KBC Groep NV

XBRU:KBC

Earnings Call Transcript 2021-Q4

[Operator]

Good morning, everyone, and welcome to the KBC Group Earnings Release Q4 2021 Conference Call. My name is Yvette, and I'm your event manager today. [Operator Instructions] I'd like to advise everyone that this call is being recorded.And now it's my pleasure to hand the call over to Kurt De Baenst, Head of Investor Relations. Please proceed, 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, the 10th of February 2022, and we are hosting the conference call on the fourth quarter and full year '21 results of KBC. As usual, we have Johan Thijs, Group CEO, with us; as well as our group CFO, Luc Popelier, and they will both elaborate on the results and add some additional insights.As such, it's my pleasure to give the floor to our CEO, Johan Thijs, who will quickly run you through the presentation.

[Johan Thijs, 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 results of 2021. Fourth quarter it means also the full-year results of 2021. Let me start, as usual, to give you the highlights of this quarter. Well, we have posted this morning an excellent net result of EUR 663 million, which is significantly superior to the result of the same quarter last year and also superior to what we had posted in the third quarter of this year.Now the reason why this result is so good has to do with the fact that KBC has been firing on all of the -- KBC engine at least has been firing on all its cylinders. We have had excellent performance in all our bank-insurance franchises in the entire group. It means that customer loans and customer deposits have increased significantly 5% on the year, and that also we have been able to increase our net interest margin as well. We have been able to increase fundamentally as a consequence our net interest income but also the net fee and commission business was significantly up for the fourth quarter in a row this year.We have had excellent sales in non-life topping 8% and also on the life side, we were seeing in this quarter a significant increase on the sales side. In the meanwhile, we were able to maintain and to keep our costs under control and actually, we delivered lower cost increases than what we have guided for. We guided more or less 2%, whereas in reality we have delivered a cost increase of only 1.5%. The impairment of provisions were negative, which means that we have further released on the management overly, and on top of that, we have been seeing hardly any impairments on the non-COVID-related book.In terms of the sustainability side, also there, we have made further progress. So we have converted the 2 remaining Belgian pension savings funds, amongst which one the biggest Belgian pension fund into SRI funds. And on top of that, SRI is becoming the mainstream investment fund in our group. 55% of all net new sales are SRI-linked funds. To give you an idea, EUR 6 billion assets under management were added on top of the existing SRI fund base and all our SRI funds are indeed article 8 or article 9 compliant. Last but not least, I want to add a small thing in that perspective but a major stat if you compare it to 5 years ago. KBC in terms of its own emission has become climate neutral in 2021, including offsetting a small but which was left over.We have also a very strong liquidity and solvency position. The solvency stands at 15.5% after distribution of dividend and the dividend distribution will be significant. I'll come back to that within a second. We have an excellent leverage ratio of 5.4% and the liquidity is performing substantially higher than the targets which are mentioned. On that high equity position, we realized a return on equity of 15%, which means, indeed, we are amongst the best-performing financial institutions within the European financial institution domain.On the next page, which is Page 4, you can see the dividend proposal. We are going to pay out over 2021-2022 a total dividend of EUR 10.6 per share, which is indeed something needs to be approved by the AGM. This means that we are going to pay out a final gross dividend of EUR 7.6 per share. Let me explain that in brief. The EUR 7.6 per share is the remaining final dividend over the year 2021 of EUR 3 per share, and we have put our money where our mouth is, that is we made an extraordinary dividend payment of EUR 4.6 per share, which means that all capital, which is north of 15.5% is distributed to our shareholders according to the guidance which we have given in the past. This will lead automatically to a CET1 ratio of 15.5%, which is substantially higher than the minimal targets, which are imposed upon us by the ECB. The target is 8.31%, which gives us a substantial buffer as we speak.The payout ratio is 66% on the basis of the EUR 4 normal dividend. If you take into account the extraordinary dividend, then that payout ratio goes to 139%. And also in -- given the fact that we are indeed looking at a new period to come, which is significantly different than the previous period because, amongst others, acquisitions and so on and so forth. We have reviewed not only our long-term guidance, which I will speak about at the end of this conversation, and also we have reviewed the dividend and the capital deployment policy. As a matter of fact, the payout ratio has remained the same. We are going to pay out at least 50% of our profit, including the AT1 coupon, but also we are going to make really explicitly that all capital which is north of 15%, so 15% CET1 fully loaded, that capital is considered to be surplus capital and will be at the discretion of the Board of Directors, will be decided to be distributed to our shareholders. That will be applicable as of year 2022 and following.On the next pages, you see the overview of a couple of sustainability results, solvency results, and profitability results. I'm not going to delve on the details, neither I'm going to delve up on the details on Page 6, which are the building blocks. Let me stand on second still with the one-offs that's on Page 7. Of course, the one-offs are, again, significantly influenced by the pending sales transactions in Ireland. In total EUR 48 million of those one-offs are related to those pending sales transactions in Ireland EUR 25 million on the impairment side and then the remainder on the side of other things. Now in terms of the total amount of one-offs in this quarter, we have a positive impact of EUR 28 million, which is related to the badwill of OTP, and then we have a legacy file, which is EUR 6 million, which is a legacy file related to our derivatives legacy of, let's say, period 2010. Now totaling EUR 22 million pretax, posttax EUR 21 million one-offs negative into our results. In terms of the split-up -- traditional split-up between bank and insurance, it's quite normal. The split-up is 84% on the banking side profit and 16% on the insurance side profit, which is more or less in line with the 85-15 historical split.Now let me go into the details of the different P&L lines. The net interest income is, of course, one of the main contributors. Good news, net interest income goes up 6% on the quarter and 10% on the year. So it's quite significant, and that has been positively influenced by a couple of things. For sure, the rate hikes, which we have seen in Czech Republic and to a lesser extent in Hungary. Also there, we do see indeed a positive impact. We will also update our guidance on the impact of any rate hike in Czech Republic that will be 25 basis points will stand in the future for EUR 20 million of positive impact on NII. The reason why it has come down from EUR 25 million to EUR 20 million is related to a couple of things, which we will explain later on during the Q&A.In terms of the other positive contributors, it is clear the lending business has been performing very well. Again, we have seen a strong growth of the volumes in all countries, also driven by the mortgage business, but also driven by SME and corporate business, 5% in total, which brings indeed a significant contribution on the volume side. The net interest margin, as such, has increased with 5 basis points and the combination of the 2 triggers us, indeed, on the net income generated through the credit side. On the year -- on the full year, it's EUR 14 million up. Also, positive impact on the ALM FX swaps, EUR 14 million, and also positive impact on the inflation-linked bonds on the insurance side. What we have seen as well is that short-term cash management because of the increase of the rate hikes in Czech Republic, to a lesser extent, Hungary, have created a positive [ side ].I'm going to go through this fee and commission business next, which has indeed, as I said, a very significant uptick. Again, EUR 479 million of profit is significantly more than previous quarter. And as you can see on the graph, it's the sixth quarter in a row that it is increasing. Actually, as a matter of fact, we have seen in this quarter, every quarter, again, positive net inflows. This quarter, EUR 836 million, bringing us a total positive net inflow on all collected and discretionary funds of EUR 2.4 billion. This is quite exceptional and, indeed, it is a reflection of the efforts which we have done for convincing customers to set into investment products. As a matter of fact, and this is also quite an important one, amongst the EUR 2.4 billion that is net. On a gross sale, we were able to record again EUR 3 billion of gross net sales in this quarter. And in the positive inflow of EUR 2.4 billion, we can see that more or less EUR 2 billion of regular investment plans are coming up, that number is a gross number, in the inflow of this year.In terms of other fee and commission contributors, we can see good performance on the banking service fees with an increase of another EUR 4 million to EUR 5 million. We see a fundamental increase as well on everything which is related to credit files and bank guarantees file plus EUR 5 million. But also, once again, our security business was generating more fees, EUR 4 million on the quarter again, and this is the result of a fundamental increase of our -- first of all, our M&A business but also M&A and IPO business, as you would say, and also the business which is related to our trading platforms, which had again after a record year 2020, we had again, a new record year 2021. We saw our performance increasing with 15% number of transactions, 15% in quarter 4. Over the full year, we saw our [ income ] of customers into the double digits, so a very significant manner.Assets under management total now EUR 236 billion, which is the result of the high inflows of the higher-margin business, slightly offset, and that is on a deliberate basis, by the outflow on the management advice -- sorry, on the investment advice, which is a low-margin business. But also there we see in total on the assets under management a positive impact because of the market performance. In terms of the insurance business, actually, a very good result. This has been due to 8% growth on the non-life business side. And we saw also an increase on the -- 46% increase on the quarter business, which is the typical seasonal impact both on unit-linked and on interest-guaranteed products. Coming back on the non-life side, combined ratio stands at 89% despite the fact of the heavy impact of the floodings in 2021 quarter 3. You remember that Belgium was significantly hit. We currently stand at EUR 110 million gross impact. After reinsurance, it should have been EUR 42 million, but we have a solidarity contribution to do for the [indiscernible] government, and that stands at EUR 45 million. So totaling EUR 87 million. As I said, despite this impact, combined ratio stands at 89%, which is indeed an excellent performance, is also reflecting the good performances of the combined ratio in all countries. All countries have a combined ratio which is 90% or lower.In terms of the split up on unit-linked and interest-guaranteed products, we do see that quarter-on-quarter, we had a strong performance on the interest-guaranteed products. It was 53% up. It has to do with a couple of commercial actions, which we have taken in the first -- in the last quarter, sorry. And in total, we now see that 40%, or 39% to be precise, of our sales are unit linked and are making also clear that our value of new business has further increased in this year to 7.7% compared to the 7.2% of 2020.So let me skip now the insurance side and go immediately into other, the 2 remaining P&L lines that is the financial instruments at fair value. Here we do see a negative contribution and that is entirely due to the fact that we have a negative impact of the increase in interest rates on the ALM derivatives, which are not put in hedge accounting. That has a significant negative impact, EUR 72 million quarter-on-quarter difference, and that actually explains the full impact here, which is in total EUR 67 million quarter-on-quarter. So it is entirely explained by this one particular element. What is the good news? The good news is that because of accounting reasons, they will not be able to put in a hedge accounting in this year, but we can change that in 2022, which means that all of the losses which are occurred in this year will be recuperated in the next coming years.In terms of the dealing room income, we saw a slightly lower income in the fourth quarter compared to the third quarter, and that is to do mainly on the trading side because we had excellent sales on the dealing room activities in Belgium and other dealing rooms. In terms of the equity instruments, with slightly higher income, EUR 10 million, [indiscernible] but it was also slightly upwards, plus EUR 8 million. The split that was given in the slide, I'm not going to go delve on the detail. In terms of net other income, it's a bit lower than it was previous quarter. But mind you that the previous quarter was heavily distorted by the one-offs, which were related to the sale of bonds amongst others. As a matter of fact, if you only look at the underlying results, then the underlying results which are related to the [ systems ] business to the lease business, and real estate business is exactly the same as previous quarter and the quarter before. So it's more -- it's EUR 35 million, which is the result of also last quarter and more or less the result of quarter 2. So actually, it is perfectly normal. What is distorting it in fourth quarter, that is a EUR 28 million badwill, a one-off, positive one-off on OTP and a couple of smaller things, amongst others, again, an influence on the pending sales transaction of Ireland to the tune of EUR 3 million.Let's not waste time here and go into something far more important that is the cost side. Let me start with the good news. If you -- the result of KBC is obviously heavily distorted by bookings, which we did on the cost side for the pending sales transactions in Ireland and also extra bookings we did on the transactions for Raiffeisenbank Bulgaria in Bulgaria. If you would exclude those and you would indeed also take a like-for-like that is the integration of OTP in Slovakia. If you would exclude those and if you would take then the bank taxes out, which we always do, then the cost increase for the full year 2021 is 1.5%, which is 0.5% lower than what we guided towards the market. In that perspective, we have been able, indeed, to keep the costs on the -- to keep the cost maintenance under control. And as a matter of fact, the cost reservation in the fourth quarter of 2021, was not done in a conservative way, if you understand what I mean with this.In terms of the impact on the fourth quarter, if you would exclude the bank taxes, then we stand at a cost-to-income ratio of 51%, which is an excellent result. And that is indeed also compatible with a long-term target substantially lower. If you would compare everything included, so bank taxes, all the one-offs included, then the cost-to-income ratio stands at 58%. But as I said, it's heavily distorted. In terms of the bank taxes, that's on Page -- well, it's on this page as well. But I think on the next Page 17 is a better overview. Bank tax is now total 12% of the operational results of KBC Group. It's quite a lot. If you compare it to the different countries, it fluctuates a bit, but 12% on the operational cost is indeed quite a lot, EUR 525 million in total.When we go to the impairments on provisions and impairment on other things, then we can see that also we got releases in the fourth quarter to the tune of EUR 16 million. This is mainly related to a reverse of impairments, EUR 79 million coming out of the management overlay for good reasons. There is hardly any impact of COVID on our provision books, or on our credit underwritings. EUR 79 million comes out of the buffer, which still is EUR 289 million at the end of quarter 4. So at the end of 2021. Also there, we do guide that that buffer of EUR 289 million is considered to be released when not used, of course, not used in the quarters to come, which is indeed the expectation that this Omicron will not have a significant impact on the quality of our credit underwriting.We also had some further releases on -- sorry, we had some further impairments on a couple of individual corporate files, only to the tune of EUR 9 million, and we had some further impairments on intangibles, which are related to the transactions in Ireland and EUR 17 million which are related to intangible in other countries. So in total, net releases EUR 16 million. In terms of the credit cost ratio, where does it stand? Well, straightforward, 9 basis points versus 16 basis points in 2020 without the COVID overlay. But if you would include the impact of the COVID overlay, which is 27 basis points negative, so negative means here positive. [indiscernible] explain it, but it's how it works. 9 basis points, minus 27% is minus 18 basis points, but minus 18 basis points is a positive. Okay. Here we go.In terms of the impaired loans ratio, it stands at 2.9%, if you would take out Ireland because you saw that we concluded the deal on the nonperforming loan in Ireland, the nonperforming loan ratio stands at 2.4%. As of the next pages, we have the full overview of COVID-19, for the sake of time and give a bit more room for questions, I will skip most of this. Most important things there is, first of all, we still have a buffer of EUR 289 million, which we will potentially release in the course of 2022 and perhaps even 2023 we'll see. The macroeconomic scenarios are not impacted significantly, and we have 97% of our loans which were under moratoria are now back to where they were in performing modes. And that is explained on, let me see, on Page 26, whereas the remaining part only 2% -- 2.6% is in new defaults.If I look at the overview, which is on Page, let me see -- we give you the overview of each and every country, but also suggest to skip that and just jump immediately to Page 47 and 47 gives you the overview of the balance sheet on -- 48, sorry, gives you the overview of the balance sheet for the different countries. As I said, we had a strong organic growth of the loans of 5% on the year, of which 6% retail mortgages. Also on the deposit side, we saw a good inflow. And then you can have the split in all the different countries. I'm not going to delve on all the detail there. I'll leave that open if need be for questioning.That brings us at where we are with our capital position. The capital position stands at 15.5% after the distribution proposal of dividend. In terms of reference to what is absolutely minimal, we have a theoretical regulatory minimum of 8.31%. So that is a buffer of 7.2% on a total capital -- total risk-weighted assets of EUR 104.6 billion. In terms of the OCR, we stand at 10.81%, which is a buffer of 4.7% compared to our capital ratio. And then the MDA is 11.23% because we have deliberately a shortfall on our AT1 and Tier 2 of 42 basis points, respectively, 7 and 36 basis points numbers. If you would take into account the transitional measures, which we just gave as an indication because you know that we always work on a fully-loaded basis, then we could add to our capital ratio 1.27 points percent, which brings our transitional CET1 at 16.8%.Also, on the Pages 51, 52, you see further explanation on the capital ratio. Capital ratio is coming down to 18.6%, but it's obviously due to the fact that we are paying out or proposing EUR 7.6 gross dividend -- final dividend. And then the leverage ratio of 5.4% is also influenced by what I just said on the dividend. On the insurance side, the solvency ratio stands at 201%, which means that we have a full dividend obviously, including the dividend of the year 2020 to KBC Group. So the part which was left in because of the restrictions is now up-spent to the group. Also in terms of liquidity, we do have strong liquidity performance, which is at least 50% above the buffers -- above the minimum, sorry, and we do have a customer-driven inflow of almost 70%.In terms of the other businesses, I would like to emphasize before I go into forward-looking part, the further evolution of KBC on the innovation domain. This is explained on Slide 79 and following. And it actually triggers our -- what we are dealing with in terms of our investment, but also in terms of our further evolution. Kate has been launched a year ago. So our AI-driven service assistant is now 1 year old, and it's actually doing better than what we have announced a year ago in terms of expectation. Kate has been picked up by our customers in a quite massive way. It has been launched in Belgium and Czech Republic. It will be launched, as we speak today or tomorrow, in Bulgaria. This will be launched next quarter in Hungary, and it will be launched in Slovakia in the fourth quarter. So then Kate is launched in the entire group.In Belgium and Czech Republic, it's taken off significantly. We have 4 angles to the story. Kate for retail customers, Kate for business customers, Kate as a group platform, which is driving the back offices and therefore, it's driving the straight-through processing and then Kate for employees. The input by our customers is quite significant. If I give you an idea, which is expressed on Page 81. So 1.7 million customers have already been in contact with Kate. So they've been using the Kate application. About 650,000 of them are active users, which means that they're using Kate on a regular basis, and they're using Kate for solving their issues.And in terms of what we call autonomy, that is if you ask Kate a question, can Kate independently [indiscernible] any assistance from an employee of KBC answer the question, we currently stand after 1 year at 37%. So 1 out of 3 questions can be answered autonomously by the machine, which means also that it takes away a lot of pressure from our back-offices. What does that mean in reality? We have about 7 million conversations starting in Kate. If you look at a conversation which goes end-to-end, then we have 2 million conversations already after 1 year, which has fully been delivered by Kate -- by the machine. So in that perspective, it is indeed really taking off. It's better than what we assumed. It's better than what we expected, and it triggers us to go even further in the next coming 2 years.Last thing, which is quite important, that is Kate for employees, where Kate is actually assisting our own staff. It has been launched first in Czech Republic. It is going to be launched in this week -- sorry, next week in Belgium. Also there the results are pretty amazing. But as there was quite some fear, let's call it like that, in the very beginning by our staff in Czech Republic if Kate would not be taking over their work actually has completely turned the employees rate the user-friendliness of Kate and the usefulness of Kate at almost the maximum score 4.8 for the user friendliness and the usefulness 4.2 which is indeed very good and much better than what we at day 1 of launch. What is also important is via Kate were sold 24,000 new products in Czech Republic. Now on Page 80, for those who are really, really into Kate, that's the essence of Kate. It's the brain behind KBC machine and this is the brain of our future.Let me wrap up what that future could look like. First of all, on the economic side, we have summarized what we think Omicron is there and Omicron is bad in terms of inflation, It is not too bad in terms of physical impact and therefore casualties. But it is, as a consequence, also not going to hamper the further economic development of KBC, but also on GDP in general. In terms of outlook, we slightly retuned the GDP growth, but we are broadly aligned with what we have announced on previous occasions. Obviously, there is a big caveat that is what's going to happen at the Ukrainian borders, what's going to happen with inflation. But in order to save some time, I'm going to stop here on that guidance. But to give you an idea of what -- how we translate this into our output, we are giving guidance in 2 ways. First of all, for the year 2022, we're giving guidance on total income of ballpark EUR 8.2 billion, which is including the positive one-off effect of the performing loan sale in Ireland that was already guided on the previous occasion when we announced that transaction. But ballpark EUR 8.2 total income is also translating a ballpark EUR 4.55 billion guidance for net interest income. That is taking into account the impact of the Czech rate hikes, that is taking into account also the negative impact of the low interest rates in Europe, and that takes into account a couple of other things as well.In terms of OpEx, we guide EUR 3.9 billion, excluding the one-offs, and we guide EUR 4 billion including the one-offs, and we guide as well for a 10 basis points credit cost ratio, including the reversals in 2022. The guidance on Basel IV has not changed. So it is still the EUR 8 billion with a 1.1% impact. But on the next page, we also give or provide you a guidance for the next coming 3 years. How is it expressed? Well, it is the fundamental review of the guidance, which we actually did a year ago also for a period of 3 years, 2020-2023. Now we give a guidance '21-'24 for good reasons. The first reason is KBC is no longer the KBC which it was 1 year ago. We have the transactions both at the national [indiscernible] pension fund business, we do have a transaction in Bulgaria with the acquisition of Raiffeisen and we have a pending transaction in Ireland. We do have a fundamental change on the inflation. We do have a couple of other things which have fundamentally changed in terms of interest position in Czech Republic and in Hungary. And for that reason, we have actually rolled over the guidance for 1 year, and we have upgraded upwards the numbers of both the income and the jaws.Now what does it mean? We guide for the next coming years 4.5% growth. We have guided OpEx 1.5% by 2024, which means that the jaw has come up from 1% to 3% going forward. Cost/income ratio will be 47% in 2024 according to this guidance. For the combined ratio, we guide the combined ratio below 92% as we speak. And also we have guided on the capital side that all capital will be defined as surplus capital if it exceeds the 15%. We did also an analysis on our through-the-cycle credit cost ratio where it previously stands between 35 or 30 and 40 basis points. Now we brought it down because of the sale of the nonperforming parts in the different countries, Ireland and Bulgaria. We brought it back to 25 to 30 basis points. In terms of the regulatory requirements, these are the numbers, which are at the bottom or the floors of all our regulatory prescriptions that is 10.81% for the OCR, that is 26.58% for MREL RWA expression, and MREL LRE expression is 7.34%.In terms of the digital part of the study, we also rolled over our guidance on what we are going to spend on the digital innovation. KBC has shifted clearly from investing in the traditional environment into a more digital and innovative environment. So actually, we brought down -- further brought down the investments on, let's call it, the analog business and we shift that into digital. So it's really a transition into digital first. And therefore, actually, the investment cycle remains intact. There's EUR 1.4 billion for the cash flow side over the period of 3 years, and it will remain EUR 1.1 billion on the OpEx side, which is exactly the same number.And then the last thing, I already mentioned that. That is what about our capital deployment plan going forward? Well, it's actually starting from the same angle. We want still to be the best or the better capitalized financial institution in Europe. And our dividend policy is an expression of that ambition level. As a consequence, but it is normal every year again, the Board of Directors -- Supervisory Board of Directors will take a decision at the discretion what the dividend is going to be and they will take into account what kind of risks we are running, what is the forward-looking profitability, and what are the strategic opportunities in terms of M&A, in terms of whatever. That will then be translated in a payout ratio which is at least 50% of consolidated profit, including the AT1 coupon. It will also entail an interim dividend of EUR 1 per share, which is payable in November of that accounting year. And then all capital, which is north of 15% is considered to be surplus capital. And that surplus capital is considered for distribution to shareholders in discretionary decision by the Supervisory Board.How are you going to do that? Well, it can be in the form of a cash dividend, it can be in a form of a share buyback, or it can be in form of a combination of both. To that -- for that reason, we are also going to propose to the AGM of May of this year, a proposal which allows us to, as a Board -- as a Supervisory Board to decide on a share buyback up to the tune of 10% of our stock. And that for a maximum period so that the mandate is granted for a maximum period of 4 years. So this will be proposed to the AGM. All of this will be proposed to the AGM now in May.I think that sums it up for this call because all the other slides are now relating to the full-year result, but the full year result is the consequence of the first 3 quarters and everything what I said on the fourth quarter. So I would like to keep it here and give back the floor to Kurt who will guide us through your questions.

[Kurt De Baenst, General Manager, Investor Relations]

Thank you, Johan. Now the floor is open for questions. Please switch a number of questions to 2 to allow for a maximum number of people to raise questions. Please restrict the number of questions to 2 to allow for a maximum number of people to raise questions. Thank you.

[Operator]

[Operator Instructions] The first one is coming from the line of Giulia Miotto.

[Giulia Aurora Miotto, Vice President and Equity Analyst]

Two questions on my side, please. So on the capital target, let's say, of 15%, I just want to understand how do you think about the M&A within that. So let's say, do you find an interesting M&A opportunity? Would you basically go below 15% because of that M&A opportunity? Or basically everything above 15% is to be considered between potential for bolt-ons and capital distribution? So that's my first clarification.And then if I can ask more of a technical question on NII sensitivity, in particular to the euro curve. So what is the sensitivity if we were to hike rates, so short-term sensitivity? And separately, always related to this topic, what are you assuming in your 4.5% CAGR for total income in terms of rate hikes? Because I think [ CE ] the forewords actually imply rates to come down and your rates go up. So that would be helpful.

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

Thanks, Giulia, for your questions. Let me take the first one. So our capital ratio indeed now -- sorry, our capital -- surplus capital definition will be indeed 15% going forward. How does it relate to M&A? Well, actually, nothing has changed. As a matter of fact, every M&A opportunity, which is there will be judged on the basis of its quality. And that means we will have a look into the strategic side, does it fit with our strategy? Secondly, does it fit with our operational business and also does it fit with our midterm targets? You know that KBC has the ambition to be amongst the better performing financial institutions. So therefore, it needs to fit in that perspective as well.If it then has an impact on our capital position, then on the basis of the analysis, which I just [indiscernible] that analysis, we will go for the acquisition. We do generate on a yearly basis, before distributing, 250 basis points of capital. Again, we are currently at the limit of our -- no, we are even 15.5%. So we're slightly above the limit of our surplus capital definition, which means that 250 basis points profits which we generate in terms of capital -- so, which we generate in terms of profit, sorry, that is already surplus capital. If you do an acquisition, on the base of that quality, we will just execute it.Does it mean -- what does it mean if we then go below the 15%. If it's a good acquisition, we will do so. Are we immediately going to replenish that? Not necessarily. That is given and driven by the circumstances. As a matter of fact, the circumstances are assessed economic growth, profit outlook, risk and so on and so forth as positive, then there's no need to be that we are immediately going to replenish that capital after an acquisition. So there is a lot of flexibility in that perspective and also given the fact that KBC currently stands at 15.5% and the profit generation which we have of 250 basis points each year gives us a lot of flexibility for doing M&A acquisition.On your 2 other questions, the NII sensitivity to the euro rates, we don't give any guidance on this. But there are, of course, different effects. You have the short-term effect if the depo rate would increase by 25 or 50 basis points. That's one isolated effect. And you have, of course, the effect on the long end of the curve. What we can say is that in the assumptions, the assumptions we've made in the projections is that there would be no rate hike for the ECB in 2022. And that we would have 2x rate hike, so 50 basis points in total for '23 and another 50 basis points in '24. So that is included there. So you can see, have an impression of what the impact could be.I should mention that for the short-term rates increasing with the ECB, depo rates, there are compensating effects. So obviously, we will be able to reinvest our short-term deposits at higher rates, or rather we have less negative rate impact, but there are compensating effects. The first one is that we have, of course, the impact on our negative charging of deposit rates. So we are currently charging EUR 9.5 billion of deposits as ECB rates would go -- become less negative and potentially positive. And obviously, the compensating effect is less negative charging on deposits, so that will be reducing the effect.Secondly, we have a lot of term loans in KBC where we have a [ floored ] funding where if you have an -- you are IBOR plus certain margin in the contract, that your IBOR is [ floored ] at 0, yes? So you have an additional margin in those loans. And that is also compensating, to a large extent, the initial impact of an ECB rate on the short term. So there are a lot of moving parts. That's why we decided to give you an overall view for the short-term guidance on NII and long-term guidance in NII in which we've given the assumptions I just made on the euro rates. On the rates, particularly in Czech Republic, our assumption, which we put into the projections is that we would stay at 4.5%, the 2-week repo rate, at 4.5% in 2022 but then it would gradually come down to 3% by '24.Maybe one thing I should mention as well, in the assumptions, I forgot to mention is that we also think that the curve -- the euro curve will flatten and so there will be an increase in the short-term deposit rates in '23 and '24. But the curve will not move in parallel. It will be flattening of the curve.

[Operator]

The next question is coming from the line of Benoit Petrarque.

[Benoit Petrarque, Head of Benelux Equity Research]

Yes. The first question is on the target, the long-term guidance. On the cost side, maybe just first, looking at 2022 versus 2021, you have a EUR 3.9 billion guidance. Now if I clean 2021 for regulatory cost, I get a bit short of EUR 3.9 billion. So seems that you expect the inflation to be offset by cost cutting. So maybe could you talk about your assumptions there? And also looking in the more long-term cost guidance for 2024, I was [indiscernible] to get your embedded inflation figure in the model.And then on the revenue side, so I think the 4.5% CAGR implies EUR 1 billion extra revenue between 2021 and 2024. Now if we focus more on 2022-2024, it's probably EUR 600 million extra revenues on kind of 2 years. How much roughly is coming from like what you described better NII, better rates, and how much is kind of non-NII, more fee insurance growth. That will be the question. And then maybe just on the Czech rate hike sensitivity, the EUR 20 million for 25 bps. Did you capture all the kind of potential pass-through in that guidance, or is that kind of clean figure also applicable to the recent rate hikes we've seen, well, just a few weeks ago?

[Roger Elie Popelier, CFO & Executive Director]

Benoit, there are a lot of questions in one go. So I've already forgot half of those questions. My apologies. But there are many of them. The last one is still remember, which is the 25 basis points sensitivity in the Czech Republic -- Czech koruna rather. We've taken all effects into account that we described before. On the first question, I also remember is the inflation. There is a partial compensation of -- through productivity gains. That is correct, yes, but not fully. That's also why our guidance for the short term is now increased to EUR 3.9 billion. If you compare that with the excluding one-offs. You should not forget that there are also some one-offs that happened in the previous in 2021, yes. So you have to exclude those as well. And then you'll see there's still an inflation effect. But you're right, there is a partial set of by additional productivity gains.

[Benoit Petrarque, Head of Benelux Equity Research]

Your inflation figure how much is that for the plan like 2024, roughly...

[Roger Elie Popelier, CFO & Executive Director]

Sorry, which one?

[Benoit Petrarque, Head of Benelux Equity Research]

The cost inflation for 2021-2024, what is your figure for inflation embedded?

[Roger Elie Popelier, CFO & Executive Director]

The inflation, well, I don't have the -- per country, obviously, we look at it. So we don't have a, let's call, an average inflation rate. But for Belgium, which is I think the most important one, we have an inflation rate of 4.5% for '22, then coming down to 1.4% and 1.8%. And for the Czech Republic, we assume an inflation, this is the harmonized consumer index, the harmonized one 5.3%, coming down to 2.2% and 2%. And then we have higher inflation rates in Slovakia and Hungary and Bulgaria, but also coming down in the next 2 years, '23-'24.

[Benoit Petrarque, Head of Benelux Equity Research]

My other question is on revenues, but I'd just like high-level analysis. I think you expect roughly EUR 1 billion extra revenue, if I take the CAGR of 4.5% between 2021 and 2024. So it's a total of kind of EUR 1 billion. Now zooming on 2022-2024, I think it's roughly EUR 600 million extra revenue over the 2 years. So is that kind of for large part NI or is that more of a kind of mix? Could you maybe talk about the breakup of the kind of top line growth over 2021-2024?

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

Good morning, Benoit. Let me answer your question. Let me also add a little bit flavor on what you asked on the cost side. So as Luc explained in detail, a lot of moving parts. What is also a given is that besides inflation, of course, we take into account a further pickup of our business, but also further investment into our digitalization. If you translate the costs taking into account the investments on the digital side, you will see that we have through those investments are obtaining a productivity gain on a CAGR basis of around 1% per year. So that is indeed a reflection of the increasing and the offset in fact of the investments through productivity gains.Coming back to your question on the total income side, we already reflected what that would mean on the interest side. So Luc explained on the previous question that we take into account, first of all, a couple of rate hikes in Europe. So we do expect a rate hike of 50 basis points in 2023. And in 2024 another one of 50 basis points, 0 in 2022. We do expect a rate hike of negative 75 basis points in Czech Republic and another one in 2024. So that comes down to 3%. So that has been taken into account. In terms of the further evolution of our long-term total income side, we will further increase our volumes with lending volumes of 4% to 5%. And then also we will further continue to work on Kate, which is generating both on the revenue side and on the cost side further benefits.I just said something on the productivity. We don't disclose the detailed numbers, which we do expect to see in every country, nor on very different initiatives, because that will lead us too far. But indeed, it gives you an idea where we stand and it is indeed a CAGR -- sorry, a jaw of 3%, which you then can calculate on a yearly basis what it means in terms of volume. We do also not guide explicitly what the impact is on short straight-through processing, which is directly related to Kate. But the FTE reduction, which is relating to the straight-through processing is offsetting -- the inflation is offsetting a big chunk of the inflation numbers, which have been guided by Luc a second ago. We don't explicitly announce how many FTEs are related to that.

[Operator]

The next questioner is Tarik El Mejjad.

[Tarik El Mejjad, Equity Analyst]

I have very quick 2 questions. First of all, on costs, if you can just tell us what's your assumption in terms of the Single Resolution Fund contribution in 2024? Is that coming to 0 in 2023 and only the [ DGS ] will come back in the countries where they were before the ESRF kicks in? Secondly, on the CET1 ratio, so you were supposed to update the new threshold in May with Q1 numbers. So should we expect that the 15% is it until the next year? And last one, I was just putting a very quick one. I'm into Kate. And I've been looking into the slides from 80. So you're saying you are becoming a data-driven organization. And it's really interesting slide and it's quite impressive what you're doing there. My question is on the handling the data and what's the risk for you in terms of being -- not using this data in a proper way or losing it? So what's the risk there operationally? And are you comfortable the way you process them?

[Roger Elie Popelier, CFO & Executive Director]

Okay. I will take the first question on SRF. So yes, normally, the contribution should stop in '23, so '24 will be 0. Having said that, you know that the aim of Resolution Board is to come to 1% covered -- to 1% of covered deposits to be covered. Deposits have grown quite significantly throughout Europe. And therefore, we think that there is a risk that there will be a continuation of contributions to be made. In our assumptions, we definitely have taken some of that into account. You want to answer the [indiscernible]? And Johan will answer the other questions.

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

So good morning from my side, Tarik. On the CET1, indeed, the 15% is the definition of surplus capital. That CET1 ratio is assessed every year again on the basis of a risk analysis. So what is the forward-looking position on the risks, on profitability, and so on and so forth. And we take into account, of course, what is the evolution of the targets of our peers because the main position remains that we wanted to be amongst the better-performing financial institutions in terms of profitability, but also in terms of capital and capital position. So yes, assessed on a yearly basis.In terms of your question, data-drivenness and what does it mean, it's actually a good question. It's also a tricky question to answer. We do a lot of efforts. And on the development of infrastructure, which allow us to be data-driven. Because let's face it, there is a big difference between being data-led and being data-driven. We made that switch already a couple of years ago. And that means that the infrastructure which enables us to do so has been built over the last 7, 8 years. It's something you cannot do overnight for sure not.That includes as well, and that's the second part of your question, what about handling of the data, what about cyber protection, what about losing it and so on and so forth. And that's a tricky part of the question because there is no good answer. If I disclose what we do and you say that we are super-excellent, it could become an advertisement for everybody out there hacking. If I do say we do not do enough, then it's definitely not an advertisement to anybody out there as well who is intending to hack. So whatever I say, it could be tricky. So I would like to give you an individual comment on what we do and how we deal with it, but not on the record. I can assure you that we, in that perspective, pay a lot of attention to this question. And it's a key, not only for us. It's key for the entire financial industry. And that's something which we take very serious -- we take serious part.

[Tarik El Mejjad, Equity Analyst]

Yes. I would love to discuss it offline.

[Operator]

The next one in the queue is Flora Bocahut.

[Flora A. Benhakoun Bocahut, Equity Analyst]

There's 2 questions I wanted to ask you. The first is regarding the fee income. Your fees were up 14% [ DTA ] '21. They were up actually even 19% I think in Q4. Some other banks expect to see from here at least mid-single-digit growth every year in fee income. Obviously, based on the revenue CAGR that you present of 4.5% towards '24, I can only suppose this is your case as well. So really wanted to ask you first on how you are thinking around fee income growth from here, grow above mid-single digit and what could be the drivers?And the second question I want to ask is regarding the buybacks, just to try to understand how you're thinking about buybacks considering the fact that on the one hand on today's announcement, there is no buyback despite substantial distribution to shareholders announced today. But then you are considering buybacks for the future as you want to put that on the agenda of the AGM. So what you're thinking -- generally thinking around buybacks? What's the offtake for you there?

[Roger Elie Popelier, CFO & Executive Director]

Okay. I'll take the first question and Johan will take the second one. On fee income, yes, indeed, we have seen very strong growth. We think that the trend will continue to be that way with strong growth going forward that is driven by, in particular, with our drive in wealth management. Fund management, in particular, but also discretionary mandates, first of all, in Belgium, a continuation of good growth. Obviously, there will be some noise up and down with the equity markets. But structurally, it should come up with, first of all, well, you could expect a positive yield on the funds. Secondly, we see high savings ratios still with our Belgium clients. It is coming down but still very high. And there is massive amounts of deposits still on our balance sheet, which we are more and more successful in converting into asset management products.In terms of Eastern Europe, it has just started. The shift from a credit-led economy, particularly in Czech Republic, to a what I would call wealth-led economy with wealth levels in Central and Eastern Europe increasing all the time, you see that with wage inflation very rapidly. People have more and more discretionary income they can save, and that will also lead to further structural growth in asset management business and wealth management business in general.There's also a second element and that is payment services. There will be in the short- to medium-term a further increase we believe with particularly Central and Eastern Europe people using more and more credit cards, doing more and more transactions, but there is a negating trend in the sense that there's fee pressure on all payment services. And as there's more and more competition and the whole -- and a lot of organizations are trying to make the payment industry more effective.But the third element are other services. We're just at the beginning of providing other services to clients beyond banking and beyond insurance, and this should also have a long-term effect. But the most important driver at the moment for the next, say, 5, 10 years is wealth management.

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

Regarding the buyback. So actually your question has 2 layers. First, buyback in general. Yes, indeed, we want to create the possibility to have buybacks within the mandate, which we get from the AGM. As you know, currently, our Supervisory Board has no mandate from the AGM to do a buyback -- to do a share buyback, sorry. That means that we have -- if we concluded, we have to go into a -- or an extraordinary or an AGM. And in that perspective, we are now proposing to the AGM to get the possibility for doing share buybacks in the future. And that is to the tune of 10% of our stock, and that's for the period of 4 years.So yes, we want, as a management, to create the possibility to do share buybacks in the future. We have -- the Board is now taking, after a very lengthy discussion, taking into account what I just said, the fact that the capital, which is distributed, so ultimately, EUR 7.6 final dividend for this year, to do this in a cash dividend, but it's indeed -- from a management perspective, it is, as also put on paper in the announcements, in the forward-looking part, it is an option that distributions of capital in the future in the extraordinary dividend side is either cash, either share buyback or a combination of the 2. Sor that reason, we asked the flexibility mandate for the Board at the next AGM.

[Flora A. Benhakoun Bocahut, Equity Analyst]

Very clear.

[Operator]

[Operator Instructions] The first one is coming from the line of Robin van den Broek.

[Robin van den Broek, Research Analyst]

Maybe on non-life, I appreciate what you said for your introductory comments, Johan, with a very strong combined operating ratio despite the floodings. But how do you look at 2022 also given inflation impacts, maybe normalization of combined operating ratio and maybe difficult to price inflation in for this year already. So maybe you can walk us through how you look at non-life developments for next year?And secondly, on capital, I think for you, TRIM was more additive than preemptive for Basel IV. And I appreciate you're generating a lot of capital per year. But just wondering that the EUR 8 billion of RWA impact that will phase in by 2033. Can we just sort of forget about that in your capital reference position determination relative to peers because you're generating so much capital in those 8 years anyway? Or are you going to implement something for that relative headwind maybe on RWAs?

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

On Robin, thanks for your question. Let me answer the first one. So on non-life, indeed, we do have a strong combined ratio despite the significant impact of the floodings. And the good news is that that combined ratio position is there for already many, many years. And the gap with our peers in the different insurance markets has been and is still significant and that clearly shows that we know how to underwrite business in spite of the strong growth. Now how do we look at the evolution of the combined ratio for 2022 was your specific question. Actually, we guided that the combined ratio will be below the 92%, which is exactly the same guidance as before.The reason for that is twofold. First of all, inflation indeed will have an impact, but be aware that in certain of our markets, amongst others, Belgium, the inflation is automatically linked to increases of prices. For instance, thing which is related to property insurance -- sorry, I was looking for the term -- is automatically linked into the premium increases that is done by law. The other thing is that for inflation linked into the reserves, so the provisions in non-life, we have taken an extra buffer at the end of the fourth quarter. That's one of the reasons why our claims ratio increases in the quarter 4. So we have taken a buffer for inflation in the numbers [ accrued ] for the year 2022. So as a matter of fact, we have taken already some absorption. I will leave [indiscernible] question to Luc.

[Roger Elie Popelier, CFO & Executive Director]

Yes. So Robin, the EUR 8 billion that we've made public is, of course, based on a static balance sheets, first of all. Secondly, Basel IV will only take effect -- obviously, there are some discussion about it, but normally in 2025 and then will only gradually be phasing in. So the effect in 2025 is only EUR 2 billion. Now having said that, given the static balance sheets, there are a number of things we can do and will be doing that is working on those elements where we have a negative effect in Basel IV because there are also positive effects, as you know, for example, on the insurance side. But the negative effects have to do with unrated corporates. And obviously, we have a large group of unrated corporates, given that we are very strong in SMEs and unrated corporate that's our strength, our franchise. But measures can and will be taken to reduce the unrated exposure, and therefore, that is a strong mitigating effect. There's also a particular element in Belgium on mandates where we can also do some work. But to cut a long story short, we think that the overall effect will be very minimal for us. And as a consequence, because I just want to add one more thing because you were referring to the 15% surplus capital definition. As Luc has explained, it is a minimal effect. So in that perspective, also the effect on our 15% surplus capital definition will be not impacted significantly, not to say minimally.

[Operator]

The next question is coming from the line of Johan Ekblom.

[Johan Ekblom]

Hi, can you hear me now?

[Roger Elie Popelier, CFO & Executive Director]

Yes. We can hear, please.

[Johan Ekblom]

Okay. Perfect. Yes, I'm just wondering on the NII guidance for 2022. If I look at the Q4 number, annualize that to take away the TLTRO in the second half, I'm already north of where you're pointing to -- when we think about the building blocks, you're talking about 5% -- 4% to 5% volume growth. No big changes to check rates this year, but clearly, a much higher run rate. You're not factoring any rate, but we should get some positive benefit from the higher loan yields, et cetera. What are the big offsets against that you? Can you try and help us quantify those, please?

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

Johan, thank you for your question. Let us help you a little bit. So indeed, if you would annualize the fourth quarter NII income, then you arrive at the number which is higher than what we had guided. But there are a couple of things which are not annualizable, if this is proper English, so which you cannot annualize. First of all, that is the impact of the exit from Ireland and the acquisition of Raiffeisen, which is partly in and partly out. So you cannot annualize that impact. That's the first thing.The second thing is that, there is an impact of TLTRO III, which is on an annual basis, EUR 120 million, which we cannot annualize for 2022. So the difference is at least EUR 60 million. On top of that, you clearly also see that in the fourth quarter, we had a positive impact of the ALM FX swaps, which was substantially higher than what it was in the first quarter, second quarter and in the third quarter. So the difference is at least EUR 12 million, EUR 13 million. If you would analyze that, we're talking about another EUR 50 million, which is not indeed -- not doable.Second thing is, we do -- mentioned it as well, I think earlier in another question answered by Luc, be careful, the pass-through rates on saving accounts are increasing rapidly because the Czech National Bank did not do rate hikes of 25 bps, but they did a rate like of 75 bps shortly -- in a series shorty after each other. And that pass-through rate is therefore increasing significantly in the last, say, days, weeks. So we do see the challenger banks and Czech Republic indeed passing on a significant amount into the saving accounts to their customers. If you would analyze fourth quarter, you don't annualize that effect. As a matter of fact, also we do see, as a compensatory measure, transitions in our own books from current accounts, saving accounts into term deposits at a higher yields for our customers. You don't see this in the fourth quarter. We do see this in the starting of this year. So be careful, again, there to annualize. So the margin comes down. For that reason, we have shifted the guidance downwards from EUR 25 million to EUR 20 million.And then also, last but not least, be aware that we do see on the euro-denominated countries because we do not consider any rate hike in the euro-nominated zone. We do see a negative drag going on in the eurozone in 2022, and that has clearly also a negative impact. What we don't take into consideration is, any further change on the tiering that is perhaps a bit too conservative because indeed, there are rumors in the market that the tiering would be extended and doubled. We don't take that into account if that would happen, then of course, we would be too conservative with our guidance, but then we will adjust accordingly for good reasons. Good understanding, impact on an annual basis of tiering with KBC currently is [ EUR 550 million ]. So if you would do the bits and pieces, then you will see that the guidance, which we have given EUR 4.55 billion is indeed realistic. I mean, there are a couple of things that you don't have fully into your numbers, for instance, the precise number on NII and of Raiffeisen, what it will be, let's say, half the number of Ireland, then you have an idea.

[Johan Ekblom]

Maybe just 2 quick follow-ups. On the AML FX swaps, should we assume that to be more normal already in Q1? Or is it likely to be -- to remain elevated for some time?

[Roger Elie Popelier, CFO & Executive Director]

Yes, you should assume that last quarter of last year, fourth quarter and Q1 was extremely good. We had a lot of opportunities to attract short-term money, so you should not extrapolate that. I think about EUR 10 million is around a good number. Of course, this is an estimate, around EUR 10 million per quarter.

[Johan Ekblom]

And secondly, your comments around Czech Republic about the rapid kind of increase the savings rates in the last [ week ]. Does that mean that the Q4 run rate in Czech Republic is slightly overstated, i.e., you got the benefit of some of the rate hikes and the behavior change or the pass-through of higher rates will come as a headwind in Q1?

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

No, no, no. I mean, this was already the case in the fourth quarter. We saw this happening as of end of September last year. But the more -- and just look at the pace in which the Czech National Bank has increased its repo rate. We saw this happening as of end of September. It happened in the fourth quarter, but it will continue in -- of course, in this period. We try to mitigate that, as I said, almost [ out of ] term deposits we saw. I mean, this is first quarter this year, we should be careful about that. But in the month of January, we saw, for instance, net inflows coming in again, but it has an impact on your margin, which was not the case in full-year 2021. So if you annualize that, you make actually an overestimation.

[Operator]

The next question is coming from the line of Tarik El Mejjad.

[Tarik El Mejjad, Equity Analyst]

I just have another question, please, for me. Just can you give us an update on the M&A? You explained earlier about the criterias to M&A and so on, which is very helpful. But more tangibly, what opportunities you could see? And -- or you missed in the last few months we didn't speak?

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

Tarik, you're in the second round already. But coming back to your question. So we continue to explore markets. And, I mean, that is clearly for our core markets, bank and the insurance side. If we do see opportunities, then we will have a look into it. We have explored a couple of opportunities in the recent quarters because some of them were concluded in a transaction, as you know. Some of them have not concluded in transaction. You know that we were on the Aegon file in Hungary, where we are indeed also exploring some other opportunities. But as we speak, I have no concrete files on the table, which does not mean that we are exploring further in the nearby future.

[Operator]

The next question is coming from Omar Fall.

[Omar Fall, Analyst]

Just 2 questions. Firstly, if you could just tell us which periods you've assumed both the RBBG acquisition, and Ireland disposal within -- just to help us with our revenue and -- with the revenue and cost guides and our modeling, that would be great? And apologies if I've missed that.And then secondly, I was just very interested in your -- if you could explore your comments around the EUR 9.5 billion of deposits, upon which negative charging is being applied? Could you just explore what your expectations would be once we get those rate rises? How much pass-through you think there would be and the time frame for that, that would be very interesting?

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

Omar, and let me come on your first question. So where we do stand with the files? So as you know, Raiffeisenbank Bulgaria has been filed for approval to the authorities. This authority is the -- both National Bank Bulgaria and because of the potential integration of Bulgaria into the eurozone, it's also the ECB. Files have been sent out. We do expect approvals coming in by, let's say, mid of this year. The other file which is pending is, of course, Ireland. There we have a twofold process. First of all, we do get -- we do need to get an approval. No, we do get -- you need to get a position from the antitrust authority has called CCPC in Ireland. And next to that, on the back of that position of the CCPC, we will have a position of the Central Bank of Ireland and the Minister of Finance in that country. We also assume that we do get those positions in by mid of this year. Integration on Bulgaria is foreseen to be next 18 months, 24 months, ultimately. But in the past, we always did it on the basis of 18 months.The guidance which we have given 2021 are always on the basis of existing 2021, so not taking into account potential acquisitions in 2021 yet.

[Roger Elie Popelier, CFO & Executive Director]

On the EUR 9.5 billion, we are assumed in the short-term and long-term guidance that in this year, there will not be any ECB rate hike. And therefore, the negative charging will remain on the EUR 9.5 billion. You could even say that EUR 9.5 billion should increase. But here, obviously, we have to be careful, given that we all expect that ECB rates could increase, and we could be wrong on the timing. So I think the further increase is going to be more and more at risk rather. We are going to be more and more careful to charge negative -- additional negative rates -- sorry, let me repeat. We got to be careful in having additional deposits being negatively charged. So we always said about EUR 500 million extra per quarter. That number will come down rapidly because we have to be careful given that if ECB rates would increase faster than we would have thought in our assumptions, then obviously, we'd have scared away some of our core clients, which we don't want to do. But so far, in assumptions, no decrease in negative charging so far.

[Operator]

The next one in the queue is Raul Sinha.

[Raul Sinha, Analyst]

A couple of questions from me to wrap up, if that's okay. Just first one is on the replicating portfolio on the eurozone deposit base. I was just wondering if you could give us any further color in terms of the duration and the repricing effect likely over the next few years. What profile we should expect just given there has been a significant steepening of the euro curve over the past 3, 4 months? How long before that starts to have a meaningful impact on [ NII ] is really what I'm trying to explore?And then the second question, Johan, just wondering if you've got any thoughts for us on the climate stress test expected this year. Obviously, you -- as a Group, can we see [indiscernible] on your Slide 91, you do show your ESG ratings are ahead of the curve. But, I guess, there's another narrative that's coming from the ECB that banks have a long way to go. So I was just wondering if you've got any sort of general thoughts on where KBC will be positioned? And also, how you see that exercise sort of impacting the strategy over your medium-term?

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

So on the durations, I know this is, of course, something that everyone likes to know. Exactly, the problem here is that, we have different replicating portfolios per currency, per country, that also depends on client behavior in each country, and it is moving all the time. So we do not give any granular information on this. But just as a pointer, and this is, of course, the whole portfolio, the whole replicating portfolio, including what we call our strategic position or reinvestment of our equity, let's call it, that is around 5 years in total, slightly lower than 5 years. But this is for the overall portfolio. With, of course, shorter durations on savings accounts compared to current accounts.

[Raul Sinha, Analyst]

And expect to assume the equity portion would be, let's say, very long duration 10 years and then your...

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

It would be longer, would be longer, yes. And we should also assume that we invest on a cyclical basis so that we do not have any cliff effect. And maybe I should also add that also includes a duration of the portfolio on the insurance side. We should also mention that.

[Roger Elie Popelier, CFO & Executive Director]

Then coming back to your second question, and I understood well, Raul, because we didn't have a super quality line that you're talking about the climate stress test, the upcoming climate stress test, is that correct?

[Raul Sinha, Analyst]

Yes, absolutely. I was just wondering what you think about KBC's positioning and also about the usefulness of the exercise as you see it for the sector in terms of your planning process?

[Roger Elie Popelier, CFO & Executive Director]

Yes. So first of all, where are we? And how do we assess the position of KBC? So KBC has been dealing with -- definitely on the climate side, so the E side of ESG, quite a lot in the past, you know that we were one of the first to sign CCCA, yes. And as of then, that was 2019, we have been working on preparing ourselves in order to be able to deliver. So in terms of the portfolio analysis, we have done a full review of about 60% to 70% of our entire credit and insurance book. In terms of sector analysis, potential impact of climate and climate change, potential impact, not only on the risk side, but how we have to mitigate that and how we have to deal with that, that exercise is conducted in the course of the first half of 2021. And this is done Group-wide. So it's not only done in, let's say, a random sample at headquarters, for instance, in Belgium. No. It is done Group-wide in a uniform way, which is steered by the executive committee. So we have done the full analysis. We have done, in that perspective, the full analysis on all the factors, both bank and insurance side and we are implementing this as of 2022. So we are currently in implementation [ mode as ] of all these different measures. That means analysis, including reaching out to customers for collecting data but also help them to do transitioning and to do, indeed, mitigating impact on their own business and as a consequence, on our lending portfolio.To just give you an idea, in 2021, we reached out on the last quarter, it can be a bit more than a quarter, apology for that, we reached out to our corporate customers, 800 in total, where we, together with an external firm, made a full analysis of the portfolio of our customers and preparing them for doing the transition. So as a matter of fact, we are pretty advanced. I can give you examples in all countries, which I could do on the banking and/or in the insurance side on an niches, which we have taken, including already reaching out to our customers.So how does this then translate into the stress test? I don't know is this public information, I think so, but Europe did a stress test on -- not a stress test, a preliminary test assessment on the position of the banks under the ECB portfolio and KBC [ coming ] out of in the Top 10. We don't know which position exactly, but we were assessed by them as very good. Also, if you look into account -- if you take into account an assessment report of Sustainalytics, that's one of the bigger sustainability assessors, KBC came out as #4 worldwide. So in that perspective, also not too bad.So are we positioned well? I think so. We are at least working hard and on the basis of the [ measure ], which was shared with us by the ECB, we're doing quite well. What was going to be the outcome in the future? I don't know, because if you look at the statements which were made by senior people at the ECB, they're quite harsh in general, and I'm not referring to KBC, but they're quite harsh in general on the assessment on sustainability for the European banking sector. I cannot -- I don't know why. Is this just to make us -- to put us on sharp, could be. Is this on the base of an assessment? I at least have no information about that, but it's quite strong what they said about the European banking sector. So we're doing our utmost to be amongst the better-performing party in the European banking sector.

[Raul Sinha, Analyst]

That's exactly why I asked the question.

[Operator]

The next one in the queue is Robin van den Broek.

[Robin van den Broek, Research Analyst]

Yes, sorry for coming back into the queue, but it's on popular demand. Can I just ask a question on new markets? Can you just reiterate your view on new markets and whether [ added ] that still fits getting a Top 3 to Top 5 market share in one deal that basically fits with your M&A budget? Or has the narrative changed there a little bit?

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

Robin, so on new markets, let me get first answer in general, where we do acquisitions, and that is definitely true for the core markets. It is indeed to strengthen our position. So the ambition remains to be amongst the bigger banks/insurance companies in the markets where we are present. So Top 5 on the insurance side and on the banking side, indeed going to the Top 3. Good example of that is Bulgaria, where we build up our position gradually through a series of acquisitions to the Top 1 position. Actually, bank/insurance combined Top 2 position on the banking side, Top 1 position on the insurance side.What about new markets, [ and these ] are markets where we currently are not present? Well, given the potential exit in Ireland, given the potential -- given the capability of the capital generation through profitability of 250 basis points a year, if opportunities arise in markets which could be tempting and that means risk, operation, strategy and financial profitability as parameters to be judged, which I explained on an earlier question, then we can assess those markets and propose them to the Board. I have currently 0 files on the table. And I know that on a previous occasion where we spoke about it, some people got exotic ideas of what we might do, forget exotic things we will never ever do that.

[Operator]

At the moment, we don't have any other questions in the queue.

[Kurt De Baenst, General Manager, Investor Relations]

All right. And thank you very much. This sums it up for this call then. Thank you for your attendance, and hope you remain healthy. Take care and enjoy the rest of the day. Cheers.

[Operator]

Everyone, this concludes your conference call for today. You may now disconnect. Thank you so much for joining. Enjoy the rest of your day.