I see the last people taking their seats. Good morning everybody, ladies and gentlemen, both in the room, as well as on the webcast and, of course, our ABN AMRO colleagues, a warm welcome as well. I'm Dies Donker , Head of the Investor Relations team, and I will be moderating this day today. We would like to welcome you to the first investor day of ABN AMRO. Today is actually a very special day for us, because exactly three years ago, on the third Friday in November, we were in the Amsterdam Stock Exchange, and it was for the gong ceremony of our IPO. Today, three years later, we're hosting our first investor day in the London Stock Exchange. Now let me start with a few logistical remarks. Would you mind switching off your phones please? That's always the one thing that can trouble systems.
Secondly, the fire exit, there's one in the back over here, and two on either side. Sorry, I feel like a stewardess, but we have to do that. This is a paperless investor day. We have sustainability as one of our targets, so hopefully you've brought your computers and your mobile devices. If not, please raise your hand. We have a backup plan. I don't see any hands raising. Very good. All the disclosures, in case you haven't found them, also for the people on the webcast, they're on the IR website under financial disclosures. Now, before we start, I would like to introduce the people on the front row, our Executive Committee, who are present here today. Would you mind standing up quickly, so the audience can see you? I will start with Kees van Dijkhuizen, CEO. Yeah. I'll go down the route. Tanja Cuppen, our CRO.
Let me see who's next. Pieter van Mierlo, Head Private Banking. Christian Bornfeld, Head of Innovation and Technology. Daphne de Kluis, CEO of Commercial Banking. Rutger van Nouhuys, CEO of Corporate and Institutional Banking. Frans van der Horst, Head of Retail Banking. Lastly, Clifford Abrahams, our CFO. Now the program is as follows. You can see that over here. What you will see is in the first block we will discuss strategy, IT, and risk to be followed by Q&A. We have a block with two of our businesses, Retail and Private Banking. After lunch, we will have another two businesses, Commercial and Corporate Banking, Clifford will wrap up the day with the financial implications of all the speakers before him. There's ample time for Q&A, we've structured it in blocks.
If you have any questions during the presentation, please keep them for the Q&A block. We will use a microphone, by the way, because people will follow us on the webcast as well, they can hear you. Now before I hand over for Kees to start off the program, there's a little movie we would like to show you.
[Presentation]
Good morning, everybody. Welcome today here in London. Very happy you're here with so many. There's a lot going on in the market, we appreciate very much your time here, we hope to use it efficiently. Also efficiently in the sense that we've come now here to London, which also helps, I think, a bit. I'm very happy to be here. As already said, three years after IPO in the Netherlands. I've been CEO now since the January 1st, last year, before that I was three and a half years the CFO of the bank. I think it's a good moment now to present our plans, also what we have delivered, also the team. I'm very proud to present the current team.
Everybody is already, as Dies Donker said, available for questions. I think the team is a very good mix, actually, of people from the business. All the business CEOs are from within ABN AMRO, from outside we have CFO, CRO, CITO. It's a good balance. I'm around as CEO since the January 1st, last year, I said, I have been able to build this team I'm very proud of the team. I think we delivered very good on our IPO results, what we promised there. That is also done by this team already for the last one to two years. After me, Christian Bornfeld will tell you more about how we are innovating the bank at the moment, also preparing ourselves for the future, as you've seen in the movie. Tanja Cuppen will elaborate on moderate risk, of course, also on stress test results.
The business CEOs will then update you on priorities, but also how we are going to deliver on our refreshed strategy, how we're going to execute it, actually. Clifford will wrap up the financial position of the bank and, well, we can show you then that also for the future you can expect from us good results, attractive results, and a high capital capacity to return also capital. I will now start with the delivery of the IPO three years ago, then I will talk you through the strategic steps we've taken already in recent years, and then as set, elaborate on the four business lines, and say something on income, cost, financial targets and capital, of course. If we look at what we realized since IPO, then we have delivered actually since three years on ROE, on capital, and also on dividends.
Of course, it's also based on the good performance of Dutch economy. If you look at the ROE, 12% in 2015, we've increased it to 14.5% last year, 13.1% first nine months of this year. If I look at the quarter one, 15.5% in 2015 increased to 18.6% year- to- date. The only target we're still working on is the CI ratio, but we're making good progress there as well. This has always been a bit of a difficult thing for ABN AMRO, the CI ratio. I think we have already delivered there since the start of the bank, with coming from 70% Cost-to-Income ratio in 2010 to 64% when I became CFO in 2013. This year, for the first time, we will get clearly into the 50% area.
Two years ago, we sharpened our Cost-to-Income target from 56%-60% in 2017 to 56%-58% in 2020. Today, as you've seen, we've sharpened it further to below 55% in 2022. We have delivered on all our promises in a disciplined way, we're also committed to continue to do that. As you can see on the right side of this slide, you can see that our share price increased by 25%, while the EURO STOXX Banks went down by 25% in the same period in the last three years since IPO. As said, the current team has already taken a lot of strategic steps in the last couple of years. I already mentioned the sharpening of the CI ratio in 2016, but we also increased significantly the digital performance of the bank. Three years ago, the retail bank, one third of our offerings was digital.
Today, it's two third. We have sharpened the focus of the private bank, Northwest Europe, and bought EUR 6 billion assets under management in Belgium. Three months ago, we mentioned around CIB that we're going to sharpen also there the performance of CIB, getting above hurdle again, lowering ROE rates from EUR 39 billion - EUR 34 billion, and ultimately, 20% - 21%, we will deliver also there an ROE again above 10%, coming from mid-single digits for a couple of years now. Last but not least, sustainability. A year ago, we already told you about the EUR 150 billion mortgages we have to book that we want to improve actually the energy label from a D label to an A label 2030. That's about 800,000 clients. That takes, of course, a few years.
Finally, in the private bank, what we see at the moment, we have started that also, by the way, last year, if we ask new clients if they want green offerings, 80% says yes to that. That's also a good thing. These steps I think are very important going after the IPO, but we have, of course, now new plans because we cannot be complacent about what we did. Banks are challenged actually every day with their business models. It's not new, because if you look at our bank 10 years ago, we had around a retail branch network of 500 branches, and today it's 135. We had around 26,000 people, today it's 19. We made a profit 2010 of around EUR 1 billion. Last year it was EUR 2.8. The first nine months it's actually EUR 2 billion.
We clearly managed also the last decade, the results. As all banks were, they were very much vertically integrated, advised clients, and then gave clients actually the products they wanted. What you see now, if you look at the trends at the left side, it's very clear there are a lot of trends now in society and in banking around technology, about unbundling value chain, disintermediation, open banking, and also the mega-trends already mentioned to you with respect to climate change and sharing economy. There's also new competition, of course, from fintechs. They are offering, of course, targeted products, but also the big techs who are getting very close to customers. Also we see a rise of new forms of dealing with clients in the form of platforms. I mentioned already a clear mega-trend, sustainability.
Paris Agreement, we think, has been a clear game changer there. Every stakeholder knows how important that is. If we look at sustainability, we also have made that an important part of our new strategy, Banking for Better for Generations to Come. Our purpose is also the basis for the refreshed strategy. What we see is that customers, they want, of course, effortless experience and also proactive advice. If we look at investors, they want, of course, attractive returns, but also a responsible investment opportunity. Employees like to work for a purpose-led bank, value-driven. Society wants, of course, integrate all the social impact. What we have done in response to this, we have now decided to be even more as we are, a purpose-led organization that benefits all our shareholders, addressing the changes of the world.
That's the reason why we have refreshed, actually, our strategy into a three-pillar approach. The three-pillar approach is based actually on sustainability. It's actually support our clients in that transition to sustainability, reinvent the customer experience, and build a future-proof bank. Sustainability, as already also mentioned in the movie, is, we think, a clear business case. It means about engaging with clients, not excluding clients. Very important. We want them to help, and also, of course, lead by example by what we do. We are already known for that. We're in the top 5% of the Dow Jones Sustainability Index today. Our engagement survey shows that 93% of our staff wants to help building a sustainable bank. The second pillar is customer experience. What we want to do there, of course, is first time right, always right.
We also want to move from products to customer journeys. We want more touch points, actually, with our clients. Christian will tell you more about that. We see an extension of other services to adjacent industries. We want to become also a service aggregator. We will build on our strengths, build on platforms, keep treasuring the customer relationship, very important. We have a good starting point with our banking apps, take Tikkie, for instance, a bit over two years now, 5 million users. The third pillar is the future-proof bank. I'm already very proud of our staff. If you look at all what happened and what was delivered, that's been done by our staff. I'm very proud about that. In the future, we want to improve their engagement further by making their employee journeys easier, better IT systems.
Invest more in staff, very important, improve our culture. Future, of course, as well. You will hear throughout today that these pillars are the basis of our new refresh strategy and how we implement that actually in the business. Let's start with the retail bank. Retail bank, 5 million clients, 20% of the Dutch population, primary bank. Strong profitability, 33%. Digital sales already mentioned, from 1/3 - 2/3. Decline in branches. Clear sustainability opportunities in the mortgage portfolio. We see also strong competition in the mortgage market. We will stay disciplined in our margins. We expect that when the interest situation will normalize in the coming years, actually, we expect market share for mortgages to come back more to banks than it is right now with pension funds and insurance companies, because clients will go back to shorter interest periods.
With a continued focus now here in this part of the bank on digital and strengthening the customer engagement, we want to build additional revenue streams. Frans, you will talk more about that. If we go to the private bank, we are market leader by far in the Netherlands and also have a good position in Germany and France, third and fifth position. Year-to-date ROE 23%. We manage a little under 200 billion assets under management and 100,000 clients. We focus on the private bank in Northwest Europe, onshore. That's the reason why we sold actually Asia and Luxembourg, that we have now bought SocGen in Belgium. As explained before, in the private bank, sustainable investments are now the norm. 80% new clients take up. We want to lower the CI ratio in the private bank to below 70% in 2021.
Pieter, you will talk more about that. The commercial bank, Daphne. Leading SME bank, clear sector focus. We serve over 350,000 clients, Dutch SME clients actually, turnover until around EUR 250 million. We are primary bank for 25%, one out of four in the Netherlands Dutch enterprises. ROE is good, 15%. With New10, actually, we launched a successful innovator bank and set new standards actually for online borrowing. 85% of all contacts, we want to be initiated digitally in 2022. We have also EUR 1 billion available for circular business model to help clients to get to a circular business model. Daphne will say more about that. To CIB, there we have around 3,000 large clients, financial clients, corporates, in Northwest Europe and also in some specific global sectors. We leverage that also on our sector knowledge, also to neighboring countries, actually.
We have issued now 12 green bonds, EUR 8 billion. There are also challenges and opportunities here, especially in the energy and the shipping area, we will focus actually here also on improving our cross-sell and maximize efficiency. We want asset improve mid-single digits to above hurdle again. We have seen now that the decline already from EUR 39 billion RWA went down to EUR 37 billion, and we want to go to EUR 34 billion. If we are there and ROE is clearly above 10%, and we also feel comfortable about the Basel IV implications in this portfolio, we can grow modestly again, also in this area, by 2% or 3%. Rutger, you will explore on this further. Well, how does this all add up to the group? Asset, when I joined in 2013, operating income was EUR 7.5 billion. Last year, it was EUR 9 billion.
That's a 20% increase in four years' time. We grew significantly. We have done it profitably. We've done it profitably because we went from 5.5% ROE to over 14% last year. If you have to choose about operating income growth or profitable growth, we choose for profitable growth. For the coming years, actually, the coming two years, next year and 2020, we actually expect a bit of, as we mentioned here, a bit of a flattish loan book, which is based on our market discipline. It's based also on the interest environment. It's based also on pressure on deposits. As said, we expect interest rates to increase over time, which will improve, but we will stay disciplined for the coming years.
You will hear throughout the day is a lot of initiatives also here, to grow fees, and I think especially also in the investment area and the insurance area of the retail bank. We're also originating to distribute models in the area of, especially Rutger. We also think about inorganic growth. When we will do that, we will do that not transformational, we will do it build on, and we will maintain a clear, strong capital position. Wrapping up, we expect some flattish growth book, a flattish loan book for the coming two years, and afterwards, modest growth again in the coming years. Now I do something different. If we go to cost, you can see we deliver there, I would say, for a long time, for the first time actually for a long time. It went down significantly since 2010.
We see further cost savings opportunities, and that's the reason why we have sharpened our CI ratio. It's also very much related to our IT landscape, and Christian will tell you more about that. There are, of course, also some new revenue initiatives which also help to bring down the CI ratio. Clifford, of course, in the end, he will also mention this further. If we go to capital, we have significantly improved our capital position in the last couple of years, 39% when I joined in 2013 to 18.6%, and also paying increasing dividends. We are well-positioned for Basel IV. We mentioned last week that our Q1 Basel III terms went up this year-to-date, from 17.7% to 18.6%. Actually, the Basel IV was more or less flattish, which is around 13%, and you know our target is 13.5%.
That means that the RWA inflation, and Clifford will talk more about it, the RWA inflation went up from 35% - 43% from Basel III to Basel IV. We have now defined mitigating actions for that, to bring back the Basel IV RWA inflation to 35%. That will bring, of course, again, the quarter one Basel IV above 13.5%, which is good. That's the reason why, I mean, I also have defined our target for next year for Basel III. We continue actually our 2018 target, 17.5%, 18.5%, also for 2019, subject to SREP. We did not have that letter yet. That actually means positioned at 18.6 is, of course, a very good starting position for the new year. Stress tests also showed that we were very resilient also there.
There's a constraint, however, which is the leverage ratio in the short term. You know it's around 4:1. We are exploring at the moment a legal merger between bank and group for next year, and that might improve leverage ratio by 20 basis points. There's also in clearing a discussion around the SA-CCR method, which will help us by 50 basis points in 2021 at the latest. If possible, we would like to, of course, have that earlier, but that depends on negotiations which are taking place right now in Brussels. So in the short term, it's a constraint. In the medium term, actually, perhaps even after next year, if we would realize a merger, much less. We have reserved 60% of our year-to-date result for dividend. We'll take the final decision in 2019, February, also subject to SREP.
We expect for the coming years, actually, again, strong ROE, strong capital position, and creating clear room for a dividend payout above 50%. The targets. We sharpened the cost-income ratio. As you can see, it's in green. We updated the capital target ratio for 2019. Our quarter one is 18.6%, I said. Wrapping up, we are a domestic champion in retail, private, commercial, and corporate banking in a digitally savvy, strong Dutch economy. We have refreshed our strategy, support our clients, accelerating their sustainability shift. We think this is the right thing to do, but it's also a clear business case. We treasure the customer relationship. Very important. Increasingly working with partners. We expect in the coming year, as said, a flattish loan book, and from 2020 onwards, again, moderate growth. We will deliver on cost savings and while maintaining room for investments in innovation.
Our risk profile will stay moderate. In the coming years, we will again deliver attractive returns, and a high capital return capacity will be there. As a management team, we will continue to do what we did since the last IPO. You can count on that, and we will do that in a disciplined way. I would like to thank you very much, and I would now like to hand over to Christian. Thank you very much. I'll take questions later.
Yeah. Thank you, everyone. For those of you who I haven't had the pleasure to meet yet, my name is Christian Bornfeld. I'm the Chief Innovation and Technology Officer of ABN AMRO. I'm the latest addition to the management team. I joined ABN AMRO nine months ago. Before I joined ABN AMRO, I'd been working with or for banks for about 20 years. First 10 years with IBM, and then 10 years with various Nordic banks in technology innovation-related roles. That's a little bit of background about me. At ABN AMRO, I now run a part of ABN AMRO that we also call Innovation and Technology, which covers the group innovation unit. It covers IT, back office, a number of support functions, and various group programs as well. That's sort of the mandate. Okay.
During the next 20 - 25 minutes, I'll give you a short update on three topics. One is my current view at the moment on where do we stand when it comes to IT, to digitalization, and also to innovation. I'll tell you a little bit about how we are evolving our overall IT delivery model, and what that means, both from an output point of view, but also from a financial perspective. And finally, I will talk about how we are going about reinventing the client experience, both to generate new or to leverage new opportunities, but also to consider what does that mean for how we configure ABN AMRO going forward so we're well-positioned in the future.
Before I go into detail on that, I think Kees just introduced the three pillars of our refresh strategy, and for the topics that I'm mentioning, two of them are extremely. Well, the topics I'm touching on are core to these two of the pillars. One is the reinvent the client experience, and the other one is the Future-Proof banking piece. I'll come back to the reinvent the client experience a little bit later, but let me just introduce a little bit more on the Future-Proof banking part, because it's a quite broad topic. We have spent quite extensive time, of course, on refreshing the strategy. It's been a process that's been going on for the last six to nine months, and we've been detailing out very specific initiatives and KPIs for each of these pillars.
Under the Future-Proof banking, we have come to the clear conclusion that it's not one thing, it's many things that is required to actually become future-proof. This area covers topics related to people and culture. We know how important it is not just to have good people today, but to retain them, to have great people in the future. There are initiatives there related to developing, attracting, and also retaining the key skills that we will need in the future. There's also a number of initiatives related to driving the employee engagement also going forward. There's another category of initiatives under Future-Proof Banking, which go to how we streamline and simplify the bank and make it more focused.
Finally, there's initiatives related to building capabilities, which is what I will touch on in just a second, and capabilities in various different areas that we feel are essential for us to compete in the future. That includes innovation. It includes partnerships. Not least data is becoming more and more important, but also IT and information security. Also quite some capability building. Let me move on to the status on where we are today. As I said before, I joined nine months ago, and of course, very eager. When you come in fresh pairs, you've heard all the sales pitch when you are going through the recruitment process, and very eager to look under the hood and see what's actually there, what's working, what's not working. Let me share my observations for each of these pillars one at a time.
On the IT piece, you all know the history of ABN AMRO, 10 years ago, being pulled apart and then put back together again. That's not something that gives you simplicity. That is something that drives complexity, and indeed, ABN AMRO has had quite a large number of application and a quite complex IT landscape. Around 5,000 applications or so was sort of the net portfolio, which is big for a bank of our size and our scope. Luckily, I would say the team has been quite diligent and focused in execution over the last four years, and through a targeted effort, decommissioned a lot of applications and also re-platformed them, which has really brought down our application portfolio to a level. We're now not at 5,000, but 3,000.
This has reduced both the complexity but also the operational risk, and at the end of the day, allows us to take out efficiency over time. A good effort there, and provides a solid base for us on the IT piece. Another distinguishing factor from ABN AMRO is the adoption of agile development practices. For those of you who don't know, sort of putting together teams from the business side and the IT side into small integrated teams, removing some of the inefficiencies that are traditionally in IT development due to the friction between the silos. ABN AMRO has done this not just piecemeal in some areas like most banks, but has done it across the board. I think that's a good move, and it positions us very well for the next steps in creating efficiency in the IT setup.
Where does that leave us now, and what have we working on the last half year? The last half year or so, we have been sharpening up the rejuvenation plan. Even though we have brought down complexity, we still have legacy systems that will continuously need to be rejuvenated and replaced over the coming periods. The good news is it's not going to be a big wall-to-wall replacement. It's going to be a stepwise replacement, and we have clarified and sharpened the roadmaps in those areas. The main focus for us when it comes to rejuvenation the next couple of years will be in the risk and capital area, where we have a complex system landscape, and also in the area of credits, where we believe we can add a lot more value to our clients if we rejuvenate that piece.
If you look at the digital part, of course, an observation when you come into the Netherlands is that it is a quite digitally mature environment also compared to the rest of Europe. That's certainly the case. We also see that in the statistics when you look at the adoption of mobile apps, internet banking, extremely high for us and our clients, and good experience there. That gives us a luxury in that we can actually design our processes from a digital-first perspective. We can assume that people want to be served digitally and also that we can actually process things in a digital manner. We've been leveraging that opportunity the last two, three years to really drive efficiency in the back office side, and you will see the number of people we have in back office.
We have been able to reduce that gradually over the last couple of years. We certainly need to continue that. I would say my observation is what we can do within that narrow context today is probably tapped, but I think the next step for us is to look much more holistically across front office, middle office, and back office, especially as we shift even more to digital in our engagement with clients, we can do even more. When you look at the digital engagement part, Kees already mentioned that we're pretty happy with where we are, and I would concur to that. I think retail has managed to establish not just one strong digital presence, but a portfolio of applications that we provide to our clients, which cover a broad range and provide a very strong service to them.
I think from a retail point of view, I think we can truly say that we're leading in the Dutch market when it comes to serving them digitally, which is a great achievement because that's not where we were two years ago. When it comes to the digital interface, I think we are trying to or we will take the good experiences that we have from retail, and we will leverage those for Private Banking and CIB. We've already done that in some areas, but you will see our roadmap being executed over the next year or two, and both Daphne and Pieter will come back to the activities in that space. Overall, pretty good place from a digitalization point of view. More to do internally.
On the client side, I think we're doing reasonably well, that's an area that's always moving, we need to keep the pace. On the innovation side, I must say that's one of the areas where I was most surprised when I came into ABN AMRO positively. Well, I guess that's also one of the areas where I'm also quite proud, ABN AMRO has done quite a lot of things given the sort of bank we are in the area of innovation. I think a lot of that comes back to a DNA in the ABN AMRO employee base, which is extremely entrepreneurial. Which is really good. You can see that sort of in the innovation efforts we do, lots of engagement. Everybody wants to get involved. Over the last two, three years, the building blocks around innovation have been put in place.
We have a strong group innovation team with knowledgeable people from a broad range of backgrounds. We have a Digital Impact Fund. We have the challengers. I think the starting point is very good. What we're missing in innovation today is focus. With the new strategy, with the refresh strategy that we are putting in place now, that will give us the focus and will accelerate us in the innovation piece and make it even stronger. Very positive when it comes to the innovation area and our position there. If we dive into the IT piece and the IT delivery model, just to give you a little bit of historical context or a little bit of context where we're coming from. These are average 2015 - 2017 numbers. ABN AMRO as a group spends around EUR 1.5 billion a year on IT.
That cost is spent on two things. One is running the bank, basically keeping the lights on, running applications, fixing errors as they occur. Then on changing the bank. The split today is 55/45. Just to give you a reference point, most banks today that I work with across Europe, when I talk to them, are somewhere in the range between 30%-40% of change spend. Actually being at 45% is above that range. We generally do more change at ABN AMRO than our peers do around Europe. That's a good place to be, but that's where new value is generated. It also gives us, of course, some reflections on can that be optimized in one way or another? Therefore, we look into what do we actually use the change spend for?
In ABN AMRO, we have a target to spend a certain amount of all our change effort on actually rejuvenating the IT systems, keeping them up to date, and replacing them stepwise, as I mentioned before. I think that's a very smart thing to do, something we will continue to do. This is like replacing the spare parts in your car as they break instead of buying a new car every year. It is more efficient, and it's also better from a risk profile to keep your systems updated all the time. If you see banks go below 10% or so of their spare change capacity for that sort of thing, that's normally a warning sign. We also use quite a substantial part of our change effort on regulatory agenda, and we will continue to do that also through the coming years.
Somewhere in the range of 20%-30% of our change effort actually goes to purely regulatory requirements. That's something that we are managing, certainly an area that we are prioritizing. That leaves about 50% of the change spend for business development, and that's where we're also targeting to be going forward. From a financial point of view, one thing that's worthwhile noting that is also different at ABN AMRO compared to peers is that we don't capitalize, or we do very little capitalization of our IT development spend. Over time, it shouldn't make a difference, but in the shorter term, it does give us more flexibility in order to adjust our IT spend year-over-year. We are not carrying amortizations from previous years' IT investments into our budget for the coming years. That's a good place.
This is just where we are, of course, IT is the most interesting place to be because things change all the time. The way we developed IT systems five years ago is different from how we do it today. If you look back 10 years, it's completely different. That also means that new opportunities are rising all the time to become even better. We have put together now a plan on how to take IT to the next step, both continuing on the levers that we had already identified and also adding some new levers. I think the main characteristic of the new plan for us is that it's truly a joint effort across the entire team that you see here on the front row. It's not something that IT can do alone. It's something that we will do together as a group.
There are several levers, they cover these four groups that you see on the slide. One related to demand, being even more focused in where we develop or where we put our IT investments. Also to do it together with the rationalization that we will be doing in our products and processes and coming together on joint platforms. The demand side will be much more focused. On the productivity side, I mentioned before, we had shifted from traditional development into agile development. We will now, over the coming years, take the further shift into what we call DevOps, which is even more integrating teams and automating how we deliver software going forward. That will drive even more efficiency. Together with that, we have a quite extensive offshoring set up in ABN AMRO today, which has been around for some years.
There's also room there to drive additional efficiency, we will also address that during the coming years. Finally, on the supply side, the entire industry is currently looking at what do you deliver out of your own basement, your own data centers, versus what can be delivered from cloud providers. We have been quite early adopters in that space, and we see certain opportunities there also for optimizing the way we deliver IT. This combination of several levers gives us confidence that we can actually move the needle and stay ahead, not just in efficiency, but also be the fastest in the market and also have the best access to the newest technology. A quite broad plan. If you look at this in the broader context of the industry. Next slide, please. Thank you.
This is a simple framework that when the CIOs of this world come together and drink coffee, we use to compare ourselves sometimes. On the one hand, you have the CI ratio, the cost income ratio. On the other, on the X-axis, you see the IT spend as share of operating income. It gives you some sort of feel of how much are you actually spending as a bank compared to your size. ABN AMRO has, in this context, been what we call a type two bank for quite some time. We have been spending quite a lot of our money on IT every year, we've been investing heavily. We've also been above the European average or the sample average when it comes to cost income ratio. It also makes sense. Invest in IT to drive down your cost income ratio by reducing cost or increasing income.
The logic is certainly there. We've been a high investor in IT. Over the last year or so, the levers that we have been applying over the last two to three years on reducing number of applications and other things, has allowed us to gradually reduce, again, the IT spend while still delivering the same. We expect that trend, given the levers that I just mentioned, to continue. We will gradually be delivering the same, or even more if we can, but gradually be pulling back our IT investments as the Cost-to-Income ratio also goes down. Directionally, that's where we're going. Next slide, please. On the IT piece, to summarize some of the key levers that we're pulling here. On the demand side, as I said, continuing the work that has been going on for some years on reducing the number of applications.
You can say, well, the curve is not that steep anymore. I would also tell you with the first 2,000 are the easy ones. The next ones become a little bit more difficult and more difficult. Certainly, we expect the pace to be slower, but we still see quite some potential in simplifying the application landscape, and it will be a strong driver for efficiency. We are also shifting, as I said, teams towards DevOps. That means more integrated teams, smaller teams, and highly automated teams. That projection you will see going forward from now and until 2020, we will have shifted probably the majority of our teams into a DevOps mode. Finally, the shift towards cloud.
We see good potential for that for most of the new workloads that we put in place that we can leverage cloud, and that will be a more substantial part of our installed base over the coming years. In conclusion of that, the result of that is that we will shift our IT cost as part of our share of operating income from 16%, which it was in 2017. I already showed you we've already made a shift in 2018, and we will keep sort of directionally going there until we hit what we define as the sweet spot, which is around 12%-13%, as you saw on the previous slide. This is directionally where we're taking IT. Yep, next slide.
Let me shift to the next topic, and over the next five, six minutes, give you a short introduction also to how we're approaching reinventing the client experience. I will give you sort of an overview on how we're approaching it, then each of the business lines will provide you with numerous examples on how they are actually doing it in each of their business lines, because this is truly a joint effort between the INT team and the individual business lines on how we go about this. We have chosen to do a two-pronged approach, approaching the reinvention from two perspectives. One is a step-by-step incremental improvement on the client experience, that you see sort of here on the left-hand side. It covers basically three focus areas that we have at the moment. One is improving the accessibility, so clients' ability to engage with the bank.
A big topic there is introducing video meetings, chats, driving up the adoption there. Key focus area, you will hear that from many of the business lines. The next part is moving to instant, or we call it instant gratification. Shortening the time between clients engaging with us till they actually get the answer they need. We have done some things in that area, but we still need to move from days to hours to minutes in some of these processes. That's by further automation, digitalizing inputs and outputs, but also automating decisions through the use of AI and other technologies going forward. Finally, using data analytics, continuing to extend our use of that to make sure that we become even more proactive in our engagement with clients, and also relevant when we then engage with them, that we know exactly what to talk to them about.
Providing a better client experience, but also increasing conversion rates for most of these processes. The step-by-step approach, we will continue to accelerate that, and we are doing that at the moment also by leveraging synergies across the business lines. We need to combine that with another approach, which is more of a greenfield approach. Because we have been doing incremental improvements for quite some years, and the downside with that is that you sort of lose sight of the bigger picture. We believe that now is also the time to really start zooming out in a number of areas and zooming out in order to identify new opportunities, new revenue streams, and also specifically on fee income.
Zooming out in order to also identify other areas where we can start engaging with clients even earlier, also from a defensive point of view, so we can counter potential disintermediation. Finally, also zooming out to understand the dynamics in the value chain before clients engage with us and after. Because many of the mega trends that we were discussing earlier or in Kees' presentation, be that sustainability or others like urbanization, sharing economy, or privacy issues, you need to understand a broader context to position yourselves well. The zoom out part of the reinvention is really key also to our approach. To make that a little bit more concrete, let me just show you a quick example. What we do is that we have already selected and we're working with a set number of client journeys.
We look at client journeys very holistically, also more holistically than most banks that I know of at least, to really do this zoom out exercise. The example you see here, we call Realizing the Entrepreneurial Dream. It's actually co-developed together with the Daphne's team. We also have other journeys. To give you another example, Comfortable and Sustainable Living, which is in Frans' area, related to mortgages. We do this for these selected journeys. We map them out, as you can see here for realizing my entrepreneurial dream. This gives you sort of, we've identified 33 sort of key decision points for our client as they go through that process from waking up one morning and saying: I would really like to start a company; to they're actually up and running.
We then look at these decision points, we identified that there are four out of the 33 where ABN AMRO today actually engages with the clients. It's only a quite small subset. Our main focus is, of course, to make sure that those four are really good. We do that first. Within realizing my entrepreneurial dream, there are currently two areas that we're focusing on. One is the onboarding process, which is still too cumbersome. We've done great strides in that space when it comes to retail. On onboarding through mobile app, we're trying to replicate that experience also for entrepreneurs. The other part is time to credit decisions. As I mentioned before, days is the norm.
Move that to hours or even minutes, we're using our challenger banks like New10 to actually test that out and see how fast can we actually make that happen. We've made good strides there. That's, again, just focusing on what we're already good at. If we zoom out and look before at where we normally engage, we are looking at identifying various opportunities for engaging clients earlier. In this example, it's by building communities where we bring together different people who are thinking about being entrepreneurs. It's by looking at new revenue opportunities where we partner with the traditional partners like insurance companies, legal advisors, accountants, to add additional services that we can put in front of the client.
Also after the normal engagement with clients that we look at how can we help them to grow their business later on by hiring additional staff, or as we recall to our new purpose and strategy as well, how can we ensure that they don't become just good entrepreneurs, but also sustainable entrepreneurs going forward. Again, identifying new opportunities. Each of the teams working on these journeys are identifying numerous opportunities every time, and we're pursuing those at the moment. A characteristic of these opportunities, next slide please, is that a lot of it we are not going to do ourselves. Us moving broader into the value chain does not imply that ABN AMRO needs to do everything, and I think that's something partly new for a bank.
Most banks, as Kees mentioned earlier, said are used to being vertically integrated, or at least that's where we come from 10 - 15 years ago. We produce what we sell, we sell what we produce. It's been a sort of simple model. That's no longer the case, as many of you also know, five, six years ago, the doom and gloom of banking was announced. Fintechs are coming to disintermediate all of you, banks will no longer be vertically integrated. They will be horizontal. They will be big production factories behind a lot of fancy fintechs that will engage with your clients. That was our scary scenario and what we were positioning ourselves towards five or six years ago. That did not play out.
The fintechs that engage with clients have struggled, at least in the continental European market, to really generate revenues and also bottom line, to be honest, because client acquisition costs remain high. The fintechs that we were concerned about have not entered the market aggressively yet, but are more searching to us and others to look for partnerships. Part of that can also be due to the Netherlands. While we think Netherlands is big, in the bigger scheme of things, maybe Netherlands is too small for a big tech. I think from that point of view, we're also lucky that we, to some degree, are geographically protected in that sense. How do we see this play out? We don't see it play out as a vertical. We don't see it playing out as a horizontal.
We see it play out more or less in what you see depicted here. We see in the distribution piece that we still will play a very strong role with our strong digital propositions, but more and more together with our partners, and also with our fintechs, working together with them to provide very strong experiences towards our clients, through the platforms that they wish, going forward. On the production side, where people predicted that this would only be banks producing, we're actually seeing a different dynamic there. We're engaging a lot more with fintechs now in the production side, and we see that we can narrow our scope as a bank more and more on the production side and actually work with fintechs to provide core systems, processing end to end, or specific solutions that we would not want to produce ourselves.
Actually, as much partnership discussion going on in the back end as there is on the front end, which is not something we thought a couple of years ago. The final dynamic we see is that a lot of the services that banks produced historically have enormous scale effects, and they have also become commoditized, which means there's a strong incentive to push into utilities where you can share the scale with other banks. We've not had a strong tradition for that in the Netherlands, but that is picking up at the moment. Latest example being the collaboration with Rabo and ING on ATMs and cash handling that we announced not long ago. Okay, next slide please. Final point from my side, challenger banks. This is an area where we have been a frontrunner.
We have launched several challenger banks from ABN AMRO over the last couple of years, and we've done that basically for two reasons. One is to develop and to test new propositions. We have traditionally said it's also fine that you cannibalize the main bank. We've really used this to give these new challengers the confidence, the space to really develop, which can be constraining within a bank, but also to be a canary in the coal mine, to really see how powerful is the disruptive forces. We've learned quite a lot from that. The other thing that we use the challengers for is actually to test technology. As an IT person for a bank, typically we are as risk-averse as Tanja, who will be here in just a second.
We're very cautious about replacing IT systems that are doing millions of transactions a day and need to run all the time. By having the challengers, we've been able to, in combination with the Digital Impact Fund, where we invest in certain fintechs, actually to bring that technology in, test it at a smaller scale in a challenger bank, and then based on that experience, to leverage it much faster within the main bank than what we otherwise could. You will see that sort of flow happening more over the next couple of years. Hopefully, we will be able to actually skip a generation of technology based on the experience that we build through our challenges. Two strong propositions for still doing that.
That being said, over the coming months, we will review and continue to evolve the challenger concept so we ensure that we maximize the return that we get out of these challenges, both from a financial point of view and also from a learning point of view, as I just said. Next slide, please. Finally wrapping up, I think solid base when it comes to the IT piece. Pretty comfortable where we are. Very happy, proud of what the team has accomplished the last couple of years through disciplined execution. We have a lot more we can do and should do, and that never stops in IT. I'm sure when we've done that, there will be another mountain to climb behind that. Looking forward to that, but lots of potential still.
Finally, I think we are taking a quite holistic approach to how we reinvent the client experience and look for new revenue opportunities and also face off potential threats to our business model. I think given, if you look at how we're restructuring ourselves and with our lengthy experience in working with fintechs, having challengers ourselves, being one of the most progressive in the Netherlands when it comes to working with APIs, I think we're really well-positioned when you look also for the coming years. Thank you. I will hand over to Tanja.
Yeah, I don't need this on. Okay, thank you, Christian. Good morning, everyone. Very nice to meet you in person. I will first introduce myself before going into the slides. My name is Tanja Cuppen, and I joined ABN AMRO as Chief Risk Officer slightly over a year ago. Well, enough time to get a good grip on the risk profile of the bank. I'm a person that tends to have a positive sense, but it's my role as well to voice the negatives. With my team, I ask attention for the concerns, the adverse scenarios to be considered before decisions are taken, and also ask for investments before go live. You heard Christian talking about risk awareness in his department. I will share today how we do this.
I see it as my role to make sure that we take risks that we understand, that we can monitor over time, and risks that we can price properly. Risk management is not about not taking risk. It's about taking the risks that we understand, and to make sure that the risk profile of the bank is safeguarded. That is hard work every day again. It requires a lot of fine-tuning and discipline, and disciplined execution of the plans that we will hear about today. About execution of plans, Kees already alluded to our strategy. On my next slide, I will address how risk management is contributing to the execution of the strategy of the bank. Allow me first to say a few words on strategy before I go to the items on the slide.
The strategic choices we make today will be very important in the risk profile of the bank of the future. I want to make sure that this current strategy, and the choices we make, keep us in a moderate risk profile. A few elements that I would like to mention how this will be safeguarded are the following. By focusing on supporting clients in the sustainability shift and our purpose, banking for better for generations to come, we have our customers in the core of our strategy. This puts rigor around our choices on products, on sectors, and on partnerships. It steers us away from the stranded assets of the future. It also puts the duty of care and knowing our customers central to what we are doing. Our refresh strategy is not only close to my heart as a person, but also as a CRO.
I believe it's a very sound basis for a moderate risk profile. Now moving to the bullets here on the slide, outlining our commitment in the strategy. Our geographical focus will continue to be mostly on the Netherlands and Northwest Europe, strong economies. We will focus on assets with the right risk return. We will stay committed to a sound asset quality and strong balance sheet. We anticipate changes to come, whether it will be changes in economy, changes in regulations, or changes in technology. Before I gonna address the developments in the non-financial risk area and my outlook, I will first go into credit risk because that's one of the most significant risk categories that I would like to address with you. Let's first go to the next slide, look at the strong economies that we serve.
As said, Netherlands and Northwest Europe are our dominant locations. In this slide, you see that 70% of our clients are in the Netherlands and over 85% in Northwest Europe. GDP is expected to grow with 2% in 2019 in these regions. We are geographically concentrated, our business is actually quite well diversified over the four business lines you see here. Each business line will present today. You will see that performance and risk drivers are quite diverse. The loan books vary by business line in size, if you look at capital expressed in risk-weighted assets, it's actually quite evenly spread, with Commercial Banking and retail both good for one quarter and CIB almost or slightly over one third. Impairments this year definitely had my attention, probably also yours.
I would like to point you to the bottom two lines of this slide, you will see that the average impairment since 2015 were well below the through-the-cycle cost of risk, as we indicated at IPO. This average, however, doesn't tell the full story. For that, I would like to take you to the next slide. Before I go to the charts on the slide, I want to emphasize that most loan portfolios perform well and benefit from the strong economy. You see that our non-performing loans ratio has dropped from 3.5% in 2014 to 2.2% now, I expect this trend will continue. Going to the slide, and first to the left-hand side. On this slide, actually both charts, you see that the lines show a rising trend. I do not expect this trend to continue, I will tell you why.
On the left-hand side, you see the rolling average over a longer period of time, this trend shows that currently the cost of risk is well below the through-the-cycle cost of risk. From the low point in 2017, it goes up in 2018, on the right hand, I zoom into this. The different lines you see here are by product. You see two lines, one for mortgages and one for consumer credit, the risk cost for both products are close to zero over the past years. Actually the elevated impairments are concentrated in our corporate loan book. I will address that in the next slide and give you some more detail there. These elevated impairments were very much in specific sub-segments. I have taken out four sub-segments, these four make up 75% of the year-to-date impairments that we have written.
The segments are offshore, TCF Diamonds, shipping, and domestic hospitals. The first three portfolios are in C&IB and managed by Rutger. The last one is in Commercial Banking and managed by Daphne. As discussed in the analyst calls over the past quarters, the level of impairments were really disappointing. These developments have, of course, my full attention, were assessed in great detail. We have tightened several policies, standards, and procedures to make sure that we address any weaknesses underlying these portfolios. The CIB refocus is also used to reduce the exposure and the risk to the most cyclical parts of the portfolio, being offshore energy and offshore supply vessels. Rutger will discuss this in more detail later today. The challenges in these sectors are not over yet, however, the market seems to bottom out.
I expect still some further impairments can follow, not a new wave of elevated impairments. Also in TCF Diamonds, we have decided to de-risk the book further and the healthcare sector we monitor closely, especially focused at hospitals. We do not expect any issues here, however, in the short run. To summarize, I do not expect impairments to rise, as indicated earlier. Let's go to the next slide and see how we maintain a clean and strong balance sheet for the bank. I already mentioned we have a risk appetite that fully aligns with our strategy and is aimed at maintaining our moderate risk profile. We do this by defining clear limits for countries, sectors, products, and clients. We set limits for the bank as a whole and by business line. Actually, it sounds very easy, it's not an easy task.
As we sometimes have discussions and frictions with the business lines when we in risk want to set limits at tighter levels or want to reduce the underwriting standards or tighten the underwriting standards in specific sub-segments. I'm sure that when you talk to Frans, Daphne, Pieter, and Rutger, they can give you examples of some of the discussions that we have from time to time. On this slide here at the left-hand side, I set out a few examples of limits we apply. For example, last quarter, as part of the CIB refocus, we set exposure limits and tightened underwriting standards for the sub-segments that I just mentioned on the previous slide.
Another example is in shipping, where for some time already we are focusing on the environmental impact, and by setting policies, we prevent financing the most polluting vessels, and this will actually avoid us to finance the stranded assets of the future. Setting limits is not only good for risk management in the short run, but also has a positive impact in the long run. We also actively engage with clients, so it's not only about limits. We actually define specific small envelopes in areas where we want to take some more risk to gain experience to develop new activities. For example, innovative solutions in the area of energy transition and sustainability. Next to risk appetite setting, we take a forward look on our risk profile, and now I want to take you to the right-hand side of the slide, where we look at stress testing.
We are testing our portfolios and limits against general economic scenarios and, of course, adverse scenarios, but also individual developments such as a drop in oil price, rising interest rates, or a correction in real estate prices. Most of these reviews are internal and focus on capital adequacy or liquidity or development of specific portfolios. An example of that is a deep dive we did earlier in the year on our resilience for the commercial real estate portfolio we have. These are all internal, of course. There are also public stress tests, and Kees already alluded to the EU-wide stress test for which the results were published two weeks ago. Let's go to the next slide to look at the results, where you see our results vis-à-vis some of the peers as well on the right-hand side.
I was very pleased with the results of the stress test. We scored very well in terms of impact of stress as well as resilience to stress and the capital ratio remaining after stress, 14.9%. I think better than some of the starting points of other banks. In 2016, our CET1 ratio declined by 5.9%, and now it's only 2.7%, a big step up. We rank in the top quartile of all the banks participating. To me, this confirms as well our resilience to adverse economic developments. Far I've discussed what a moderate risk profile means, how we manage it, and how we maintain this profile by using the tools that I just mentioned. I also highlighted that the areas driving the year-to-date impairments are concentrated in specific, mostly global sub-segments, and that we took measures to control these risks.
Last, I want to make clear that these sub-segments are not representative for the whole portfolio. Let's go to my outlook for 2019. At first, I haven't touched a lot on this yet on our mortgage book. Of course, a very important part of our portfolio. Our mortgage book is very healthy. I think this is a reflection of the Dutch economy and also sound underwriting standards we use. We see a strong increase of amortizing mortgages in our book, and also a decline in full interest-only mortgages. Loan-to-values are improving and are now on average 66%, and if you compare that to 2012, it was 82%, so a big step forward. You also see that the share of mortgages that have a loan-to-value of over 100% is disappearing. Only 3% left. If you compare that with 2012, it was still 21% of our portfolio.
A development that we are closely monitoring is the rapid rise in house prices in the Netherlands, and especially in the large cities. The fact that we have in the Netherlands an affordability criteria, a loan-to-income measure, is somewhat of a risk mitigant here. The fact that our mortgage book is kind of developing flattish, and I think Kees alluded to this already, as such, is for me as a Chief Risk Officer, a good development. Let's now focus to the corporate loan book in the middle of the slide. The corporate loan book is also benefiting from the positive global economy. Of course, also some clouds on the horizon. Brexit is very much top of mind here, also we see the impact of trade barriers. Both developments could hit our individual clients quite hard.
We have performed an assessment in Commercial Banking and CIB to look at the most vulnerable segments in our portfolio. Dutch clients with large trade flows with the U.K., also container vessel companies active in international trade. This analysis has shown us that the impact on our portfolio of these developments is limited. Of course, as I mentioned, individual clients can be hit hard. We see, especially in the SME segment in the Netherlands, that the level of preparedness is still quite low if it comes to the implications of a Brexit. I think what has more my attention is actually the indirect effects of Brexit and potentially escalating trade wars, as that could mean a slowdown in the economy.
Under such a downturn scenario, I'm positive on our ability to deal with such a scenario, and I just discussed our resilience to an economic downturn in the stress test. In my opinion, the CIB refresh and the tightening of our limits and underwriting standards is well timed if we look where we are in the credit risk cycle. To conclude, my outlook for 2019 is that under our refresh strategy, the cost of risk will stay below our average cost of risk through the cycle of 25 - 30 basis points. With that, I would like to move from credit risk to regulatory developments and share some views there. We see that our regulators are using this period of positive economic development to strengthen capital. Let's start with capital first and then discuss TRIM. Regulators are in the process of finalizing capital regulations.
You know we are well prepared for Basel IV. Clifford later on will discuss that in a lot of detail. ECB is less focused on Basel IV. They are more focused on TRIM. That's aimed at harmonizing the models for credit risk and risk-weighted assets. We have received TRIM feedback for our market risk models, our mortgage models on credit risk, actually the impact of that was quite limited as it comes to our RWA. For 2019, we will get a review of our low default portfolio. Here I expect for more impact, as these models are quite a bit expert based, and this is not something that is favored under the TRIM regulations. It's good to know that the impact of TRIM on Basel III will not have an impact on RWAs under Basel IV.
It will also not impact any increases of TRIM effects will not impact our Basel IV readiness. Going to the development in prudential regulations. Regulators also started to focus on non-performing loans. They used the current economic strength to reduce the stock of non-performing loans on banks' balance sheets before the next downturn will hit us. ECB regulators require banks to apply prudential backstops and maintain a higher level of provisions to non-performing loans as time progresses. Up to 100% after seven years, even for collateralized exposures. As our NPL ratio is only 2.2%, we expect that the impact of this new regulation will be manageable. It appears that the regulators are picking up the dialogue on a phase-in of this regulation, and we expect discussions as part of SREP.
The implications hereof are not yet clear. It's too early to comment further on this. Let's now go to the next slide and further discuss non-financial risk. Important in the developments of today, technology is developing rapidly, which means that non-financial risk can become more dominant also. Cyber risk is managed by Christian, as mentioned, on a daily basis. In risk management, we make sure that cyber risk is an integral part of our control framework. Going to compliance. Compliance is another topic that is top of my agenda. The topic of conduct, risk, and the role of banks as gatekeeper to counter anti-money laundering and terrorist financing is only increasing in importance. We take our role as gatekeeper very serious, and we invest a large amount of resources in fulfilling this key role..
We have a very open and transparent relationship with our regulators, including DNB and the Dutch Financial Intelligence Unit. ABN AMRO is one of the frontrunners in developing public-private partnerships in the area of fighting financial crime. We believe these partnerships add in the best way to the common objective of identifying and stopping financial crime. We take our role very seriously, there's always room for improvement. Therefore we continue to develop and invest in this area. This is not only my role, it's my colleagues in the executive committee are involved in managing these risks all on a daily basis. Lastly, on this slide, I would like to call out the rapid technological and digital developments that change our lives, but also banking. I think Christian alluded to that already. They are both a threat and an opportunity.
A threat to our business model, which we are addressing by our strategy, but also an opportunity for new business as my colleagues later today will highlight. In capturing these opportunities, we will take new avenues. We will try new technologies, we will work together with new partners, and we will introduce new risks to the bank. It's very important, I would like to reiterate that we invest in knowledge and expertise to ensure we understand the risks, and if we don't understand the risks, we leave it to others. This approach will make sure the bank can take the next steps in a confident way. That brings me to my last slide. I conclude that we are very well-positioned to maintain our moderate risk profile.
We are committed to building meaningful relationships with customers in strong economies, only taking risks we understand and we can afford, and we are well prepared to anticipate and absorb the impact of changes. Thank you very much, and I would like to invite Kees and Christian to take some Q&As.
There is a 25-30 minutes of Q&A. For those who would like to ask a question indeed, raise your hand. I see some already. We will use the mic. If you could start by saying your name, and using the mic, people on the webcast can follow us as well.
Hi, it's Pawel from Goldman. Two questions. The first one is on your targets. You still reiterated above 50% dividend payout. You obviously accrue a little bit more than that already for this year, and you highlighted flexibility. Can you help us understand how will you calibrate the payout ratio going forward? Should we assume that anything that complies with, let's say, Basel IV Common Equity Tier 1 ratio and leverage, will be distributed? That's the first question. The second question is on your cost. This is one of the targets that you actually revised today. You aim to deliver EUR 5 billion cost base by 2020. Beyond that, you're pointing to growth in income. Can you give us a sense of what growth and cost base you assume there?
Maybe within that, and this is Christian for you, I was a little bit surprised to hear that you want to lower IT spend, and I appreciate its relation to income, but, youi know, why does it make strategic sense?
With respect to capital, I said already earlier that we have this target range of 17.5%-18.5%, which is actually calculated from the Basel IV framework, and updated now on a Q3 level. We don't do that, and I'm not going to do that also in the future every quarter, but I thought for Investor Day, it's good to give you an update there. Our normal procedure will be every year, actually, that we give you a new target range. That is as set now with the mitigation actions. We feel comfortable now that the Basel IV is above 13.5%, and the Basel III is 18.6%. You start the year actually above your target range, and you're also very well-positioned for Basel IV. Still, I have to say, it's 10 years down the road.
It's hundreds of pages, the EU has to implement it, and there's a lot of discussion about it. It's not certainty yet. It's not a law. It's all estimates. That makes us keeping some flexibility around the figures. As you can see already this year, the big divergence between Basel III and Basel IV. We need that kind of flexibility for ourselves, but we're very well-placed actually for 2019. As set for 2018, we have reserved now 60%, and we'll decide on that. Our basic position has always been, and also communicated since IPO, I was CFO, I very well remember, that we said if we don't need money for growth or if we do acquisitions, then the money is available for shareholders. That's what we've said. Of course, coping with Basel IV.
With Basel IV, we are well-placed, so yeah, we're in a good position, good shape. The cost question was around the EUR 5 billion 2020. That's our target indeed. Yeah. Well, we don't give nominal figures actually, although in a way, when we say it's a fetish loan book, although that's interest related and there's also deposits and there's fees, it's not a complete guidance around operating income, actually. A bit off. Of course, a large part of our book is driven by interest. That's not part of a profit center. It's driven by interest. You can calculate. It means nominal lower cost base. That's right.
Okay.
[inaudible] beyond 2020,
Can you use the mic? Sorry.
Higher, please.
Apologies. Will the cost declines be true beyond 2020? Do you still aim to maintain cost flat, shrink them further by 2022?
Well, we shrink from this year. Don't have a figure yet for this year, but it will be above the 5%, clearly. We have the guidance now 5% in 2020. Then it depends a bit. We give a cost income ratio, so we don't give nominal figures actually. Depends on are we going to grow by 1% or by 2% or by 3%? How much money is needed for innovation, what can we do in cost cutting, all the stuff. It's driven by CI not so much, and that relates to operating income growth as well.
Thank you.
Maybe I should answer my question.
Yeah.
On the IT investment side. I fully understand your question. It's something that we're managing also from a strategic perspective because IT is still, it's a certain part of your cost base. It's also used to drive down or generate additional cost efficiencies, drive down cost, and it's also an enabler, as we talked about, in regards to generating new revenue streams. It's something that we're evaluating sort of that trade-off all the time. I would say looking at where we've been historically also compared to the benchmark, we've been investing quite extensively, and we're gaining benefit from that right now. That's why cost is also coming down. I feel comfortable with the levels we have right now, that we can pull back on the absolute Euro spend on IT and still get the capacity we need to stay competitive, with the peer group that we compare ourselves to.
Okay, who's next? Marcel.
Thank you. Marcel. I have three questions, please. First on the lending growth or the growth of 1%-3% post 2020 case. Can you give a split regarding the, at least the products or the divisional that you're trying to realize there? As well as what would need to happen to realize 3% growth? That was my first question. The second question is on bolt-on M&A. This time I didn't see Private Banking in there. Do you expect to do some bolt-on M&A in other divisions as well? The third question is on, Christian, on the IT spend. You just highlighted a little bit already. The EUR 1.5 billion, which I think increased from EUR 1.2 billion. To what extent is that a sticky number? How much flexibility do you have to lower it in case of lower revenues? Thank you.
Thank you very much for the question. Let's start with loan growth. I would say, guidance, our larger book, you've seen it there, the EUR 150 billion mortgages. We expect that now due to the competition and margin pressure a bit, as said, flattish and perhaps that book can even go down a little bit. It has gone down year-to-date, our loan book, mortgage book. As said, when we expect a more normalized interest environment, we think that it will be a bit more in the sweet spot of banks again instead of insurance companies and pension funds. Talking about then after 2020, by the way. Then it can stabilize or even grow a bit depending on the market developments in general, of course. The portfolio of Daphne, EUR 40 billion-EUR 42 billion Commercial Banking loan book, is very much related to Dutch economy.
One, two, three, depending on. Our forecast is based on the economic bureau consensus, more or less 2% or something, and you can have some inflation perhaps down the road. Then corporate investment book, corporate institutional book is going presumably a bit down, as said, because of the refocus in the coming one, two years. That can grow, I think I mentioned 2%-3% moderately grown for. It's a blend of the three, actually. Inorganic growth, we have always said indeed Private Banking, and that's still, I would say, well, nice word, sweet spot. That's the sweet spot of our inorganic growth still because there we are looking in Northwest Europe if there's something which we like. We do not exclude other sectors. If we see something nice in other areas, we might look into it. It will be small as said, not transformational, and we will keep capital in mind.
Just on the IT related question. First of all, the clarification. I think you mentioned 1.2%, 1.5%. I think earlier this year we communicated as part of another event a number called 1.2%. That's for the Netherlands centralized IT. The 1.5% you saw today is our group level IT spend. It's actually a slightly different number. It includes all the international units, all the subsidiaries we own, including the challenger banks that I also mentioned today. That's why the number is a little bit different. Just be aware of that. When you look at the flexibility in the cost base, I think we do benefit from being quite extensively outsourced historically. We have quite a lot of our spend is external, which is something that is more variable than if it's internal staff.
The other part would be, as I mentioned in the presentation, that as we don't put things on the balance sheet, we don't put the development on the balance sheet, we don't have depreciation strong through. I think we can realize those savings quite quickly.
Okay, who's next? Is the mic on? Yeah, Robin. Maybe just a reminder, we've got Clifford of course at the end. Any finance related questions, please make sure that we still have some for Clifford as well.
Tanja's here as well.
Thank you. Robin van den Broek of Mediobanca. My first question is on mortgages. You assume basically that the market will move back towards your sweet spot. Say that doesn't happen and the mortgage book based on the annuity framework starts to shrink. Basically feeds into your capital generation, where your capital generation could actually be above your earnings for the next two years, so to speak. Given where you are on capital, can you pay that out fully? Can a payout ratio go that high, basically? That's my first question. Second question is on AML. Based on what you said on systems and the complexity of pulling it back out, pulling it back in, I think the ING case shows that it's more about procedures rather than wrongdoings within the bank. How comfortable are you that you are safe there?
I think the FIU also gave some numbers last week saying that the number of suspicious transactions coming from banks is only 10%, which to me seems like a shockingly low number. Your thoughts on that will be appreciated. The third one is also bolt on . I thought there were some caps on what you could do as long as you were under a certain state ownership. Could you remind us of those M&A caps? Thank you.
I don't think we have real caps there, to answer that question at the moment. With respect to mortgages, we think that there's a long history in the mortgage area, and of course, we look at also other countries that sometimes are in a bit more already advanced stage with respect to the mortgage market. For instance, Sweden, I think you know a lot about that as well. The fintech is much more active already in Sweden to date than they are in the Netherlands. We take that all into account. Still, we think that when interest rates go up, clients these days in the Netherlands, over 50% take up a 20, 30 years fixed. I advise my children as well. That is not the place for us. It's not our ideal place. We can do some stuff.
We've done some covered bonds for 20 years and then generate, of course, also 20 years mortgages. We also have a different capital regime than insurance companies and the like. When the interest rate goes up, what clients, we think, are going to do again, when they have to take out a mortgage of, say, 3.5% or 4%, that they will say: Look, it was two once, or even one something. Why take again 30 years, 4%? Why 20 years? Let's go to 10 years then. We think also that insurance companies and pension funds do this at this moment in time because government bonds are not yielding and what have you. Also their business model is under pressure. They've taken up a lot of mortgages, and they have also that kind of pockets they want to invest and diversify.
We think that actually going forward, it will not go back to 75% banks in that market share. I don't think so. I think it will go back to the 60s in a couple of years' time.
Also on the capital generation, if you have tailwind basically on a shrinking book, can your payout ratio go that high despite your capital being where you want it to be?
I think that's, of course, also to be discussed with regulators in the end. Of course, they don't like 100%. I don't have to tell you that. Theoretically, of course, if you make calculation, that could be an outcome. There is also the possibility of buybacks down the road. We have mentioned it for this year as well. This year it will be dividend around 2018. This is still an option going forward for the bank. When the state sells down, we could align with that going forward as an option. That's also on the table.
Okay. On to your second question on compliance risk, I think you outlined it already in your question, that policies and procedures are very important element in that. Clearly outlining where roles and responsibilities are in this complex area to get it completely right. The challenges are also in having the right systems in place throughout the organization and have it all at par. That's where a lot of our effort is going. With respect to the expectations of the Financial Intelligence Unit, I mentioned already the public-private partnerships and our close cooperation with different parties. We feel that we know what they expect from us. Also, in these discussions, we learn how to best set our rules and to make our own way of working most effective in terms of identifying the transactions that need to be reported to these units.
The 10% of total from all the Dutch banks, basically, doesn't that seem like a very, very low number?
Sorry, what do you mean by 10% of?
The FIU basically gave some numbers about suspicious transactions being reported to them, and the banks only contributed 10% of that number.
Yeah. I think that's hard for me to comment. I also don't know what other banks are doing, but we feel that we are reporting in accordance with their expectations.
Okay. Next, Farquhar .
Hi there. Farquhar from.
Does it work? Yeah.
Is that better? Yeah, that's a lot better. Sorry about that. Farquhar Murray , Autonomous Research. Just two questions from me. Firstly, a bit of a kind of IT and a risk question coming back to the Anti-money laundering discussion, which is? How do you get to what is a reasonable level under the Financial Supervision Act in terms of those looking for those suspicious transactions? Maybe quantitatively, how many are you submitting, and is that a number that the regulator is comfortable with? Coming back to the IT side. Obviously, what was going on at your peer was very obviously not quite right. What's the kind of approach in terms of random searching that you're applying for those kind of exercises when you do look for suspicious transactions? Thanks.
Shall I?
Yeah. I can comment on the system piece a bit.
Yeah.
Maybe to comment on your questions. Well, of course, regulators don't provide a level of where their expectation is in number of transactions. That's a very difficult question to answer as such. As said, we are in constant dialogue to make sure that we know what the expectations are and also to make our rules engine smarter and smarter. We have to be more effective in capturing the right transactions to be reported. I think that's one element. The other element is that, of course, based on what happened in the European banking industry, we have reviewed all our policies, procedures, and way of working, to make sure that in all these areas we address the concerns that have been found elsewhere. We basically took lessons learned from that. Maybe you can tell something about the-
I think on the—
systems piece
On the system piece, we have continuously invested quite extensively over the last three to four years in this space to make sure that we have a broad and also quite modern toolset in this space that does capture all the transaction monitoring and transaction filtering things that you're referring to. Currently, we are running two systems in that space that both sort of monitor it. We get 4,000 alerts a month at the moment that are processed by our back office unit. The relevant transactions that they identify as being truly suspicious are handed over to the authorities as they should be. I would say also as Tanja was alluding to, I think we have a good collaboration with these authorities.
There is a good feedback loop and them telling us: This was really a bad one, so please look more; and then we adjust the rules or: These were all bad or: They were not bad, so please tune your model for that. I think those feedback loops are also working well right now. I think based on that dialogue, we feel comfortable that at least we're doing reasonably well.
Just to clarify, how many of those 4,000 go through to the authorities?
We don't disclose those specific numbers. I would say generally they do vary sort of month by month. There's also certain seasonality in it, so you can't just use one number, then I have to give you an average, and then what are you going to use that for? It's much lower. Yeah, much lower. You start with billion of transactions in a year. You have millions of clients. You have thousands, I think 50,000 in a year or something.
Yeah.
The amount is really a small single-digit percentage actually. Yeah.
Next. Yeah, Albert.
Yes.
Maybe also in the interest of time, if we can limit the number of questions maybe to one at this point.
I might throw in some sub-questions into one question. Albert Ploegh, ING. On page 16, you write that due to the strong ROE and a moderate RWA growth, there is further room for dividend payout to rise clearly above 50% in later years. What do you mean by later years? Now you have also given the 2022 targets in cost income and also about the clearly. A sub-question related to that, you made also a remark earlier that there is preference to return capital to the different payout. In other words, dividend is also clearly on this slide mentioned, but at the same time, if the Dutch state would decide to do some further sell downs somewhere in 2019, in case you do participate in, for example, you want to do that also maybe with a buyback, will it be included in this 50% distribution?
I understand you will not go to distribute more than 100% of your profits or capital generation in one year, could it be an exception in case of there will be a sell down, for example?
I think that we'll assess it down the road, of course, but we might take action in 2019 in that respect. With respect to sell downs as well. We will also look into dividend because we have different kind of investors actually who appreciate different types of actions from us. We take that into account as well. In the end, we will see what the total is related to actually the bandwidth, the target range we give. Of course, if we get trap letters about non-performing loans or what have you, that is also taken into account. I can't give an easy answer there, and with respect to at least not a quantitative at this moment in time. Later years, we mean after 2018, because 2018, it has this leverage ratio constraint, which we would emerge or which we are exploring.
We are not yet there, not taking decision yet, but that's at 20 basis points. A 20 bas point s serious money. It's EUR 1 billion. O f course, the 50 basis points of clearing is even more. That will take away, in our view, the leverage ratio constraint, even taken not even into account that the Dutch government, presumably U.S., always has the 4%, has set in their coalition agreement that they will align with respect to leverage ratio to European approach. We don't think that for European approach, our bank will get a four.
Okay, who's next? Oh, it's a lot of hands.
A 10 questions. Yeah.
Benoît here.
Benoît Pétrarque from Kepler Cheuvreux. Just one question. On the cost income ratio, what holds you back to not to be more ambitious on cost income? Because clearly, if I look at the Netherlands, number of branches is probably now below 150. Digitization is very high. You have even board members, and even supervisory board members coming from Nordea nowadays. What can we expect on the long run on that trend, let's say, moving towards lower levels?
Okay. Well, the first thing that holds us back is that we are always cautious, so that we don't overpromise. We underpromise or overdeliver. That's what we like to do. That's one. Secondly, we might need money for innovation. And we're not going to kill the business model by too stringent cost income targets. We want to have some room of maneuver there. In the end, it's also, by the way, a mean to a goal. The goal is the ROE and the CI ratio is a mean. It's a mean. It's not the end goal. It's an in-between thing. ROE is what is really important for you guys to get also capital returns.
Next one.
Hi, Bart Jooris at Degroof Petercam. Kees, if I can pick up on that. If I'm looking at your outlook for your flattish loan book, you mentioned by yourself part of a decrease will be from CIB, which are low ROE loans there. Moreover, your cost income needs to improve and you're going to pay out more capital. Why are you not more ambitious on your ROE target, then?
I have already a discussion in the Netherlands with the Dutch Central Bank governor about our 10%-13%. The Central Bank sometimes says 8% is, with the risk profile of banks these days. I think they have, in a way, a point there, in the sense that our risk model could lead to a lower percentage. We see investors asking the 10%+, and we can deliver the 10%+. That's what we do. You have seen that it doesn't mean that we can't go above the 13%, in practice, last year, 14.5%. It's not that we can't do that. Our target is more or less the 10%-13%. 10% in less good times and 13% in good times, and you can get above it or depends a bit on the economic situation. To make it a higher target, no, we don't feel comfortable with that.
It's not that you foresee that bolt-on acquisitions could bring your ROE down?
No, that's not the reason.
Okay. Thank you.
Okay.
Yes. Jean-Pierre Lambert from KBW. I have a question on sustainability. We saw the video, but I would like to understand more, what's the contribution to growth of the loan portfolio? Is it negative or is it positive? Because you can have sustainability blocking applications because it doesn't meet your criteria, or you see opportunities. Also in terms of staffing, where is the staffing going? Do you have a team of specialists which is central, or is it located in the lending area? Is it located in the credit area?
Yeah.
How do you see that, as a positive or negative for loan growth?
We see it as a clear positive for loan growth. If we look at our clients, I was recently with a client in shipping in Rotterdam. You don't have to tell that guy anything about sustainability. He's building a ship for 25 years. He doesn't want to be literally stranded asset after 50 years. He doesn't want it. They're thinking, our clients think about sustainability already, even more, I would say, sometimes, than we are. Commercial real estate clients came to us five years ago: Can you help us? Private Banking, 80% when we ask. That's high. No, it's really in every corner of the bank, and we don't concentrate it the department of sustainability was indeed in the HR arena, and when I became CEO, it's now in strategy and sustainability, so it's now in my domain.
Especially what we're going to do now, make it a business case, means that it's for the business guys and girls. Not for me.
Okay.
About staffing? Sorry, about staffing, how many staff do you have in sustainability? Do you growing that staff?
Not many. It should be done in the business. But, I think it's a trick question, and given where we're going, I think everybody, most staff, all frontline staff at least, will be trained and be acting on sustainability as an opportunity. The central unit is not as important, I think. Like a strategy department, a couple of 10 people. Yeah.
Yeah. Next one.
Hi, it's Nick Davey from Redburn. I'm going to try and sneak in two questions. The first one is to Christian about the sweet spot of 12% - 13% IT cost to income. How long does it take you to get to that sweet spot? The second part of that is to say, that seems to basically explain all of the cost-income ratio decline of the group, which leads me to wonder why there aren't efficiencies coming out of the rest of the cost base in the period. The second question, a shorter one on the flattish fee guidance. I think most banks that stand up on investor days always look for the fee line to be a generator of revenue growth. What's leaving you downbeat on fee outlook in the coming short-ish term?
Yeah, can we save that one for Clifford, because I'm afraid that otherwise, it will be very quiet in the afternoon, but the first one?
The first one on the sweet spot side. I think when we look at the sweet spot, as I said before, it's a balance of different dynamics, and we've set ourselves a sweet spot and not a target because we think directionally that's where we're going. That's also where we've seen ourselves move over the last 12 months, and we can see some more direction going in that over the coming years. When we will exactly arrive at the sweet spot is something that we need to decide. As Kees was saying, we're also trying to keep our options open, that if we need to invest more in innovation, then we need to be able to do that. With what we know right now, directionally, we're moving to the sweet spot.
Okay. Yeah, can we have two more. Kiri, here in the front. Is there a mic? Need to get some mics. Oh, sorry.
Oh, no.
Alicia, you go first.
She would like to keep the mic, I think. She would like to keep the mic.
Sorry, I didn't see. It's difficult to see that you had a mic. Sorry, Alicia. Go ahead.
No problem. Just one question from me then, either to Kees or to Tanja. The DNB has come out recently saying that they are starting to look a little bit more implementing new macroprudential measures in the mortgage market. Whether that's mortgage risk weight add-ons or it's LTV caps. On the LTV caps, Kees, there is a possibility that that could slow down new lending. How do you think about that when you think about lending growth in the mortgage business over the medium term at ABN, and what potential impact that could have? I know that's difficult given that they haven't given much guidance there.
Also on the regulatory risk front in terms of mortgages, clearly the insurers have, of course, taken quite a bit of market share recently, with Basel IV coming through and being much more penal versus Solvency II, is there not a possibility that actually they are structurally here to play and that market share might not recede because they're able to just compete much better on margins because their ROEs are just better? It'd be useful to have your thoughts. Thank you.
Yeah. I'm afraid I'm going to refer a big part of your question as well to the afternoon when Frans van der Horst will present on retail and on the mortgage market, and on all these developments. What I cannot comment upon is that, of course, Basel IV, we see that coming already for a long time and one of the measures that were mentioned by the regulators based on this recent publication is an early phase-in of Basel IV. We feel that will not have a big impact as we are working on this assumption already for quite some time and are prepared for that. That's what I can say, and I think on the competitive environment, et cetera, I think Frans is the best person to comment on it.
Okay, thanks.
We promised Kiri a last question. Yeah?
Yeah.
Before we take a break. She's here at the front. Sorry, you're at the front.
Great. Thank you. Kiri Vijayarajah, HSBC. A question for Tanja. You did really well on the external EBA stress test, I'm more curious about that internal stress test you did around trade barriers and Brexit, I wonder if there's any kind of numbers you can share with us, I'm particularly interested in how does the impact potentially split between the CIB type of activities versus your domestic commercial clients, sort of better understand where some of those vulnerabilities might be. Thank you.
Yeah, on these internal activities, we don't publish numbers. What I can say is that our CIB clients are better prepared for the implications of Brexit than some of the SME clients in our commercial bank. The number of clients potentially affected is much larger, of course also with smaller exposure. As said, we expect the impact to be overall limited for our portfolio, we expect the indirect effects to be larger. Also with respect to trade barriers, we see that trade is changing across the globe going to different locations. In the end, some individual companies can be affected, if you look overall, you see that the sector is basically reorganizing itself into a different setup. Also because of that, we expect that the implications are quite manageable for our portfolio.
Great.
Okay. Thanks very much. That concludes the Q&A for now. We will take a 15-minute break. For those of you on the webcast, you don't need to disconnect. We'll just open it up in about 15 minutes, so that means a quarter to 12, please. Thank you.
[inaudible] Is this enough? Then it's closed.
Does it work? Yeah? Okay.
[Break]
Okay. Welcome back, everybody. Thank you for joining us again. The next block, we've got two speakers from retail and from Private Banking. We'll start off with Retail Banking, Frans van der Horst, but before I invite him onto the stage, we would like to show you a very short movie.
[Presentation]
Good afternoon. I will put this video in perspective in a few minutes. As said, my name is Frans van der Horst, heading retail bank. I have a career of more than 20 years in banking, and I switched multiple times between retail roles and IT and operations. I've headed the retail bank in Fortis Netherlands quite some years ago. I've been global COO of Fortis Retail for eight years when they were still active in eight countries. I've been CIO in ABN AMRO, and I'm now very excited in this period of time to be heading the retail in ABN AMRO. I will talk with you about what we delivered so far. I will address a bit the short-term revenue pressure that we are facing. I will show you how we deliver a differentiating customer experience by enhancing our core offering and accelerating a shift to digital.
I will explain how we can increase customer loyalty and further monetize our customer interface. About retail, it's already said by Kees. It's already said by Kees, 5 million customers, on average 20% market share, concentrated more in the urban areas than in the other sides of the country. The Dutch market is highly efficient, highly concentrated, and very mature. We've shown a good profitability the past 10 years. We have more than 7 million apps downloaded with our clients. We have more than 1 billion customer contacts per year. That's 20 million per week. We are a front-runner in specific digital experiences like video banking. In other words, retail is a solid contributor to the results of ABN AMRO. The revenues are highly depending on interest income.
We have some competition on the mortgage market, more than we have seen the last few years, and the deposit side, of course. We lowered already the client interest rates through to 3 basis points. That's amongst the average of all the four main banks in the Netherlands. We have some ideas how we can mitigate this. If you would like to mitigate this, we use three lever, a client-oriented offering, the digital first, and the client interface, the customer interface in a different way as of today. If I start talking about the client-oriented offering, you have to consider that nobody is coming into a branch on a Monday morning shouting around; I'm happily buying a mortgage today. No. That's not the need that they would like to fulfill.
They would like to live in a nice house with their family. That journey starts much earlier than the mortgage process. Christian already pointed it out in the customer journey with the total broader scope of it. That's basically what we are also very much doing. We are heavily active also in the web, identifying people that are looking for homes, and already popping up and trying to make contact with them in a digital way, in the e-commerce way. The majority of meetings with my advisors in the branch network are filled via the e-commerce teams, and not by coincidental people that walk in. If you want to be really relevant to your customers, we started with a business startup, a very good service, a full scan on the energy savings potential for homeowners.
It's partially done by digitally exchanging information about your house, but accompanied by an on-site scan. The homeowner, our clients, get a full report on all levers they could apply to make their homes more energy efficient, accompanied with investments and savings. If they say yes, it should push the button, and with a set of specialist partners, it will be executed and delivered. By that, we can improve the shift to sustainability, help our customers to live in a more comfortable home, and to save energy. The financing option for the investments comes alongside. In the digital-first, we are focusing heavily on video banking. Why? Because I would like to give my client no reason whatsoever to come to a branch anymore. There is no need to do that, because we can come to the kitchen table, in his home, by video banking.
We can do that outside of office hours, we can do that even in the weekends. For my advisors, they are not required to be in the branch. They can do it also from home. By that, we can come closer to our clients than ever before. I will give somewhat further insights on that one in a minute. Just one too quick, the valuable customer interface. Our main apps are fully prepared to integrate third-party accounts. Why? Because we push the loyal usage of our apps and would like our customers, once the PSD2 law is passed parliament in the Netherlands, that they would aggregate their third-party accounts in our tool sets. That gives us the data and the loyalty. Yes, it's not about only the banking product and the customer, as I said in the mortgages case also.
We have a number of concepts which we can plug in, API-based, in journeys of retailers and web shops, also to give consumers an option to pay at once or to take a consumer loan with instant decision-making in the journey of buying something in those web shops. These three levers, to a certain extent, do make a shift in the customer behavior. If you then take the example of mortgages, the next one, please. Was already mentioned, a shift towards extremely long fixed interest rate periods. Yes, we will open up an originate-to-distribute formula early next year to again be relevant for our clients in that segment also. The first tranche will be three-quarters of a billion, so that we can engage with customers that rightly so, as Kees said, take a good decision for long fixed interest rates.
If you can afford them now, you're safeguarded for interest rate peaks in the future. Next to that, it's important that if you are, for instance, in the western parts of the Netherlands, where much more demand for houses is there than supply, then it's a difficult period if you have done a conditional bid, if you then have to wait if the mortgage is granted. That makes also, in a seller's market, those type of bidders get a lower priority. We would like to turn it around. We are experimenting with that in the meantime, to give a pre-approved mortgage so that you can have that cumbersome period after having done that conditional bid is not necessary anymore. You can do your bidding on that house with a secured mortgage in your back pocket.
What's not always a sweet spot of everybody in the Netherlands in the competition is self-employed people, a large group which is growing rapidly. Traditionally, we have a lot of experience with income not from fixed labor contracts and out of entrepreneurial sources. We will focus more on that one and tailor product needs also in that direction. The last specific group where we are focusing upon, also from a view on inclusivity in society, is the elderly people. They are basically asked, forced, to live longer in their houses, and we have a number of product concepts live that can help them to take some value out of that house to adapt the house to their needs when they are older and/or to pay for higher healthcare costs and those type of things.
We talked a lot this morning already on, is this book growing or not? The portfolio is the result of the production, the redemptions in the portfolio, and people that are shopping around and all of a sudden leave you because they would like to take a mortgage elsewhere. Especially if you come from higher rate interest periods some time ago, then that's a real risk. We have pretty good predictive models in place today, where we can detect clients that show that behavior so that we can reach out early in the process to prevent them from leaving us. That, in total, should help us to balance this book in the coming period. The third-largest revenue driver is consumer credits. That one is an interesting one in the sense that we have the biggest webshop in the Netherlands.
A 1.5 million people in the orientation tool is only in the total sales funnel, leading to 15,000 credits paid out. Again, the example of Christian, a total customer journey, we identified many pain points in between, where people dropped out of the process. By deliberately addressing all those pain points, we were able already to identify a lot of improvement potential, which is realized today. Next to that, the conclusion was we should rationalize, simplify, modernize, and digitize the product portfolio even further, and make use of somewhat more sophisticated IT systems, which we are in the process of doing so. By doing that, we are able to, at least the last two months already, see a first growth in this portfolio after some years of a gradual decline.
I'm convinced with that, and also targeting a number of specific segments, that this large revenue driver for us can start to grow again. If you're relying heavily on interest income, and there was already a question in the Q&A session a few minutes ago, fee products. In general, the average fee income in retail is 10% of total. That's not much. I would like to see that increasing. We took a look. We have a very good, solid private bank with a lot of knowledge on investment products. Together with Private Banking, we scanned the full product portfolio we have in place for retail customers, for customers that would like to join us digitally, that would start doing investments. We concluded that we had something to do.
In Q3, Q4, and Q1 next year, we will deliver a totally new digitized product set, especially targeted to more dynamic, younger clients in the retail area. We are pretty much convinced that we can double the number of new clients in investments for 2019 if you compare it to what we can realize this year. It's my personal commitment to double that again the year after. By that, also, we can build up, again, a strong feeder basis for future up-streaming to Private Banking. The insurance side is a likewise story. We have a joint venture with Nationale-Nederlanden. We run there a life insurer, a non-life insurer, and a broker. The level of penetration in the clients of retail is close to 11%. You will never reach 100, of course, but 11 is very much on the low end.
With Nationale-Nederlanden together, we renewed the total product portfolio. That is the last one will be delivered Q1 next year. The first one we put back in the market was the car insurance a few months ago, two months ago, and we immediately saw a premium inflow peak. I'm convinced, based upon better products, more risk-based considerations into it, more sharing of the data of the bank with the insurer because that's really discriminating, that we can improve significantly here. By doing these two things, my target is to increase the level of 10% fees on total income to 15% in the coming years. Go back to the second lever, digital first.
Digital first, if you take this, Kees already mentioned it, this number, that's a combination of simple things like blocking your debit card, unblocking your debit card because you found it back, changing the car under your car insurance, but also buying an investment or an insurance product. In 65%, probably this year, we will end up slightly higher. The 70 for next year is definitely not my end point. We were able to do this based upon also a lot on video banking. The push there, when I started in retail, I was curious. Is that only for the digital community? Is that only for the younger people?
I joined a number of my advisors in video banking meetings, it struck me many times I saw on the screen people in their 70s and 80s. When you ask them: Are you living far away from the office? It even struck me more, the answer was: No, three blocks away. Why do you take this opportunity and not coming to the branch? Because it's much easier. I don't have to take the bus. I don't have to get out of my house. The last question I always ask is: How did you master these tools like Skype and Webex that we are using? Oh, that was an easy answer because that's their only way to connect with children and grandchildren, and they were learned and teached by them. It's a useful tool, which is broadly used throughout generations.
It was a very positive surprise for me. This increase in digital sales and services is accompanied by also increasing customer satisfaction, the two combined led to the possibility to reduce the number of branches significantly. By far, we have the lowest number of branches in the Netherlands from our competitors. That's not because of a cost program. That's not because there is no traffic, because there are no interested clients. That's because clients do not have to come to the branch. That's the reason why we can have this flexibility in our branch network, that we don't have to take into account a minimum distance to a client, and that we are free to maneuver. This is one of the things that's very much probably a front-runner position that we have in the Netherlands.
If you take into account the little video with the dog, a full tokenization platform, which is up and running, where we can connect every gadget, be it from Google, be it from Garmin, be it from whatever. We can connect easily to our payment infrastructure that gives joy, gives convenience, and it builds up also loyalty. The main banking app, as said, open for aggregation in PSD2, 2.3 million users. It has the highest functionality levels in the Netherlands, according to Banken.nl, and that's accompanied by the biggest online digital financial household tool used in the Netherlands. A 500,000 downloads for people that would like to keep track on their income and expenditures, make budgets and the likes. Gives us also a lot of data.
That combined, I come back to that in a minute, with the peer-to-peer Tikkie app and the Swordfish, Tweedle, and other concepts which we can put in place in journeys from web shops and retailers, gives us a very strong, real footprint in society. That builds up also the loyalty that we are looking for. This strong mobile footprint is based on convenience. That gives also a strong defense towards fintechs, not only the geographic scope, the smallness of the Netherlands. By building this loyal customer base, based on being relevant or making the lives of my customers a bit more easy, give them tools to have insight and oversight, help them to realize their goals, we strengthen the customer interface significantly.
If you take a life in a customer's day, of a day in a customer's life, you see that we have multiple touch points. We can, of course, reach out to him or her with suggestions. We do that carefully now with some of our own product ideas that we could push forwards to them. Of course, important, we keep track of preference of customers and on data privacy laws. You can also imagine that we can simply see that if a change from energy provider would save money for this client, we can do that, and over time, you could develop a fee model out of that also. A few words on Tikkie. Tikkie was developed for a typical Dutch situation. You have a lunch together, one pays, and the other one would like to get repaid.
That from a notion that it should not be limited to known memberships. The only thing you need is a WhatsApp account and a Dutch banking account. It has been viral in June 2016. In the meantime, we are close to 5 million active users. Early in the process, probably nine months ago, I think that commercial clients knocked on the door of Daphne with the request; Can we incorporate Tikkie as a payment process in our payment functionality? Why? Because Dutch customers were asking it. It is so easy to pay with Tikkie that they asked variety of parties to integrate that. We did. There are different options with which you can integrate it in your payment facilities. We created all of a sudden a fee model.
The second question these commercial and corporate clients are now putting on our table is, can we make advertising possible in Tikkie? Because it's very targeted audience, we can precisely give messages to people that we would like to do. We are considering it. It's not yet done, but that would be a second lever. Over time, we have a number of ideas for further value-added services towards commercial clients by growing this community of Tikkie users. The maximum, by the way, is 10 million because there are no more than 10 million WhatsApp accounts in the Netherlands. If I then come to a summary, retail is and will remain a solid contributor. We will address the short-term revenue pressure. We are focused on customer experience by enhancing the core offering and accelerate our shift to digital.
This enhanced customer loyalty gives us the opportunity to monetize further our already strong customer interface. Thank you. With that, I would like to invite Pieter.
Good morning. Welcome, everyone. My name is Pieter van Mierlo. I'm responsible for the Private Banking activities. I joined the bank 30 years ago, had several positions in the commercial area, and 4x I had a position in risk management, 2x Financial Restructuring & Recovery. I love this bank, and I'm really committed to make a success of the private bank. I'm very convinced together with all my colleagues here on the front row, we will really build this future-proof bank. My assignment started more than a year ago, in March last year, when Kees asked me to make a real profitable, cost-efficient private bank and concentrate on the strategic Northwest Europe focus. I built a new management team, and I replaced the country executives.
Together with my team, we made a plan called the Building One Private Bank Plan, a transformation plan which will take three years, and in which we really change the organization, and I will elaborate on this later on. We have a strategy in this private bank, which can be summarized with three words: harmonize, digitize, and grow. We will grow the bank organically with profitable growth, but we will do it inorganically as well. The first proof point is the acquisition we did last summer in Belgium. As a private bank, we focus on sustainability, and we invite our clients and support our clients to make the green choice in which we contribute to society as a bank as well. I'm committed to a very successful transformation of the private bank and improving financial results as well.
I'm going to take you through this presentation, in which I would like to explain who we are as a private bank, what's the strategy, and what it will bring us. What kind of private bank are we? We are definitely the market leader in the Netherlands, and we have strong positions in Germany, France, Belgium, and Guernsey. We serve almost 100,000 clients, and after the integration of our Belgium acquisition, we have over EUR 200 billion assets under management. We are heavily investing in digital because we had rather old-fashioned operations in Germany and France. We did a great job together with the teams of Christian. We also developed advanced client portals, which are up and running now in Germany and France, and in Belgium and Guernsey we will implement as well. We have a so-called open architecture, so the asset managers are not on our own payroll.
We select the best asset managers around the globe. The number of sustainable funds is increasing, and in our discretionary portfolio mandates, as well as in our advisory mandates, we support the clients to make the green choice. As a private bank, we have a very low capital consumption, and of course, the private bank is a very important source of the funding of the bank with EUR 67 billion assets under management. Assets under management, of course, liquidity deposits. Despite our elevated digital investments, our return on equity is currently 23% year-to-date, and it's strong, and it will improve. I think we can really say we are a leading cross-border private bank. The market in Private Banking is rapidly changing. The digital offerings are getting more important, and the demands of our clients are changing.
We have quite some backlog outside the Netherlands, which we are developing in the right way. The transformation we started last year in the new team is really a different setup compared to the previous period. In the private bank, we actually had two organizations, a separate Private Banking team for the Dutch organization and a so-called Private Banking international team for the other countries. We moved together with the two headquarters, made one organization, and instead of a more country-led approach, we currently have functional steering. In the PB MT in Amsterdam, we are steering on sales, products and solutions, operations, and process and control together with the country executives and their teams. All decisions we take in Amsterdam are decisions for the entire private bank, and this is the way we can harmonize the private bank.
It works well, and the collaboration with the countries is really great. The regulatory impact today is very high. I think we spent a lot of effort on MiFID II and the remediation of KYC. We started early, but it was hard working in the last couple of months. Now we have divested some countries. We can fully concentrate on our current footprint in Northwest Europe. With the current footprint, I think we have a scalable bank. The transformation is well on track, and the cost income ratio is improving. I expect we have a cost income ratio below 70% in 2021, and I think we can finalize our current transformation in 2021. The acquisition we made last summer in Belgium with SocGen underpins our growth ambition.
We expect to close this transaction in the first quarter of 2019. Together with this acquisition, we have an assets under management portfolio in Belgium of EUR 12 billion, we double the portfolio. The footprint of SocGen is comparable to the current organization in Belgium. It is for 90% the same, we can realize a lot of synergies. Also, the client portfolio is similar, it is a really very nice combination we can establish. We will start the migration to the platform next year. We think we can manage this before the end of next year. After having this migration, we will offer our one PB product menu card to the SocGen clients as well, as well as the advanced client portals will be available for those clients. The acquisition is a perfect example of our growth strategy in Northwest Europe.
We focus on organic growth, especially. We are open for inorganic growth. Kees mentioned yesterday and tomorrow already, the three pillar approach. Sustainability, very important for our own bank. This started already in 2009 in the private bank. We focus very much on sustainable investments for our clients. In the period 2009, 2017, we built a portfolio of EUR 8 billion assets under management for our clients. Last year we reviewed and we set a new ambition level. The ambition level was to double the assets under management in three years to a level of EUR 16 billion. What happened last year, that due to extra focus and a lot of education of the bankers, we were able to move forward with EUR 5 billion. Currently we already have a portfolio of EUR 13 billion, quite an achievement. We invested a lot of time in educating the bankers.
Currently, already 650 bankers are certified with a so-called United Nations PRI certificate. Last week we signed a partnership with the University of Oxford. Together with Oxford University, we design an international education program for our bankers. Not only that, we developed a research program for measuring impact as well. We are also funding chairs in the Netherlands in two universities. In the University of Utrecht, we have a chair for social entrepreneurship, and at the Erasmus University in Rotterdam, we have a chair for social enterprise. Sustainable investments are very relevant for our clients. In this way, as a bank, we contribute to society. As a private bank, we heavily invest in the customer experience. In the Netherlands, we are a front runner in digital solutions.
As Frans already told a few minutes ago, we are working close together and the private bank is lifting up all the experiments and all the new developments of the retail bank. We work close together. Of course, the retail bank is also a very important feeder for the private bank. Outside the Netherlands, we were lagging behind. There is a lower adaption rate for digital, it is hard working together with the bankers to convince clients to make use of the digital solutions. In the private bank, every client has a banker. As we do in retail, we try to convince the other attractive solution having video banking. It is going slowly, but what we discover is that NPS for video banking is even higher. Currently there is getting more demand because not every conversation is necessary to have it face to face.
As Frans said, opening hours, we are changing as well. More and more clients are having video conversations in the evening. In the private bank, we have a segmentation strategy on wealth band, source of wealth, and stage of life. We have three focus segments, private wealth management for the ultra high net worth individuals. We have a focus on entrepreneurs and entrepreneurs and on life cycle. We also have an academy for the children of our Private Banking clients, the so-called Next Academy. In the Next Academy we have trainings available, online trainings for children to get used to managing your wealth and doing good. We have also classes and we also offer solutions in an international perspective and bring children together to educate them on having wealth.
We have a very high client satisfaction and we are working hard on this to keep it at this high level because due to the high client satisfaction, we are able to cross-sell and to bring in new clients. We work hard on the culture in the private bank to improve the effectiveness of staff. To support the bankers to make our clients more digital savvy so that they make the choice for the digital solutions and video banking. The strategy of the private bank has to do with harmonization and digitization. In the Netherlands, we work close together with the retail bank, and we are on the same platform. Outside the Netherlands, we are moving to one and the same core banking platform. In the IT environment, the IT platform has almost been finalized.
In the first quarter next year, Belgium will be the first country which will be migrated to the new platform. Later that year, Soc Gen will follow, and afterwards the other countries. This will be very cost efficient for the private bank because having one and the same platform makes it very easy going in connecting our digital portals to this platform. Having upgrades going forward, it's very easy and much more cost efficient. The last one and a half years, a lot of operational processes have been digitized, especially in Germany and France. We were able to build those portals, client portals. In the operational processes, we took out about 70% of the manual processes. This leads finally to a reduction of staff of 22%. In the meantime, we took already out 50%.
Regarding the product rationalization, we are currently harmonizing the product portfolio, and it will take till about 2020 before this process has been done. We are harmonizing, and finally we will have the same product menu card in all countries. All countries make use currently of our ABN AMRO Investment Solutions company in Paris, where we run our discretionary portfolio funds. Specials we have organized in separate countries. For example, private equity is concentrated now in Germany, art finance and the family office proposition is in France, and philanthropy is in the Netherlands. By doing this, we save a lot of cost, not having all those small teams in all countries, but make use of the capabilities of the countries of each other. We are successful in building a future-proof bank via harmonization and digitization. We apply a so-called safe to invest strategy.
As I already told you, the plan will take place in the year 2017 till 2021. All in all, we will take out 650 FTEs, and we almost realized half of it, in total 22% of the private bank population. The plan is well on track, there are still a lot to do. The total cost savings will be around EUR 100 million. Despite all the investments we have done so far, we could reduce the cost-income ratio of over 80% till 73% for the last four quarters. We have been for a long time in the 80s with the cost-income ratio. We're bringing it down to a level of below 70% in the next few years. This will take some time, but in 2021 the level will be below 70%.
Till that time, we keep the investment level at a high level because we really want to improve our digital solution in the countries, and we really want to optimize our platforms in the private bank. I'm very proud to be well on track with the transformation because this process will reduce not only the cost, but brings in better solutions, and we become a more attractive private bank for our clients. The recent past of the private bank has been dominated with divestments. Last year we divested Dubai, Singapore, Hong Kong, and recently Luxembourg. Due to the transformation plan we are currently running, we have a lot of reorganizations, which of course hampers the commercial activities. We work hard on the regulatory requirements regarding MiFID II, we were an early starter regarding remediation plans for KYC.
Currently we are doing quite well because we already finalized the remediation plan in the Netherlands. Recently, we realized this in Guernsey, before the end of the year, the remediation will be finalized for Germany and Belgium. In the second half next year, France will be done as well. From that time, we can concentrate fully on commercial activities. Currently we are freeing up a lot of capacity for cross-sell, deep sell, and acquisition of new clients. Digitization and increased demand for video banking will free up a lot of capacity as well. Capacity which can be spent on acquisition and cross and deep sell. The ambition of the private bank is to migrate more liquidity into securities, where we have a preference for DPM because it's easygoing banking, very cost efficient.
On the other hand, we have very nice cash flows on a quarterly basis. Despite the yearly margin erosion we see, which is calculated in all of our budgets, we expect a continued focus on further profitable growth. Allow me to summarize. The strategy of the private bank has to do with harmonize, digitize, and grow. We have a transformation plan which is very well on track. For 50%, it has been realized, with all the savings we are currently making, we can invest in digital and on the other hand, reduce our cost-income ratio. I'm very committed, together with my team, to finalize this transformation plan, for sure, I'm convinced we can grow the private bank. Thank you very much for your attention, Frans and I are open now for questions. Thank you very much.
Thank you, Pieter. We have a quick look. Can we start over here with José?
Thank you. Thank you for the presentations. I'm left wondering about the future in terms of fees. This is more a Private Banking-related question. Once digitalization makes more inroads and clients are able to jump from one platform to another in just a couple of clicks with PSD2 and everything that's going to be offered to them, how are you planning on retaining your clients? Equity products, whatever is going to be offered by pretty much everybody. What's the strategy to retain clients going forward?
Referring to the fees in the private bank.
I'm thinking about fees. I'm thinking about help with taxes. What is the strategy to retain a client other than just the product offering in terms of investments?
What we see is that we are still a very attractive private bank with a high NPS, net promoter score. What we see is that now we can free up capacity for the commercial work. We see that we are really able to transfer liquidity into securities. What we see is that transferring execution only into DPM, that gives more cash flows because you have the steady cash flows on a quarterly basis. Does that answer your question?
I guess it's a partial answer to the question, though. I'm thinking, isn't this something that your competition can offer also? What differentiates ABN from ING in this new strategy?
What we see, especially in the Netherlands, Germany, and France, because of the size, we have quite good specialists, very good specialists, I must say. Especially in the Netherlands, what you see, because of the size, we can afford ourselves to have very dedicated teams for all the different specialties in Private Banking. For example, estate planning, financial planning, worldwide planning, philanthropy, whatsoever. Because of all those specialists, we are a very attractive bank. By mobilizing clients from the other countries to these specific teams in the Netherlands, and for example, for private equity in Germany, we are able to build solutions for clients that not everyone can provide.
Thank you. Maybe just one more very specific question. Where do you see margins in terms of AUM going over the next few years? Is that part of your cost to income target? Are you considering, do you have in mind where margins could go in the future?
Margins are quite stable, but in our projection, we have some decline, but currently they are still stable. We had quite a discussion last year regarding the green offerings because boosting sustainable funds, we had a discussion on what should be the price level. We didn't give any discount. What we see, it's still attractive, and for 80% of the clients, it's their first choice. All new clients take for 80% the green portfolios and having existing clients in new DPM mandates, they have the green choice as well, which is at the same pricing level as the gray portfolios.
Okay, thanks. Sorry, we'll go over here. Are there questions in the middle, by the way, as well, or? No, go ahead, Marcel.
Thank you for taking my questions. First of, Frans, on the retail business. You said you wanted to grow the fees from 10%-15% of total revenues. Can you just give us the split of the fees right now? How much of the fees are driven by current account fees? How much room do you see to increase these current account fees, given that one of the highest in Europe? That was my first question. Second is for Pieter. I understand that the total private bank is ROE of 23%, can you give us a little bit more color on the divisional ROEs per region? Which region do you lack scale and can you increase profitability on those regions? Thank you.
On the first question, the payment fees or the payment-related fees are, to a certain extent, limited based upon the fact that the efficiency in the marketplace. We have, over time, been able to increase them also because we offer more for that. The digital offering, the availability, the tool set, security, et cetera. Our last price increase was this summer. We constantly look what is possible and what should be logical from also a perspective of the investments that we do in capabilities, availability, and those type of things. If you then position them next to the fee incomes out of investments and insurance, the total of the last two is bigger than the first.
Pieter?
Regarding the return on equity ambition level to have at least 10% in each country. Currently in the Netherlands, of course, we have a much higher return on equity, but we are improving quite rapidly now because taking out so many FTEs outside the Netherlands, you see that cost-to-income ratio is rapidly improving. I think in two years from now, we are able to have this hurdle of 10% + in all countries.
Okay. Oops. Another question at the back.
Hi there. This is Adrian Cighi from RBC. Two question on Retail Banking, please. The clarification on the fee income, is the increase from 10%-15% included in the group fee income guidance for the plan? The second one is on the Tikkie. Are you seeing yourself as the natural owner of Tikkie? We've seen other countries where the payment platforms have been sort of divested.
Adrian, shall we keep your first question for Clifford, who is going to talk about group fees?
Okay. That is good for me. Okay.
Yeah. Unless you insist, Frans.
Your question around Tikkie, that is a very good question. It started in June 2016 when two developers wanted to make some codes to solve this problem, and they were allowed to do that in three, four weeks, and they basically had the MVP ready. Then they asked for a few EUR 100 thousand of web marketing budget to see if they could push a certain set of users. That was the start of the growth journey that we have seen. It gives us a lot of positive energy because it also gives us a lot of experience in working like a fintech internally and understanding what is important for scaling those type of things.
It is also a very motivational element in the whole IT and retail space that this could be created together, and that is also now spread out to the Commercial Banking colleagues, et cetera. There is, in essence, no logic that I should own it. As we invented it, we still like to treasure it and see if we can make this platform even more relevant in the Dutch society. As it has a so huge NPS and it's so driven by people that are using it, so everyday-based, that I think that we are not yet ready with finding further options for further exploration, what could be the potential of Tikkie. That's also the discussions that we have at the moment. How can we speed up further value-added service development and the likes?
Yes, I know there is some interest in Tikkie as a concept, but for this moment, we are very happy in exploring first ourselves whatever is still possible with this very nice creation.
Thank you. We have some questions. One over there, Jean-Pierre, and then the next one is over there.
Yes. Jean-Pierre from KBW. I was wondering, you haven't mentioned Moneyou and it came out at the IPO as a potential development internationally as a vector for collecting deposits, and I was wondering, do you have plans to expand in other countries, or is it under wraps for the moment?
Moneyou was also on one of the slides of Christian. It's one of our endeavors where we created a full digital cloud-enabled SaaS solution-connected banking platform. Also there we try now to experience with what it will take to scale that, because we are not the only one in that space. There are more of these type of initiatives. At the moment, we are taking a closer look at what can that bring. Can we also use part of this today's technology to replace elements in the mother bank? Can we have opportunities to grow the number of users in the Moneyou payments area significantly? That's under discussion at this moment.
Okay. Next. Sorry. Yep, sorry, I think over there. We'll go, hands over here.
Yes. Thank you. Matthias de Wit from Kempen & Co. I had two questions. The first is on Retail Banking. If I look at the mortgage margins, they look quite healthy from an international perspective, also from an ROE and risk-reward view. How sustainable are they, considering that competition is quite heavy nowadays and there are some developments with new entrants, like pension funds becoming more aggressive, et cetera? That's the first question. Secondly is on Private Banking. I was surprised to see NII growing and margins growing, like NIM margins in the private bank. What's exactly happening there, and how do you think about interest margins going forward in the private bank?
Do you start?
Yeah, I can start, of course. NNA, growing NNA, has to do with net new inflows, of course. I think having those attractive sustainable funds, It's attractive for clients to switch to the ABN AMRO brand, Bethmann brand, or Neuflize brand. I think by moving from execution only to DPM and advisory mandates, I think we will create more revenues.
Okay. The question on your NII has been growing, that is also related to that, as well as the deposit margins.
Deposit margins are, of course, very low at this moment. We pay three basis points on the deposits in general, and when we have consent with clients in the PWM segment, we even charge on deposits. So currently, we have negative margins for the larger deposits in certain segments.
Yeah. Clifford will address that as well at a later point. Yeah. Ben.
Yeah. Hi, Benjamin Goy from Deutsche Bank.
Of course.
Two questions, please.
We'll come back. Sorry.
The first one on Retail Banking. You mentioned increasing digitalization in the country, but also you're moving to an origin to distribute offering as well. Just wondering how you expect this to affect your relationship and also competition with mortgage brokers in the country. Secondly, on the private bank, bolt-on M&A has been part of the story since the IPO. You did one smaller bolt-on, just wondering, were you in the past outbid, or do you have more files now on the table given regulatory, so to say, cost pressures might increase there, the tendency for you to buy up smaller private banks. Thank you.
Shall I start on the.
Yeah, you also start with Florius.
Mortgages part. I probably try not to forget the question that just was left out. In the mortgage market, we basically have three different formulas. A small one, which has the label Moneyou, which is execution only. People do it themselves. Florius, which is fully oriented on intermediary sales. That's a standardized, straightforward, highly predictable, highly reliable process. We have ABN AMRO. An ABN AMRO label is used in two ways. It's direct sales, my branch network, my people, my advisors, whatever. It's used by intermediaries. All mortgage requests, which have a component of more discussing the matter or explaining or not a straightforward income, are done also by intermediaries in the ABN AMRO label. My change in digitization is not really changing the relationship we have with brokers. We, for tens of years, work with the ABN AMRO label in a joint effort.
Partially, it's used by brokers, and we use it in our direct channels also. They really do understand. If this is a straightforward client, then it goes into the Florius street. If there has to be something to be discussed, then it goes in the ABN AMRO street. There we have a clear distinction, and the changes we apply to the direct sales are not really hampering any of the relationship with brokers. The question that was still there on the margin. As also Kees said, we are not in the business for pure size alone. We would like to stick to the hurdles. We have a weekly monitoring on prices. Whenever it's necessary, we can change them every day in the week if necessary, but we would like to safeguard very stable margins.
At this moment, we still see stable margins above the hurdle production. Yes, that leads to a slightly declining book at this moment, but I prefer to focus on the return, especially also because of the increase in the house prices we have seen recently. A little bit cautious there is safeguarding the margins and the hurdle.
Regarding the M&A question. As a private bank, we focus on organic profitable growth. Of course, the size of the private bank with EUR 200 billion+ assets under management is fine to have good returns. It's not necessary to grow it inorganically. We are very glad with the acquisition we could make in Belgium because we had a level below EUR 10 billion, and above EUR 10 billion, you make much better results. Going forward, of course, after having finalized the platforms, we will certainly grow the private bank inorganically. Currently, we are investigating possibilities, for example, in Germany and France.
We go to that side, Jason and Benoît too.
Jason Kalamboussis, KBC. The first question is, we were talking yesterday on the private clients, you have 110 basis points that you charge. You have your boiler room in France, 25 basis points that go there. Do you see these two staying relatively stable over the next years? Coming back a bit to the M&A, you say that 50%, I think you're pretty much done on the implementation transformation. You said at end of 2019, you're ready to focus on the commercial side. Should we expect if we exclude the M&A, to see some stronger growth coming? Actually you rely quite a lot and you think that a lot more will come from the M&A integration side that will come?
Because we started the KYC remediation program early and have almost finalized it, we free up a lot of capacity going forward in all countries except France. France isn't finalized yet, but will be finalized in the second half of this year. In all other countries, we free up at least two days a week for all bankers. Acquisition is going very well at this moment. We are really able to grow organically and increase number of clients and transfer liquidity into securities. Regarding the margins, I expect the margins will go down going forward, let's say with 1% or 2% year-on-year. That's calculated in the budgets. Taking out costs and having this slow margin decline, that's something we predicted and we can handle, and in the meantime, have the returns we are looking for.
Okay. We'll go for one more before lunch. Do we have Bruce over there? Sorry.
Thank you. Could I just ask on Tikkie. At this moment it's really individual to individual, but over time it sounds like you're saying it's individual to merchant as well. How much of the business is disintermediating the existing payments network, either card network or iDEAL, and is that a realistic possibility that you then control it? Just to understand. Secondly, just on Private Banking, you've given us quite a lot of information on margins, which is super helpful. When people move from cash to investments, what's the step? Is it from zero to 60 basis points? Is that the kind of fee step up you'd be talking about? In terms of your discretionary mandate penetration, where are we today and where do you anticipate you might get to on a three, four-year view?
On the first question, Tikkie is using, at this moment, iDEAL to fulfill its payments. That can change also with PSD2 changes, we can also have another level of connectivity. It's not so much competing with other ways to pay for commercial clients. It's, at this moment, an adding element. You probably won't use it for very big ticket sizes because it's in essence a very easygoing payment, but you probably would not try to collect EUR 5,000 or that type of money with this. That's not fitting there. The university, for instance, in Groningen, was the first one who knocked on our doors. They had some students that they get some money from, and it was difficult because mails were not read, calls were not answered, letters were not opened.
All of a sudden the student said: Bloody hell, send me a Tikkie, then I will pay. That's the reason, that's the first commercial experience that we had with somebody who said: Okay. It has now great value for me because calling and writing letters and those type of things are much more expensive than sending a WhatsApp. The ratio of payment on this WhatsApp was much higher than any other means that they used.
Regarding your question, moving liquidity into securities, of course, that's very attractive because interest levels came down very much. Having the fee income on securities, DPM or advisory mandates, it's much more healthy to have it in the security portfolio and it's more sticky as well.
Okay. Thanks very much. That concludes the Q&A for now. We'll have a break for lunch. If you could be back by 1:30 P.M. London time, that's also for the people on the webcast, that would be great. Those on the webcast, no need to disconnect. We'll just reconvene at 1:30 P.M. U.K. time. Thank you
[Break]
Thanks very much. Thanks for helping us in our time management by being here. For those in the room, we've just asked to turn up the heat a little bit. I'm not sure whether that has to do with the presentations, which are still coming, but there were some people who were a little bit cold. The next block is Commercial Banking and Corporate banking. I would like to invite Rutger, the Head of Corporate and Institutional Banking, to kick off, please. Thanks.
Thank you, Dies, and a very good afternoon to you all. My name is Rutger van Nouhuys. I joined ABN AMRO way back in 1989. I started in Corporate Banking Natural Resources. Then I moved over to Equity Capital Markets, M&A advisory and client coverage. Since the beginning of 2017, in charge of Corporate and Institutional Banking. I'd like to take you through three points today. First of all, I'm going to explain what a great franchise CIB is, with great people and great clients. Second, I'd like to run you through the Q2 announcement, but more important, update you on the progress I'm making. Last but not least, explain how we are dealing with Basel IV. Before I start, I'd like to leave three commitments with you. First of all, I'm committed to further develop sustainable relationships with multi-product clients in attractive sectors.
My second commitment is that I like to achieve the announced measures in Q2. First of all, reduce capital by EUR 5 billion. Secondly, to take out EUR 80 million in cost. Thirdly, to adhere to a strict capital allocation and transform the CIB business model. Last but not least, I'm very committed and keen to deliver on the targets in the Basel III, but also to prepare CIB for Basel IV readiness. Now let's go to CIB as it stands today. CIB services over 3,000 clients with 2,500 people in three time zones. Our service is highly valued by our clients. Now let me start in the Netherlands, our natural home position. A great franchise, top 2, strong client feedback, but also being awarded the best Dutch bank in 2018 by Euromoney.
Last but not least, our Dutch wholesale clients have asked us to take a presence in the surrounding countries. Now the global sectors. It is really in the DNA of the Dutch people to be a trading nation and a maritime nation. Therefore, it's very logical that we are present in TCF, Natural Resources, and in Shipping, Global Transportation, and Logistics. Our positions globally are recognized and awarded. Like for example, last year, when we won the award of best global trade finance bank by Euromoney. On the product side, we clustered all the lending products into Structured Finance, and we created one distribution hub, Global Markets, serving FX, rates, Equity Capital Markets, and Debt Capital Markets. In markets, we achieved the number 1 brokerage position home, being the number 1 XL broker. In Private Equity, great results.
Last but not least, ABN AMRO Clearing Bank. Top three position in the world, serving clients over 150 exchanges. If I summarize, CIB has a strong franchise and is highly recognized by our clients. Now let's talk about three of these clients in the Netherlands, in Germany, but also a global sector client. Sustainable relationships are the key. We start those with long-term lending commitments. We leverage those commitments with capital light cross-sell, generating fee income. If I start with a Dutch client, in the Dutch portfolio, 85% of the portfolio is multi-product. This is a typical mid-market case in the Netherlands where we have a long-term lending relationship. This specific client was acquired by a Private Equity investor. Now, we were able to act on the buy side, generating nice M&A fees.
Also important, we cross-sell other products, like the asset-based products from Daphne in Commercial Banking. The return we make on these typical clients is well above the 10%. Let's move to Germany. I know some of you are still skeptical about our European expansion. I'm going to tell with this client example, that you can leave your skepticism. Why? Because we have a lean and mean team in Germany, and we are leveraging on the Private Banking platform that Pieter has in Germany. This is an example of a power and utility company that is also banked by German banks and by the international bulge bracket firms. We were able to start a lending position over there, but we also got a senior syndicate position on the first green bonds issued by this client.
I really like that because we can link that to our sustainability pillar. Return on equity, 17%. Last but not least, a typical example of a multi-product TCF clients. In the global sectors, the percentage of multi-product clients is 50%, and it is my ambition to increase that percentage over 60%. This is a typically big client active in the three regions of the world. It starts with a short-term revolving credit facility in order to get the trade income of this client. Interestingly enough, we also for this client run an advisory mandate in the sense that we've been able to sell a part of their business in Asia Pacific to a Chinese investor. Return on equity, 14%. To sum up, we make decent returns because of the multi-product client aspect in all sectors and geographies.
You already know this slide, I will address the key issues we are facing. Let me take you through the slides, because most of the sectors and the products through the cycle are above the 10% return on equity. Actually, trade and commodity finance and global markets are not. We will be moving TCF inside this corner, above the 10% return on equity. I'm going to explain later how we're going to do that and how it's working already. Global markets, that's costly to run. Basically, if we look at the platform in the past, it was way too big for the client flow. That's a problem for every mid-sized bank. There is a clear room for improvement to bring global markets to single-digit returns. Private equity, doing very nicely.
This morning, we issued a press release where we opened up the private equity funds in the Netherlands for outside investors. There are four investors led by AlpInvest who take control of 53% of a relative small part of the portfolio. The team is really rock solid, and that's the reason why we decided to also invest back with a minority interest. That's a good example of locking in profits in this cycle. Last but not least, let me take out one example of GTL, because shipping today is still generating double-digit returns despite the markets. However, we are already preempting the Basel IV situation because asset-based financing is being hit quite severely in a Basel IV environment.
That's exactly the reason why we are taking out capital in the global sectors and recycle part of it into more investment-grade or near investment-grade clients where we cross-sell in other products. To summarize, CIB has a good business through the cycle, but two businesses need restructuring measures. Kees talked about this slide already in the half-year results. Let me update you on the progress that we are making. On the reduction of RWAs, we are clearly on track. Since Q1, we already took out EUR 1.5 billion in RWAs, and we are shifting the portfolio, and we've been analyzing all the client portfolios and zoomed into the less attractive clients. There we started discussions, which are sometimes difficult with clients. On the cost side, we completed the early announced reorganization in Global Markets.
We've been closing geographies and provisions have been taken, and also we've been calculating the impact on the people side. That has been identified. Last but not least, looking at the transformation of the business model. We decided to centralize coverage, put all lending product into one hub, create one center of excellence in distribution Global Markets, and very important, we decided to create one central portfolio management team within Structured Finance. We looked at best practices of other banks. I will talk about that a bit later on in my presentation. Very important is the transformation of the sectors. Let me talk about sustainability and that pillar. If you look at the energy portfolio, the CIB team is really committed to drive and engage with our clients on this energy transition.
To give you one example, today, the percentage in the portfolio of renewable energy clients is standing at 7%. We will triple that percentage in the portfolio over 20% two years from now. Tanja, you already elaborated on some of the polluting client segments. We engage with our clients, and we clearly discuss with them that we are no more financing the heavy polluting F and G-labeled ships. More important, as an important shipping bank, we started the initiative a while ago to really focus on environmentally friendly scrapping of older ships. To sum up, I'm on track with my plans and I'm pushing the right buttons, and I expect to deliver our targets in 2020 and 2021. I promised you to take you through two examples. First of all, I'd like to address the Trade and Commodity situation.
TCF uses a lot of capital, over EUR 9 billion RWAs. They failed to create economies of scale. There is still a long list of clients that are not accretive. We are attacking those. We identified those clients, and we started the tough discussions with those clients. In TCF, we already reduced EUR 1.3 billion RWAs, if you compare it to Q1 of this year. On the diamonds portfolio that Tanja talked about, we are de-risking that portfolio also in Dubai, and let me use that as an example. With 98% of our existing clients, we agreed on repayment schedules. We introduced a zero loss mentality in the sense that we screened the entire portfolio and really are pruning out the most risky clients. There's still a road ahead. On the cost side, we have reduced 20 people. We also centralized the non-commercial departments.
Let me give you one example, because there is one mid-office desk in Rotterdam and one in Amsterdam. That didn't make any sense, we decided to merge that and create cost synergies. We are also looking at processes within TCF and are implementing a lean analysis, making processes more efficient, taking out costs. Last but not least, the closing of the office of Dubai is done, and also the rep office in Moscow is closed. On the transformation of the business model, we move to less paper and less hassle for our clients. We also invest in blockchain. Like Christian already mentioned in his slides, the Komgo example, which actually is a great example of a blockchain which is completely digitized. It's safer for our clients, it's way more user-friendly, and it is really a classical example of improving your customer experience.
To summarize, I've got one of my best people on this case. It's hard work, but we are, and we will keep on delivering and resolve this large chunk of CIB's underperformance. Now let's move to Markets. Global Markets provides an important service to CIB's multi-product clients, but not only to CIB clients, because we also serve Private Banking clients, and we serve Commercial Banking clients and Retail clients, but also ALM Treasury. The financial challenge remains. High costs, low returns due to a limited client flow and too much RWAs. Clear room to improve. Now on the reduction of capital, because the team already had done an impressive job reducing from over EUR 14 billion in 2013 to EUR 7 billion in 2017. We pushed that further down.
Already EUR 800 million out since the beginning of this year and EUR 700 million to go. By trimming our product offering and, for example, only be a market maker in Dutch government bonds. Now on the cost side, we reduced 40 people and completed the reorganization. I expect we're going to grab the fruit as of the beginning of 2019. We stopped desks in Brazil, in Norway, but also in the Far East. On behalf of the whole bank, I'm happy that we are going to make an end and complete the SME derivative file expected in Q1 of 2019, and that has been a big drag on the cost. On the transformation side, we need to increase the flow on the platform. We are really pushing the people hard to increase the share of the wallet with our clients.
We also use advanced analytics in the trading environment. As Christian also mentioned and Daphne will show, we started this digital offering of Franx. It's a multicurrency platform, but also offering products, FX products for our Commercial Banking clients. To sum up, Global Markets is making great progress and is on track to contribute to CIB's return on equity above the 10%. Although I don't expect them to make double-digit returns, but stay in positive single-digit returns. This is an important slide because I'm going to talk about changing the business model. Because in the past, we too often entered into client lending relationship with a lot of promises of more business down the road, but actually too little coming out of this. We will do and are doing this already in a different way.
Three initiatives: focus on multiproducts, adhering to a strict capital discipline, and increasing capital velocity. Let me take you through those pillars. Multiproduct cross-selling. As said, my ambition, especially also looking at the global sector, is to increase multiproduct and cross-sell above the 60%. Not only lending, but being very disciplined on cross-sell of at least two products. Also scaling back on the Basel IV affected products because there are still quite a lot of uncommitted lines which we are taking out as we speak, reducing capital and prepare ourselves for the Basel IV environment already. Strict capital discipline. We have introduced a central portfolio management department within structured finance, where we control all CIB's loan book. That is really important because that allows us to steer our capital towards those sectors and those products and those clients where we can make the best return on capital.
Three times a week, there is a capital allocation committee where we look at each and every client situation. There is even a tool being developed where we already look at the impact on Basel IV and ask relationship bankers to address any shortcomings in that field. Capital velocity. I like to dramatically increase capital rotation by more investor-centric origination approach. What do I mean with that? If a relationship banker comes up with a loan proposal, the first question is: how can we offload this debt? Who is the ultimate investor? Is that a bank or is that an insurance company or is that a pension fund? That is a way to originate, to distribute. We're also investing in ways to ensure part of the portfolio, and even in central portfolio management, move out parts of the portfolio.
If you realize that today in between 3%-5% of the portfolio is being risk distributed, that's a small percentage, and I like to see a big increase of that percentage. We also need to keep in our minds that over 90% of the loan book of CIB will churn before 2022. To sum up, we will increase income over RWAs by generating more fee income with less capital, and we will prepare ourselves for Basel IV. Let's look at the impact of how we are preparing ourselves for Basel IV. Let me start with this graph. This graph shows you the return on equity of CIB in the last couple of years. You saw quite a dramatic improvement in the year-to-date financials, up to almost 9.5% return on equity.
We need to normalize that for the extraordinary private equity income that we saw in the last year. We also need to normalize that for other numbers. I already took you through the way how we're going to increase the returns in CIB to 10% +. How are we coping with Basel IV? Basel IV is further driving our need to be more capital efficient. We're doing a few things. First of all, we are timely implementing our new capital light strategy, basically to optimize our returns under Basel III and prepare ourselves for Basel IV. As said, we're steering capital to those clients, those products, those sectors which show the best returns.
By also generating higher capital velocity through risk distribution in primary markets like DCM, like underwrites, but also in secondary markets, looking at securitizations like insurance or sell downs of part of the portfolio, we are increasing return on the CIB portfolio. Important to acknowledge is the fact that before 2022, the entire CIB portfolio will be churned. To summarize, in 2021, CIB is well-positioned for the introduction of Basel IV. Now I come to my last slide. Tonight, Friday evening, when you drive home, I'd like you to remember three commitments that I give to you. First of all, I'm passionate to further develop sustainable relationship with multi-product clients and move the capital into attractive sectors. I am fully committed to reduce the capital, reduce RWIs, take out costs, and adhere to a strict discipline in capital allocation.
Therefore, my third point is, I will deliver on above 10% ROE targets by 2021 under Basel IV, and we'll be ready for Basel IV. Thank you very much. Daphne, may I now invite you on stage for the Commercial Banking story. Thank you.
Thank you, Rutger. Hello, everyone. Good afternoon. My name is Daphne de Kluis, I'm responsible for Commercial Banking. I'm going to tell you about sustainability as a business opportunity. I'm already with the bank for over 20 years in different type of jobs. I've been heading the global structured finance unit. Actually, I set it up. I've been heading FR&R, financial restructuring and recovery, during the difficult times. I've been in Romania for three years heading the commercial bank, I'm now in Kees's team responsible for Commercial Banking. Commercial Banking is a leading bank in the Dutch market. We're guided by client intimacy where it matters and efficiency everywhere else, I'll come back to that. We deliver clear profitable growth, as we already promised you in 2015.
We consider sustainability as a real growth opportunity, I'll demonstrate that to you, we make good progress in improving our costs and CI ratio. Now first, let's take a closer look at Commercial Banking as a whole. We are leading in the Dutch market in the SME segment. As I already said, our strategy is based on client intimacy where it matters and efficiency everywhere else. If I talk about client intimacy, I talk about expertise and bringing value add to your clients. If I talk about efficiency, I very much talk about digital, hassle-free, and convenience. Now I don't have to tell you in detail all the challenges that we have. First of all, Kees already elaborated on that. Furthermore, I believe you are very well aware. Of course, there are clients' needs that are changing. There are technological trends.
Of course, the government regulations are also quite intense. We have a stable base of around 365,000 clients, and that represents almost 25% of the Dutch enterprises. These are corporates in all kind of sectors of the economy. The turnover is up to EUR 250 million. We offer them a broad range of services and products. We have asset-based finance unit, and that has a presence also in U.K., Germany, and France. The rest of our offering is mostly tailored to the Netherlands. How do we achieve this client intimacy? That is very much based on our sector approach. With this sector approach, we can have a real good strategic dialogue with our clients. It makes this very strong and personal contact.
Of course, we also have tailored product offerings. I believe that we stand out from competition because we have integrated this sector approach really across the board in the bank. Of course, we also offer our clients, and Christian and Frans already told you about that, very innovative solutions. Let me explain you a little bit about an offering that we created, which is called New10. New10 is an online tool for commercial loans. Actually, what New10 taught us is that it is not so much about getting as soon as possible the funds to a client's account. The client wants to know if he can make the investment. So it is much more important to know very quickly, can I get the loan or not? With New10, within 15 minutes, you know if you can get a loan.
Within 48 hours, it is on your account, as long as you distribute the right documents that we need. We talked a lot about Tikkie also. Actually, Frans, I want to take the opportunity to thank you for that, because Tikkie very much is also relevant for our Commercial Banking clients. We have now over 1,500 clients, and it is rapidly growing, that are using Tikkie from a commercial perspective. We are a solid contributor to ABN AMRO, and we provide around 20% of gross income. We make the target for ROE. In short, we have a great business. How are we going to make it even better? We are convinced that accelerating the sustainability shift is our biggest business opportunity in the coming years. We see sustainability as a growth opportunity, and by implementing sustainability in our business model, we really respond both to market and client needs.
Our real goal is to facilitate our clients in their transition to a sustainable business model. It is not only about green, but it is becoming a sustainable business or creating a sustainable business as a client. We call that accelerating the sustainability shift. We see definitely that there are some challenges there, but we also believe that there are a lot of opportunities. Don't get me wrong, this is a real pull. It is a pull for sustainable and circular solutions, and this pull is by our clients. Our analysis shows that 80% of our clients are busy with sustainability, and 70% of them really believe that the bank should play a role there. If I talk about sustainability, I talk mainly about two transitions. First of all, the energy transition from fossil to zero emission, and secondly, from linear to circular.
Of course, there's also a transition in the social area, social entrepreneurship to social impact. We're still assessing how our role should be in that space and what type of impact do we want to make. Therefore, I didn't include that in this presentation. We estimated the markets for the potential of sustainability. Let me start with energy. We see a market potential of around EUR 14 billion in the SME market in the Netherlands for the coming years, up to around 2030, and that's out of a total of EUR 70 billion. These numbers are based on a Dutch government report regarding the climate agreement. In a circular transition, we see a clear market potential every year of EUR 7 billion, and that's in the Dutch market, and that's out of a total of EUR 66 billion.
That number is based on the analysis of data of Statistics Netherlands. I see you think: Daphne, nice story, but how are you going to capitalize on that? We want to capitalize on that by an engagement strategy. We will proactively approach all of our clients with sustainable propositions, and we want to help facilitate their transition. Of course, that has to do with clients that are already there in their mindset, but it also very much has to do with helping clients that are not yet there and show them what the possibilities are. This engagement will lead to a number of goals. Kees already told you about our goal in the energy transition. By 2030, we want the full real estate portfolio to have energy label A.
Also we have a goal in the circular transition, and that is that by 2020, we want to finance at least a total of 1 billion circular deals and a number of 100 circular deals. Concluding on this is actually an impact that we want to make, first of all, on societal return on investment and secondly, financial return. We find them both equally important. Allow me to zoom in a little bit extra on the two transitions. First, the energy transition. It's all about reducing CO2 emissions. Of course, as a bank, we're in a position to really contribute substantially to that. Take a loan, our real estate portfolio. That's responsible for 40% of all CO2 emissions in the Netherlands. By helping our clients to improve the label, of course, we make an impact.
Of course, energy transition is not all about real estate. Let me give you some other examples. One example is, for example, a company called Vibers. They use elephant grass to make a green alternative to plastic. We help them to develop growth plans to upscale production. Of course, this is traditional banking. This is traditional banking with a different type of player and a different type of risk model. Another example that comes to mind is the raising of equity and debt for the Dutch wind farms. We do that by applying our expertise on project finance. Of course, we do that very much together with your team, Rutger, where the project finance expertise and the equity expertise is very well developed.
we closed the deal in June last year on offshore wind farm, which is located 50 km off the Dutch coast. Once that's operational in 2021, the project will deliver clean electricity to at least 800,000 households. The circular transition. If I talk about the circular transition, we got very inspired by the concept of product as a service. In other words, paying for usage instead of ownership. I have a very nice example there of a company called Homie. That's a business that rents out washing machines, and it takes care also of the maintenance.
They link the washing machines to the internet so they can see what the condition of the washing machine is. The user pays per load, and he can change his mind at any day to cancel the transaction they have with Homie and buy a washing machine. We believe that this is a really nice model and a very sustainable model, of course, we provided them with funding. This is something that we've done for years, but again, this is a very inventive customer that we really want to support. In both transitions, there are plenty of commercial opportunities for a bank that really embraces sustainability. Until now, I talk to you about potential with clients in sustainability, but mostly interest-related transactions. Of course, we very much also believe in making a diversion in our revenue mix.
we would like to very much increase the fee potential that we have. We believe we can do that by bringing value-added services to our clients. Christian already mentioned in his presentation, if we want to remain relevant in a changing landscape, we have to team up with partners. I am extremely convinced that that is the way forward, also for the commercial bank. I've listed a few partnerships that we have today, I wanted to elaborate on one, which is Opportunity Network. Opportunity Network is an example of an added value platform, where we offer our clients the potential to connect with other clients. It's actually, when I go to clients in the Commercial Banking area, it's one of the questions that all of them have.
Can you please connect me to other clients in the sector? This is a nice way of doing it via technological platform. It gets real opportunities for growth, acquisitions, sales, and to connect with each other. What's the revenue model there for us? First of all, we get a fee from clients that get on the platform. Second of all, once they're on the platform and they want to do a deal, if they need any services, financial, M&A, or other type of services, we are connected on the platform as well, and we can deliver it there and then. Let's focus on two relevant elements from a P&L point of view, top line development and costs. Historically, we've delivered as promised, a solid profitable growth. As the slide also demonstrates, we will continue to do so.
Future growth is expected to be in line with Dutch GDP as it has always been. The good thing about focusing on sustainability is that it will generate more fee income. I try to tell you about it. If we look at two examples, one is Opportunity Network, that brings a fee income, but also another opportunity is the Tikkie platform again. Frans already highlighted, we're very much busy together to see what type of added value we can bring extra on the Tikkie platform. Efficiently, we want to make good progress in improving our cost and efficiency. Of course, that's extremely important. We are focused on being a future-proof bank, this is the number one thing that we need to do.
As you can see, our cost income ratio is trending down, this is despite the fact that we have invested a lot in our Know Your Customer improvements. We've made a number of initiatives over the last couple of years. First of all, we changed the management structure. We had a separate SME offering. We put a sector-based approach in place, also we executed on a location strategy. We had 24 offices before, we're now reduced to 14 offices. We closely work together with our retail colleagues because we want to digitize our offering. We want to create hassle-free banking, which is very good for our customers and also very efficient for us, we will keep on focusing on this. Concluding, we delivered what we promised during the IPO. We continue to grow our top line, we continue to manage our costs efficiently.
Therefore, we continue to deliver to contribute to the bank. While doing so, we want to also drive the agenda for accelerating the sustainable shift of our clients with the goal to help them transition to a sustainable business. That will help society, that will also help our financial performance. I hope that I demonstrated to you that sustainability is a real growth opportunity. With that, I would like to conclude. I want to ask Rutger to join me at the stage for some Q&A. Thank you.
Thanks very much. Who's first?
We had a mic.
It's Jason.
[inaudible] First question, again, it may be for the last meeting, but just as we go through the day, everyone is basically saying that they are a lot more optimistic on the net fee and commission, and it will be nice to address, in 2019, we all understand that transition in a year for a number of segment, but it looks like there is a lot of optimism coming through throughout all the presentations. It would be nice to understand why the outlook is still flattish over the next two years and not just over 2019, and then actually seeing some nice growth coming through.
Good.
Coming back.
Thanks for the question.
The other question is just looking at the diamond segment, we discussed a bit with Tanja earlier. You have, I think, a EUR 1 billion exposure.
Mm-hmmm.
You're in a market where you're dominant. You have Standard Chartered, which is the other player. You have two big players there. I'm trying to understand two things. One, how can you bring down your exposure in such a market, where at the end of the day, you could have also a collapse, which maybe is not included in how you approach that market from an impairment perspective. The second is, how do you avoid such areas? What have you done in the organization to avoid going into such segment situations, et cetera? The third element is, are you confident that, for example, in that area, you do not have structures or anything else that could attract any regulatory attention?
Yeah. Great questions. Thanks for asking. The best proof of the pudding is that we actually already have been de-risking the portfolio quite a bit. As we speak, we are exiting our office in Dubai, and we agreed with 98% of the existing client base on a repayment schedule. What we are seeing today is that other local banks are taking over those lending commitments. That is what we are seeing today. Can you repeat your second question?
Yes. I was saying that you're in a dominant position.
Yeah.
How can you— if you try to retract, and especially in on the bigger markets, because in Dubai it's easier—
Yeah.
how do you avoid basically an implosion?
Yeah. Listen, that de-risking takes place in a very controlled way.
Sorry, if I may say, at the end of the day, you have done a great job in trying to, earlier on—
Yeah.
decrease your exposure.
Yeah.
The problem is that you are with another player.
Yeah.
At the end of the day, there is no natural, in Dubai, maybe you have Mashreq, but you don't have naturally someone else that can take over—
Yeah.
the business.
Yeah, true. Part of the exposures have been shifting, for example, from our Belgium portfolio to the Middle East portfolio. Apparently, there is local appetite for those clients to be taken over. That's the way how we manage it.
Okay, who's next? Omar in the back, if I see it correctly, because it's a bit difficult with all the lights.
Hi, Omar Fall from Barclays. Just on CIB, can you give us even a vague sense of what the equivalent ROE is for the 10% under Basel IV? Just because I'm not sure how meaningful that number is when there's an undisclosed, but extremely sizable amount of RWA inflation going through that business. As a follow-on to that, what's the plan B in case you don't hit the 10%, or whatever the real number is, and how long would we have to wait until you get to that plan B? Is it going to be 2021 as per the target, or are you likely to be a lot more flexible around what you do with this business? Just the second question would be, or third or whatever it is, just on the—
That's a lot of questions.
Yeah.
On the clearing business.
Yeah
Why are you the right owner of that business when it has such a burden from a leverage perspective, but makes 2% of group earnings and has no obvious synergy with—
Yeah.
you look like? Thanks.
Okay. Let me start with your last question on the clearing bank. Why is that a good business? As I showed you on the slides, that business is generating a return on equity close to 20%. As Kees already said in his presentation, if SA-CCR is going to be implemented, then where we see an uptick of 50 basis points in the leverage ratio. That is positive. There are also some synergies between clients. For example, within trade and commodity finance, there are good multi-product clients where we provide clearing services. There is actually quite some synergy there. That's my answer on your clearing question. On the Basel IV question, can you repeat that?
Yeah, it was.
What is the 10% in reality under Basel IV? What is the plan B for this?
Okay.
If you don't hit 10 or whatever it is under Basel IV?
Well, I'll make it easy because I leave it to Clifford, he had to talk a bit more. Otherwise, the guy doesn't have any questions. I promise you, when you drive home tonight, I made one commitment, to deliver. There's no plan B. I just deliver.
Comforting. Nice.
Okay. Who's next? Is there a question on that side of the room? Sorry. Because we keep walking. Alicia. No, you're next, Marcel.
Just two questions from me. Firstly, both ABN and ING at Q3 results talked about Seeing some late-cycle behavior in leverage finance and real estate finance. I just wanted to understand a little bit more, what exactly are you seeing there? How big is that for you, and what are you doing to constrain lending there? How far will you go in terms of constraining that? On a similar basis, that sounds like it's possible that those are maybe the early warning segments where you might start to see late cycle. What other sectors could we be looking out for within CIB and within commercial, where we might start to see some late cycle behavior as well?
Just to go back on Omar's Basel IV point, because I think it is really important. I think it's really good what you're doing in terms of meeting a 10% ROE on Basel III. On my estimates, that would get you to roughly 6%-7% ROE on a Basel IV basis, it still is quite far away. How long will it take you to get Basel IV ready? I know you say you are getting Basel IV ready, how long will that take you, and what will you be doing to get there? Thanks.
Yeah. Let me start with your last question and then hand over to Daphne on your question on the sectors and what we see there. How long does it take us to be ready for Basel IV? As I explained in my presentation, the whole portfolio of CIB is churning before 2022. That allows us to already start progressive repricing as of 2019. Because part of the portfolio will be churning, and that runs longer into the time. We will be able to look and identify in the entire portfolio where to move best the capital. That's my answer to your question. We already have started today by also identifying clearly with each and every client that enters into the capital allocation committee, what is the impact of Basel IV. Some of the situations we just don't do, or we drop.
Because if the impact is way too negative, forget about it. We need to be, and we are very disciplined about that. Now to you, Daphne.
That's actually the same in the commercial bank. We look very much at healthy transactions, and we see the market is turning again a bit. It's quite competitive. That starts also my FR&R heart then, because then I've seen during other times what can happen. Actually, during the time, we've spent a lot of time with the Commercial Banking area, and of course, also in other areas, to make a better detection system. We call it detect and act, and that's a way of making sure that we have early warning signs and also discuss these early warning signs with our clients. That's a way for us to try and tackle the market turning again.
Then on the leveraged finance question specifically, I refer to Tanja, which she said this morning. We have strict adherence and a cap on that portfolio, and we really adhere to the moderate risk profile. We're not moving into very covenant light structures and [crosstalk]
The same accounts for real estate.
Yeah.
As you've seen in my area.
Yeah. Okay. Marcel.
Yeah. Thanks for taking my question. One question for Daphne. Can you talk a little about the competitive environment on the Dutch SMEs? Do you see an inflow of new players? Or is it basically the big three having an oligopoly position in the market? You said margins have been relatively stable. How do you expect that to go forward at least?
Yeah. We were expecting actually quite some new entrants, until now, they didn't materialize too much, maybe in specific products. If you look at transaction banking, for example, there we see specific type of players targeting that market. I think mostly the three Dutch banks are still quite active in the SME market. Your second question on margins. What we've seen over the last couple of years is that it's actually quite stable, and it's also what I expect going forward. Now there is a competitive market again. We still keep our margins stable. That is, of course, is a difference if you look at the portfolio that's a legacy portfolio, that's longer time there, a new portfolio that you have. I would say for the coming years, I see that still remaining stable.
Okay. Thank you.
Hi there. Just a quick question, Rutger, both actually on CIB, two questions essentially. Firstly, just on the SME file. Obviously, there's penalties. We know what those kind of numbers are. How much administrative cost is being pinned down by that, and what can you do about that once that exercise is finally completed? Secondly, just coming back to leverage under Basel IV, what's the actual leverage exposure of the CIB business at the moment? You've given us a bit of outlook about how RWA will develop. I just wondered what the leverage measure might develop in the future?
Okay. Yeah. I leave that question to Clifford. He's already nodding, so that's good news. On the derivative file, we've been taking a lot of provisions already in the past. As you can track the annual reports and the quarterly reports, for example, the first six months, we took EUR 37 million in additional provisioning there. We expect to close the door Q1 of 2019. That's where I like to leave it.
Actually, just to come back, my question was actually on the administrative costs pinned down by that. Obviously there's the penalty component, but actually presumably there are a lot of people having to deal with the actual final.
Right. That's. Yeah.
How much is that pinned down?
That's all taken care of. That's already in our corporation.
It's in that question.
Yeah.
Yeah.
Don't expect there.
Yeah. It's roughly EUR 250 million or so of the provisions taken so far are for project costs. That covers, I think, what you're aiming at. José?
José Coll from Santander. My question is on CIB. You're reducing risk-weighted assets, and you're thinking that 10% ROE under Basel III and taking into account what could happen under Basel IV. You're going to turn your whole portfolio by 2022, even before, right when Basel IV is going to start. Do you have any clue as to what pricing is going to look like for the TCF specialized lending? Because there's high risk-weighted asset inflation coming that way. Maybe you are abandoning clients that are going to be later profitable for others to pick up, instead of just going along with them for now until you have more clues on what pricing is going to look like going forward.
Yeah. I find it really difficult to look at pricing levels four years from now. What I can say is that today we are competitive. Our competitors are the Dutch bank and the French banks, and they all are in a level playing field as we are. I find it hard to say where it's moving. What I can tell you, because I see many clients and also the big trade and commodity clients, like I mentioned, and they recognize that it will be changing and that they need to pay higher prices, for example, for the standby revolving credit facilities. They are already preempting on that. That's not because we are the only ones saying that, but our colleague competitors are also giving those signals.
Sorry, just a quick follow-up. You're not afraid that you are, by prioritizing ROE today, you're not giving away future business after Basel IV repricing?
No.
Okay. Robin?
Yeah. Actually, in connection to that question, I was wondering that, I think on the Basel III, you basically have a competitive advantage in your level playing field. That's probably why most of the French banks and you guys are active in that field. Due to Basel IV, that level playing field might change a little bit. In connection to that question, aren't you afraid that with this focus on ROE, there might be some competition coming in, basically, to try to push you out, basically?
I'm not that afraid because what we are doing with the portfolio is to push out the single product, non-accretive clients and focus on that example that I gave. Multi-Product Advisory, Cash Management, Debt Capital Markets. There's a unique long-term relationships that we have with these type of clients. These clients show that you're able to generate well above the 10% return, and that's where we're moving the entire portfolio to.
Maybe as a follow-up, can you indicate on your book where Basel IV basically is in a more international perspective, where you are suffering from the RWA inflation and where your peers are not, where repricing will be quite more challenging, basically?
Yeah, we have not provided details, but I can tell you, like I already showed on my slide, is that particularly in asset-based financing in these global sectors, that's an area where we are taking capital out for the simple reason that we expect those type of structures being hit hard in Basel IV. That's the reason why we announced to take capital out of the energy offshore portfolio, deep sea supply, but also part of the shipping portfolio.
Okay, time for one or two quick ones.
Yeah, mine is a very quick one. You already indicated that 98% of your Dubai diamond clients have a repayment agreement. That should go quick because you said that a lot of local banks have
Yeah.
They agreed to take over that lending. Should we see that already fourth quarter or first quarter of next year?
Listen, there are shorter repayments, and there are longer repayment schedules. It's a mix. You will see that coming down in the next two to three years.
Okay. Final question, anybody? Is it Omar in the back?
Yeah, sorry. Just one more question. At the Q2 results, when you presented the CIB reduction refocusing, you stated that the EUR 5 billion was a net number.
Correct.
What is the gross value of the reduction within the plan?
Oh, it's higher than EUR 5 billion. Let me not disclose the exact number, because basically we like to also have some capital into the well-performing and Northwestern European businesses with the multi-product clients. It's more than EUR 5 billion we're taking out. Let me not disclose the exact number.
Thank you.
Okay. With that, I would like to suggest a very short break of about 15 minutes, and then we'll come back with Clifford Abrahams, our CFO. Thanks.
[Break]
Just waiting for colleagues to sit down. It's good to kick off the much anticipated final presentation of the day. I'm Clifford Abrahams, CFO. I know you'll be interested in this final session which focuses on the numbers. You've all waited all day. I'll also try and pick up some of the questions we had during the course of the day. It's great to be here in my hometown. I've worked here in London for many years at Morgan Stanley and then Aviva, and after that I moved to the Netherlands as CFO of Delta Lloyd, the insurer, and then ABN AMRO last year. Over the past year at ABN AMRO, I've been impressed by the people, by the business, and the opportunity. Recapping now on strategy. Kees talked this morning about how we've delivered on our promises at IPO.
He set out our purpose and priorities, banking for better. You've heard also from the executive committee on how they're driving the business, and throughout the day, we've run through the three pillars and show how these are being embedded in the business. We're convinced that sustainability is a tangible business opportunity. Daphne described the opportunities she sees in the commercial bank. Pieter set out the client demand for sustainable investments. Christian and Frans described how our focus on customer experience improves retention, strengthens cross-sells, and delivers lower costs through digital. Future-proof bank is about lower costs, but also the capital efficient model that Rutger is implementing in CIB. We're all convinced that our focus on the three pillars will create long-term value for our clients, for our staff, the society, and investors. I'd now like to focus on you, our shareholders.
We want to drive value for you through our focus on capital generation and return. Kees highlighted our track record at IPO and how we're delivering on our targets. You can see here on the right that since IPO we've delivered over 11% per annum in capital generation through our book value growth and dividends. This reflects our commitment to the value drivers set out on the left. We want to deliver reliable earnings, show disciplined cost management, maintain moderate risk profile, drive robust ROE with controlled RWAs, ensuring strong capital generation. This, together with a strong and resilient capital position, enables attractive dividends to shareholders. I'll first talk you through our P&L, how we drive reliable earnings and control our costs, and after that, our approach to capital management, how we translate earnings into capital, and then cash for shareholders. Starting with income.
On this slide, you see three charts regarding net interest income, namely client lending, net interest income, and deposit margins on the right. We've delivered good growth in NII in recent years through volume growth and resilient margins. Margins have been strong in margins as we've maintained our pricing discipline through an upswing in the Dutch housing market, and margins have been resilient on deposits as we've steadily reduced our deposit rates in the face of declining rates. These deposit rates are now around three basis points, this process has now run its course. Going forward, we expect to face headwinds on margins from here. That's challenges on mortgages, reflecting the competition that Frans discussed, and pressure on deposit margins reflecting low market rates. We've set out on the right our base view deposit margins and two scenarios.
As you can see, we expect some modest further deposit margin pressure in our base scenario with a range around that geared to the time and pace of interest rate rises in Europe. Given this margin pressure, we're focused on maintaining pricing discipline in mortgages, selectively growing in profitable segments like consumer lending that Frans set out earlier, as well as originate to distribute to generate fees across the bank. A number of colleagues talked about that earlier today. Consequently, we expect our NII to be modestly lower short term, but pick up after that as rates and volumes normalize. Pressure on NII means we are, of course, focused on fee income, which I've set out on the next slide. You can see here on the left that our reported fees have reduced in recent years, reflecting disposals, but our underlying fees have in fact been quite resilient.
As you've heard, each of our businesses are working hard to grow fee income from here. You'll recall Frans talked about opportunities from his focus in insurance and investment. In CIB, our transformed business model will in time deliver a less capital intensive business model and fees for more distribution, and Pieter and Daphne highlighted the opportunities they see in fees. At this point, I'll address the fake news of our fee prospects over time. We expect in the short term fees to be fairly flat, and in particular, as Rutger indicated, we're shrinking the corporate bank, which is a material fee contributor. We're cautious in the short term. Over time, we expect the growth initiatives that the team have talked about to pick up and deliver low single-digit growth in fee income. There's a short-term, long-term timeframe to consider.
On the right, we've set out other income. Other income has been elevated in recent years reflecting disposals and private equity gains. Going forward, we expect other income to remain broadly in line with our guidance of EUR 125 million per quarter. We recognize the pressure on income growth, we need to stay very focused on costs, which I've set out on the next slide. As you've heard today, we've made good progress on our current cost programs. You can see here on the left, we've delivered already two-thirds, or over EUR 0.6 billion, of cost savings from the programs that we announced in 2016. You can see on the right, these cost savings have enabled us to maintain our underlying costs at a little over EUR 5 billion in recent years.
We're well on track to reach our 2020 cost ambition, including the EUR 80 million of additional cost savings in the corporate bank, which we announced in Q2. Turning to cost income ratio. We're also very much on track on our cost income ratio target of 56%-58% in 2020. You've heard today from Kees and Christian our target beyond 2020 to deliver less than 55% cost income ratio in 2022. We need to be realistic about the headwinds to cost income ratio, which I've set out top right, including the significant costs of regulatory change. All banks need to address these headwinds. We've been clear with you on our current initiatives to deliver the 56%-58% by 2020, and the related cost base of around EUR 5 billion per annum.
We also want to be clear on the further measures we will implement to deliver in 2022 less than 55% cost income ratio whilst reflecting the headwinds. These further measures include improved IT cost efficiency through demand, productivity, and supply levers, as Christian explained, as well as further product rationalization and process improvement across business lines and support functions, which the team discussed throughout the day. Christian also explained how these measures will support income over time. These are all long-term programs, we need to plan and get on with these now as our current programs are landing, and to ensure it's all affordable within our cost income ratio targets. I've explained how we deliver reliable earnings and how we manage our costs and our progress and our targets. I'll now set out how we translate reliable earnings into capital generation and then cash.
I've set out here how we think about capital and cash dividends, which drives value for shareholders. Up top, I show the three key drivers. Robust ROE, well-controlled RWAs, and strong capital generation. We're focused on managing each of these carefully so we can deliver on our commitment of strong cash returns to you in dividends. First, we aim to deliver a robust ROE, the source of capital generation, and this is equivalent to 200 basis points of CET1 capital generation per annum. We focus strictly on our RWAs to ensure our capital requirements remain well controlled. We have and will maintain a strong and resilient capital position under the various regimes. That's Basel III, Basel IV, the new regime, and leverage. By doing this, we ensure that our capital generation is available largely for distribution to shareholders.
In line with our dividend policy, we will distribute the surplus to you in cash dividends. Our overall position is summarized here at the bottom. We're well capitalized under Basel III and IV, but leverage constrained in the short term. While we don't have a material surplus of capital today, our strong capital generation is largely available to distribute to investors as cash dividends over time. I'll now talk through each of the components set out here and noted by the sort of orange boxes as we go through, so we're all completely clear. The first driver, our robust ROE. We're committed to delivering on our ROE target of 10%-13% per annum. As I mentioned, this generates 200 basis points of capital per annum. You can see on the left that we've consistently delivered this as a group since IPO.
Not all businesses are delivering, and Rutger described the necessary measures we're ensuring in CIB to ensure that business delivers, too. All our businesses are extremely focused on ROE, and they know and we know that each of the businesses needs to deliver under Basel III and in due course, Basel IV. I'll spend a moment now to talk about CIB, Basel III, and Basel IV. We have a clear plan to deliver over 10% ROE under Basel III, and which we set out in August this year, and that Rutger described in detail. And at the half year, we reported ROE of around 6%, and now for the three quarters, around 9%. That benefited from private equity gains, but also we're still challenged with high impairments. Normalized, we're actually not far short of 10% already.
The specific levers we identified at the half year will deliver that over 10% ROE under Basel III. Those levers are costs and reducing capital and moving it from low return under Basel III to high return under Basel III. The further measures that Rutger identified regarding originate to distribute are those levers that will take us to accept for returns under Basel IV. I'll talk a little bit more about this later, but the numbers that Alicia mentioned earlier, 6% or 7% under Basel IV, approximately right. What will lift us above 10% over time under Basel IV are the mitigations and the new business model that Rutger described, and that I'll go on to describe in more detail level later. Finally, pricing will enable us to deliver that in addition.
We have a clear plan to deliver over 10% in a relatively short time under Basel III, We'll give that business time to deliver under Basel IV, reflecting that we have up to nine years transition for Basel IV. Moving now to RWAs. I've dealt with ROE, Now we're talking about our RWAs. RWAs drive our capital requirements. I've set out here on the left our track record on Basel III RWAs, and on the right, how this relates to Basel IV. We had many questions on this at the Q3, I'll take some time to make sure we're all clear. Basel IV RWA inflation increased during 2018, Going forward, we expect that inflation to stabilize and then reduce. I'll explain why we believe this is the case now. Talking to Basel III on the left.
You can see our Basel III RWAs have been relatively stable in recent years. While we see quarterly volatility, the overall picture is improving credit quality offset by growth in corporate lending volume. Going forward short term, we expect roughly stable underlying Basel III RWAs as growth in the Commercial Bank is offset by a reduction in the Corporate Bank, with moderate growth after that. We think of underlying Basel III RWAs as before the effects of TRIM, model changes, data, credit quality changes, all of which do not flow through to Basel IV. Underlying reflects business volumes. Kees also mentioned our appetite for bolt-on M&A, which may impact these numbers but won't change the underlying picture. We expect underlying Basel III RWAs roughly constant. Turning to the right on the Basel IV.
At year end last year, we said that our Basel IV RWAs were around 35% higher than Basel III. In fact, that figure has increased now to around 43% at Q3, reflecting some updates to our Basel IV calculations and relative growth in corporate lending since year end 2017. At the same time, Basel III RWAs reduced, reflecting data and credit quality improvements which don't flow through to Basel IV. Our Basel IV calculations represent estimates, good faith estimates, based on our current view of the rules. We shouldn't overanalyze these or overinterpret them. This is our best view. We will know for sure in 2022 and beyond. Currently, we have 43% RWA inflation, which will translate today as a Basel IV CET1 ratio of around 13%, and that's before mitigations, which I'll talk about later.
We need to recognize that Basel IV is a new framework, the rules are not clear yet, and we're all learning to work with it. Nonetheless, going forward, we expect a number of factors to lower Basel IV RWA inflation. Those are our commitment to reduce the Corporate Bank, which is our most capital intensive business, the effect of TRIM and model changes, which will increase our Basel III RWAs, and in particular, our Basel IV mitigations. On the next slide, I'll talk about our approach to ensuring the bank is well placed for Basel IV. You see here a rather detailed slide which sets out the work and should demonstrate that we're getting ready for Basel IV now. Our work is focused on a number of themes. Firstly, which I've said at the top, mitigation of RWA inflation.
Secondly, ensuring that we reduce our capital intensive activities to lower RWAs under both Basel III and Basel IV. Thirdly, developing new business models to enhance ROE. Lastly, pricing to deliver targeted returns of 10%-13% on Basel IV capital requirements after mitigations and over time. First addressing mitigations. What are mitigations? We think of mitigations as actions or plans that reduce Basel IV RWAs on the basis of our current business. Our static balance sheet. Our work to date has identified initiatives enable us to mitigate a total of around a fifth of the 43% Basel IV impact, bringing us to a Basel IV CET1 ratio of above 13.5% today. Above 13.5% including those mitigations.
We can already implement some of these initiatives while others are more strategic or will impact our clients, we want to take our time, but in particular ensure that we can implement them ahead of the phase-in the Basel IV, or indeed even later. The key is that we're confident we can do them. I've set out examples of our Basel IV mitigations here at the top. We plan to enhance our data quality to source the specific inputs for Basel IV rather than rely on prudent default data. We don't all have the data already for Basel IV because it's a new set of rules. We'll work with our clients on external ratings, which give lower risk weights than our internal ratings. Basel IV gives an incentive to get external ratings for both banks and issuers.
We'll also rationalize our products and improve our collateral tailored to the Basel IV rules. These initiatives are not theoretical ideas, but specific initiatives with actual RWA benefits our teams are working on now. Our Basel IV response is not just about mitigations. Rutger explained our approach to reduce CIB RWA and transform the business model. We also see scope to reprice to reflect Basel IV capital requirements now, and as we get closer to the phase-in period. Of course, we're staying close to the rules and the regulatory process to address remaining uncertainty in the regulations. All in all, we're confident we're on top of our planning and taking the right actions around Basel IV. Turning now to our capital position. We've set out our target capital range in terms of Basel III, the current regime, but reflecting our view of the transition to Basel IV.
We've updated our target capital range here on the left. Kees mentioned that this morning. You can see, we expect to maintain our target capital range of 17% after 18.5%, also for 2019, including Basel IV implementation buffer and subject to SREP. We're currently well-placed in that range at 18.6%, just above this. This position and this buffer enables us to meet the fully loaded Basel IV target early in the phase-in. We are constrained by the output floor. The impact of Basel IV on us will actually be at the back end of the phase-in period. We think we're being prudent, rightly so. We explain on the right that we estimate our RWA inflation would increase from 35%-43%, but with the effect of mitigations offsetting this, we're comfortable maintaining our current target range.
I want to emphasize that these mitigations are before the benefits of the CIB refocus. Our Basel III target range of 17.5% to 18.5% is a simple metric, but it's not a mechanical calculation. It reflects our judgment around Basel IV rules, timing of the phase-in, confidence in mitigations and timing, TRIM, and model changes. We'll continue to keep this under review as regulations and our business develops, and we'll update you on this annually or in the event of material changes. Next, I'll show how we're managing our capital position. I mentioned earlier, we need to manage our capital position with respect to Basel III, Basel IV, and leverage.
I've set out here our position under the various regimes. At 18.3%, we're well-placed under Basel III, given the Basel IV buffer, and Tanja explained that our Basel III capital position is resilient under stress. We're also well positioned under Basel IV at around 13% before mitigations and over 13.5% now after mitigations. I mentioned earlier the trends in RWAs. We need to be mindful of SREP, provision reviews, industry-wide NPA guidance, which may impact capital, and which Tanja described, and those impacts may impact all three of the capital regimes. In that context, our leverage ratio is currently constraining. Our regulator currently looks for us to maintain at least 4%, and with 4.1%, we have only limited headroom in the short term. All in all, we're well positioned for Basel III and Basel IV, with leverage currently constraining. What's the outlook for leverage?
You can see on the left that our leverage ratio is currently one of the very lowest among European banks. Kees mentioned we expect our client lending and exposure to be roughly stable short term and grow modestly thereafter. Those drivers will flow through to the exposure measure under the leverage ratio. We expect two developments set out on the right to address our constraining leverage over time. We're exploring a legal merger of our main bank and holding company to take place during 2019. This would release around 20 basis points of leverage ratio. The new SA-CCR rules, which we talked about earlier, will remove the constraining effect of the leverage ratio by 2021. If we can adopt SA-CCR early, we'll have more flexibility on the legal merger.
While leverage ratio currently constrains our capital position and limits additional dividend payout in the short term, we expect this no longer to be the case in the future. Finally, turning to dividend. You can see on the left we have a good track record of increasing our dividend since IPO. At full year 2017, we refreshed our dividend policy to 50% of sustainable profit plus additional distributions. As Kees highlighted, our preference is for additional distributions in cash dividends, and at least short term, not in buybacks. This way, we have more control over the timing. I want to be clear that we will be prudent in our additional dividend payouts. That prudence reflects regulatory developments, modest increases in capital requirements, for example, bolt-on acquisitions, and in the longer term, balance sheet growth.
Possible increases in credit risk weights as we pass the best point of the credit cycle. We are ABN AMRO. You expect us to be prudent. We've made good progress on capital, and therefore, we've raised the dividend accrual to 60% of our year-to-date profit to provide for dividend flexibility this year. We'll take a final decision with our full-year results. Beyond 2018, we are well placed to consider additional dividend payouts on top of our 50% sustainable profit. In conclusion, at the start of the presentation, I highlighted our approach to value creation, how we're committed to delivering on our targets. I explained how we deliver reliable earnings and that we can continue to deliver despite short-term headline headwinds from low rates.
We're well on track with our cost income ratio target of 2020, and committed to deliver on a more ambitious target for the cost income ratio for 2022. Tanja explained that we have and will maintain a moderate risk profile. I've run through our clear framework for capital and dividend, robust ROE, controlled RWAs, and strong capital position. We are preparing well for Basel IV, and with mitigations we are already above 13.5%, our target for early in the phase-in period. We're also addressing our leverage ratio constraint. Whilst maintaining our reputation for prudence, we're committed to delivering attractive cash returns to you, our shareholders. Thank you for your attention. I'll be pleased to take your questions.
Okay. Oh, there's a lot of hands.
Hold on then. Okay, roger that.
Here we go. We'll start here on this side, we'll slowly work that way. Farquhar.
Yeah.
Yeah, keep talking.
Okay. Firstly, just on the phasing and the 20%, you've got a 20% mitigation factor—
Yeah.
you're kind of talking to. Is there any kind of particular timeframe in terms of how you might You obviously are starting now, should we think of that linearly through the phasing period as kind of reasonable assumption?
Yeah.
Secondly, just on the legal entity merger, presumably this is part of a dialogue with the regulator already, I presume. How advanced and confident are you about achieving that 20 basis points?
Okay. On the mitigations. Basel IV is not in yet, we just know the rules. We think we do. We want to be fully loaded compliant early in the phase-in. That means we need to have a high degree of confidence that mitigations will land early in the phase-in. Clearly if we've done them now, that gives us a high degree of confidence, right? If we have very clear plans that we're convinced we can achieve, or in time we feel we have, call it a whole bucket of mitigations, and we can probability weight it, for example. That gives us confidence around our ability to target early in the phase-in, and that's how we're thinking about it. We're not going to wait for mitigations. We know we can do those. We've planned them.
We'll plan them over time, and we'll ensure that we can confidently deliver on our target early in the phase-in. I think on the legal merger, I think you'd expect us to have done our homework before we've talked about legal merger today. We've said exploring legal merger. That's a complex thing. In particular, it's not just the local regulators, it's regulators around the world that we need to work through, as well as other stakeholders. We're exploring it seriously or we wouldn't have talked about it, but we have some work to do through 2019 to deliver it.
Okay.
There is the fans.
Shall we sort of like Yeah. Benoît, and then we'll move the mic. You can move it to José, and then we'll go.
We're going to go this way. Okay.
Yeah. We'll get there.
Yeah.
On Basel IV, can we agree that the kind of 43% risk asset inflation is absolute the worst case you might get? If I look, there's a lot of conservatism from the beginning of the presentation to the end. For example, LTVs, you take origination, there will be lot of amortization of ILTVs going forward. We know that the new production is done at low LTVs. Could you talk about how much impact comes from mortgages? Are you hopeful for a deal at European level that actually they won't take the worst case until you get origination, but might take into account indexed valuations? Just to know a bit more about—
Yeah.
maybe beyond a little bit the 20%, because it feels that there's more room.
No, I think that. Well, we cannot agree that the 43% is the worst case. No, we cannot agree that. Our 43%, we think is a reasonable estimate. There are risks and opportunities, and we can run through those. We see a range around it. We are confident enough in our assumptions to give an indication, and we think giving a range is not helpful for Basel IV. We know that other banks, very few other banks even talk about it. In fact, none outside Benelux. I think in terms of our We have been clear that 43% is on a static balance sheet. I strongly believe the right way to talk about this is the way we have, which is mitigations based on the current static balance sheet. You are clear on that.
Changes to the business model or changes to that static balance sheet, which we flag in relation to CIB, and which you can look at the effect of both. There will be a little bit of overlap. Fundamentally, we think that is the right way to talk about it. To talk about altogether is confusing. I think, in due time, as we get more confident in mitigations, we might bake them into our RWA estimate. If we have actually done them now, they will flow through to the estimate. That is the right way to think about it.
I do not think the fact that no one is talking about Basel IV other than a few banks, I do not think should give you a lot of confidence that it is not an issue. We think it is an issue, and we have been open about how we are thinking about it.
Yeah. José. Yeah.
Oh, we are going there.
Oh, go on. Yeah.
Okay.
You said that after mitigations that you expect to have already done before the phase-in or about the beginning of the phase-in period for Basel IV, you'd be already at 13.5% fully loaded, Basel IV impact all included. Is it fair to assume that going forward, barring any private equity tuck-in acquisitions, that you're going to distribute via dividends all the excess capital that you generate?
Yeah. I think Kees talked about this earlier. If we have excess capital that we don't need, we will distribute that to shareholders. It won't be a mechanical look back. As Kees indicated, we're at 18.6% today, not 18.5%. I highlighted some of the themes we'll be thinking about. If we think credit weights are going to go up, or we know there are regulatory changes, clearly we're not going to distribute and then go below our range. We've set out our range. We want to operate in that range. That's how we'll manage it. I think I would take comfort from our commitment to capital generation and our commitment to return, rather than a sort of mechanical, mathematical approach in how we think about dividend payouts. We'll take it year by year.
Hi, it's Hugh Skinner from JP Morgan. If I can ask you please, just on the same theme. Can I just confirm firstly that the timeline for the consideration of additional distributions is annual, related to the SREP process? The next logical timeframe for considering additional distributions is going to be full year results 2019, which implies early 2020 is when we should—
Yeah.
think about additional distributions?
I think things are changing year-on-year in terms of the rules. I think we've been clear this year. This year, the focus is dividend payout. We'll make a decision in February regarding that. We've not ruled anything out. I think Kees talked about that earlier today. We haven't ruled anything out between year-end points. I think while we have a preference for dividend, the natural time to do it is at year-end, but we're reserving our position to consider other means at other times, subject to the principles we talked about.
That's very clear. Thank you. The second one is on the process of actually returning capital. Is it fair to think that a normal buyback doesn't make sense for ABN AMRO, given your free float's obviously lower, and a targeted buyback, which is linked to the government stake placing, makes much more sense, and so that's the preferred way?
This is the buyback that we've said we preferred not to do. It's that buyback.
Yes. That's the one.
Okay. I think Kees talked about it. I won't add to Kees' comments earlier.
Okay. Pawel. Yeah. On the phone.
A quick follow-up on the leverage. If you execute legal merger, it will get you to a point where leverage will no longer be a constraint, and that positions you very well for distribution from 2019 forward. If for any reason that doesn't happen, are there any other measures you can optimize or change leverage ratio that you're thinking about right now?
Yeah. I think we're managing leverage quite tightly. You can see at 4.1%, it's tight. I think as we frankly accumulate earnings, that helps. I think you're thinking of dividends, so there's a sort of one for one around that. That's one way. The other way is to manage the balance sheet. I think we've talked about managing Ulrich talked about that in particular, our confidence in the clearing business, but also our desire to see CIB come down in size. I'd work that through. Kees talked about our overall balance sheet, and we expect to be fairly stable in the short term, reflecting differential growth among the businesses.
Okay. Maybe just a quick follow-up.
Anything.
You mentioned that balance sheet will be stable, or loans will be stable. Is that the case also for exposure?
Yeah. Exposure, that got some attention after Q3. There's some volatility in exposure. Particularly we see it through the clearing business, which is linked to sometimes volatile markets. It'll go up and down, but I don't see the drivers of exposure and on-balance sheet lending as fundamentally different.
Okay. Bart.
Yeah. Hi. Bart Jooris Deg roof, Petercam. You talked about the P&L, you basically stopped on costs, underneath—
Yeah.
there are still two moving points. That is your impairments. Are you expecting them to stay below the through the cycle over the whole period? Secondly, there is the tax decrease plan in the Netherlands. What's the impact from that?
Yeah, I think on impairment. I think Tanja talked about impairments. I don't know where she is. At the back. I didn't want to repeat what she said, frankly. She talked about 2019 being below the cycle, and we, like you, don't have a crystal ball beyond 2019. I think on taxes, you'll be aware there's some general reductions anticipated in the Netherlands, but also some bank-specific factors going on, which is likely to mitigate or neutralize a lot of that benefit.
Okay.
Then a second question, if I may. How concerned are you really about a possible SREP increase and the new NPE rules, given your excellent position in NPEs?
Yeah.
Also your good performance in the stress test?
Yeah, look, I think Kees talked about We're a prudent bunch of people. That's how we run the bank. We don't know what's in our SREP, so we felt it was important to highlight that as a factor between now and year-end. I do think NPE guidance is a real issue. Not because we have a lot of NPEs, but because there's regulatory change going on.
Okay. We'll go to the back because is it Nick?
No. Stefan from—
Sorry, Stefan. Sorry.
Yeah. Hi, guys. Stefan from Citi. Two questions on my end. In terms of the leverage ratio constraints, it's something that I've always wanted to ask you, Clifford. Why is it a constraint? You're at 4.1%. You don't have that much excess capital, existing excess capital. You can go to 100% payout ratio. You're not growing that much. 0% growth through 2020, 2% thereafter. You're throwing off capital. You don't need to be paying out the existing excess capital because, you know, you're ensuring against future Basel IV developments. Maybe you find some more data inconsistencies. Your Basel IV guidance may go up again, et cetera. You can potentially go to the payout of 70%, 80%, 90%. What is driving that conservatism? Why do you not give the gift to investors today of saying we'll go to 70% or 80%?
Well, we're a bank, right? We need to be prudent. We're rightly regulated given the history of the last 10, 15 years. 4.1% is okay, but I can think of many factors that would drive that lower. If the U.S. dollar strengthens, that leverage ratio will go down. If there are hits to capital, that will affect all those ratios. I'm not unduly concerned about the leverage ratio, but there's not a lot of headroom there. We don't want to push all the metrics to their extreme because you get into the wrong dialogue with the regulator.
The reason we want to run the balance sheet in a prudent way, aside from it being the right way to run a bank, is it means you can have sensible conversations with the regulator about the medium term and not in the short term why your ratio is not good enough. Yeah, you're probably more relaxed about it than I am. I'd like to see that leverage ratio consistently at 4% and not be concerned about what Trump says or what China's doing because the exchange rate's moving around.
Okay.
Is there another question in the back? If not, Albert has got the mic.
Thank you. A few questions as well. First of all, on the NHG or the government guaranteed mortgages.
Yeah.
Is this basically a binary kind of discussion that will be a yes or a no? Is there some middle ground outcome as well possible?
Mm-hmm
You probably see my question coming. If it will be a no, what would be the implication on that 35%?
I think you should speak to Benoît. He's probably more relaxed about NHG. That's not in our estimate because we feel that we get the benefit of the sovereign guarantee and in the Basel III, that should flow through to Basel IV. I think our view is that it's more of a local matter because it's a local guarantee, and the intention of that guarantee is that it is effectively a sovereign guarantee. As the rules set out, it's not completely clear. Currently we've not baked it into our assumption. The way we think about it in our capital planning is that, look, we aim to be fully loaded compliant early in the phasing and if there's some screw up around NHG, then we still have the phasing period to get to where the position we need to be.
Not because we think that's going to happen, we don't then have a sort of gun to our head at the end of the period. We've failed to get there and we're embarrassed and we lose control over the dividend. That's how we're thinking about those sorts of risks.
maybe one small question on the countercyclical buffer. There was an earlier question raised as well on the Dutch mortgage market, the overheating.
Yeah.
Do you maybe expect that the Dutch Central Bank could impose a higher countercyclical buffer? Is that something?
I don't know. Expectative. You have your views. We think the current 13.5% is quite full. We talked about it over dinner.
Yep.
Compared to other banks around Europe. Equally, regulators are looking at all the banks, at this point in the cycle, frankly in the same way you guys are, and thinking: Hmm, ROE is good, capital is good. Should we expect more capital return? That may affect their thinking around required buffers.
Okay.
Thank you.
I think next, first we'll go to Omar. Then we'll go here.
Hi, sorry. Just on the merger of the holdco and the bank. Just to understand, it's excess 81 above requirements at the bank that currently don't count at consolidated level. Does that mean that the 81 shortfall of 60 or 70 basis points that you currently have as an add-on to the MDA trigger, does that go away as part of this merger? The other question, and sorry if I missed this, are there any setup costs associated with this that we need to be aware of for next year potentially?
Yeah. The short answer is yes to the first part of your question.
Great.
The setup costs, I think they're not material to the group. It would be a meaningful kind of legal regulatory activity, but not material to a group of our size. As you know, I think we put a presentation out on the web at the end of last year when the EBA Q&A came in, that sets things out in quite a lot of detail based on the Q3 balance sheet last year. You can work through the calculations there.
Robin?
Think still the setup costs is —
Sorry?
I think they're modest. I said they're modest.
Modest. That's great.
Yeah. They're not material to the group. It's a sort of legal regulatory thing.
Thanks.
Yeah. Thank you. I wanted to talk a little bit more about originate to distribute. I mean, sorry.
Yeah, sorry. Here.
I wanted to talk a little bit about the originate—
Yeah.
to distribute model.
Yeah.
I think Matthias pointed out correctly that the mortgage margin in the Netherlands is higher compared to Europe. I guess originate to distribute would open the market up—
Yes.
to more players. Can you talk a little bit about how fees would outweigh maybe margin detriment in that part of the book? We haven't heard any details about your thinking there.
Yeah.
Which will be helpful. The second question is, just sorry to come back on capital return, but ASR, who you are probably very familiar with.
Yeah.
In the sell-down process of the state, they indicated quite clearly that they can't do more capital return than the capital they generate in a certain year. Is that for you also a way of thinking that if you want to participate in the state sell-down, you basically can't set your payout ratio too high because that would limit your participation, basically. If you set it at 80%, you only have 20% of capital generation—
Right.
to put in the share buyback.
On mortgages, our mortgage book is EUR 150 billion on balance sheet, and we earn a return on that capital. I think Frans talked about our initial thinking in terms of size. I think we're hopeful that will go up. I think as CFO, I feel that's a good thing to do. It's the right thing for clients and distribution. I think we'll earn a margin on it, so it will help absorb overheads. We're not going to make a huge amount of money on it, at least in the short term, in terms of materiality to the group P&L. I think it's the right thing to do for the business, particularly at this point of the cycle. I see it as an attractive asset management type business. High ROE, but fairly low capital because it's effectively a margin business.
Also if insurance companies would get less appetite in the market, they can still originate to distribute as well.
Sure they are.
Still open up the market.
Yeah.
Basically kill your margin.
No, they are doing that. They are doing that. Well, not killing our margin, but they are. The insurers, a number of them are full up, and they're, you know, effectively running the mortgage business as an asset management business, and we can do that. Frankly, we feel we have better platform in terms of processing. We have better brands. We feel we can participate in that business, and that's the opportunity.
Thus far, the insurance companies have not reallocated it basically to external. It's more putting it on the insurance balance sheet.
No, I'm not sure that's the case. Turning that, we can talk about this afterwards. On the payout, I don't know how to answer that question because we had it earlier. It's sort of how are you going to pay out more than 100% of your earnings? Was the sort of question. We talked about our prudence around that, some of the factors. I think it's premature. I'd point you to what I said and what Kees said earlier about buybacks.
Okay. Conscious of time. Marcel, and then we've got one more over there. Yeah.
Thank you.
Yeah, Marcel. Yeah, go ahead.
Thanks for taking my question. Clifford, I am going to give it one more try here on the capital return. I am sorry. I think the language has a little bit changed regarding the buyback and regarding the placement overhang or the government overhang. Earlier this year, you said it was a key target to reduce the overhang quickly as possible.
Right.
It seems that the message, or at least the communication towards dividends, has increased over buybacks. Is that the case?
No, it has. We have said, I think in February, we were clear that it was 50% + additional distributions, dividends, or buybacks. At Q3, we said we had a preference for dividends. It definitely changed. We have been clear in the short term, our preference is for dividends. You see we have accrued 60%. We put our money where our mouth is, albeit subject to the final position at year end. I think we did not want any confusion around and dividends and buybacks short term. At a later date, I would just refer you to what Kees said earlier about buybacks.
Okay.
Short one.
Sorry. Have you started the discussion with the DNB or the ECB regarding the buyback approval process?
Yeah.
It's a cumbersome approach.
We don't comment on our dialogue with regulators. But, I'd say that any buyback approval is a three-month formal process.
Okay. Yeah, we have one more. Two more.
Nick Davey from Redburn. A couple of questions, please.
Nick, can you keep it short, please? Yeah.
Keep them short.
Go on.
Interest rates.
Question.
How sensitive? Good or bad? The second one, well, I have to choose my words more carefully.
See what happens.
This may be a CEO or a CFO question. In terms of financial or remuneration incentives for the top managers in the group, for as long as the government is on the register, do you think you have the right remuneration incentives in place to get this plan delivered to its maximum?
Yeah, I completely agree. That is a CEO question. We'll see. Maybe afterwards, we can both talk to Kees about that. I think on interest rates, there is some sensitivity there, which is why we set that out. I wouldn't get your ruler out on that chart, but it's indicative. We expect interest rates in Europe to pick up at the end of next year, and that will, we think, set the low point in terms of deposit margin pressure. If rates stayed where they are today over time or went lower, that would be a big issue for us as well as other banks. We're being open about it. I think in terms if interest rates moved up quicker, that would be helpful for our NII, and you probably wouldn't see that modestly lower that Kees and I talked about today.
Hopefully that gives you a feel.
Thanks, Nick. One short question from Alicia. And then will—
Yep, just one question from me. First part is on
Okay.
I'm happy to stay afterwards, by the way.
This one's a quick one. You talked about restructuring costs for 2018 of about EUR 50 million.
Yep.
What can we expect going forward after that? Would it be fair to assume, roughly say, for 2019, 2020, 2021 or more? The second question is just, sorry, going back to share buybacks, just a little bit around the logistics of it—
Right.
whether it happens or not over the medium term. You mentioned the three-month ECB approval process. Is there also an expiration date on that? Once it's done, do you end up having a sort of circular reference where you have to keep going back for approval?
Yeah.
What capacity have you got?
On the costs, we thought it was helpful to highlight the EUR 50, given where we are in the year. We're in November. We do expect further costs to deliver the ambition that we set out, and we'd expect that to be part of our overall cost target, because we include everything in our cost numbers. The EUR 56-EUR 58 is including restructuring costs. I think on buyback, a couple of points, which is I would highlight we don't have a preference for buybacks in the short term. If we weren't clear, hopefully we're clear on that. For the buyback, we don't have a preference to do that one. Look, you've demonstrated it's a bit complicated, isn't it? You would have to go to the ECB, get approval, and then I think one of the colleagues here talked about timing it with a sell down.
That's a judgment for another group of people, reasonably, that would reflect the priorities at the time, where the markets were. There's some complexity around that, which is why we have a preference short term for dividends.
Okay. Thank you.
Thanks very much, Clifford. Thanks, all of you. We're nearly at the end. I would like Kees to come on stage and have some key takeaways for you to think about when you drive home tonight.
Of course, we're in London, I don't think you drive, you take a tube, presumably, or train. It's also more sustainable, this is good. Thank you very much for having been here. I hope we have conveyed the message. First of all, we've shown the team. I think that was also part of the meaning of this. We've guided you upfront. Not much new targets. We delivered there. I also think that we have at least shown to you that our updated strategy, actually what it means in several business lines. We've also shown, I think that we are, I'll put it this way, I heard it during lunch, I think, much more advanced IT-wise than some people thought. That is good news as well, I would say. Also reflected in the retail area. You've heard a lot of fee initiatives.
I think that's also something which some people said: Well, we didn't know that. That's good news also. I thank you very much. We will, as we did last time since IPO, we will deliver also in the coming years. We are cautious. We are ABN AMRO, we rather deliver than that we talk too much. We won't overpromise, that's for sure, but we will certainly deliver on the stuff we've promised to you. Wish you a good weekend, and thanks for taking the time here in these turbulent markets. Thank you very much.