Earnings Call: Q2 2017

Aug 9, 2017

Good morning, ladies and gentlemen. Thank you for holding, and welcome to the ABN AMRO Q2 2017 Results Call. I would like to hand over the conference to Mr. Kees van Dijkhuysen, CEO. Please go ahead, sir. Thank you very much, operator. Good morning and welcome to the analyst and investor call on ABN AMRO's 2nd quarter results. Together with Wiecz Rehon and Alexander Ruyser, our CFO and at Interim, we will share our views on the results and thereafter we will open up the call for Q and A. We have diligent executing we are diligent executing our strategic initiatives. We grow our activities, costs are being controlled, IT transformation is progressing well and we have been investing in new and digital products. For Q2 2017, this resulted in a net profit of €960,000,000 up 45% year on year and leading to an ROE of 20%. The net profit benefited from the divestment of our private bank activities in Asia and the Middle East, which had a net effect of EUR €200,000,000 In addition, we made some refinements to our risk models, which led to a release of approximately €100,000,000 pretax. If we exclude these items, the ROE amounts to 14%. Alexander will discuss the results in more detail later during the call. I turn to Slide 3, progress on strategy. If we look at our growth strategies, we see that in our domestic business, we are currently growing showing growth predominantly SMEs, 6% on a yearly basis in the first half year and mortgages. Helped our investments in further digitalization, digitalizing our product offering. Within Commercial Banking, we are looking now to grow also in countries surrounding us, targeting midsized corporates with multi bank relationships. We are currently building small sales teams on the ground and first deals are already being booked. With regard to cost, we said that by 2020, we would fully compensate cost increases due to inflation, investing in growth and innovation. We are on track here as well. If I go to Slide 4, moving to the topic of sustainability, we are gearing up for a new initiative. Almost 2 thirds of our client lending consists of Dutch real estate financing and most of our business lines engaged in real estate financing. ABN AMRO is committed to making residential and commercial real estate in the Netherlands more sustainable. We aim to improve the average energy efficiency of our own and our clients' properties from an energy label D to an energy label A by 2023, our own properties and 2,030, our clients' properties. This represents a reduction of 2 megatons of carbon emissions in the Netherlands, which is equivalent to the annual emissions produced by 800,000 passenger cars. We will focus on making clients aware of opportunities for improving sustainability of their properties by offering online tools and advice in addition to financing products. The transition to sustainable real estate is long term commitment and we will develop and announce further products initiatives and tools over time. Turn to Slide 5. Innovation is a very broad subject, which I would like to limit myself now to the upcoming revised payment service directive, PSD2. We are not only ready for PSD2, but are also developing products that can benefit from open banking. A number of our current products are pre positioning our bank for PSD2. For example, our peer to peer payment application called TIKI is rapidly approaching 1,000,000 users, making it the largest peer to peer payment service in the Netherlands. Currently, TIKI uses an external online payment service to transact payments. Once PSD2 goes live, we will bypass this platform eliminating the costs we currently occur. Secondly, TIKI has now also been rolled out to the business market where companies can use the platform for a fee. Transavia Airlines now using TIKI for your on spot payments for additional services such as excess baggage. Another example is University of Groningen that has started using Tiki to remind students to pay their tuition fees, replacing the more cumbersome debt collection process. Finally, I want to mention the Hackathon. We recently organized a summer. This event allowed FinTech companies to experiment with our AP platform. The hackathon was a success as it generated several ideas for new products. It also demonstrated that developers are able to rapidly build applications that integrate directly with our systems. This is just a flavor of what's going on and how we are preparing for the future. Returning to our target, Slide 6. We have made clear progress in recent years, but also over the last quarter. Cost income in Q2 amounted to 54.9%. Excluding impact of private banking divestment, the Q2 cost income amounts to 58.6 percent, which is moving towards our target 2020 of 56 percent to 58 percent. The ROE for Q2 amounted to 20%, excluding divestments the divestment and refinanced risk models, the ROE amounted to 14%, which is above the target range of 10% to 13%. Our capital position improved further with a fully loaded core Tier 1 of 17.6%. RWAs declined, especially in the Corporate Institutional Banking, driven by a lower dollar as well as lower commodity prices. Our leverage ratio improved by 20 bps to 3.9 as we also manage the exposure measure down. We will pay an interim dividend of $0.65 a share compared to $0.40 last year. And for the full year, we intend to pay dollars last year. And for the full year, we intend to pay 50% of reported profit over full year results. Lastly, on Basel IV, there are a lot of different opinions on where it will end up. We want to be prudent, as you know, and build up a capital position, which is able to cope with any possible outcome. We still expect an agreement to be reached this year. However, if by the end of the year there is still no outcome on Basel IV, we will present an updated view on our capital position in Q1 2018. With that, I would like to give the floor now to Alexander, who will discuss our results over this quarter. Alexander? Thank you, Kees. On Slide 7, we show the results for Q2 2017. Let me first point out that we are comparing underlying results year on year. Q2 2016 underlying results exclude provision for settling client compensations related to SME derivatives of EUR 271,000,000 Looking at the segments, most were able to show higher profits. Retail remained unchanged. However, last year, retail booked a €100,000,000 gain on the stake in Visa Europe. Excluding the gain, the operating result improved by 7%, driven by growth in mortgages and delivery of our cost reduction efforts. Private Banking is showing the €200,000,000 after tax gain on the divestment. And if you exclude a release related to the sale of the Swiss activities booked in Q2 last year, the result for Private Banking is flat year on year. Both our corporate business segments showed better results. Commercial Banking showed a 12% higher profit, mainly due to a €107,000,000 impairment release. Corporate and Institutional Banking benefited from better results for equity participations and CVA, DVA, FVA results. This was partly offset by an additional provision for project costs to settle client compensations related to SME derivatives. On Slide 8, you can see NII amounted to EUR 1,600,000,000 unchanged from previous quarter, but up 1% year on year. This increase compared to Q2 2016 is mainly volume driven. Total outstanding mortgages are €151,000,000,000 up by €300,000,000 from last quarter as the Dutch housing market continues its upward trend. Our market share for knee production was 21% over the last quarter, which is around our natural market share. The loan volume for Commercial Banking, which consists of our SME portfolio, again showed an increase. NII was also helped by non performing loans migrating to performing. ACT, part of Corporate and Institutional Banking, recorded a higher portfolio year on year. Looking at deposits, the rate paid on retail savings stood at 15 basis points at the end of the quarter and 10 basis points as per the end of July. Margins on deposits for Commercial Banking declined somewhat. Client rates are 0 for most clients with negative rates charged to a selected group of clients. On Slide 9, you can see that fee income declined year on year mainly as a result of the Private Banking Asia divestment. Correcting for this, fee income remained flat for the Group and Private Banking showed an increase. Stock market sentiment improved compared to Q2 last year, leading to higher fees and higher client assets. However, within retail fees climbed as the result of a reduction in fees charged for payment packages. Other operating income includes $255,000,000 from the sale of Private Banking Asia in Q2. Excluding Private Banking Asia, the run rate was above the EUR 125,000,000 indicated earlier because of relatively high private equity participation results, EUR 52,000,000 and positive hedge accounting related income of €68,000,000 Turning to Slide 10. At first glance, the expense line does not show the underlying trend, which is lower costs. Expenses increased by 9% year on year due to a number of factors. First, we booked EUR 56,000,000 in expenses related to the Private Banking divestment. Secondly, EUR 54,000,000 of additional costs were booked for handling the SME derivative settlement. Furthermore, personnel expenses include €25,000,000 of additional restructuring provisions. If you exclude these costs as well as regulatory levies, we see a decrease of EUR 43,000,000 thanks to progress made in cost savings programs. The effects are also visible in our FDA levels as these declined by 1183 over the last 12 months, including 300 related to the Private Banking EMEA divestment. Lower FTA levels were partly offset by wage inflation and higher pension costs. FTAs for non employees declined by 475 to around 4 1,200. This reduction is the early result of a number of cost savings programs. However, we have quite a bit further to go still. With that, I'd like to hand over to Richard. Thank you, Alexander. Ladies and gentlemen, good morning. Let me take you to Slide 11, loan impairments. This slide shows that for Q2 overall 14 basis points of releases were booked. For Dutch SMEs, net release of €107,000,000 was booked. Mortgages showed a release of €40,000,000 The releases were driven by the good performance of the Dutch economy as well as some refinements to our risk models. Approximately €100,000,000 of releases are due to model refinements and are therefore incidental. For SMEs, we went from a model based on individual assessments to a collective model, which enables better modeling of the fact that some of the files will cure. For mortgages, we refined our model, which allows us to better capture the current economic circumstances and in combination with the significant improved Dutch housing market. This has led to an additional release. Corporate Institutional Banking recorded EUR 57,000,000 of impairments. Excluding ECT, the other businesses all showed releases. Take you to Slide 12, some detail on ECT. If we look into this, the on balance sheet loan portfolio decreased by 8% during the Q2, 1st Q1 2017. And this decrease is explained by weakening U. S. Dollar as the vast majority of the loan portfolio is dollar denominated and lower commodity prices. In dollar terms, the energy portfolio grew, particularly in the U. S, whereas the transportation portfolio remained stable. Declining commodity prices, especially oil prices, led to a decrease of the utilization within commodities. Impairment charges for Q2 to 2017 amounted to $82,000,000 and were almost equally divided across the three sectors. Loan impairments for transport and oil and gas related exposures have stayed within the loss scenarios we gave last year. Impairments for oil and gas remained even below the mild scenario and impairments for transport are currently between the mild and severe outcome. We are able to cope with these impairment levels and continue to write new business where we see opportunities. We are also expanding into a number of new and adjacent sectors being food production, renewables, utilities and basic materials and have done some initial deals in these sectors. With that, I would like to hand back to Kees. Thank you very much, Wits and Alexander. And I would like now to ask the operator to open the call for questions. The first question is from Mr. Bernard Petrarque, if I say it correctly, I'm sorry. You can ask your question. Go ahead. Yes, good morning. It's Bernard Petrarque from Kepler Cheuvreux. The first question will be on the capital. Assuming there will be no deal on Basel IV by year end, would you kind of agree that a 50% payout is probably a bit low for ABN looking at loan growth potential. Would I like to get your view on that, on distribution going forward potentially. The second one will be on the PV business. So net new money of EUR 3,200,000,000 euros I was wondering where it comes from, whether you've seen some inflows in discretionary mandates and also in kind of which asset class it went just to get a feel about a potential impact on the fee business going forward, the fee line going forward? And then maybe on the volume side, clearly, the domestic market is doing well. I think Commercial Banking posted a 1.6 percent loan growth quarter on quarter. What is the kind of loan growth outlook for the Netherlands for the rest of the year? Could you share that with us? Thank you. Can I start with the first question? And then, Alexander, if you would like to take the other 2? In when there is the no deal, the question is then your question was 50% not too low due to well, not a high loan growth of the bank. What we want to do is in 6 months' time come up with an analysis on if there is no deal, of course, come up with an analysis where we stand, what we expect at that moment in time, our best guesstimate in 6 months' time around Basel. Hopefully, there is clarity. If not, we have to make a guesstimate there. And then of course also make an assessment of our future capital position related indeed to growth of the business, growth of the market and so on. It's too early now to draw conclusions already, so I can't do that. But we acknowledge that, of course, we hope Basel 1st Jan, then it was summer, then it was September, now it's October and now nobody knows. So we'll see. So if there is no agreement, we will communicate investors opposition then. But it's now too early to come up with a conclusion yet. Okay. So your second question, the net new asset growth, I don't exactly know by heart what percentage is cash and what is investments. So at this moment, I would expect it to be more or less in line with the portfolio that we currently have. We see growth in the Netherlands, and we see it also in some of our outside activities outside the Netherlands. But I would expect it to be broadly in line with the composition of our current portfolio. When we talk about loan growth outlook for the rest of the year, starting with the mortgages, the mortgage as earlier said, mortgage book has shown some growth over the last quarters. Our guidance is that we more or less expect it to remain to be flat going forward, the size of the book. And so being able to compensate redemptions with sufficient writing of new mortgages. If you look at the Dutch SME book, we've seen some growth now for the last couple of quarters. We would expect to see some more growth going forward on that book. And with respect to the core institutional banking book, disregarding the effect of the commodity prices and FX, we have seen growth there over the last and high large number of quarters. That is in line with our growth strategy in which we have said that we would like to grow in that particular activity. So again, there we would see further growth taking place going forward. But please bear in mind that on an absolute level, the FX and commodity price effects can have a dampening or depending on the direction an increasing effect on face value. Okay. Thank you very much for that. The next question is from Mr. Benjamin Roy from Deutsche Bank. Go ahead, sir. Yes, good morning. Two questions on costs, please. Stripping out the negative one offs you mentioned in the quarter and also the regulatory levies, I get to more or less an underlying cost base of EUR 1,200,000,000 in the quarter. Is that something we should take as a run rate going forward? Or is there any cost inflation projects and investments slightly to increase? And then secondly, specifically on the SME derivatives, you booked another charge in the Q2. For how long can we expect this topic to drag on? Or do you expect to find the final conclusion in the next month on that? Thank you. Okay. On the first question, yes, we still need to pay regulatory levies. That's not in the EUR 1,200,000,000 that you when stripping out everything. So first of all, I think we should take that into consideration. Secondly, yes, we will be confronted with inflation and wage drift going forward. And as said earlier, our long term cost goal is to keep the costs flat compared to 2015. I would like to reiterate that we still firmly believe that is achievable targets that we will be able to free up sufficient means to compensate for wage inflation, for the additional regulatory levies and for the additional costs that we are doing with respect to innovation and digitalization. The exact development of our costs between now and 2020, I don't want to allude too much to it. The only thing that we can state is that we have seen until now underlying positive trends as of the results of the various cost measures that we've taken and which has resulted in the number that you've seen in the Q2 of this year. SME derivatives, indeed, addition this quarter, we indeed hope that this is now the last one we have to realize. But having said that, of course, every quarter we have to look into this issue again, but we hope that this was the last addition. Thank you. Next question, Albert Ploegh, ING Bank. Please go ahead. Yes. Good morning, all. A few questions from my side. First, to come back to the Dutch mortgage book. I mean the risk weighted asset density declined slightly now to 2.9%. How do you look at this trend and also in relation to the ECB TRIM exercise? 2nd, on the mortgage book, you mentioned more or less flattish going forward. Should I see that also a little bit in the context of you trying to manage the margin on the book so that you're willing to sacrifice a little bit market share, which seems also to have come down a bit in the second quarter. And the third question I have, if I may, is on the risk models, the 2 models that have been reviewed. Can you give a little bit more color on that? And can we expect any more modules to be also explored for further optimization? Thank you. Okay. I will take the first and third question, Albert. Thanks for the questions. The first one is on the somewhat lower indeed risk rate on the mortgages compared to the last quarter. Reason simply is because we have been seeing an improved credit quality, better credit ratings, better collateral value, I. E, a lower Hervean weight. Your question, what would be the result of TRIM in respect of the mortgages, we don't know yet. It's one of the portfolios TRIM is looking into in our bank. We will have an outcome at the end of this year. I expect some findings there. So probably we will see some impact there. As to your question to the refinement of the models, which has an incidental input and effect of €100,000,000 Partly of that actually is in an IPNI release, still models. It's the model for the SME type of clients. We have the impaired defaulted clients. What we've done, we switched from a manual to a collective model, which has the better impact of fewer activities and fewer rates of clients, which we now see into releases. So it's also dealing with improved collection processes, etcetera. The other one is on the residential mortgage, where we moved to one point in time model. That's regarding defaulted and performing portfolio. So that explains a part of that benefit is in the IPNI release. My guess is that we will see for the next quarters somewhat more some smaller releases from that. Your question, what kind of other model changes could we expect? As you know, in the last analyst call, we explained something on our operational risk. There were some additional risk weighted assets. We still expect actually that we will see a €2,000,000,000 to €3,000,000,000 reduction in risk weighted assets as to operational risk end of this year, beginning of next year. Well, for that, I would say, for the moment, that's it. And the second question, I think it's So, Hamzah, the same question. Yes, indeed, we manage our mortgage book on the basis of optimizing our net interest income, which entails that we indeed look at our volume in relation to the margin that we produce on the book. So as stated earlier, on the one hand, we believe that 20% market share is our natural market share. On the other hand, if we see opportunities to increase our market share with margins that we find sufficiently attractive, We are happy to increase our market share. On the other hand, if we see a pressure on the margins or margin development that are depressing the margins, we also accept somewhat lower volumes. So all in all, I think we look at the development of the book on a margin and volume basis, and that's how we manage our volume. Okay. Thank you. Next question is from Mrs. Alicia Chung, Exane. Please go ahead. Good morning, everyone. Just a couple of questions from me. We obviously, we're still seeing some fee pressure from payment fees in Retail Banking more from the business segment side this time because of some of the payment package phase in that we're seeing, but also some higher competition in fees from commercial banking. Just wondering how we should think about that going forward? Also as we think about PSD2, which of course is coming in to play next year, it sounds like you have been positioning yourselves for that now. But can we assume some structural pressure on the payment fee side from that as well? So that's the first question. Then the second question, just on NII. Firstly, are you able to quantify how much of the NII uplift in Commercial Banking was due to the release from reperforming loans? And then also, how should we think about margin pressure and market share pressure going forward now over 2017 to 2018 because that seems to be one the points that you've flagged a couple of times? Thanks. Okay. So on the payment packages, yes, we have seen some price cuts here. At this moment, I don't foresee any changes at this moment going forward. Now with respect to PSD2, yes, that is a question where you can look at it from an offensive and defensive side. Indeed, we are positioning ourselves to also play an active role and take benefit of the possible developments as a result of Phase Day 2. However, given the quite big change that the competitive landscape might show as of the introduction of Phase Day 2. It is for us too uncertain to exactly assess how that will look like and whether that will net net result in fee income increase or net net result in fee income pressure. Therefore, current insight in how we will compare to our competitors is still 2.40%. So for me, very difficult to give you guidance from that angle. Now with respect to your question on the income as a result of the loans being active again. On group level, the effect is marginal, minimum, I would say. I'm not able to give you an amount to it, but the only thing I would say is that this is a fact that we clearly see every quarter also in Commercial Banking, given the fact that we have seen quite some releases coming forward. The only way that the only reason that we mentioned it in this quarter is that it was this quarter maybe somewhat higher than in other quarters. But also again here, this is another one off meaningful big event in the Q2. It's just to give you some color to what extent the NNI is also being influenced by this effect. And well, clearly, given the improvement of the economy, that is an effect that we probably will see going forward. On margin pressure, yes, I think the market is becoming competitive again, increasingly competitive, and that will entail probably similarly as with respect to our mortgage volume, and it will constantly make an assessment to what extent we find the pricing attractive compared to the risk. Okay. Thank you. So just on that, would it be fair to assume that the current net interest margin stability that we've seen so far will continue? Or would you expect more pressure going forward on a group level? Well, if you talk about the SMA book in the Netherlands, it indeed has been quite flat over the last quarters. So I would view that as flat going forward, flattish. If we talk about the Corp Institutional Bank, there we have embarked on growth towards clients which have a lower risk profile, and that entails that we are also happy with margins slightly decreasing there because of the pickup in the credit profile of that particular client group that we are now looking at. Mr. Lambert? Oh, yes. You can ask your question. Thank you. Good morning. I have two questions. First of all, how much of the risk weighted assets quarter on quarter reduction has been driven by FX and by model change? And secondly, regarding the day 1 effect, you're going to see the IBNY provisions. And do you expect the volatility under IFRS 9 to be higher than the IDNY provisions? Or if you can give a kind of indications of what you expect? Thank you. Yes. So the impact of the RDO RWA reduction was EUR 2,000,000,000 related to credit RWA. A good part of that was indeed related to the FX movement that we've seen. And partly, it was also related due to the commodity price that has gone down. I don't have an exact number for you now. What exactly has been the FX part with respect to the RWA reduction on credit risk? Let me take the second question or question as to the impact of Ivers 9, but also of the kind of composition, ipni and perhaps going forward. The Lantron is very difficult to assess at this moment. But what we can say, of course, is what we also said in the communication. We expect an impact, the so called 1st day impact, which we will not phase in by the way because we think it's rather small. It will be lower than the 45 bps as in the broader EBA assessment. Your question, I think, was to volatility. We do expect more volatility in the impairments going forward. It's actually a result of the IFRS 9 methodology. I said again, this is nothing to do with the risk profile of the bank, the risk in the books, whatever. The only thing which is changing is the timing of impairments. Well, we're sort of refining our models right now. We have to see what will happen in the near future at what moment exactly, for example, the Stage 2 impairments, which were the more higher impairments for the lifetime expected loss, should kick in. So as I said again, a small impact day 1, going forward more volatility in terms of impairments. Thank you very much. You're welcome. The next question is from Mr. Matthew Clark, MainFirst Bank. Please go ahead, sir. Good morning. Couple of questions. Firstly, on mortgage margins, could you just give us an update on where your front book mortgage margins are relative to your back book mortgage margins. From the outside, it looks like mortgage rates haven't picked up as much as swap rates. Maybe there's some pressure there, perhaps you could comment. Could you also comment on the swing in Corporate Center net interest income? That's quite a big move 2nd quarter versus Q1 and whether that's sustainable going forward? And then finally, on Basel IV, do you have any thoughts on whether you would want to move quickly to full compliance with a fully loaded Basel IV ratio on day 1? Or would you be prepared to use transitional measures to get there over time? Any thoughts there, please? Thank you. Yes. So as earlier mentioned, we have seen the mortgage book margin on the total mortgage book improve over a long set of quarters. And as earlier indicated, our prediction was that in the Q2 of 2017, the let's say, improvement in our total book would flatten out. That is exactly what happened in this quarter. So in this quarter, the total margin of our bookings remained flat. So just redeeming our at the same time as mortgages that we are writing. And do you expect that to persist? Well, to be honest, that is a difficult question because that will depend on further development of the competition. And as I said earlier, it's very difficult to exactly quote that. We are happy with the total margins we see in the book and we'll try to find a right equilibrium in terms of margins in volumes to maximize our net interest income of our pension. So the decrease in our net interest income in group leverage was primarily driven by higher costs that we have this quarter compared to the Q1 of last year, mainly related to mentioning our LCR ratio. Then with respect to Basel IV, I think your question on will we from the start use fully loaded comply with fully loaded already that is typical question we will of course discuss in the next 6 months with respect to our well update we will give you in Q1 of next year. So that is absolutely one of the questions. Okay. Just coming back to the Corporate Center net interest income, should we see the 2nd quarter as a run rate level? And is that an atypical of where your LCR is currently? Or how should we judge what's the normalized level there? Yes. Well, to be honest, that is quite that's the net interest rate at Group Functions is, to a certain extent, also a technical line, given that many effects ultimately come together in the net interest income line at Group Functions and they relate to LCR, but also to the way that we internally transfer price. So probably you've seen that there is quite some volatility on that line, sometimes above 0, sometimes below 0. So I would think it will be best to take just a number of quarters, look at the average of that and take that as a run rate going forward. Okay. Thanks very much. Ms. Anke Reingen, RBC. You can ask your question. Yes. Thank you very much. Two questions, please. The first is on your provision guide, what you said previously, the 25 to 30 basis points, does it still apply under an IFRS nine word? And also considering your earlier comments about shifting towards lower risk portfolios? And then secondly, on the leverage ratio, you seem to have changed the potential benefit from a change in the clearing exposure treatment from to 40 to 50 basis points reduction? If that changes, has there been any recalculation or anything else? Why has this changed in spite of the lower or the higher leverage ratio in the quarter and the lower leverage exposure? Thank you very much. I will take the first question as to the guidance on risk, cost of risk. I said again, IBS 9 has nothing to do with the risk profile of the bank, nor with risk in books or loan books, whatever. It's simply a difference in timing of taking the impairments. And that in itself causes some volatility. But with the risk profile of the bank, it has nothing to do. So the guidance we have given on group level for cost of risk, 25, 30 basis points stands where it is at this moment. Okay. Could you please repeat your second question? I didn't exactly quote your question. It was about the change in your guidance about the potential benefit in the leverage ratio from a change of the clearing achievement of the clearing exposure. I think before you said it's about 30, 35 basis points benefit to the leverage ratio, and now you've changed this to 40 to 50 basis points benefit. Yes. And but the leverage exposure has come down quarter on quarter. So I just wondered about how this comes. Yes. So there's actually 2 questions. The first question is, yes, we have updated our impact analysis. As stated in our quarterly report, this is how we currently look at it. But please be aware that the timing of this possible release is still very unclear, and it's probably the thing that we are mostly focusing ourselves. But if we would come to a secure world, there will be a significant impact. Secondly, I guess, we have seen a decline in the Q2 compared to the Q1, and this was also partly related to market movements we saw in the last couple of days in Q2 of this year. Okay. Thank you. Next question, Bart Horsten, Kempen. Please go ahead, sir. Yes. Good morning. I also have a few follow-up questions. First, on your loan growth, you refer to loan growth outside of the Netherlands. In other markets, Could you indicate which markets that are and what percentage of your loan growth now comes from foreign countries? Secondly is on your interim dividend. You pay out EUR0.65 which is a payout ratio of 40%. If I remember correctly, last year, it was around 45%. I was wondering why it's lower now in combination with the fact that you still stick to your 50% payout for the full year? And my final question relates to potential share buybacks. So you got recently you got approval from the AGM to buy back shares. And I was wondering how likely it would be that you buy back shares, for instance, in the next sell down by NLFI before you disclose your new capital plan in Q1? Thank you. Okay. So the first question relates to loan growth outside the Netherlands. We don't show our loan growth outside the Netherlands. What I can share with you is that the Corporate and Institutional Bank showed a growth of €600,000,000 in the second quarter if we eliminate the FX effect and the effect of commodity prices. Half of that related to growth in the ECT portfolio, which is, I would say, almost predominantly outside the Netherlands. So I think it would give you a good indication of our loan growth outside the Netherlands. We've seen a small, small growth with respect to the initiative with respect to Commercial Banking outside the Netherlands, but that has been a significantly smaller. Okay. Now with respect to your interim dividend question, I think here you should take into account last year we had a negative SME derivative item in the reported profit of around €270,000,000 which made us decide to give 45%, so actually the yearly figure also on the interim. This year, we have actually a positive effect PBI Asia, but also the incidental one offs in the risk models. So this year, we have a positive one off, say, 2.75% net. And that has made us that made a decision. The reason there is that we decided to do a 40% while of course keeping the 50% on reported for the year intact. Share buybacks, we will not communicate on if we would ever do that upfront. Okay. Thank you. Next question, Fotman Jain, Macquarie. Please go ahead. Yes. Hi, there. This is Fazwan Jaiyin from Macquarie. Just had a couple of questions. First is on your cost savings program. You mentioned at several places that you saw the benefit of from your cost savings this quarter. Could you quantify those savings for us? And where exactly did you see those cost savings coming through? Is it from the plans that you announced last year? Or is it still from the TOPS 2020? And second question is on loan growth. You mentioned about you're seeing small loan growth in the commercial banking outside Netherlands. Could you just give a bit more color given that your strategy is to grow in the selected markets outside Netherlands? Thank you. Okay. So the benefits that we see are the result of the various cost program initiatives. First of all, we see the initiative of the TOP 2020 program that was announced a couple of years ago. And that has resulted in lower costs for our 3rd party providers. And that cost reduction is feasible in the general and administrative line item. But we also see further reduction in staff and non staff FDA because of the reduction on the retail program, the retail digitization program. In addition to that, we see also the benefits of the cost programs that were announced last year. So we had a program with respect to reducing the cost for our control support functions. That's resulted in a reduction in internal and also external staff in our group functions. And in addition to that, we've also seen a reduction in staff because of the program around digitalization in innovation, which has resulted in a reduction on staff in our TOPS activities, which are also booked in group functions. You can see more on that by the way on Slide 10 of the presentation, gives you a good overview of the cost development over the last quarters. Then your second question, yes, if you look at our strategic announcement that we announced last year, on the one hand, we said that we would also look in financing around the Netherlands, mid corporate clients, especially in Belgium, France and Germany. So we're in the progress of developing that business. And in addition to that, we also have asset based financing activities in Germany, France and in the UK, where we've also seen some developments. Okay. Thank you. Next question, Damian Susette, Morgan Stanley. Please go ahead. Hi, good morning everyone. Two questions from me, please. In Private Banking, I think you indicated that more than half of the net new assets in the quarter was driven by internal client transfers from Retail Banking. Is this a process that is completed as of today? Or do you expect further onboarding of retail clients into your private bank in the coming quarters? And my second question is on risk weighted assets. You had this €3,000,000,000 increase in uprisk RWA in the previous quarter due to regulatory add on and this number remained flat in the Q2. Do you still expect increase this increase in op risk RWA to reverse? And what would be the timing for this place? Okay. I'll take the first question. We have finalized that referral program. We are, however, I think more than halfway. But you would expect the next 1 or 2 quarters to see some more flows because of this change in limits through our numbers. Let me answer the question on operational risk weighted assets there. Indeed, more or less flat this quarter, but still what we expect the addition of SEK 2,000,000,000 to SEK 3,000,000,000 in the Q1, we noted will be reversed in the second half or the beginning of 2018. Okay. Thank you. Welcome. Next question, Marcel Halben, Credit Suisse. Please go ahead. Good morning, gentlemen. Thank you for taking my questions. I have 2 left on OpEx. Could you elaborate a little bit more on the investments in digitization and innovation, the EUR 2,000,000,000 or sorry, EUR 200,000,000. How much of it has already been implemented by now? And then just to come back on the capital return, can we just can you confirm that we can exclude any special dividends or share buybacks before the end of the capital review in the Q1 of 2018? Thank you. Yes. So your first question, when we announced last year that we would increase by 2020 the amount of investments in innovation and digitization by €200,000,000 compared to the year 2015. So that's been the announcement. We have not given you exact numbers with respect to how much that would be within the intermediary years. However, what I can say in addition to that general announcement is that part of the additional investments in innovation and digitization need to be financed by the savings that we are able to generate. So I would say that compared to 2015, we have increased already our investments for innovation and digitization, but the exact amount, I cannot give you an exact number on that. With respect to capital return question, I think we have stated now for a lot of supporters every time that we await Basel IV before doing anything. And I think now we have made the announcement that in the Q1 of 2018, we will look into our capital position again. So I would like to stick to that to those two statements. Okay, fair enough. Thank you. Next question, Tariq El Mejjad, Bank of America Merrill Lynch. Please go ahead. Hi, this is Tariq Le Mejjad from Merrill Lynch. Just a few follow-up questions, please. First on capital return. I just want to understand here your thinking on that because you wait few months, know what's happening on Basel IV then decide to do what to do with excess capital. But what do you think, I mean, next 6 months will change if there's no deal in next October meeting? I mean, if what if like in October, no press release, no one knows what's happening and then another meeting is scheduled in February, let's say. So would you just consider that basically nothing has happened? And then you've been always highly concerned about the Basel IV, so I'm surprised by this reaction. Would that mean that any special dividend or higher payout would be quite symbolic or slightly higher? Or should you expect something transformational? And my second question is on the leverage ratio. It takes for the updates on the impacts of the new rules on derivatives exposure. But what about the negative impacts from the credit conversion factors? Previously, you've indicated around 15 basis points. How much is that now? That's it. Thank you. Thank you very much for your questions. With respect to I take the first one capital return. As I said, when we will stick to the when it would be the same as in the last, say, 6 to 12 to 18 months that all the time postponed and so on. I think that will be a moment in time in the Q1 and not decided yet exactly when. So I don't know about a question then if there is a February meeting, what do you do? I mean, there's too early to tell. We will see at that moment in time what to do depending also on the state of play around Basel. But in Q1, if there is no agreement, we will come with a communication capital position. And I think with respect to the question around Basel IV that we have always been very cautious there. That's correct. We still are. Because as you know, Northern European countries also countries with low risk ways for mortgages, of course, are seriously influenced by discussions around a 70%, 75% outlook for. Yes. And then your second question with respect to the impact of credit conversion factors, I don't think that that has changed since earlier announcements. Okay. Thank you. Next question, Stefan Nedialkov from Citi. Please go ahead. Hi, guys. Good morning. It's Stefan from Citi. So just to follow-up on Tarex question. In terms of your guidance, is it correct for us to assume that if Basel IV, we have a definite answer on, obviously, you get the go ahead and you can give us your capital guidance. If Basel IV has not been cleared, then you're very likely to give guidance KBC style where you basically put in a buffer relative to your peers on the basis of Basel IV impact. That's my first question. The second question is, and I apologize if this has been asked already, currently, what are the risk weights on Dutch mortgages? And the third question, in terms of the FX effect on capital, how should we think about that? Is it fair to assume that obviously your underlying exposure in U. S. Dollars is U. S. Dollars and that is not hedged, I. E, you keep capital in euro terms and that euro capital base is not hedged, therefore, you get benefits like we just saw in the Q2? Thank you. First question, I think good question, but still not decided on our side what we will do then. So just too early to tell, risk weights on mortgages 10.9. And with respect to your second your third question, we do hold a small amount in capital in U. S. Dollars. And most of it would be in euro terms basically and therefore you get the unhedged benefits? Correct. Okay. Thank you. Next question, Brijesh Kumar, Associates and Generali. Please go ahead. Hi, good morning all. Just one quick one for me. Can I get some additional color around your issuance plan for rest of 2017 or say early 2018, especially around sub debt in past? And you have said that you're looking to meet the 4% leverage by end 2018, and that may include some AT1 issuance. So when can we expect you to be in the AT1 market? And talking about 8% MREL, where are you on potential NPS issuance? Thank you. Yes. So indeed, we've said that we would be above 4% by the end of 2018. And as earlier mentioned, there are various instruments to get there, capital generation, the management of our exposure measure and sub debt. I think that these 3 are still all relevant and applicable. And I don't I have no intention now to talk about what we're going to do when, but we will we still have these three elements in our position to manage the better merger towards our target. Okay. And what about NPS? Any color on that? What's happening there? Non preferred? Yes. Unfortunately, we have no news on that since the last quarter. Very unfortunate for us. This is an important piece of legislation that we are still desperately waiting for. And yes, as soon as we and the market is being confident, we'll let you know. Okay. Fair enough. Thank you. Next question, Matthew Clark, MainFirst Bank. Please go ahead. Sorry, just a follow-up on your comment earlier. I appreciate that you don't want to and won't signal any intention to buy back ahead of time. I just wanted to check whether you have all the necessary regulatory approvals in place so that it would be an option if you wanted to? Or would you need to seek special additional permissions from the ECB or whoever before you could do that hypothetically? Thank you. Sorry, Matthew, no comment. Thank you. Next question, Robin van den Broek, Mediobanca. Please go ahead. Yes, good morning, everybody. First of all, it seems that cutting the deposit rate in the Netherlands has still been a mitigating factor to manage your margin. You're now at 10 bps in the Netherlands after 3 cuts this year. Once we're at 0, presumably, there's this mitigating factor is no longer going to be available. Should we assume margin pressure to increase after that point? Secondly, can you remind us about the TLTRO funds you've taken and how you're accruing NII on this? Presumably, you're using 0%, but you're growing now. So I was wondering to hear your thoughts on potentially booking 40 bps or 20 bps on the TLTRO funds and when will that decision take place? Thirdly, I was just wondering, you've been speaking about M and A in the for Private Banking, for example, in Europe. Are there any files on the table here? And fourthly, can you remind us what part of your balance sheet is in U. S. Dollars? Because quarter to date, I think the average U. S. Dollar on spot has also decreased by 7%, so there's potentially some NII slip ins for the Q3. Yes. So I will take your first question. It was around Post rate then, yes. Yes. So yes, we haven't even mentioned down to 10 basis points now. As we said also in the previous quarter, we are not in the position and not allowed to give any guidance with respect to pricing of our deposit rates going forward. So I'm unfortunately not able to give you any guidance going forward on that. Your second question on TLTRO, yes, at this moment, we indeed use the 0% as a basis for booking the interest that we well, they will receive on the tail tail. So in the numbers for Q2, you see the 0%. And indeed, once we have sufficient proof and how do you call that comfort with respect to the growth of our portfolio, we will be booking the minus 40 basis points going forward. So with respect to your question as to USD exposure on your balance sheet, approximately 10% to 15% of our total loan book is in dollars. However, bear in mind that a large part of that is being booked in the Netherlands. So the capital being holds to that is in euros. M and A question piled on the table, that we never comment on that. So sorry. I mean maybe to come back on the margin question. If there's no deposit cuts possible anymore, will margin pressure increase? Maybe that's the right way of putting the question there. Yes. Okay. Thank you. Next question, Ms. Pace, Societe Generale. Please go ahead. Hello. Thank you very much for taking my questions. Two quick questions on my side. First of all, on the NII trends in Commercial Banking, you reported continued pressure on deposit margins this quarter and mentioned that only a selected group of clients are charged negative interest rates. So do you plan to change your policy on this at any point this year? And then the second question comes back to the CIB and to the portfolio shift you operated towards better rated clients. You still recorded a quite elevated number of impairments this quarter despite this. So can you just give us a bit of color on when you think you should get some positive effects from this change of portfolio mix and cost of risk trends in the CIB? Thank you. Yes. So on your first question, indeed, we have seen margin pressure. I again cannot comment on what our policy will be going forward with respect to additional with respect to pricing negative rates to clients. The only thing is that I can say that we are always looking at this, but I can't give you any forward guidance on that. Your second question as to the, what you call, the shift between the, let's say, increasingly more targeted as to the better rate of clients instead of the current situation. Put it somewhat in perspective, we are, of course, facing downturn markets in the ECT markets. That in itself justifies why we have been coming out with the scenarios a couple of quarters ago, especially in areas around the offshore services, oil related services, we faced some issues. Still, the tonnage being given there are holding in up to this moment. You may expect that as we are now from the business perspective writing more business with, let's say, the better rated clients in, for example, the commodity markets, You may expect that over the next year, we will slowly see kicking in some of the advantages of that. But bear in mind that there is something different than now, let's say, the scenarios of the impairments being given in those specific business segments. Okay. Thank you very much. And there are no further questions at this moment. You can continue. Okay. Thank you very much, operator, and thank you all for your questions. I'd like to briefly wrap up. As we've shown, I think we have been diligently executing our strategic initiatives, growing our activities and costs being controlled, worked hard on our IT transformations, progressing well, have been investing in a lot of new products and digital channels. And we're of course also very proud of our sustainability initiative this quarter. It leads me then to conclude that we are on track to achieving our 2020 targets. And with that, I wish you a nice day or a nice continuation of your holiday. Thank you very much for a new holiday. Ladies and gentlemen, this concludes the conference call. You may now disconnect your line. Thank you for your participation and have a nice day.