KBC Groep NV

XBRU:KBC

Earnings Call Transcript 2020-Q4

[Operator]

Good day, and welcome, everyone, to the KBC Group Earnings Release Fourth Quarter 2020 Conference Call hosted by Kurt De Baenst, Head of Investor Relations. My name is Kathy, and I'm your event manager today. [Operator Instructions] I would like to advise all parties that this conference is being recorded for replay purposes.And now I would like to hand over to Kurt. Please go ahead, sir.

[Kurt De Baenst, General Manager, Investor Relations]

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, February 11, 2021, and we are hosting the conference call on the fourth quarter and full year '20 results of KBC.As usual, we have Johan Thijs, our Group CEO with us; as well as Rik Scheerlinck, Group CFO; and they will both elaborate on the results and add some additional insight.As such, it's my pleasure to give the floor to Johan Thijs, who will quickly run you through the presentation.

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

Thank you very much, Kurt. And also from my side, a warm welcome to the announcement of the fourth quarter and, as a consequence, also the full year results of KBC Group. Hopefully, you're all in good shape and good health because this fourth quarter was once again a quarter under the corona pandemic. Now given difficult circumstances with a result of EUR 438 million, actually, KBC booked a quite excellent result. I will explain to you in detail why we consider this to be excellent. But in essence, commercially, the machine has been firing on all its cylinders. We granted more loans. Customer deposits continued to increase as well, given KBC is considered to be a safe haven. Translated an increase of the lending income, slightly downward pressure because of the low interest rate environment on the NII. We had higher net fee and commission income. The insurance business performed stellar both in sales as in quality, and we have managed our costs significantly downwards further even than our guidance of minus 3.5%, which we were giving a couple of quarters ago. The impairments remained rock solid, perfectly in line with indications which we have given in -- at the end of the third quarter. But what is far more important, given also the strong capital position, the dividend policy has been changed. And in that perspective, we do indeed adhere to do the recommendations of the ECB.Now taking that into account, the limitations imposed upon us by the ECB, we took the momentum to take a couple of one-offs. And in that perspective, we have a very significant impact on one-off impact on our software side, where we took an impairment of EUR 59 million. We also pushed up the aging reserves in our insurance activities with EUR 21 million. And if you combine the 2, then that has a quite significant impact on the profitability. Therefore, EUR 538 million would have been around EUR 600 million, if you would not have done so.Also, on the capital side, we have a 6 -- sorry, 17.6% capital ratio, which is obviously influenced by a couple of things, amongst others, the decision of the ECB. As a consequence also of that decision of EIOPA, we did not stream up any capital from the insurance company, and that has a positive effect on the solvency ratio of the insurance company, which now stands at 222 basis points. The negative impact on the CET1 ratio of the group is 0.2%. Mind you that the impact because of the hit we took on the software is -- on the prudentially valued software at 10 basis points. And then last but not least, as you know, we have acquired OTP in Slovakia, and that has had an impact on our capital ratio of 0.15%, so 15 basis points. Summing up all those bits and pieces, the 17.6% actually stood at 18.1%. So in that perspective, also the real underlying capital ratio of KBC is substantially higher than consensus.In terms of credit impairments, the normal credit impairments on loans were perfectly in line with, let's say, normal circumstances of 2019 and what is also as a consequence of the good cost savings, that is a cost/income ratio standing at 59%. The return on equity is 8% over the year, but that is obviously heavily distorted by the management overlay. Without that management overlay, the cost -- sorry, the return on equity would be north of 11%.I will talk you through a couple of other things. But given also the fact that we also have an update on where we go with our capital deployment plan and the long-term targets, I go a bit faster than normally. So on the building blocks, which you see on the page and the exceptionals on Page 3 and 4, I'm not going to dwell upon this. This is quite normal, besides the software, which I already mentioned in the key takeaways.If I look at Page 8, where you do see the split-up between the result -- bank and the result insurance, then it's quite straightforward that KBC has a strong diversification in its insurance activities. We do see that the contribution on the insurance side on the fourth quarter was 23%, rather normal is 15%. So -- and again, in difficult circumstance, the insurance activity is a strong diversification.In terms of the net interest income, on Page 9, we do see that the net interest income came down. This is, in essence, borne by the bank, EUR 30 million and the insurance company EUR 26 million. All of it is related to the low interest rate environment. The long term -- so the transformation result is heavily impacted by that. And mainly, it is heavily impacted also in Czech Republic, given the rate cuts on the Czech National Bank.In terms of the true underlying net interest generated at commercial business, there is good news. Again, lending income, which is a combination of increasing volumes and stable or increasing margins on the mortgage business, that is contributing, again, I think, for the tenth quarter in a row positively and increasing compared to previous quarter. So in that perspective, good news.What is also important is that we do further continue to charge negative rates to deposits, and that is true in the majority of our presence in all countries. We have now a total of EUR 6.5 billion of deposits, which are charged negatively. That is coming from more or less EUR 2 billion, a bit more than EUR 2 billion end of 2019. So in that perspective, it is almost tripling.In terms of interest margin, the drop which you see of 6 basis points is mainly the impact of the Czech National Bank rate cuts, so the transformation results. Otherwise, this would have remained quite stable. All the detail on that evolution of margins on the production side you can find amongst others in the part of the business unit Belgium, where you can see that the commercial margins on the products have been increasing.In terms of volumes, already mentioned, 3% loan growth, which is quite strong. The mortgage business has boomed in all countries and has come to a conclusion to full year of an increase of 7%, 2% again on the quarter, which is an extremely strong result. As I said, KBC is considered to be a safe haven. And for that reason, we see an increase on the quarter of 1% of the deposits and on the year of 6%. The detail of the asset management and the life I will come back when we talk those topics separately.Let me begin with the fee and commission business on Page 10. We see an increase of EUR 13 million fee and commission business, which is better than indeed previous quarter. We do see, first of all, the increase of the management fees. We have had a gross production, which was slightly higher than the gross production of the third quarter. So also there, we did see indeed a strong commercial performance.In terms of our banking fees or fees which are related to banking services, we had a significant increase on the securities side. This is mainly driven by the online platform, which is related to trading of securities. It's called Bolero, in Belgium, and a similar platform, which we do have in Czech Republic. That really boosted its results also in the fourth quarter. There was an increase of EUR 2.5 million. To give you an idea what that means, they doubled their income over full year 2020. So it went up to EUR 42 million, which is quite significant. The payment services were a little bit lower because of the third wave of the pandemic, and that obviously causes people to stay in their houses or at least in their countries. And therefore, you see that translate into a bit lower credit fees -- credit card fees, sorry, and payment fees in general. But otherwise, all the other elements went up. So on banking services, in that perspective, a growth of EUR 11 million management fees, plus EUR 9 million.In terms of assets under management, an increase to EUR 212 billion. This is mainly driven to a pricing effect in terms of outflows. We had a slight outflow over the full year. We are talking about EUR 0.1 billion, so it's quite limited. It's mainly due to investment advice.In terms of the insurance business, Page 11, we do see, again, strong performance on the insurance side, despite the lockdown, despite the fact that still a lot of companies are under lockdown, enterprises and so on, SMEs. We did see an increase of our premium income of 2% on the nonlife side. And the life insurance business did extremely well. On the quarter, there was a fundamental increase of 42 -- 43%, which is quite significant. We'll give you in a second, the split-up between unit-linked and interest guaranteed products. But to come back to nonlife insurance, combined ratio stand at 84.5%, which is a record low. And this is -- I mean, for the first time in my life, and you know that my background is insurance -- and I mean, a result like this is extremely good. As a matter of fact, all insurance companies in KBC Group now have combined ratios of 87% or lower in all countries, and that's a major achievement. Also bear in mind that the 84.5% includes an increase of the aging reserves with EUR 21 million, so we there beefed up our reserve position, anticipating for the future.In terms of life business, Page 12, we did see an increase, as I said, in a very significant way. Unit-linked went up on the quarter with 25% and guaranteed income went up with 52%. And if you exclude seasonality, so if you compare it to the same quarter last year, then the numbers are at least even impressive, plus 60% on the unit-linked, plus 24% on the total combination guaranteed interest unit-linked. Unit-linked now accounts 44% of the total of our life insurance business.On Page 13, you can see the financial instruments and fair value. Let's not waste too much time here. It's quite straightforward. It's more or less in line with what it was previous quarter. The seasonality and also the evolution of the long-term interest rates are having a big impact. The ALM derivatives are contributing minus EUR 28 million compared to previous quarter. The funding value adjustments according to spreads, whatever, also minus 10. The other 2 dealing room income, plus EUR 23 million, so a great job delivered there, and then we slightly increased the equity instruments -- the realization of equity instruments on the insurance side, EUR 10 million. We did not use there the full possibilities which we have in our means because we still have a significant amount of surplus gains available at the insurance company.Other income, quite normal, EUR 37 million. We took 2 one-offs. There's an old legal file in Czech Republic, minus EUR 6 million. We have some tracker and which were known tracker redress payment obligation, minus EUR 3 million. So combined, the two, when you have EUR 47 million, which is perfectly in line with the run rate, so in that perspective, nothing explicit to mention.Going back to the cost management side, then I'm on Page 14. There, you can see that we did very tight cost management. We already indicated on previous quarter as of the momentum -- as of the moment of the hit of corona, we completely switched our way of managing the group, and we went into strict and tight cost control. The guidance which we gave originally was 1 -- plus 1.6% for the full year. We changed, minus 3%, which is an overall difference of 5%. We brought it even further down, minus 4.2%. So overall, it's a cost saving compared to the original indication of 6%, which is quite significant. In that perspective, I also want to highlight that the cost/income ratio, despite the decline on income, now stands at 59%, which compares to 58% normal year 2019. And I think this is an absolute indication how cost control management was handled at KBC Group level.There are certainties in life. That means that the bank taxes continue to increase, 2% further up, now totaling more than EUR 0.5 billion, which includes -- which brings us to 12% of OpEx in KBC Group. If you compare that with a couple of years ago, then this 12% becomes whopping. In terms of bank taxes, excluded cost/income ratio, we go to 51%, which is indeed a token of the efficiency and the growing efficiency in KBC Group because of the digital investments.Let me go to the asset impairments, Page 16. Here, you clearly see that the impairments go up, but there is a big but. The but is, of course, the fact that we do have the software impairment of EUR 59 million included. And also, we have some further modification losses because of the delay on the interest payment, so the deferred interest, which is totaling EUR 2 million in this quarter. If I would exclude that EUR 66 million, then we end up at EUR 57 million on impairments, which is actually indicating that the impairments on credits are perfectly in line with previous quarter. Moreover, if you only look at the impairments taken on files, not in an overlays approach, then the total amount of impairments of KBC Group for the full year 2020 is perfectly in line with what we have seen in 2019. It stands at 0.16%, which is 4 basis points higher than last year, but which is also substantially lower than the guidance which we gave over full year 2020 earlier this year. I could give you the detail of the countries, but I would not bore you with that. If any request, you can do so in the questioning. Otherwise, I will switch to the NPL performance ratio, which now stands at 3.3%. And it's also indicating that we, at this instance, see no major shift in terms of PD migrations triggered by COVID. Hardly anything. If we would apply the EBA definition of impaired loans and nonperforming loans, then the 3.3% would drop to 2.7%, clearly below the threshold of the European authorities.On Page 17, you can find the detail on the software impairment. In essence, it is the EUR 59 million. If any further questions are related to that, I would -- please refer ourselves to the Q&A. Otherwise, the statement is quite straightforward. EUR 59 million we take now and all the rest will bring some benefits in the future. In 2023, this will generate a benefit of EUR 36 million. In terms of COVID-19, that is on the Slide 19, 20, 21 and following, you have the full detail of what we have in our definition of the moratoria, the management overlay and so on and so forth. In essence, the message is the following: a, moratoria are coming down significantly because in most countries they come to an end date. In Belgium, we still have an end date, which can go to June. Hungary as well. But what we do see is that, out of the 13.4% originally granted moratoria, which is 8% of the total loan book, in the meanwhile, almost EUR 9 billion, which is about 60%, have come to expiration. Those customers, which are amongst the expiring moratoria, 98% of them go back into regular payments. So we have hardly any arrears. We talk about a couple of million of euro in that perspective. So that's the good news.What is also important is that we do see that, given the better-performing economy, we see an increase of the economic scenario if we have applied the changes -- the minor changes on our modeling, then we do see a release of EUR 1 million on our management overlay, which is indeed negligible. All the details where is that portfolio located and which sectors, what about the staging, you can find as of Pages 23, 24 and 25, which is a sum of parts. But I suggest that we continue with -- let me see -- the Page 29, where you see the business profile and the split-up over the different countries. In essence, all countries are contributing positively. The one outlier, Ireland, minus EUR 3 million, is due to the booking of a tax of EUR 26 million in that quarter. So it's actually also artificially brought down. All the countries, following Pages 30 and following, I would like to skip, which brings me to Page -- let me see -- 49, where we do have the evolution of our balance sheet. As said, we have a strong growth on the loan side, very well-performing mortgage book. And there, it's very important to repeat again that the margins on that mortgage book in Belgium, Slovakia, Czech Republic are highest than the bank book in the meanwhile. And they continue to stay at very significant high levels. In terms of the evolution on the commercial banking business in the whole of Central Europe, that commercial book is growing steadily. Same is true for Belgium. To give you an idea, only in the month of December, we produced EUR 1 billion of loans in the SME and corporate side.In terms of capital, Pages 51 and following, as I indicated, the capital ratio stands at 17.6%, but it's obviously triggered by a couple of one-offs which we did include and which is actually underwater is this actually higher. As I said, 10 basis points deterioration because of the software, but it's a transitional measure, 15 basis points minus because of the integration of OTP. What I forget to say is that OTP is included balance sheet-wise. But in the P&L, because we did acquire or signed the deal in November, we did not take any impact on the P&L. So only on capital, only on risk-weighted assets. So 15 basis points on OTP, 10 basis points on the prudently software. And then because we did not stream up any profit of the insurance clients because of the strict guidance on EIOPA, that is another 20 basis points. So if you bring them all together, the capital ratios would have stood at 18.1%. This is a very solid capital position that creates a lot of buffers, which also allows us to consider our dividend and dividend position not only over 2020 but also going forward. Before I go into the dividend positions, let me first give you also the indication on the transitional capital position, CET1. That stands at 18.1%, 21% on the fully loaded Basel III total capital ratio. Leverage ratio, on Page 53, 6.4% for the banking side, 5.2%, mainly influenced by, of course, the impact of TLTRO and then the 222% on the insurance company, I already said. If we would have streamed up our profit, so if it would not be the ban of the EIOPA environment, then this number would have been 201%.In terms of liquidity, no big surprise. We took precautionary measures for second, third and fourth quarter. And therefore, those ratios remained extremely strong, 147% on average. And that is also positively impacted by the TLTRO III, which we used for 2 sides, P&L support, but clearly also for liquidity purposes.Brings me to Page 56, which is indicating our guidance for the nearby future. Let me start first of all with the guidance for '21. First of all, pandemic is still there. Vaccination programs are starting up. They are not to maturity yet, but we hope this will happen in the near future. And as a consequence, we might indeed consider an acceleration of the economy going forward. We start clearly with a statement that this acceleration is going to happen in the second quarter -- second part of this year. And for a full acceleration of the economic growth in the European area, we do expect this to happen in 2022, mainly also in the second part of 2022. As a consequence, we gave a guidance for '21 in terms of net interest income. That is a EUR 4.3 billion ballpark figure. And as you know, that's ultimately EUR 4.35 billion. This is including a rate hike in Czech Republic whereas the Czech Republic National Bank has indicated that it might trigger 2 rate hikes even this year. We expect this to happen earlier more towards the end of the year rather than earlier in the year. We'll see. As you know, Czech National Bank is following also the economic development in that country, and that economic development is much better than anticipated. On the OpEx side, we do guide for a cost increase of 2%. Mind you, that compares with a minus 4.2%, which we published today. If you compare that, obviously, with the guidance given, then that 2% is slightly overestimated. We originally guided 3.5%. And so in principle, if you combine the 2, that 2% is only a guidance of 1.5% compared to the previous one. So in that perspective, we also gave a guidance on the credit cost ratio, where the current credit cost ratio stands at -- including the management overlay at 60 basis points. We guide now for '21 somewhat in the range between the 30, 40 basis points, which is precisely the through-the-cycle average. Where it will end, we'll see. We'll guide more towards the end of the range rather than the beginning of the range. Risk-weighted assets increased because of Basel. No change there. 1.3% impact on common equity Tier 1, 8% inflation, EUR 8 billion.Let me now go into the guidance for 2021, 2023 and -- 2022 and 2023, so the long-term guidance. For our total income, we -- I'm on Page 57 for good understanding. For the total income, we do guide an increase of 2%. For the OpEx, we guide, and that's excluding bank taxes, for 1%. Now let me explain what that means in reality. If we combine the 2, then this would lead us to a cost/income ratio of more or less 49.3%. And that is something which we have to bear in mind also because, if you look only at the cost side increase of 1%, then the cost level of 2023 will be low -- will remain below the level of 2019, at least 1% below the level of 2019. And that's quite an achievement because, on Page 58, we do indeed also indicate that we will further beef up our investment on the digital front. We are going to invest cash flow-wise EUR 1.4 billion in the period '21, '23 in digital evolution, digital-first strategy. And if you translate that into OpEx, it is EUR 1.1 billion.Now what's the difference with -- for instance, the guidance which we gave on the Investor Day 2017? There, the cash flow was EUR 1.5 billion, but this was spread over 4 years. And next to that, we had an activation deputization policy, which meant that the OpEx was only EUR 1 billion. It also included the investments for regulatory impact.Now let me translate that in a completely different manner. We now have a EUR 1.1 billion impact on our OpEx over 3 years. That means that what we announced today indicates that beefing up the digital investments means that we are going to create efficiencies in our own operation of about 2.5% on everything else than on the digital side to make up that cost guidance. As a matter of fact, if you do the math, you can see where it comes from. We bring the guidance on the digital side, which is more important than what it was over 2017, 2020. That guidance is more or less 1% higher than what it was before. And that means that all the rest has to go down. So we compensate fully inflation, fully the wage inflation, which means, on average, 2.5%.The other 2 elements which we guide, first of all, combined ratio below 92%. And then last but not least, the common equity ratio going forward. In that perspective, we now guide that our target common equity reference capital position will be 14.5%, compared to the guidance in 2017 of 16%. The only difference is now that we have a management buffer, which is completely flexible, of 1% on top. That flexibility will be triggered by circumstances, circumstances such as the environment, a crisis like the COVID crisis or, for instance, acquisitions, whatever. That target of 14.5% starts as of the 1st of January, as a matter of speaking, as of now.All the other elements which are on Page 57 are things you know that is the capital requirements from the supervisory side, the liquidity requirements from the supervisory side as well. Now given that strong position of KBC, given the new long-term targets, what does that mean for the capital deployment? We have 2 steps here. The first step is, obviously, what about the capital over 2020. In that perspective, we do adhere to the restrictions which are posed upon us by the European Central Bank. I don't have to repeat to you what that means, 15%, 20 basis points on risk-weighted assets. Now if we apply those limits, then we can pay out a gross dividend of EUR 0.44 per share over the year 2020, and that's what we are indeed going to propose to the AGM. Because we already paid EUR 1 in 2019 as an interim dividend, that already exceeds the threshold. So for 2019, we are no longer allowed to pay out extra dividend.Now given the capital policy of KBC, given the restrictions of the ECB, we also now declare that we have a clear intention as of the moment that the restrictions on the dividend payments by the ECB are lifted, and we know that this restrictions hold until September of this year. We have the clear intention to pay out another EUR 2 of dividends per share for the accounting year 2020 in the course of 2021. That is for the year 2020.Now for the year '21 and following, we will -- we have a capital deployment plan, as described on page -- what is that -- 60. The dividend policy for '21 and following is a payout ratio, including the AT1 coupon, of at least 50% of the consolidated profit of the accounting year, which also includes an interim dividend of EUR 1 per share payable normally in November of the accounting year. This is to be considered, indeed, as an advanced total dividend.Next to that, because we keep the 14.5% of our reference capital position, which also means that we will be amongst the better capitalized financial institutions in Europe, we also define now that the 14.5% plus the 1 management buffer, 15.5%, is actually the threshold for the definition of surplus capital. That means that all capital exceeding that threshold of 15.5% will be considered surplus capital. And the Board of Directors, each year again, will take the decision at its discretion to distribute this amount to the investors, to the shareholders of KBC. And as a matter of speaking, what we are going to do as a consequence for the year 2021, in total, so we'll pay out EUR 0.44 per share. We have a clear intention for the year 2020 to pay out EUR 2 per share on top. And given the dividend policy of '21 and this year, we will pay in principal -- an interim dividend of EUR 1 already in November of this year as well. Everything what I said about the capital deployment plan for the future that is obviously subject to Basel IV. And if those changes will come and that we know that is of 2023 -- so 2023, 1st of January, as earliest, that might change that position.Now everything else which is in the book is then the results over the full year 2020, but I would like to skip that part, and I would return the floor back to Kurt, who will guide us through the questions. Kurt?

[Kurt De Baenst, General Manager, Investor Relations]

Thank you very much, Johan. Now the floor is open for questions. [Operator Instructions] Thank you very much in advance.

[Operator]

[Operator Instructions] The first question comes from the line of Stefan.

[Stefan Rosenov Nedialkov, Research Analyst]

Thank you for the new target for '20 to '23 and '21 guidance. I have 1 main question. It's on capital. Digging into your new capital targets, it looks like you're effectively tightening the threshold for excess capital. The 14.5%, assuming 130 bps of Basel IV, that brings you to an underlying post Basel IV of 13.2%. Your previous target, excluding the M&A buffer, was 14%, assuming 130 bps of Basel IV, that put you at 12.7%. So we've gone from 12.7% to 13.2%. That 50 bps of tightening. You guys obviously have 13 peers that you look at in terms of your capital targets. But if we look at 2 of the closest peers to you, ING and ABN, they decreased their underlying capital targets by 100 bps and 50 bps. Why are you going in the opposite direction?

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

Thank you, Stefan, for your question. And you're right if we would be in the previous capital guidance because what you apply is a purely mechanical calculation on capital with the consequence of Basel IV. And that was indeed how we did perform our capital guidance in the previous 2017 guidance. It was quite mechanical. We took a peer group. The peer group we did take, the floor of 14%. By the way, that went up in a minimal to 14.5%. And the next thing was that all the other elements which were following, for instance, Basel IV impact, would be mechanically deducted. But the capital guidance which we give today is different. It has no mechanical parts anymore. That's the big difference. First of all, the 14.5% is decided by the Board and is decided upon discretion. We take into account, we want to be amongst the better capitalized financial institutions in Europe. That means that we're all building on the safe side. KBC will is and will be a safe bank to invest in. So in that perspective, if we see that the impact of Basel IV is going to be deducted from the capital positions of our peers, and you know that KBC has a very favorable outlook for the Basel IV impact, if you see that KBC's impact is minus 1.3%, we are clearly below the average of the European banks. That means that their capital ratio will go down and our Board will reconsider the 14.5%, as I indicated. If the circumstances which we are in today are very bad, we all know that this is the worst economic crisis since World War I, that the Board has taken this decision given current circumstances to keep it at 14.5%, which puts us, obviously, also taking into consideration the peers at the safe side. If the circumstance is going to improve, let's say, put in 18 or 24 months, whatever, the Board might reconsider regardless of the evolution of the peers. So in that perspective, it is no longer mechanical. So the analysis which you just made is incorrect given the new capital deployment plan. So I think what we have actually done is we brought down the mechanical approach of previous time from 15.5% to 14.5% where it is today. And that is 100 basis points decline anyway in the mechanical approach. So in that perspective, it is giving much more freedom, but it is also clearly a downwards review of the previous capital deployment and capital deployment targets compared to 2020 -- with 2017.

[Operator]

The next question comes from Giulia Aurora Miotto of Morgan Stanley.

[Giulia Aurora Miotto, Vice President and Equity Analyst]

A couple of questions for me. So the first one, I actually have a follow-up on the capital point, if I can. So the 1 percentage point management buffer, shall we think that is mainly for M&A? And if so, what opportunities are you currently seeing there? That's my first question.Then secondly, if I look at the profitability of your divisions, Ireland still has 85% cost/income ratio. So strategically, what are you -- what is your plan for Ireland over the next 3 years?

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

Thank you, Giulia, for your questions. Let me answer the follow-up. So the management buffer is, and that's also a big difference compared to the capital deployment plan in 2017, the management buffer is a true management buffer. Whereas previously it was a buffer linked to M&A, this is no longer the case. The management buffer is considered for circumstances which impact the position of KBC Bank, and that can be everything. It can be the outside world environment, which is currently, as you know, at its peak stress. So in terms of COVID crisis, I think I just elaborated on the question of Stefan already what that means, so the 100 basis points is reflecting that conservatism given the difficult circumstance. If we do tomorrow an acquisition where the buffer is also meant for, then we will reduce the buffer. The replenishment of the buffer is not given as a consequence of that M&A. That is once again a discretionary decision of the Board. If we are in an environment which is very buoyant, then it's not a necessity that the buffer will be -- that the management buffer will be filled up immediately again. So again, it's no longer mechanical. It is completely different than what it was, and it is no longer for M&A as it was in the previous situation.On the sub-question, are you looking at opportunities? You have seen that we have announced today the acquisition of pension business and the life insurance business of Nationale-Nederlanden in Bulgaria, which is a bolt-on acquisition, and it completed the puzzle in Bulgaria. We have now an insurance company, a bank and a pension fund business in Bulgaria, which means that we can fully provide financial services to customers in Bulgaria. This is how we look forward. And yes, indeed, we have been bidding on Aegon, and we have some other targets on our screen as we speak.

[Hendrik Scheerlinck, CFO & Executive Director]

Good morning from my side as well. And thank you for your question, Giulia. On Ireland, indeed, it is true that we have not reached the level of efficiency in our operations in Ireland that we want to reach. Digital-first banks typically have cost/income ratios of below 50%. And as you know, that's exactly what we are building in Ireland, a scalable digital-first bank for retail customers. And our ambition is indeed to bring that cost/income ratio below 50% in the horizon over the next 3 to 4 years.

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

If I perhaps may put some extra color to that, also in Ireland, Giulia, just to mention, the cost/income ratio is obviously blurred by the legacy business. And in that perspective also, if you look at the pure business output, for instance, on the new business which we generate we have a return on equity of north of 12%.

[Operator]

The next question comes from Raul Sinha of JPMorgan.

[Raul Sinha, Analyst]

A couple of questions from my side as well. The first thing, I just wanted to follow up on this moving from the M&A and explicit M&A buffer to a management buffer. Are you -- should we read anything into that in terms of the potential opportunities available to you from an M&A perspective? Are they perhaps less attractive than what you assumed a few years ago when you put an explicit M&A buffer in? And should we think about perhaps capital return being more of a priority for you in this plan versus M&A? That's the first one.The second one, on the payout, we clearly see that your 2020 payout ratio will be well above 70%, including AT1 coupons, obviously, high 70s, excluding AT1 coupon, closer to 70%. And if we were to -- and I do the quick math on solving for 15.5% CET1, let's say, at full year results '21 in early 2022. I think to get to that number on consensus forecast, you would have to have a payout ratio well above 100%, 110% on the equity side. So I was just wondering whether -- are there any sort of caps on the payout -- from a payout perspective that you see that could constrain your capital return policy? And should we think about this kind of glide path down to 15.5% as a multiyear process? Or do you think the Board would be keen to get to that as soon as possible?

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

Thank you all for your questions. Let me first start with the M&A side. And indeed, as I indicated in the answer to the question of Giulia, whereas in the previous situation, the buffer was an M&A buffer. Now it's a management buffer. And actually, that's the answer to the question. It's not more than that. So there's no indications whatsoever if -- what that means in terms of that having some impact on the type of acquisitions which we have in our mind, is that having an impact on the size. Or is there impact on whatever that we are going to stop doing an M&A, it has no impact whatsoever. It is just we have a capital position of 14.5%, which is amongst the betters in Europe. We take a safety buffer of 1% above that, which is entirely flexible and is depending on circumstances. If tomorrow an acquisition or a target acquisition is on the table, which consumes, let me say something, 50 basis points of capital, is perfectly in line with the buffer, fine. But if we have to model a target on an M&A, which is growing 150 basis points of our capital, then we are fine as well. Because that's precisely the definition of a buffer. If we need more capital and we felt -- we feel that we have to tap the markets for that and it's a good deal, you guys will support that perspective anyway. So there is no indication whatsoever nor translation whatsoever in the management buffer. Now it's really a management buffer. It's no longer tight, strict mathematical designs.In terms of any constraints on the dividend payout, I think there was -- I think there is a little bit of a misunderstanding in your calculation. But it's a bit difficult to explain everything now in detail via a call. But for good understanding, we have defined our capital policy starting from our own strength, our stable and strong capital generation power, one hand, and then, obviously, our starting position, which is, as I indicated earlier today, 17.6%, underlying 18.1%. So in that perspective, we can start from that perspective to define our capital deployment regardless of the peers. So in terms of capital output and in terms of capital distribution, you're right for 2021 -- for 2020 and for '21, it go substantially north of 50%. I cannot give you the precise number because then I give you the indication of what our profit will be in 2021, which we don't do, as you know, but we don't have to go north of 100%. And if so, as such, after approval of ECB, that even would not be a problem because of the huge amount of returned earnings which we have. But there is a slight mistake in your calculation.

[Operator]

The next question comes from the line of Benoit Petrarque of Kepler.

[Benoit Petrarque, Head of Benelux Equity Research]

Yes. Benoit Petrarque from Kepler. Yes, 2 questions on my side. The first one is on dividends again. I'm a bit surprised that we don't talk about the 2019 dividend, the final, the EUR 2.50, which has been promised at some point, and then you come back on that due to the COVID. But we've seen quite some banks actually planning to pay. So why with such a strong capital position you are actually not putting that as an accrual in your capital position? I made the math. If you can update the EUR 2 for Q4 2021, and I told you 50 that will kind of put you towards the 15.7%, close to your 15.5% targeted. So just wanted to come back on this 2019 dividend. I thought it was key for the management to pay it.And then just moving out of capital, maybe to NII. And just wanted to understand your EUR 4.3 billion guidance for 2021. We've seen a substantial drag from low rates this quarter. If I multiply Q4 by 4, you get to something less than EUR 4.3 billion. So I wanted to understand what you took in your guidance in terms of drag from low rates, in terms of growth, volume growth, in terms of potential increase of interest rates in Czech Republic. Just wanted you to reconcile all that.

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

Thank you for your questions. I will take the first one on the dividend on 2019. And so indeed, we followed up the recommendation of the ECB giving the payment -- dividend payment caps. So also for the year 2019, we already paid out EUR 1, which exceeds the cap imposed upon us by the ECB. Now as a matter of fact, given our definition of surplus capital, what we have decided in the 2021 and following capital deployment plan that is what we have not paid out of 2019, given the current capital position of KBC becomes surplus capital. And as a consequence, and that's part of the dividend policy, explicitly, surplus capital, which we cannot make book, will be considered from distribution to shareholders as of 2021. So intrinsically, the answer of -- to your question is embedded in the current capital deployment for 2021.

[Benoit Petrarque, Head of Benelux Equity Research]

But -- just because we've seen like Nordea and couple of banks guiding for a catch-up in Q4 and 2019, and why is KBC not proposing that already in Q4? That will be a nice catch-up for the shareholders?

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

Yes. But indeed, we have considered the EUR 2. And given the capital deployment plan, we do consider as of 2021, which is this year, the potential distribution of our surplus capital, we do not make now an explicit statement of how much that is. Therefore, you need to have a little bit of patience, but it is part of the policy.

[Hendrik Scheerlinck, CFO & Executive Director]

Thank you, Benoit, for your question on NII, in the guidance on NII. So what's in there, so first of all, I would say, tailwinds, as you know, the acquisition of OTP Slovakia, that will slightly increase our NII by EUR 20 million. Then we have the TLTRO III, which is now extended. So that's going to be an extra EUR 55 million when we compare to what we had in 2020. And then we assume 1 rate hike of the Czech National Bank, but that will come most probably at the end of 2021. So the NII impact on that will be quite limited. Volume growth is indeed, as you rightfully said, going to be also one of the drivers, as you've seen, and that's what we guided after COVID came that we were going to see volume growth of 2% to 3% in 2020. Now for 2021, we expect volume growth of 3% to 4%, depending on how quickly the economies recover after, hopefully, the end or at least a substantial amelioration of the pandemic as a result of the vaccinations going on. So again, that is on the tailwinds.On the headwinds, it is just through the lower interest rate environment is biting on the replication strategy. And that will be with us for a while, so that will be there. So these are the components that then lead to a prudent guidance of EUR 4.3 billion for NII -- sorry, in 2021.

[Benoit Petrarque, Head of Benelux Equity Research]

Sorry, the headwinds in euro terms, how much will that be from the low rates? I'm very -- I think I can do the math on the tailwinds, but on the headwinds, is that just the difference? Or is that -- do you have a figure on that?

[Hendrik Scheerlinck, CFO & Executive Director]

No, again, we don't give any impact of the lower investment yield. So we keep on saying what is happening, but we don't give exact numbers on that.

[Operator]

The next question comes from the line of Farquhar Murray.

[Farquhar Charles Murray, Partner, Insurance and Banks]

Just 2 questions, if I may, continuing really the focus on the capital management planning. Just with regards to the 14.5% reference capital figure, please, can you just confirm that, that's no longer linked to the peer benchmark exercise? And could you perhaps just explain the rationale for removing that link and seemingly setting that figure in stone?And then on the 1 percentage point management buffer, which you're kind of suggesting is more encompassing and more flexible, could I just ask whether you could envisage circumstances from here where that 1 percentage point would increase above 1% from here? In particular, I'm just trying to understand how much it looks through the cycle or perhaps might develop with it.And then a final one quickly. Just on the EUR 0.02 -- EUR 2 DPS decision, how is that framed in terms of math? I kind of take it that you're not saying it's part of the surplus conversation for 2021. I see that, but I just wondered how you arrived at that kind of effect the round number figure.

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

Thank you very much, Farquhar, for your questions. So first of all, the 14.5%, the only thing what changed is that we took away the strict linking between the peer benchmark and the reference capital position. So obviously, because we still want to be, and that's something which we never leave, amongst the better capitalized financing institutions in Europe, that is still for us crucial. So if something goes wrong in the European landscape, KBC will not be the bank who is stumbling over the issues. So we do take into account, of course, our peers, but we do take into account a lot of other things as well. And that means we can easily lower that 14.5% on circumstances, economic circumstances, circumstances in general are improving compared to today, even regardless from what peers are doing, if impact, for instance, of Basel IV is going to kick in, and it's going to kick in more significantly than us, then we can easily lower that. We can even easily go beyond that. And the capital-generative power, be aware of that of KBC Group is also, in that perspective, higher than what we see on average with peers. So that gives us further leeway. And also, that allows us to indeed think differently over the 14.5% than what we did in 2017. So I mean, in essence, we have far more -- building far more freedom in our dividend policy, which allows, let's face it, to actually have a far more flexible capital distribution policy.Then the other thing on the 1% management buffer, for good understanding, the 1% is, in this perspective, a max. So the 1% is not intended to go up to 1.5% or whatever. So it is a max. It's, in principle, it goes down only, and it goes not up. Regarding the EUR 2, it's quite straightforward. It brings us to a 75% payout ratio, which was the same intention as what we have in 2019.

[Operator]

The next question comes from the line of Kiri Vijayarajah of HSBC.

[Kirishanthan Vijayarajah, Analyst]

A couple of questions from my side. So firstly, on the negative interest rates on your deposits. I'm just wondering how much scope there is to go beyond the EUR 6.5 billion, I think, you say you're doing at the moment? And linked to that, what have you assumed in your NII guidance on that front? Is there a further sort of increase in that pool of deposits where you can charge the negative interest rates? And then secondly, on the Basel IV RWA guidance, the EUR 8 billion. I'm surprised it's not really changed over the last year, given I assume you would have been working on mitigation efforts. You've taken things like mortgage add-ons through the course of the year. So just wondering what the offsetting headwinds were on that Basel IV number for it to be on a net-net basis unchanged over the past year. So those are my 2 questions.

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

Thanks, Kiri, for your question. Regarding the negative interest rates charging through to customers, indeed, we have EUR 6.5 billion currently charged towards -- not towards -- to our customer, which is indeed substantially higher than it was end of year. The policy remains, in that perspective, exactly the same for 2021. We will continue to further expand interest -- negative interest rate charging to our customers, corporate SME customers in all countries. So the number I just indicated, for good understanding, the EUR 6.5 billion, EUR 5 billion of that is in Belgium. The rest is in other countries. We will continue to do the same going forward. And as long as the interest -- the long-term interest rates remain that low, we will continue to do so.And as a matter of speaking, we don't have any plans to apply negative charging to general mass retail, but we are in the perfect possibility to do so if need be tomorrow, which means, IT wise, we are fully running.

[Hendrik Scheerlinck, CFO & Executive Director]

And then Kiri, on Basel IV, and thanks for that question, there are -- every time we review this, there are some pluses or minuses. So in that sense, it does not change the picture all that much for us. The big change may come from, indeed, the fact that we do expect that before the end of the first half of this year that the consultation paper will be available for indeed the transposition of Basel IV in European legislation. And as you know, there is heavy lobbying going on whether we go for a single or for the [indiscernible] stack, and that may have an impact. So we found it would be more wise to wait until we have that consultation paper, until we have a better idea of in what direction the legislation will go, and then we're going to be able to come just like everybody else in the market with better estimation of what the impact of Basel IV could be for us. But overall, again, we still expect it to be lower than the average of the industry.

[Operator]

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

[Tarik El Mejjad, Equity Analyst]

This is Tarik El Mejjad from Bank of America. Just a question, please, again, on capital and dividend. So if we look at your -- I know it's mechanical, but I want to do some quick math. So if we look at the -- your strep and we add the [indiscernible] and 100 basis point buffer and then we even add a Basel IV impact like fully loaded as of today, you still need to have go-to capital of 13%. And this is -- I understand, ECB is doing as a math and most of the sector. So you are going with the threshold to return capital much higher than that. I don't think you have any specific concern by any situation except like the overall macro. But don't you think you're penalizing yourself by pressuring your ROE overall, where actually in the context of lower rate environments markets also want to see ROE improving? And I'm surprised in your guidance, you don't give an ROE target. And don't know you give this before, but now I was hoping that you give us some ambition for ROE target in the medium term.So -- and then I have 2 quick clarifications, please. So the EUR 1 interim dividend for 2021, that comes on top of the EUR 2 extra you will pay for 2020? And then the -- from 2021, the dividend, you would pay on top of the reference capital plus 100 basis points, that's pre-Basel IV. So we shouldn't think a buffer on top for Basel IV for that.

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

So thank you, Tarik, for your question. Indeed, the analysis you just made regarding potential calculation of ECB is correct. And indeed, our capital ratio is a bit higher than what according to that calculation would be the outcome. But this is nothing new. This is something which is given for KBC. We -- as I said, we will be and we were among the better capitalized financial institutions. So a bit more on the safer side in terms of CET1 ratio. That gap has remained the same. So there is no big difference. The only big difference is we took away the 16% target, which was adding another 2% or 1.5% on top of this.Now you're right. Obviously, that has an impact on our return on equity because we hold more equity. And as a consequence, for the same profitability, lowering that would increase the return on equity. But let me be straightforward, that's not the ambition. We are not managing the return on equity by lowering the capital. That's not how it works at KBC. We have today an underlying return on equity more or less 11%, 12%, even given difficult circumstances of today. Indeed, if we would bring the capital level to the level of our peers, that would go to 15%. But I think with 11% high capital ratio, taking into account a couple of one-offs which we booked this quarter, we will be still among the better performing and also profit-wise in the European domain. Going forward, that position will not change. So we will have no explicit ROE target. But as you know, we clearly prefer to have high ROEs realized rather than to have a high ROE target.

[Hendrik Scheerlinck, CFO & Executive Director]

And then on the dividend, indeed, the EUR 1 that will come in the fourth quarter of 2021 as interim dividend for year 2021, that is the result of the new dividend strategy going forward. And there, again, we just repeat ourselves, payout ratio of at least 50% and an interim dividend of EUR 1 payable always in November of the year that we take into account. And then at the discretion of the Board, any capital above and beyond the 14.5% plus the 1%, if that's the buffer we keep, will be at the discretion of the Board, a decision to pay that out.

[Operator]

The next question comes from Robin van den Broek of Mediobanca.

[Robin van den Broek, Research Analyst]

I came in the call a little bit late. So I'm just going to restrict myself to 1 question. I hope it's something not asked before. But when I look at your capital progress over the year, it clearly seems that you're not upstreaming much from the insurance activity, which is a Solvency II ratio of 220% or so. Well, yes, 1 of your insurance peers is still paying dividends to shareholders. So it doesn't feel like the NBB restriction is that heavy given the capitalization of your unit. So it feels like you're deliberately holding that back. I was just wondering if there -- you spoke a little bit about M&A files before, I think. I was just wondering if you're holding a little bit of an M&A buffer basically now at the insurance because if you would finance M&A from the insurance up directly, then of course, it wouldn't hit your group CET1 ratio. So I was just wondering if maybe the [indiscernible] there was some rumor in the press, I think, 2 weeks ago, that, that could become active again. Said you're building a little bit of a war chest there.

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

Thank you, Robin, for your question. So indeed, we all know that once the decision was taken by the ECB, there was clearly same expectation raised towards EIOPA. And I use it on the statement, I guess. So in that perspective, when the recommendation of EIOPA came, there was no big surprise that it was perfectly in line with what the ECB has said. Now if you look at the capital position, I fully agree with you that, indeed, capital -- KBC Insurance has a strong capital position. As a matter of fact, we do have, as a consequence, surplus capital there. And it was the clear intention to stream up that capital to the group but it was also a clear expectation from, yes, our host supervisor, not to do so. And given the fact that the dividend capped at the level of the group, it was already breached. We decided not to have a fight with our supervisor and to keep the capital in the insurance company.2021, let's hope, is a different year, and we can return to normal policy, which brings capital back to the group level. As I said earlier, if we would have upstreamed our profit, then we would still have a capital -- Solvency II position of 201%, which is, as you know, solid. For acquisitions, the acquisition amongst others of UBB -- sorry, of UBB of Nationale-Nederlanden pension fund and the life insurance business will cost 6 basis points. So there's no material impact. Do we have anything else in the pipeline? Yes, we were looking at Aegon. We didn't make it. The other possibilities, I mean, the mere fact that we looked recently 2 files on the insurance side, clearly indicate that we are interested. But therefore, for that reason, we do not keep the buffer at the insurance company. This is purely related to EIOPA, NBB guidelines and the fact that, yes, we were anyway breaching the ECB at group level. But to repeat myself, if there is any interesting nonlife insurance company activity out there available, we will definitely have a look at it.

[Operator]

The next question comes from Daphne Tsang of Redburn.

[Daphne Tsang, Research Analyst]

I have [indiscernible] one on NII. I got 3 parts to it, if I may. So on your NII guidance of EUR 4.3 billion in 2021, can I clarify on the 3 things, one, the TLTRO 3.2 impact. So I think in H2, so far, you are recognizing around EUR 16 million, EUR 17 million per quarter benefit from TLTRO 3.1. Can you clarify have you taken or are you considering taking more TLTRO III? And if so, what would be the incremental impact on NII in 2021?And then secondly, on your earlier comments about volume, you referred to 3% to 4% growth in this year, if I'm not mistaken. Is that a realistic growth level, do you think, based on the exit rate so far? Because if I look at your Slide 9, your growth, quarter-to-quarter growth, is kind of like 0% to 2%? So looking about that trajectory next year, what would be the realistic growth here?And then finally, are you able to provide any indication or the size of different brackets of your deposits, which you could you may potentially charge negative rates or, let's say, EUR 100,000 to EUR 500,000 and above EUR 500,000, would you be able to quantify a little bit the size of deposit there?

[Hendrik Scheerlinck, CFO & Executive Director]

Thank you, Daphne, for your questions. So first of all, on the TLTRO, as I said, we only take into account the program that is running now. So the volumes that are running now. That's why we gave the guidance of an increase of NII of EUR 55 million. You're right, there is a possibility to do a little bit more under the TLTRO. We are looking at this. We are in debate also with the regulators to see what amounts we would come up at. And again, once we do that, we will, of course, inform you what we do. But again, an additional increase in volumes of TLTRO is not included there.Second question is the volume growth of 3% to 4%, is that realistic? Given also when you look at the fourth quarter that there -- just for that quarter, loan growth was lower. The lower loan growth in the fourth quarter was mostly on the corporate side. So we have seen that in the past as well that corporates are repaying working capital lines when they do balance sheet management, especially looking at the covenants that they have put in place with the banks. And then we had, as you remember, in the first quarter of this year, we had a number of corporates that actually drew on their working capital lines just to protect themselves against a possible negative impact of COVID-19 on the liquidity side. Typically, they were taking loans of 6 to 9 months, and we have seen quite some maturities again in Belgium in the fourth quarter of those loans.Another element that then expressed then in euros, that should be supportive for this growth of 3% to 4% is that, in the Czech Republic, we do not expect further devaluation of the koruna. To the opposite, we do expect a strengthening of the koruna. You've seen since year-end that actually the koruna is now at a level of around 25.70, 25.80. That is also the expectation of the Czech National Bank that, that will be the level of the koruna in 2021. And then they also expect a further appreciation of the koruna in 2022 to levels below 25.5.On the deposit threshold, again, we do this in a very prudent way country by country. As Johan already said, we gradually are increasing the volume and the amount which we charge negatively. We're at EUR 6.5 billion now. That's an increase of more than EUR 4 billion in the year. So that's about EUR 1 billion per quarter. So this is the rate at which we go. And we look at indeed, what the competition is doing, what is the market doing, and we will manage this very carefully going forward as well.

[Daphne Tsang, Research Analyst]

Actually, can you repeat what is that EUR 6.5 billion?

[Hendrik Scheerlinck, CFO & Executive Director]

Sorry. Could you please repeat your question? We didn't understand it, Daphne.

[Daphne Tsang, Research Analyst]

The EUR 6.5 billion you mentioned, what does that relate to?

[Hendrik Scheerlinck, CFO & Executive Director]

No, that is the negative. That is the volume of deposits with negative charging. So that's for Belgium, it's EUR 5 billion, and then we have EUR 1.5 billion in the other euro-related countries.

[Operator]

The next question comes from Thomas Dewasmes of Goldman Sachs.

[Thomas Dewasmes, Associate]

So 2 questions, one on cost of risk and the other one on the reserves that you had in insurance. The first one, is it fair to assume that you can return to your lower end of through-the-cycle cost of risk after 2021? I appreciate it. It's probably early, given the conditions, but if you have any idea or further guidance you can provide, that would be appreciated.And then you mentioned that you had quite a substantial amount of unrealized gains in the insurance business. Would you consider using that if you were to experience a higher cost of risk than you anticipated or even to absorb further impacts on the capital side, Basel IV, for instance? Anything that can help you manage either income, cost of risk or capital level indeed?

[Hendrik Scheerlinck, CFO & Executive Director]

Thank you, Thomas, for your question. On the cost of risk, again, we give the guidance for 2021. So the guidance for later will come later, and we guide that for 2021 we expect to be at the higher end of the range, 30 to 40 basis points for credit cost of 2021. And again, what we will guide later for 2022 is going to be a function of how does the COVID pandemic further pan out and what is the economic growth that will result as a result of that.

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

Thank you, Thomas, for your question. Indeed, I indicated that we indeed have on the insurance side because the portfolio of equity is mainly managed from the insurance side. On the insurance side, we have a substantial part of unrealized gains. Unfortunately, we do not disclose the total amount, but we do -- how does it work in general? We have a kind of budget, which we take into account into our budgeting for the full year. So that budget will be realized. And then the surpluses which are available can be used to steer income. We consider this to be a low quality, but if need be, we can indeed use it.

[Operator]

The next question comes from Stefan Nedialkov of Citi.

[Stefan Rosenov Nedialkov, Research Analyst]

I requeued to ask you a follow-up question. Just doing a quick tour of 2 of your international markets. In Bulgaria, you've just announced the acquisition of NN's pensions and life business for EUR 77 million. Could you give us some color on how much money that business is making right now? And given your good track record in terms of bolt-on acquisitions, where are you hoping to get to in terms of profit, over the next, say, 2 to 3 years as you integrate your bancassurance operation in Bulgaria further?And my second question is on Ireland. A big stumbling block for you to improve efficiency there are the IT systems that support your legacy business. Could you give us an update on when you can start phasing out those systems and therefore crystallize better efficiency? Are we talking more 2 years? Or is it 3, 4, 5, et cetera? I guess that's tied to the duration of your existing book.

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

Thank you, Stefan, again, for your questions. So coming, first of all, to the Bulgarian acquisitions, so we paid indeed EUR 77.7 million. In terms of the profit what it makes and the profit it was going to make over time, we do not disclose the detail of the profit generation going forward compared to what it is making today. It's about EUR 10 million, EUR 11 million. In terms of the business case for ourselves, as you know, we have a strong record in that perspective. So the integration of the Nationale-Nederlanden, the pension fund and the life insurance business into our group is creating cost synergies. We are going to generate P&L-wise a big important chunk of that cost and revenue synergy in the next max 2 years. So integration is foreseen to happen max 18, 24 months.In terms of synergies, mind you that we do get on board a substantial number of customers. We're talking about more than 400,000 customers, more to the wealthy side. And in that perspective, revenues from bank and insurance perspective are larger than normal. We don't disclose the detail for obvious reasons, but it's a strong contributor to the business case. That's the first thing.And the second thing, Ireland, I fully agree with you that in Ireland work still needs to be done, and we have a fundamental improvement of the cost composition, as you could see, comparison between 2019 and 2020, but still not good enough, for good understanding. So I said also earlier in calls that, ultimately, the ambition is to bring the cost/income ratio in Ireland down to below 50. So half of what it was in the past. And we are working in that perspective on a very specific route. And that specific route is digital first. What is not seen yet, because it's blurred by the legacy, it is the savings which have already been done on the digital part of the bank. You know that we installed a new full-fledged IT platform in the course of 2020, and that platform is now going to deliver its synergies in the course of '21 and '22. Also, the integration -- the further integration of the activities of KBC Ireland into the group using the leverage of, for instance, our Central European cost benefits into Ireland is something which is happening already today and is going to happen going forward as well.

[Stefan Rosenov Nedialkov, Research Analyst]

Johan, just to delve a little bit on the Irish systems, so is it fair to assume that your legacy systems are -- have been phased out already? Or you're phasing them out over the next few years?

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

So there are 2 sides on the coin. The first part is the new business, which is built on the new ICT platform. It is a Temenos platform. And you have here, what I was saying, the integration of all the systems. We have the same -- exact same Temenos platform in Ireland and Hungary, which we're rolling out in Slovakia, which is also being rolled out and which is already integrated and implemented in Bulgaria. It's exactly same platform. That, amongst others, allows us to build, for instance, online applications. The one you know is the mobile banking application of Ireland. This is exactly the same, be it translated to the Irish context of the one which we have in Slovakia or with the one which we have in Bulgaria. It's built on the same platform. The development of Kate, which is going to bring us a lot of cost and revenue synergies, is built centrally and is built for the whole group, so including Ireland. So the development cost for that perspective is indeed low. So that is the philosophy which we are pulling forward.Then you have the other side of the coin, which is the legacy and the legacy is obviously related to the phasing out of that business. That is an NPL book, as you know. Initiatives will be taken. We had an initiative in 2020 to consider selling off part of that book. But unfortunately, COVID kicked in. And therefore, we stopped that process. But going forward, there's a clear intention to run that off and bring that book off in the soonest as possible.

[Kurt De Baenst, General Manager, Investor Relations]

Further questions?

[Operator]

We have no further questions.

[Kurt De Baenst, General Manager, Investor Relations]

If no further questions, then this sums it up for this call. I would like to thank you for the attendance and hope you remain healthy. Take care, and enjoy the rest of the day. Cheers.

[Operator]

Thank you. That concludes your conference call for today. You may now disconnect. Thank you for joining. Have a good day.