Welcome to ABN AMRO's Q2 2025 analyst and investor call. Please note this call is being recorded, and for the duration of the call, your lines will be on listen only. Analysts will have the opportunity to ask questions after the presentation. This can be done by pressing the pound key five on your telephone keypad. I will now hand the call over to the speakers. Please go ahead.
Good morning. This is Marguerite Bérard, and welcome to ABN AMRO's Q2 results presentation. I am joined by Ferdinand Vaandrager, our CFO, and Serena Fioravanti, our CRO. Following our presentation, we will hold a Q&A session. First, let me start by taking you through the highlights of the second quarter on slide two. All in all, the second quarter is a solid one. Our net profit amounted to EUR 606 million, and we posted a return on equity of 9.4%. Our mortgage portfolio continued to grow strongly and increased by a further EUR 1.8 billion during the second quarter. Total client assets grew by EUR 8.6 billion to EUR 355 billion. Our operating income was stable, and the results of our tighter controls on external hiring and use of consultants are starting to become visible. This quarter, we had net impairment releases, continuing the low cost of risk level of recent years.
We maintain a strong capital position with a CET1 ratio of 14.8%, including the new share buyback of EUR 250 million. This is our fourth buyback transaction to date. We will again review our capital position in Q4 to assess the potential room for further share buybacks. We set our interim dividend at EUR 0.54 per share. Before I discuss these highlights in more detail, let me start with our strategic achievement this quarter on slide three. First, I'm really proud of BUUT, our neobank developed within a year by the Tikkie team, and it's designed for the digital lifestyle of younger generations. BUUT offers a visually driven, interactive experience designed to help Gen Z manage their finances more effectively. The app also supports financial education for families with features that allow parents and children to learn about money together.
This quick development would not have been possible without the progress we made with the modernization and modularization of our application landscape. We also completed the acquisition of HAL, and we are now a strong top three player in Germany in wealth management. As part of our commitment to sustainability, we are increasingly embedding circular economy principles in our financing activity. The cumulative volume of our circular deals has reached EUR 2.5 billion, putting us well on track to meet the EUR 3.5 billion ambition by 2027. In line with our ambition to play a role in important transition themes, we made our first commitment to invest in a dedicated European Defense Fund. This commitment aligns with our support to the European sovereignty and defense industry.
Now turning to economic developments, Dutch GDP slowed to 0.1% in Q2 2025, down from 0.3% in Q1, and this is reflecting a broader loss of momentum since mid-2024. Positive contributions came from government spending and investments, notably in defense, while net exports and private consumption declined. Private consumption is contracting as households prefer to save given elevated uncertainty, and this despite rising real incomes and strong labor market fundamentals. Nimitz and GROWS is expected to remain subdued, but prospects improve for 2026 with potential support from lower rates and positive spillover effects from German fiscal spending. The Dutch housing market remains resilient, with house prices rising almost 10% compared to last year, driven by higher household incomes, low mortgage rates, and a persistent shortage of new homes. Transaction volumes are also surging at 16% year-on-year, largely due to investors selling rental properties ahead of new tax rules.
Looking ahead to 2026, house price increases are expected to slow to 3% and transaction volume to 1% as wage increases level off and mortgage rates stabilize. Now moving to our second quarter performance, starting with client lending on slide five. I will start with our lending products. There again, we had a strong quarter in mortgages and our portfolio increased by EUR 1.8 billion, continuing the trend from last year. The corporate loan book was more or less flat when excluding the lower volumes we had in asset-based finance and the impact of FX movements. Lower volumes at ABF reflect the wind-down of non-traded client portfolios in the U.K. and in Germany, and we now recently also decided to start winding down our activities in France.
Within our corporate loan book, we saw continued growth in our transition themes, being new energies, digital, and mobility, with growth this quarter mainly in mobility. Client deposits rose significantly, up by almost EUR 8 billion during the quarter, mainly due to seasonal holiday allowances, but people are also saving more with current economic uncertainties. Another factor driving higher deposits is increasing allocation to cash within DPM. Time deposit volume came down, driven by clients with maturing contracts placing their cash in savings products as rates have come down. I will now move to our net interest income on slide six. NII decreased by EUR 28 million compared to the previous quarter, while interest income on client loans and deposits was stable. The savings coupon, as we remember, was lowered by 25 basis points on May 1st, so over May and June, this benefited our savings margin.
The growth in client deposits also improved the NII. On the other hand, margins on current accounts and time deposits declined, offsetting these positive effects. With regards to our lending products, the mortgage portfolio continued to grow, however, at slightly lower margins. Margins on corporate loans were stable, while our corporate loan book was more or less flat when excluding the impact of winding down non-strategic client portfolios at ABS. The lower NII compared to Q1 reflects lower treasury results in Q2 and various smaller positive items during Q1, mainly within corporate banking. We still expect our full year 2025 NII, excluding HAL, to end in the middle of the EUR 6.2 billion- EUR 6.4 billion range.
Given current forward rates, we expect that the treasury results will increase in the second half of this year, while the inflection point of the replicating yield will occur sometime during the first half of the next year. I will now discuss key developments on slide seven. Fees declined by 3% compared to the previous quarter, though compared to Q2 last year, these are still up by 6%. While financial markets in April were quite volatile, leading to a good month for clearing, May and June were relatively quiet as many market participants took a risk-off view. Overall, this led to lower fee income for clearing compared to Q1. Fees in corporate banking were further impacted by higher fees paid for credit risk insurance. The asset management fees in wealth management were slightly lower, reflecting negative equity markets in April.
Moving to other income, we saw higher equity participation results, and this result was partly due to a successful exit from our sustainable impact fund. Now turning to cost on slide eight. Overall, our underlying cost decreased further in Q2. Personnel expenses increased by EUR 10 million, reflecting an in-range salary adjustment which occurred on April 1st of each year, and an increase in restructuring costs. Other expenses declined by EUR 31 million, reflecting mainly our cost discipline as we have tightened new controls on hiring external staff. External SCs declined by over 228 this quarter, with a decline of close to 600 since the beginning of the year, representing a 16% reduction. We are in part internalizing these people, which explains why internal SCs increased during Q1 and were flat in Q2.
With a tighter hiring discipline, we are now starting to see a decline in internal SCs, and I do expect this to become more visible in the coming quarters. Turning now to impairments on slide nine. Impairments were again limited this quarter, reflecting solid credit quality and a resilient Dutch economy. During Q2, the impaired ratio was stable at 2.1%, while the coverage ratio for defaulted loans declined slightly. The latter is the result of some highly provisioned corporate loans that were written off this quarter. Across various sectors, we took some additions to new and existing impaired loans. Additions were more than offset by the release of the management overlay for the nutrition challenge. Overall, we released EUR 6 million of impairments over the quarter. Excluding the release of the management overlay, the cost of risk for this quarter is around 4 basis points.
Our management overlay now stands at around EUR 100 million, largely related to interest-only mortgages and a small amount for climate and environmental risk. We have done a deep dive into the effects of the U.S. tariffs by analyzing potentially impacted sectors. The results show that we should only expect a limited direct impact. However, we continue to monitor these developments closely. Given the good first half of this year, supported by healthy macroeconomic indicators, we now expect the cost of risk for 2025 to end well below the through-the-cycle cost of risk of 15-20 basis points. Proceeding to slide 10 on our capital position. We announced a EUR 250 million share buyback following our delayed capital assessment, which rounds off our capital distributions over 2024. This is a modest amount given today's capital ratio.
However, we want to maintain ample capital headroom for potential distribution over our full year results at Q4. In our capital assessment, we also incorporated the uncertain geopolitical and economic environment, the remaining impact of the HAL acquisition, and an expected increase of 35 basis points in our Pillar 2 requirements as of January 2026. This increase mainly reflects the ECB's views on Dutch interest-only mortgages, specifically since these mortgages do not amortize during the lifetime of the transaction and require specific risk management measures. So far this year, our capital generation has been very good, reflecting data improvements, capital allocation decisions, and a solid net profit. This quarter, data quality improvements result in another EUR 1.4 billion of RWA add-ons, largely related to collateral eligibility. The capital used by asset-based financing declined further, reflecting, as I mentioned, our decision to wind down most of our activities outside the Netherlands.
We expect asset-based financing to reduce RWAs by another EUR 1.5 billion by year 2026. Turning back to this quarter, the securitization transaction with the European Investment Fund delivered the equivalent of EUR 650 million of RWA released, with part of this release booked through capital. All in all, this has led to a pro forma CET1 ratio of 14.8%, which includes the capital impact of the share buyback we announced today. We will carry out our next capital assessment in Q4, incorporating our full year 2025 results. Now to finish with our financial targets. First, the Dutch economy remains resilient despite global uncertainties. We benefited from the continued strong performance of the housing market. ABN AMRO demonstrated a solid financial performance in Q2, with significant growth in mortgages. Cost management is a top priority.
We do expect we can keep total costs between EUR 5.3 billion and EUR 5.4 billion this year, including regulatory levies. We expect to end in the middle of our guidance for a full year NII of EUR 6.2 billion- EUR 6.4 billion. We set our interim dividend at EUR 0.54 per share, and we announced a share buyback of EUR 250 million. With that, I would like to thank you for your attention, and I will ask now the operator to open the lines for questions.
Thank you. If you wish to ask a question, please press pound key five on your telephone keypad. If you wish to withdraw your question, please press pound key six on your telephone keypad. Next question comes from [Julia Miato] from Morgan Stanley. Please go ahead.
Yes, hi, good morning. Thank you for taking my questions. I have two. The first one is on the capital framework. How shall we think about the 13.5% target in the context of the capital markets day? Basically, can we expect an update on that, or shall we assume that given that the SREP is now 11.5%, the 13.5% is basically a stepping stone? The next thing on capital is basically Q4 results, where there might, there will be another share buyback. That's the first question. The second question is on NII. I hear the 6.3% guidance reiterated. I was just wondering, isn't Q3 basically going to be sort of flattish to Q2, and then you see an inflection point in Q4? How shall we think about that evolution? Of course, then the exit rate impacts our 2026 estimates. Thanks.
Thank you very much for your questions. Certainly, we'll answer on NII, and basically, as far as our capital framework is concerned and the targets we will set, this will be indeed a topic for the CMD, and we will take into account all developments. Certainly, NII.
Yeah, Julia, hi on NII. I think Marguerite explained the underlying drivers for this quarter. The decline you have seen Q2 versus Q1 was mainly due to lower treasury results, and we expect that to reverse in Q3 already, and also some various smaller positive one-offs in Q1 we have not disclosed at that time. One element was the payment of amortized fees related to the infrastructure portfolio sale, and the other one was a smaller positive one-off in Q1 for clearing tax adjustments. Those were the two main drivers. We do expect already a quarter-on-quarter increase Q3 over Q2. That means also going towards our full year guidance that the exit rate will be at a higher level.
Okay, very clear. Thank you. Just to make sure I understood it correctly, the 13.5% might change at the capital markets day. We should expect an update on that.
A capital market day is to discuss our capital allocation. We will, of course, discuss everything at our capital market day.
Got it. Okay, thank you.
Thank you.
Next question comes from Tarik El Mejjad from BofA. Please go ahead.
Hi, good morning, everyone. A few questions from my side, please. Marguerite, you've been now a few months into the job, and I would like to know what's your mindset into the CMD, what's the key priorities. We all know what needs to be done, just to see what you find out from your ongoing review and how much you can tell us so far. Since strategically on the M&A, I mean, what's management looks like still unfinished job? You fixed the Netherlands is strong, you fixed Germany. What would be the strategy for Belgium and France? Are there any assets that would be interesting, or would you consider actually reallocating more focus into the two strong markets? I know I ask you this question every quarter. I'm still struggling to understand the movement in treasury results.
If you can give an indication why you think it will reverse, why it's been lower this quarter, this is a big swing factor in your NII, and it's very difficult to model and anticipate. Thank you very much.
Thank you very much for your question. The first question, and you know, of course, I realize you're impatient to know what we are going to announce at our capital market day, but it wouldn't be fun for the capital market day if we had nothing to announce. As I said, we are currently working hard in reviewing all our activities and building upon our solid foundations and strong market positions. We will indeed focus on enhancing our profitability, optimizing our capital position, and right-sizing our cost base in order to achieve meaningful growth. This will be indeed what the capital market day is going to be about. Barry, on the treasury.
Yeah, Tarik, I know. The answer will not be very different. I always remind you that on a quarter-by-quarter basis, it can be volatile because it depends on the timing of hedges or the repricing dynamics of the receiver swaps. We tried to be helpful last year and sort of indicate what we expect, what the overall delta for the full year and treasury results would be, which is clearly a positive delta, 2025 versus 2024. If you look at the forward curve, further steepening, what we've seen is being supportive for that trajectory. It can be more volatile on a quarter-by-quarter basis, but clearly, we expect a positive effect in the second half.
Anything on the wealth management part, maybe?
It was a question related to M&A. First of all, we are very happy to have closed the acquisition of HAL this quarter. There is quite a bit of work to be done in order to make it also a successful integration. This is what we are busy with at the moment. I heard your question on wealth management. This is indeed, I think, a strong point of ABN AMRO. Every time we can consider what we will judge as aggressive targets, we will, of course, look at them closely.
Thank you very much. Have a good day.
Thanks.
Next question comes from Delphine Lee from JP Morgan. Please go ahead.
Yes, good morning. Thanks for taking my questions. I just had follow-up questions, sorry, on capital and NII. On capital, I got a little bit confused because you talk about Q4 and waiting for full year 2025 results before you evaluate additional share buybacks. Isn't capital distribution a big component of what you intend to kind of share with the market for the CMD? It is just to confirm that, you know, sort of capital allocation and distribution is, if we should hear a little bit more about this already in November as opposed to Q4 results early next year. A second question is on, just to follow up on NII, I just wanted to kind of like, if you could share a little bit, you know, thank you for giving a bit of color around your second half, just more for 2026 and onwards.
I mean, you still have a little bit of headwind from the replicating income next year, but the volume growth is there. Just wondering what we should expect and how much growth can we get on NII next year. Thank you.
Thank you very much for your question. Just to reiterate, the share buyback we announced today is indeed a delayed share buyback. As you remember, the bank had announced in Q3 2024, but it will postpone to Q2 2025 its announcement of the share buybacks to have a full view of Basel IV impacts for the bank. This is what we are doing now. Just to provide some clarity, I mentioned Q4 this year because the policy of the bank is indeed to have an annual assessment of its capital position and its share buyback transaction annually at Q4. This is just what I reiterated. You're right, we have a Capital Market Day on November 25th. I imagine it would be disappointing for everyone if we were not giving some clarity then on how we will allocate capital, including shareholder returns. NII, Sergi?
Delphine, it's too early now to give guidance for 2026. We are reiterating our guidance for 2025. We expect an increase in NII in the remainder of the year. For your benefit, we have updated the replicating yield sensitivity in the analyst presentation. You should always look at that replication. There you do see that we expect an inflection point in the replicating income in the first half of next year. You should take into account that this is fully based on constant volumes and assumes that there are no changes in the saving coupons. This is only based on the replicating income. That provides you some direction, but you should not look at this in isolation.
Great. Thank you very much. Thank you. Next question.
Thank you.
Next question comes from Namita Samtani from Barclays. Please go ahead.
Morning, everyone, and thanks for taking my questions. Just the first question, given the disclosure of the replicating portfolio on slide 15, it's based on constant volumes. If you continue to grow your deposits like you did this quarter, would you consider adding to the replicating portfolio? The steeper curve and just spread versus cash would suggest it makes more sense to add to the replicating portfolio. I'm just interested in your thoughts there. My second question, it looks like you have EUR 79 million of overlays for interest-only mortgages. I think that's right, but correct me if I'm wrong. Now there's a 35 basis points SREP added on for interest-only mortgages. Do you think this product is still attractive from an ROE perspective? Thanks.
Thank you. Thank you very much for your question. Replicating portfolios will be for 30. Serena will answer your question regarding our overlays on interest-only mortgage. Let me just tell you as an opening sentence that interest-only mortgages are a product we are comfortable with in the Dutch market. We will, of course, continue to offer it to our clients every time it is suitable. Sergi, replicating portfolio?
Yes, Annemieke. Number one, looking at client deposits, you saw a very healthy increase in Q2 of EUR 8 billion, mainly in demand deposits, EUR 8 billion and EUR 3 billion in current accounts. You still see some migration from term into demand deposits. This translates into your question, yes, the size of the replicating portfolio, given this migration and growth, has increased. It's now around EUR 165 billion. For the rest, the underlying dynamics, where we earlier disclosed 40%- 45% of the replicating portfolio reprices within one year. We do expect further deposit growth in the second half of the year. You should take into account that part of the increase in Q2 is related to holiday allowances. Normally, the expectation is that you will see some spending over the holidays. You might see the effect of that in Q3.
Also, on the net basis, we still expect deposit growth in the second half.
Although maybe we can add on this, Sergi, on the holiday allowances. I think the amounts that we've seen coming into bank accounts have been higher than what we were expecting. We do expect, as I mentioned, people to save probably a little more given current uncertainties.
Thank you, Namita, for the question on interest-only. You are really right. It's EUR 79 million of overlays in our provisions. The interest-only mortgages are suitable products, as Marguerite said, but we have been seeing in the past that the new production is going down and disredeeming. The new inflow has been very little, not very attractive. Our proportion of interest-only mortgages has been declining and is now at 38%. It used to be 59% in 2012, to give you a comparison. We are continuously offering this product when it's suitable and when it's appreciated by the client.
That's helpful. Thanks very much.
Next question comes from Benoît Pétrarque from Kepler Cheuvreux. Please go ahead.
Yes, good morning. The first one is on the MDA 11.5% on January 1 versus your guidance of your target on CET1 of 13.5%. That's a 200 basis points. Will that be a good level for you? Is that not getting towards, a little bit tight zone, let's say, on the buffer, or do you see that? On NII, I was wondering if you take into account some NII from HAL also now in your guidance of EUR 6.3 billion. I'm asking because we do see a pretty steep, actually, recovery of NII in the third and fourth quarter based on your guidance. I think that would be putting you towards a EUR 1.6 billion NII in both Q3 and Q4, which is a 4.5% increase quarter-on-quarter. I just wanted to make sure that we're going to see that steep increase of NII in the coming quarters.
Maybe on that accuracy improvement, you've done quite well in the second quarter. Can we expect more in the coming quarters before year end? Thank you.
Thank you. Thank you very much. First of all, the indication we gave you, and it is also a token of our transparency because bear in mind that at this stage, the letter we received from the ECB regarding our SREP is not final. We have an indication, so we wanted to share it with you, of an increase in our Pillar 2 requirements of this 35 basis points, primarily linked to, as we mentioned, interest-only mortgages. Yes, the MDA is expected to increase by 20 basis points as part of this P2R increase because it can be filled with AT1 and Tier 2. This is how you come up with 20 basis points MDA. As far as our capital framework is concerned, and as I mentioned already, this will be a topic for Capital Market Day. Regarding NII.
Yeah, NII, Benoît, no. We reiterate our guidance, and our guidance was excluding the impact of the HAL acquisition. We try to be helpful and provide you with the first half P&L of HAL, taking to keep in mind that these are still unaudited numbers. At least for your indication where NII would end up, you can use that as a reference. Looking at the RWA trajectory, specifically on the back of data improvements, we're quite glad to see that a big part was related to around EUR 1.4 billion improved monitoring and reevaluation of collateral and data quality improvements. If you look over the past few quarters, the overall impact has been, or relief has been, around EUR 4 billion- EUR 5 billion. That has really been on the back of better sourcing of collateral, coverage of external ratings, and also reduced proxies or conservative assumptions for collateral valuation.
We will continue to work very hard on this, but the benefits will be spread more over time. The focus will mainly be, as mentioned before, on the SME support factor. Hopefully, we might see the first benefit of the EUR 2 billion- EUR 3 billion at the end of the year. Next to that is clearly focusing on the coverage of external ratings and improving collateral data. It is top of mind. We're working very hard on it, but the further sort of benefits will be more spread out over time.
Thank you very much.
Next question.
Next question comes from Johan Ekblom from UBS. Please go ahead.
I'm sorry, we cannot hear you.
Johan Ekblom, your line is now unmuted. Please go ahead.
Thanks.
Sorry, can you hear me now?
Yes, now we can hear you. Good.
Perfect. Sorry about that. I just wanted to come back to the interest-only mortgages. I guess the thinking there would be, you know, you're now looking at a bigger capital charge. You hold overlays relating to this portfolio. Is there a double counting of kind of buffers on buffers that the increased or the supposedly higher credit risk is reflected in more than one place now? Do you need to have both? I guess related to that, if this is a Dutch market phenomena, should we not expect the higher capital charges to relatively rapidly be passed on to the end consumer? Is there anything preventing you from doing that? Maybe a second question just on volumes. I mean, we've seen this is a long-running trend, right? You've been giving up share in corporate lending, and a lot of that has been kind of strategic exits of certain portfolios.
When do you think you can kind of start to approximate market growth in terms of corporate lending in the Dutch market?
Thank you. Thank you very much for your very relevant question. First, I'll let Serena elaborate on overlays and whether or not there is double accounting with your future P2R additional requirements and that. Let me first tell you about the product itself and what we see in the market. Yes, indeed. This is, I would say, in the FSM, a rather specific Dutch product. I think this is also the reason why the ECB is paying attention to it because overall, I think the ECB sees it as a riskier product versus annuity mortgages. As far as we are concerned, we see the risk on average to be low, especially considering a relatively low average loan-to-value of about 44%.
The issue we mentioned with interest-only mortgages, as far as the ECB is concerned, is, I talked for ABN AMRO, but yes, they have a view on the product for the Dutch market. When pricing these products, we take, of course, all factors into consideration, including potential additional capital. This is not the only factor we take into consideration when we price the product. Yes, this is part of our assessment in pricing. Serena, on overlays and P2R.
Yeah, no, indeed, we have two different calculations. The management overlays, it's more of a perception of our expected exposures on our clients and related risks. Our overlays are updated on a quarterly basis based on the development also of our client outreach. We reach out to clients to get better information. As the information are coming through, we expect the overlay to be adjusted over time and absorbed into the regular provisioning process. The P2R is more determined with the ECB based on their unexpected capital needs over a longer period of time and under severe stress conditions. They consider both quantitative and qualitative considerations to the risk management of the entire book. Marguerite already mentioned to that. It's specific to the product. Therefore, we don't believe that there are necessarily direct double counting.
The P2R is not assessed quarterly, it's more a result of our regular interaction with regulators and the prudential assessment on an annual basis. This will have a different update in time.
On a corporate bank.
Yeah, on a corporate bank. One element to mention as well, Johan, here, because you are talking about buffer on buffer, you should take into account that we still have the macroprudential 4.58% rule. That is the Dutch mortgage floor. That has been rolled off.
That's on mortgages.
I just wanted to give that reference there. If you look at the corporate loans, you should look at the underlying effects there. Yes, it was down quarter over quarter, but the biggest part here was related to the wind-down of asset-based finance in Germany and the U.K. We are there in line on the path. We are winding this down. You have also seen some FX impact, and that mainly comes from the shipping portfolio. Overall, the outlook is healthy, specifically for the transition sectors in the Netherlands and in the countries where we are active. We clearly see, if you want some color, yes, you do have some clients in uncertain times that they are more hesitant to choose for larger investment decisions. If you look underlying working capital finance, etc., it still looks healthy.
Definitely.
Maybe just to follow up on that.
Go ahead.
Yeah, I just, I mean, how much do you still have in run-off? The asset-based finance that's left in Germany, U.K., and France is what, something like EUR 2 billion, EUR 3 billion? Is there anything else that you would flag that is a headwind? Is there any other headwind in portfolios you're specifically exiting, or is that it?
No, it's not, Johan. ABF is very specific. You've seen earlier quarters where you did see some impact, for example, where we sold some commercial real estate. Indeed, we recently said that also the ABF business in France will be wound down over the coming period. In total, what is left is EUR 1.5 billion RWA in the next one and a half years because we provide an indication that at the end of 2026, the wind-down should be over.
You're right that we do continue to improve our RWA density in the corporate bank. This is what you see in all the actions we're taking.
Perfect. Thank you very much.
Next question.
Next question comes from Alberto Artoni from Intesa San paolo. Please go ahead.
Morning.
Good morning. I'm sorry, I cannot hear you very well. You sound a bit far away from us.
Is it better?
Yeah, it seems to be better.
Thank you. Sorry about that. I just have a quick follow-up on this point on the risk-weighted asset. If you can just give a little bit more color, how do you intend to continue, if you intend to continue to optimize, and what is just an indication of what is the potential that we can reach, you can reach on that side? The second question would be on the competition on deposits. What is the competitive landscape at this point in time? You lowered as well as your peers the remuneration on saving accounts. Do you expect that this trend can continue going forward? I mean, you've been doing a good job in terms of volumes. I would expect this could be a possibility. What's your take?
As I think we described, and I will let Sergi and Serena elaborate on that, yes, we are steering on our RWAs, and we gave you some color on that as far as basic quality improvements were concerned, up to EUR 4 billion -EUR 5 billion in the past quarters already. We will continue to steer on that. I think this is an important element. I won't elaborate more there because this will also be part of the presentation we will give you at our capital market day. This is a direction. As far as deposits are concerned, of course, we adapt our pricing to all macroeconomic developments, including, of course, monetary policy. At this stage in the guidance we are giving you for NII, we have not taken into account any changes in our coupon looking forward.
No. We always said that as an indication here, Joe, that a roughly 10 basis points lowering, on an annual basis, is EUR 100 million to NII. More on capital optimization, you have seen we've done our inaugural significant risk transfer with the European Investment Bank that has a relief of overall EUR 650 million, partly RWA and the rest in capital. In the first quarter, we disclosed a credit transfer of infrastructure portfolio to a third party of roughly EUR 1 billion. We are implementing a more structural approach to capital management to really actively manage RWA and balance this in the context of P&L, capital, and ROE. You will start hearing more on that in the coming quarters.
Okay, thank you very much.
Thank you. Next question comes from Farquhar Murray from Autonomous. Please go ahead.
Morning all. Just two questions, if I may. Firstly, with regards to the SREP discussions, interest-only mortgages have kind of long been a bone of contention with the ECB. Could you just clarify whether there's been any fundamental deterioration in recent quarters or years on, say, probability of default or loss given default on that specific portfolio that might help us rationalize the new approach taken there? Secondly, with regards to HAL, thanks for the disclosures for the first half 2025. I presume those are like-for-like for the acquired scope, given the notation. Is there anything you would call out in those first half 2025 numbers, or can I take that as a solid indication on the run rate into the second half? Thanks.
Thank you very much. Serena will elaborate on interest-only mortgages. The answer to your question is very clear. From our point of view, we consider the risk on average to be low. Serena will give you also all the actions that we're taking on this portfolio just to ensure it remains the case.
No, absolutely. I mean, to your question, the ECB has a concern with this product, largely because it's also different from other jurisdictions. They see it riskier as the annuity mortgages, and they see this as a risk that they want to consider as part of their prudential statement. There has been absolutely no deterioration, neither on the FD nor in the LGD. On the opposite, we have extremely low cost of risk on the mortgages and basically no default. When you look at the LTV, I think Marguerite said it before, on average, 44%. On the 100% interest-only mortgages, to give you a flair, we have even an LTV of 31%. We really look at the risk on average as low. We see it as a very limited part of our general book, and we see it as strong.
All of our, the majority of our customers don't have a reason, have no reason, or have no reason to doubt on their stability. We will continue our client outreach to inform them and assess the potential risk and refinancing risk. We will also share it with the ECB as we go along. We're fairly comfortable with the book.
Before we move to your HAL question, let me tell you, as a French person speaking, that I find in the Netherlands that there is a very high payment morale. Indeed, we don't see any specific risk to this product. Also, bear in mind, I think some of the specificity on this product comes with the fact that in the Netherlands, which has among the best pension schemes in Europe, clients primarily build up equities through pension rather than through property. That also explains why you have seen, over time, the development of these products compared to other jurisdictions. I agree, this is a bit of a Dutch specificity. Sergi on HAL.
Marguerite, the acquisition is completed on the 1st of July. You will see the consolidation effect in Q3. The numbers provided in the analyst presentations are the unaudited number over the first half of the year on the perimeter we acquire, right? As we said earlier, the fund admin business is the part we are not acquiring. Over the first half, NII is EUR 60 million and EUR 100 million in fees. What you have seen in Q2 is a capital impact of 7 basis points. That is really related to the prepayment of EUR 672 million. It is not a final price. That will be based on the actual book value. What you are going to see in Q3, you see the capital impact visible through the consolidated accounts. You can see on the pro forma numbers, RWA is just above EUR 3 billion. That has a roughly 30 basis points impact.
On the net basis, expect around 25 basis points impact in Q3. The rest will come later because that is also dependent on the integration and restructuring costs. It is too early to comment on that.
Thank you.
Just a follow-up on the interest-only mortgages.
Yes.
If we can follow up on that interest-only mortgage, to the degree that it's possible, can you hear us? Sorry.
I'm sorry. You.
Yeah.
Can you repeat the question, Farquhar, please?
Sorry about this. Actually, just a follow-up on the interest-only mortgages. To the degree there's possibly a divergence between the economic view on those and the ECB view, would it become more susceptible to SRT?
It is another good question. Basically, at this stage, when we consider ways to optimize our capital, we look, of course, at all our portfolios with no specific exclusion, and we take all factors into consideration. When it is relevant, it is a possibility.
Serena, you want to add something? It is an IRB portfolio. It is one of the IRB portfolios. Our risk-weighted asset density is not extremely high, even if you back up with these capital add-ons. Also, the specific VMB add-ons imposed on all residential mortgages in the Netherlands, which we expect to be released or potentially be reviewed by the end of December 2026. Therefore, we look at it, as Marguerite said, from our portfolio perspective overall and looking at risk-weighted asset densities.
Next question comes from chris.halem@gs.com. Halem from Goldman Sachs. Please go ahead.
Morning, everybody. Just a couple of questions left for me. Just coming back to the recent stress test, there was a higher depletion there for yourselves versus some of your peers. I guess part of that is due to specific assumptions on the Dutch economy, but I guess it was also the case relative to your local peers. The two parts within that stress test question, is there anything you would want us to bear in mind there? Second, whether there's any connection between that higher depletion and whether or not you may wish to change the target CET1 ratio at Q4, as you discussed earlier. My second question, just coming back to some comments you made earlier in Q&A, you mentioned earlier the focus for the CMD was going to be to mobilize the organization to achieve meaningful growth.
I guess your 2026 targets are around efficiency and returns, and those two endpoints can be, to a degree, mutually exclusive. I just wanted to get a sense from you whether the North Star for ABN is going to remain ROE and capital efficiency, or whether absolute growth is becoming a higher priority. Thank you.
Thank you very much. On the stress test, Sergi and Serena, we elaborate that, you know, all in all, when you see the results of the recent EDA stress test, compared to June 2023, we actually did perform better comparatively to 2023. Serena, do you want, or Sergi, do you want to comment on the other?
No, the only thing I can say is that it remains in the same bucket, in bucket two. Overall, transitional impact 404 basis points. As Marguerite says, that is lower than the 484 basis points in 2023. Yes, you would end up below your MDA tracker level, but please do take into account that we have a countercyclical buffer with an overall impact of 1.76%. I think many of you look at that in that context, that there's potential for bearings in that. If you would take that into account, you come to a different conclusion.
Thank you, Sergi. As far as our targets that will be discussed for the CMD are concerned, yes, I think profitability is important. This is why when I mention growth, I always talk about profitable growth. This is the key to us. Profitability is important. Next question.
Okay, thank you very much.
As a reminder, if you wish to ask a question, please dial the pound key five on your telephone keypad. Next question comes from Anke Reingen from RBC. Please go ahead.
Thank you very much for taking that question. Just on cost, please. I guess the run rate in the first half would point to EUR 5.2 billion, but I just wonder in terms of what we should expect in terms of levies and is there the usual seasonality that would define where you land within that EUR 5.3 billion -EUR 5.4 billion range, or is there actually already some structural changes that might mean or structural benefits so you can land lower in that range? The FTE numbers, the internal remains flat. Have you reached a point where that can actually come down from Q2 onwards? I'm sorry to follow up on an earlier question. On HAL, is there anything we need to consider in terms of the first half run rate that isn't potentially sustainable? Are you reiterating the cost savings of EUR 60 million and the return on investment?
Thank you very much.
Thank you very much. Yes, on our FTEs, I think you heard correctly. As I mentioned, we do expect our overall numbers, both internal and external, to come down in the coming quarters. Regarding the levies, Sergi, for the remainder.
Yeah, and then first of all, levies, but also on the second half of the year, Anke, please take into account that the CLA increase as of the 1st of July needs to be taken into account as well. That's a 3.75% increase. That will add EUR 40 million to the second half of the year. If you look over at levies, as we said before, there are no needs for additional contribution in 2025 for the single resolution funds. The deposit guarantee scheme is very limited. Overall, it is based on a deposit level, which is expected to increase. We might be asked to add additional contributions. For now, we expect around EUR 10 million. Clearly, you have the annual banking tax where we expect EUR 120 million. Overall, regulatory levies is around EUR 130 million expected for the full year.
You had an additional question on HAL, I think.
Yeah, on HAL. Sorry, on HAL. Yeah, Anke, as I said before, we just closed the transaction as of the 1st of July. These numbers are unaudited. It's really too early to start saying how should you look at the underlying trajectory in the second half of the year versus the first half.
Thank you very much.
Okay, thank you.
Thank you very much. Are there any additional questions?
Next question comes from Juan Pablo López Cobo from Santander. Please go ahead.
Yes. Good morning. Thank you for taking my question. I got two questions. First, I'm sorry to come back to this regarding the share buyback, but I guess we can agree it's been a bit modest, below consensus expectations, was probably around EUR 500 million. The market cap today is down around EUR 1 billion, probably mainly due to this lower share buyback. It would be interesting to know your thinking process on this, how the board decides. I understand the impact coming from HAL and the P2R, but to be honest, I'm a bit confused if we should expect in a capital markets date a higher CET1 target or a higher share buyback. I don't know if you could help us on that. I know your comments before. My second question is regarding FTEs. Good news, it's more than 200 external FTEs down.
Could we assume an average cost of around EUR 200,000 on these external FTEs? I know that probably some of them will become internal FTEs, but I don't know if that's the right way to look at this in terms of potential cost savings going forward. Thank you.
Thank you. Thank you very much. I think, yes, you use the adjective I use, i.e., modest, when referring to the share buyback. Let me close by saying that I certainly understand your question. I will just reiterate the way the board has been looking at all share buyback, even capital position and capital generation. First, as I mentioned, in our assessment, we took into account the following points. We wanted to retain ample headroom for the assessment we will be doing annually, i.e., in Q4, as I mentioned, even though, of course, it will be for us to also give some clarity on this topic at the capital market day. We have also taken into account in our assessment the remaining impact of the HAL acquisition.
The preliminary outcome of the SREP that we've already discussed is 35 basis point increase in P2R, i.e., 20 basis points increase of MDA. We have also showed some prudency for a certain geopolitical and economic environment. Yes, basically, our capital optionality and capital framework, we will discuss at the capital market day, as I mentioned. Sergi on FT?
Yeah, on FTEs, yes, under the more strict was being quoted as being the higher freeze effective as of April 7. We really focus on limiting consultancy expenses, which is not in the FTE. Secondly, the external FTEs, so that includes contractors and IT vendors. Both of them are at a relatively high rate. Although a part of the -6 00 external FTE since the start of the year, in Q1, it was really partly transferred into internalization. You saw a more flat level in the second quarter on the internal FTEs. I think what Marguerite already said earlier, we do start to see also a decline in the internal FTE. An overall decrease of our FTE accounts should start contributing towards the cost level in the second half.
Thank you. Do we have additional questions? No?
There are no more questions at this time. I hand the conference back to the speakers for any closing comments.
Okay. I just wanted to thank you very much for your attention, for your questions. If some of you take some vacation, please do enjoy them. We are looking forward to talking to you. Thank you for listening. Bye bye.