. We take into account our peer group. We take into account our own position, I have made a reference to that. That defines our capital targets. There comes the 14% and therefore comes the reference capital position of 16%. Now that's one part of the story. Other part of the story that's the reality, where are we today. We're at 16.3% and if we take into account the impact of Basel -- impact of IFRS 9 first-time application, if you take into account the impact of the announced share buyback, then the 16.3% drops to 15.7%. Basel IV is something which is going to be implied in 2022, so that's far into the future. So the peer group reference is taking into account the current positions of the banks, the reference position 14% is taking into account, so therefore Basel III. So the 15.6% -- 15.7% is to be compared with the 16%.

[Tarik El Mejjad, Equity Analyst]

Okay, so you don't then factor in that the impact. So you say you'll offset it when it comes and with capital generation and so on. Okay. And then the second question is just to come back to my -- the previous question on the reference. I understand the fact that you want to screen as one of the highest capitalized banks in Europe, but what about the capital efficiency and returns, because I mean you need to -- in my view, I mean banks should have like a capital level function of -- like the needs for capital to grow the business and so on. And here you are running the 240 basis points excess capital for regulation, where for the next 10 years, we think that actually we have quite good visibility on capital regulation, seems quite conservative, but -- and especially on the M&A, you just mentioned that there is really no deal that would consume that much capital. So actually it's even 440 basis points buffer. So I mean I get your point about capital position. But yes, that's more a comment, I guess, than questions.

[Johan Thijs, CEO, MD & Executive Director]

So that's getting back to the last part of your question, the -- it's not necessary because it is -- I said that we are currently not having a deal on the table. That's first thing. And the second thing, it doesn't mean that we will not have a deal on the table next week, because deal -- I mean that we are looking into a file, I referred to one particular file that is Budapest Bank. We will see. If that would be the case and we're talking indeed an amount substantially bigger than EUR 1 billion. And coming back to the dynamics of the model, you're fully right that if we go into Basel IV area that the reference position will fluctuate, but you're also fully right that if our peers would change their capital deployment that, that will impact the reference position as well and therefore it's dynamic and it can go in both ways. But I'll give you one example, if for instance, our peers would be starting deploying more capital in terms of distribution to shareholders, then that obviously will trigger our reference capital position downwards and frees up space to do exactly the same thing.

[Kurt De Baenst]

Okay, this sums it up for this call. Apologies again for the technical problem and thank you for your attendance. Hope to see many of you this -- tomorrow at 8:30 a.m. at KBC at Old Broad Street. Have a nice day, cheers.

[Operator]

Ladies and gentlemen, now that concludes our conference for today. Thank you all for your participation, you may now disconnect.