Hello, and welcome to the ING Q4 full year 2022 results call. Please note, this call is being recorded, and for the duration of the call, your lines will be on listen only. However, if at any point you require assistance, please press star zero and you'll be connected to an operator. I will now hand over to your host, Steven van Rijswijk, to begin today's call. Thank you.
Thank you very much. Welcome, and thank you for joining here, both at Cedar and also, people on the phone on the webcast. Welcome to the call. I'm here with Tanate Phutrakul , our CFO, and with Ljiljana Čortan, our speaker. I'll give you a short update on the developments for 2023, but also the Q4, and then we will open the meeting for questions and discussion, I'm sure. I think we can look back on a successful year for ING. We should continue to execute the strategy, attract more customers. We serve with improved digital offerings, and also we helped in their sustainable transitions. And of course, in many aspects, 2023 was also a challenging year as geopolitical and economic shocks affected many of our clients and the societies we operate in.
But at the same time, the economies that we operate in improved resilience with low unemployment, inflation coming down gradually over the Q4, but rates also turning positive at an interest pace. And overall, we are pleased that both retail banking and wholesale banking contributed to our exceptional results over the year. The net profit for 2023 almost doubles to EUR 7.3 billion, bringing the return on equity to 14.8%. That was driven by the higher net interest income and our continued low risk costs, which reflects our strong asset quality and disciplined risk management. In retail banking, we added 750,000 primary customers to a total now of EUR 15.3 million primary customers, our customers who choose ING as their main bank, and the growth came especially from Germany, Spain, and the Netherlands.
And in a challenging housing market in many countries, because the number of dwellings to portfolios went down, we were able to grow our mortgage portfolio by EUR 8 billion. And in a competitive savings market, our retail deposit base grew by more than EUR 18 billion, EUR 18 billion over the year. Corporate clients, they continue to benefit from our global reach, local knowledge, and sector expertise in the bank, and that results in a double-digit income growth in wholesale banking. That also include the focus on our capital efficiency, which is bearing fruit, reflecting in a significant increase of income over capital deployed. So that's the efficiency of capital that we use in the bank. If you look at the Q4, we saw net results rising to by 43%, to EUR 1.6 billion. That's compared, by the way, to the previous year, same period.
That was driven by 11% higher income year-on-year, with net interest income holding up well in the quarter, growth also in customers and lending and stable deposits. Risk costs remained low, EUR 86 million, again, reflecting our strong asset quality and disciplined risk management. And as you know, sustainability is a key strategic pillar for us. We do it by engaging with our clients in their transition to more sustainable businesses, and that is key, that inclusive approach to our climate approach. And one way we do this in wholesale banking is also using a digital tool that we developed to collect information on the transition plans of these clients. And 2023, we applied that to over 2,000 of our largest and most relevant wholesale banking clients.
In retail banking as well, we're progressing well with introducing sustainable alternatives for key products in most of our markets. As you will have seen earlier, that was in December, we announced, we made some announcement on the back of COP28, and these were two announcements. One is that we will speed up the phasing out of financing of the exploration and production of oil and gas, gradually bringing our portfolio to zero by 2040, so 35% down by 2030, and then complete it to zero by 2040. We aim to triple the financing of renewable energy to EUR 7.5 billion annually by 2025, from EUR 2.5 billion in 2022.
That's also on the back of agreements that were made in COP. Looking ahead, we need to remain vigilant, given the ongoing geopolitical uncertainties, and we remain focused on delivering value for all of our stakeholders. In that setting, we're confident that we'll be able to continue to deliver a sustained return on equity of 12% as economic indicators are stabilized with everything, interest and inflation. We will do this by building on our strong growing customer base and diversification and are improving services for our customers. In short, 2003 was a year with exceptional results, where we attracted 750,000 additional primary customers and grew in deposits and also in lending. The rapid increase in interest rates, growth income, and our continued low risk costs reflected our strong asset quality and disciplined risk management.
Net profits doubles almost to EUR 7.3 billion, bringing our return on equity for the year to 14.8%. With that, we move to the conversation. Who can I hear this for?
Okay, I raised your hand.
Oh.
I was wondering, could you maybe elaborate a little bit more what you see happening on the deposit markets in the Netherlands?
Well, we do see that customers still continue to save. So, the concentration is certainly pretty high, the market is still relatively uncertain. Also, in the Q4, we have seen the deposits amount increase. It was actually the case in most of our markets, except for Germany, where we earlier in the year had a big marketing campaign, as a result of which the deposits went up. And then gradually, when that marketing period is over, they partially moved out again. But what we also saw is that in Germany, people moved their money in our accounts from the deposits more to the investment product side. So there already you see a shift again to the investment products. That's currently not yet what we see in the Netherlands.
I saw that there was like a net up from EUR 400 million of deposits in the Netherlands. Is that also yield people get, or is that a net plus in deposits?
That's a net plus. I don't know what you mean with yield. That's depending on in what kind of deposit they invest, they get their more yield or less yield, but it's the total amount of deposits, whether it's current accounts or savings accounts or long-term deposit accounts, it's all the money combined.
Yeah, so but the money can grow because of they get, like, 1.25, or it could grow because people add extra money.
Oh, yeah, that is a combination. So but clearly, we saw the deposit inflow as well.
We think that the market is a bit disappointed in your 12% return on equity statement. Do you think we see that correctly, and we're surprised by that?
Well, let me put it this way. I think what we did is we gave guidance for 2024.
Yeah.
And again, look, in the end, it's a matter of supply and demand, so I don't determine what the surprise is. But with the guidance of 2024, we also indicated that our interest income will likely be lower in 2024 than 2023. And, I think that analysts and investors have, had hoped for more.
Mm-hmm.
So that's, I think, what they saw. It's not necessarily the return on equity, although the return on equity is eventually the outcome of it all. But I think they had hoped that we would be able to either keep our interest income stable or grow it. But I think we have to be realistic. At some point, we believe that the the ECB and the Fed in the U.S. and ECB, Europe-
Mm-hmm.
will decrease interest rates, and that also has an impact on our operations, such as just about it.
Is that why the 14.8% is exceptional?
Well, if you look at the past, as long as I am in this institution, I cannot see-
Yeah
... or anything of that nature.
Can you recall double digit?
Well-
In your tenure?
No, no, no, no. During my tenure in the board, but that was also when I was a risk officer. I believe that one year we were above 10%.
Yeah.
The other years we were below. Also in that sense, it was an exceptional year also because interest rates, not only because they moved positive-
Mm-hmm
... but because they moved positive so quickly.
Mm-hmm.
That's why the year is exceptional, and I think in the end, it is good for economies when we move to a, I think it's good that we move to a positive interest rate environment. The speed with which, of course, is something that then economies have to cope with, that also you clearly saw in the decrease in lending demands. Now, we saw it in retail because the mortgage volumes went down, or at least the number of houses sold went down, and that was almost with 6% in the year. Less than we originally sold, by the way, because in the first half of the year, the number of houses sold were about 60%-70% of what we saw in the previous years. So it came back a little bit. And now you see prices in housing recover.
You see also more bids being made. We now see that more than 50% of houses sold are being sold above the levels at which they put their house in the market. So you see that it is becoming more of a seller market again, also because there is still a shortage of houses in this country, but also because wage increases were quite steep. And therefore, the ability for people to continue to buy houses then continued when the uncertainty was a bit over. And we saw it in wholesale banking. We actually virtually saw not any growth in 2024 coming... 2023 coming in, except for the Q4. This is the Q1 that we now see lending demand coming back again, but we have not seen it in the Q1.
So also in that regard, it was an exceptional year.
Your provisions for loan losses are substantially lower this quarter. Could you speak to how, what is the reason for that and how you see that?
Yeah.
Happy to do so.
Finally, a question on risk loss.
Yeah, surprisingly, no questions earlier in the analysis call. Obviously, everything was clear. Yes, the risk costs for the Q4 are lower, both, I would say, quarter-on-quarter, but also year-on-year. There are several reasons for that. It's both on the retail and on the wholesale banking side. So what we see specifically on the wholesale banking side is lower inflow of newly defaulted clients, meaning that less clients default than we've seen previously. That's reflected in the so-called, you've seen, Stage 3 , or the provisions for the NPE exposure. And on the same line, what we see is a better recovery and restructuring of existing NPEs. So there is a positive impact from both legs, resulting in a lower net position overall for the wholesale banking. It's important to mention also our further de-risking efforts in Russia.
This also contributes significantly to the decrease of the provisions, but also on the retail side, we do see our average provisions at a lower level than in the last quarters, driven by, I would say, very stable mortgage market and driven by lower also inflows on the consumer lending and business lending side. And we see that actually across the geographies. So it's obvious that also the positive outlook going forward when it comes to macroeconomic has to impact on that overall provision level, and net next, in the end, has come out much better than actually the market has expected.
If I may, one more question on interest and savings. Say, well, in Germany, we saw customers moving up to different products. Is it term, like, term notes already? And is it also a reason that they're moving forward, that you want to focus on, like, wealth management? I saw somewhere affluent clients were wanting to focus on wealth management.
Yeah. Look, I mean, I think in the historic context of the bank, we were always quite a narrow bank. So, in many markets in which we operated, and especially when we started the ING Direct banks in different countries, which is a little bit of sort of a Postbank. How do you say it now? After the fact. If we started in those markets with a digital proposition only, basically inspired by, let's say, the Postbank here in the Netherlands. And we typically start them with a narrow product offering that was savings, and then when at some point the interest rate came down, then you don't-- you're not enabled to invest those savings anymore, so you then start to also lend, that we get the mortgages.
That's also a logical link to retail, as you say, savings and lending. And then, you make your operation more complicated, then you say, "I, I'm also going to provide payment services," but payment services require a complicated payment infrastructure. At some point, you say, "Okay, now I have more customers that do more business with us. They have not only their savings, they have their payments and they have their mortgages. Now, we're going to help them to invest." And Germany, for all kinds of reasons, has a longer history of people that invest quicker. And at some point, a few couple of years ago, we introduced an investment app there, a digital app, which we can invest. And we have now over 2 million account holds in Germany. That's growing with approximately, let's say, 50,000 per quarter, if you will.
You see people in Germany moving quite quickly back to investment. Interest rates come down again or when the forecast of interest rates comes down again, and that's what we now have also seen in the Q4. Not only more term deposits, but also more investments, whether that's in bonds or in equities or in funds or all kinds of investments that they make.
There was also a mentioning of focus on affluent clients. Is that then in Germany? Is that in the Netherlands, Belgium?
Yeah, that will be everywhere, but we need to do this step by step. So in most of these markets, still, we have quite a simple offering. So we are quite a simple bank. A bank may be complicated, but in the end, it boils down to a few products and two services. And we started with... Because investing is not something for only the rich, but actually for everybody, yeah. So if you say, "Well, I have money, and I have an opportunity for a door for the future," then you can say, "Well, I put it in the deposits, but I can also do that in other instruments." And that's why we develop services to do that for people in an easy way, also with smaller amounts.
That then typically starts with simple services, simple funds. We just, we don't produce these funds, we buy them from the big asset managers, and then we distribute them to our client base because they have very good asset managers and product developers. We have many clients. And then, so you first start with grocery services. You just offer a product, and then, depending on their profile, they just buy and sell, and gradually you move more into advisory. So once they get used to it, and once they say, "Okay, I want to do more, or I want to have a more specific offering," then you move into more standard advice or personal advice or the more affluent part of the population.
We gradually move up, but we are taking step by step, and that's actually in all markets in which we operate. That's also where we continue to invest in 2024.
In Germany, you, lower interest rates on deposits, or did I understand that incorrectly?
No, no, no. I mean, every market works differently. So in some markets, that's why that never comes across well, I guess. But on the radio, you always talk about standard rate, the standard rate, because most people here look at the standard rate as the basic rate that people get on their savings account. In Belgium, for example, there's also a standard rate, but that is then also linked to the loyalty. So the standard rate in Belgium is lower than the Netherlands, but they have the more loyalty. And on top of that, but for example, the standard rate in the Netherlands is 1.5. The standard rate in Germany is-
One twenty-five.
125, and the standard rate in Belgium is 80 basis points.
Mm-hmm.
But then, depending on how the composition of your balance sheet works in different markets, you also say, I do market actions, so I offer term deposits for a longer period of time, or if you now move your money to ING, we pay you temporarily more.
Mm-hmm.
In Germany,
That's what you did.
That's what we did in March. We said, we now offer you temporarily more for a number of months, which was six months. That gave them quite a significant deposit inflow. Then at some point, other banks also start these marketing actions, and then at the end of that period, some money then moves out again, depending on how customers feel about the service.
You hope they move into your investment.
Then we hope that in the meantime, we can have, because in the end, it's, it's further about having a sustainable relationship with these clients, that they say, "Well, we'll also open a current account, and we do them payments with the bank, or we do a mortgage with the bank," and then they become more sticky.
Yeah. Can you tell something about stickiness of clients in, for example, Germany, Belgium, and the Netherlands? So they are not that sticky over there because they move out, as you see already, after marketing efforts in March.
Yeah, so you can fill me in on how much money moved out in Germany, and what we got, what moved out. But typically, these customers become more sticky once they become primary customers.
Yeah.
And so then they do more with you, and in the end, it's hassle to move bank accounts. You can think about it all the time. I sometimes give myself the analogy when it's Christmas time. I think about my insurance, and I think, well, why don't I look at my insurance policy? And then I look at it for a week, and then I have to work again, and then I do something else again. And that's a bit the same with banking. So but once they become primary customers, they start to do payments, or you start to buy insurance, and then you also get a better picture. You can also better advise your clients or give your clients better messages, and that's when the appreciation of the service level goes up.
That's also what we measure with Net Promoter Score. And when the appreciation level of the customer goes up, then they tend to do more, but they tend to stay longer with you. And so in Germany, if you look at the Netherlands for example, I don't have the numbers by heart, but we have, I think, approximately 8 million customers, and I think 4.5 million of those customers are primary customers, which is more than half. If you look at Germany, there we have about 9 million customers, with only 2 million customers, customers. And why is that? Because we only in the beginning started a savings bank.
Yes.
And so if you only do savings with a bank, you tend to move out quicker than if you do more with a bank. And so, that's what we, of course, also... So the main goal is to convert customers into primary customers in Germany.
Just to have it clear, a primary customer is a customer who has?
Has the savings account.
Yeah.
The salary account-
Yeah.
Plus one other product.
Okay.
Yeah.
Yeah.
The current account is so important because then you see the payment behavior of the client, then you can much more tailor the service to your client specifically. In Germany, we got-
We got in roughly EUR 16 billion in the promotion.
One, one-
Twenty-six.
Yeah.
By the end of the year, overall, we had a net growth of EUR 8.5 billion. We kept about half of that.
Mm-hmm. What do we think about that score?
It's very good. You know, these are... The magnitude of the campaign was more than we expected-
Mm.
Because of our branding, and we were the first to do it.
Mm-hmm.
And then, of course, as Steven said, when you bring in 8.5 billion those customers, we will cross-sell them with a payment account, an investment account, mortgages, and what.
Yeah. So, and you gained 236,000 primary customers, most of them in Germany?
This was, I think, mostly Netherlands, Germany, Spain, for the most. It depends for part.
I saw, sorry, a remark, ongoing pricing actions to better reflect the costs of having an account. Could you explain that? Is that something for those primary customers?
Well, I mean, what we typically do is that we also tailor them the pricing packages. And so if you say you do more services with ING, whereby you decrease the total cost of ownership on average for a customer, you can get a benefit as you can do more, when you do more with ING. Because, for example, we also nudge clients. For example, in some markets, in many of the markets in which we operate, we don't have ATMs. People say, "Here, we have to have more ATMs," but in this country, we have 3,800 ATMs. But in some markets, we don't have any ATMs, and therefore, we use the services of ATMs of other banks.
As opposed to this country, whereby in principle, unless you go more to the ATM than eight times per month, the use of an ATM is free or is in your standard payment package. That is not the case in many other markets in which we operate. Once you go to Spain or Italy, you can pay up to EUR 1 or EUR 2 per time that you put your card in a machine, where, by the way, through ING or someone else. So what we also do is we nudge our client and say, "Look, if you pay more digitally," and basically, we pay for those costs. So, but if they go there, then we pay for those costs. We say, "If you, for example, use the ATM less, we will also decrease the cost of your payment package.
I mean, in our outlook, you mentioned that fee income is expected to increase by 5%-10%, if I'm not wrong. Could you speak to that? Like, what is driving that?
Yeah. And maybe a couple of things. So it's four things. First of all, we saw in many countries the number of trading accounts increased significantly over the past years. Again, I mentioned Germany as an example. As of the year 2021, and why do we use 2021? That was the last year in which there was a negative interest rate, and in 2022, then gradually it moved positive. So that's when it changed the dynamics. So, compared to that year, in Germany, we have 20% more trading accounts, so people who do trading with us. But at the same time, the number of trades done with ING decreased with 35%.
So although we had an increase of 20%, the number of trades decreased 35%, and that obviously was a, of course, by the fact that interest rates moved up, they just moved money away from the trading accounts into the deposit accounts or in term deposits, but less into ETFs, for example. And if when, when the forecast of interest rates coming down is there again, you then see the number of trades increasing again. That's what we the beginning of that we saw in the Q4. That's, that's maybe number one. Two, in mortgages, I mean, although we grew our mortgage portfolio with EUR 8 billion, in general, the mortgage markets were slow.
So like I said, the first half of the year, the number of houses sold was about 60%-70% of the volumes in the previous years. That doesn't mean that the book goes down, but it's but when they do more, you get also more fees for new mortgages, right? So when that mortgage market comes back, then then that is helping. Where do we see that? We saw that amongst others in the Netherlands, where we see the number of houses being sold increasing already in the Q4. We see that by the ECB lending survey, which came out recently, which showed that the forecast for the number of households in Europe is moving up. But we also see that in our mortgage, we have the largest mortgage broker in Germany.
Many of the mortgages are being sold through brokers, about 20%? The mortgages, I think, are sold through mortgages. And we are the biggest mortgage broker in Germany, it's called Interhyp. And there we see every quarter how many demands are made for a mortgage. And we now already see that the number of demands in one month is almost the same as half the previous quarter. So therefore, you already see that. So that's mortgages, that's number 2. 3, wholesale banking. I think the wholesale banking lending was very slow in 2023, obviously, by the high interest rates, but also by supply chain challenges and all the uncertainties. People came, these companies also came out of Corona. These companies actually held up very well in Corona. You saw that also in the risk costs.
I think that the whole world was a bit surprised that there were not risk costs coming out. That was also helped by the stimulus packages of the different governments in different ways and shapes, in different markets. Everybody did it a bit differently, but it worked out quite well. And so when people came out of Corona, the leverage levels had come down, and they still had quite a lot of money from the support packages. So it then takes a while, and they emptied their stocks. So, and then it takes a while for people to reinvest again.
Now, then suddenly, interest rates move up very quickly, so people stop and say, "Okay, let's first assess what's happening now." And only now, in the Q4, we saw in trade finance, and in working capital, and in business banking, and in the general corporate clients, that the lending came back on all fronts. So that's for the sign that gradually lending will come back, and gradually people will start to reinvest again.
Lending to invest is obviously the preferred kind of lending.
Mm-hmm.
To repay debts or all kinds of ways that companies can do business, but in the end, you can only have a sustainable growing economy if people and companies invest in their business. Well, then that's the kind of lending we see.
That's the kind of lending we see. Not to do different paybacks for, well, except for, I guess. So we still have so much.
Yeah.
That's, but that's the lending that we're currently seeing. Yeah.
And there's one bank that also had results today, that's still down also, and they kinda have a similar dynamic as ING. Deutsche Bank goes up because they decided to fire 3,500 people. That's also a way to appease the markets, I think. Any thoughts on that? Any... Are you not on Deutsche Bank, are you? But could we see ING committing to a similar kind of cost-saving operations in the near future?
Like, we are driving our bank for the long term, so we cannot run the bank based on a, on a quarter or quarter basis. That's, I've also tried to explain that over the past quarters, where we have seen before that many quarters whereby our results were not so strong, or at least return activity was significantly below what at least shareholders demand from a bank, and 2023 was very good. That's, again, a bank has a phenomenon of having liabilities that are short term and assets that are four to five years. So moving a bank suddenly from left to right is difficult. In that context, we will always look at how we can improve our services and how we can do that in the most effective and efficient way.
So, in that sense, we have said, "Look, we need to because clients want us to provide better digital services, not only about digital, but also about the quality of digital service," and we'll come back on that. And that's why at some point, you close branches, because increasingly people move to the mobile. But you can't just close branches like that if your mobile offering is not good, because it's in the end, it's about going to a certain channel to a store or to a market environment, whatever that is. And for the customer, it has to be as easy, instant, and personal as it's as it has to be. I don't use these terms for nothing.
We measure these elements, and you need to make sure that your digital channel, and especially therefore, your mobile channel, because we're digital first, and then mobile, digital only, mobile first for private individuals, that that offering is good enough to do that. So, for example, we had to invest quite a bit in Belgium over the past few years to make that better because it was not so good, and it's now getting a lot better. That then also has an impact on personnel, but this also has an impact on the type of people we need, and we want to grow. So that also means that you need to invest. And over the past decade or so, we have been growing our staff, but the composition of the staff has changed.
So we see less front office people, less people in the branches, for example, less relationship managers, but we see a lot more of IT people in our organization.
Mm-hmm.
A few years ago, it was 20%, now it's over 25%. And so if I look at the trajectory, we probably will go to about a third in a couple of years' time. So you see the mix of people change. There may be another lever in the end, and that's what we have done in the past few years when I started my role as a CEO. We have been looking at, okay, And that's first of all, in the markets in which we operate, are these markets that are conducive and are interesting? Is this an attractive market? Two, are these then markets whereby we have something to offer that then benefits the customer, and therefore, do we have a role to play?
And then we look at our operation, then, do we need to change our operation or not? If the answer on the first question is, or one of these two first questions is no-
Mm-hmm.
Then we cannot do that in the medium to long term, we will stop. But if we can, we will invest. And so at that time, we said, well, we decide to stop in Czech Republic, Austria, France, and also the Philippines, simply because the way that we were operating in these markets was too limited in terms of service offering and too small in terms of size, and it would take us too long to get to any meaningful scale there. And in retail, a local scale is important. Why is that? Because in the different markets, capital is compartmentalized, so I cannot just move my capital from one country to the other. Liquidity is compartmentalized, so we cannot move the liquidity from one market to the other.
But not only that, in retail, the ports are different. Yes, there are always, there's mortgages everywhere, and there's payment accounts everywhere, and there's investment accounts everywhere, but the conditions under which you can provide them are all different. They all have their own financial market authorities, and they all have their own set of books that describe what you can and cannot do and how you need to do it. And if that's the case, then it also means that the information that you need to have on the clients are different, and that means that the way that you fill your systems, your factories, with information and data is different as well. And that means that in the end, if you really want to get synergy benefits about between countries, you need to do organizational integration.
If you cannot do that, for these reasons, we cannot do that, then you need to have local scale to actually get to be relevant in a certain market. That's how we look at it.
It's kind of a recent insight, in not just within ING, but within the banking sector. In Europe, we've been, for instance, the ECB has been, I know, wishful, very wishfully thinking about cross-border mergers and acquisitions, about scale, and is this kind of a reality that, you know, capital is marginalized, I should say, or-
Or currency or data or systems?
Yes. Yeah, it is kind of a-
I mean, I mean-
Centralization.
Yeah. Well, I think that's. I think we've also tried that, and we've also looked at.
Yeah
... integrating, and do actually organizational integration of different countries. Part of it worked in terms of rolling out a one app, one web environment. So we have a, the same app, if you will, in Netherlands, Germany, Belgium, and we gradually will move it to the other markets. I would say gradual since, at a good point, for example, our app has a 4.6 star rating. It's very good. If you suddenly say, we take out the app and we put in a new app, then people are unhappy. No one likes change, also not our clients.
Mm-hmm.
So only when there's time, when it becomes a legacy app, only then you change the app. But that app moved well. That worked well. What also worked well is what we call sales and services journeys. So if you make a comment on the app, say, I do payment or, I want to see my savings or, buy insurance, these comments need to be coded, and they need to get data from a central repository of your products and your client systems, as you call the core banks, and need to feed into the app, and then needs to execute it. You need... We can get synergy benefits by getting scalable tech in place.
Mm-hmm.
Because if you then code it only once, and can you reuse it in every app, then that works. So those were the things we learned work. So scalable tech work, works both on the front end and completely at the back end, one cloud environment-
Mm-hmm.
One coding environment, so that you can replicate, you can do it only once. So it helps you in decreasing the time to volume and time to market. But organizational integration has not worked. And so when I started in my role with that realization, we said, we need to look for local skill in the markets in which we operate. And do I want that move per se? No. I mean, I think it's better for Europe, if you can make the financial system as efficient as possible across Europe, you get imperfections out of the system, and you make services cheaper for everybody in Europe, which is good for the economy.
And you can do it with less capital, you can do it with less liquidity, you can do it with less systems, and all these in the end still go through to the, to the consumer. But unfortunately, despite the ECB being there, still a lot of this legislation and these products are local, and this is essentially reopened.
Talking about, you know, total income being somewhat lower, 2024, than 2023. Can you speak to why? Is it the net interest income, which is, and the rates which is driving that, or?
It's the net interest income. So, a net interest income consists of two parts: the income you make on your assets, the lending, and the income you make on your liabilities, the savings. And if you look at the market rates, but also our expectation is that the ECB at some point will decrease those rates. And then the question is, how much of those rates will you pass through? So maybe there's two levers on that side there. One, what is the actual rate? And that the rate is expected to come down at some point. And the second lever is, how much do you pass on? And so if rates stabilize or actually go down a little bit, but let's say even if stabilize, competition at some point intensifies.
That means that you're starting, looking, depending on the competition in the market, start to pass on more. So what we've seen in previous cycles is that what we call our liability margin was hovering in a stable situation around 100 basis points. It was a bit... It was, it currently is about 119 basis points, let's say 120. It was even a bit higher earlier in the year, but we see it gradually coming down. We believe that with the stabilizing in this market or even going down a little bit, and therefore greatly intensifying competition, it will go back to that long-term average, which was around 100 basis points.
And then you multiply that over your savings in the positive book of 625 basis points, sorry, EUR 625 billion, and then that gives you an impact. Then we say the impact of that, of the liability income, under that scenario, because it's a scenario, is -EUR 600 million. And then the flip side is, of course, if the interest rates come down, then. Sorry. The second part of that interest income is the minimum reserve requirements. Are you still there, guys?
We're looking for something.
Yeah, yeah. Go ahead.
Is that okay?
Yeah, okay. No, but I'm just checking if I'm not being too technical. So-
Technical as you want.
Yeah. But, but, but that is, the banks were reimbursed by putting their minimum reserve requirements at the ECB, and the ECB has said that was needed when the interest rates were negative, but because the interest is now positive, that is not needed anymore. So there was a minimum amount that you had to put at the ECB, and on that minimum amount that you had to put at the ECB, they will give you 1%. Huh? Well, 4%. Sorry, 4%. And so they have said, we are not going to reimburse it anymore, that we will move to zero. Hmm. And that is costing us an additional EUR 300 million. And so-
It will intensify competition.
Sorry?
It will intensify competition or not?
Well, that not per se. In the end, the intensifying of the competition is just driven by how much liquidity is there in Europe, and is it used to buy stuff or is it being used to put on your balance sheet? And so if lending intensifies, then also that means that the savings will. That you need more savings, and that will in itself intensify competition. And so why was the market maybe not as competitive as in the past? Because the lending demand was also not there. If also lending picks up, it will also intensify the competition on savings. All those factors weighed in, which in that scenario, will go to our basis points, so -600, -300, and the flip side is on the lending.
Because the good thing is then, at least for us, lending picks up. In that setting, we believe that lending will go to sort of a, in that scenario, to let's say, an average again, over 4% lending growth, as we have seen previously, and then you multiply that times your lending book, and then you get a reason for around EUR 200 million. That's what I did.
You were mentioning, you expect 100 basis point margin, and it was now 119 or 190?
One nine.
19. Okay.
That's all very technical. Yeah, I find it a bit boring, to be honest with you.
Thank you.
You got what you call feedback from some analysts this morning about supposed lack of transparency.
One analyst.
Yeah, one analyst. Yeah. Yeah. What did you think she meant by that, and how did you think you can...
If you want to know exactly what she thought, that you have to ask her.
Okay. Yeah, but what did you think she meant?
You understood it because you thanked her for the feedback, so.
I always do that. Well, first of all, look, well, maybe she was disappointed also because she came out with a report most recently, and maybe that report was not exactly in line with what she saw, with what she now saw, what she thought. But that could be one reason. Yeah, that's me speculating. But I think that for analysts, the, the, a bank, although, try to explain it in very simple terms, the most difficult part, of course, is with all these many moving parts, with the interest rate and how much do you replicate and how long is it replication then, and what's the impact of the total, quantitative tightening on this? I mean, you can have, you can, you can, you can graduate on this topic.
In that whole setting, they need to forecast what they think the most volatile item on the P&L is, which is liability income. The rest you can either say, okay, the lending moves up with 1-3 or 4% times the lending book, times the margin, okay, approved. Risk costs, we always say, well, we don't give any forecast, but we give a guidance over the long term, so they can make an assessment. Okay, maybe it's a bit lower or a bit higher than the average. But costs are even either flat or go a bit up, probably close. But the biggest swing factor is the liability NII. And I think that what she, I guess, would have wanted is to have earlier insight in how that would develop.
We have given that insight now very clearly, and that also maybe provoked a reaction, but that's just how it is. Can't make reality better than it is.
Okay. You just mentioned three factors that will make fees, fee income even go up again?
Sorry, yeah, I mentioned three. I forgot the fourth one. Good point. Customer growth. So and the fourth one is the customer growth. If we continue to, we have more primary customers, then they will do more, et cetera, then you get plus the 40.
Do you think there will be enough to get to the average? Well, between 5% and 10% growth in fee and commissions income?
Otherwise, I wouldn't have said it. So this is the first year, because we in the past said that we would have about 5%-10% fee growth on average over 3-5 years, depending on when we said it. But now I've made a specific remark over what we thought we would make over 2024, and I would not have said that if we would not have been confident.
Okay. You see in the market for private wealth banking, there are some consolidation going on in Netherlands, Belgium-
In Netherlands?
In the past.
In past. Oh, yeah. Yeah, but there has been.
Do you think you will play a role in this consolidation?
Maybe, but not necessarily in the Netherlands per se, but for us, it's important. Look, if you go back to the retail bank, like I said, our retail banks in general are quite simple. Yeah, that sounds a bit like, what do you mean simple? So many clients and systems and, yeah, but the products were quite simple. We now have built over the past years, more specific pillars. So we said we built a pillar for private individuals.
Mm-hmm.
In every country, the same, so we also can replicate things and systems easier, so we know, so that we know how that works in different markets. We built a separate to this functional pillar of business banking across markets, so Netherlands, Belgium, Poland, where we have the biggest business banking markets. That's for small, that's for SME and mid-corporates. And now we're building a third pillar called private banking.
Mm-hmm.
We're also lifting the heads of private banking out of the management teams of the private individual banking heads into to the level of the management teams of the countries. And the CEO of the Netherlands recently jokingly said, when it comes to change budgets, which is investments, right? The statement sometimes was retail first, business banking and private banking later, but the reality was private individuals first, business banking and private banking, never.
Because you have a very big 38 million private individual clients, and so when you sit around the table and say, "Well, we need to invest," then the guy or girl who is responsible for that part says, "Well, I have 38 million clients, so I go first." And that dynamic, the dynamic is of course a bit more balanced. But then in the end, when you then come to smaller business lines that also need investments, they don't get the oxygen to then invest as well. So you need to give that attention and separate them out to give them the investment. Now, we've done it with business banking, and so we improved quite dramatically also the digital foundation business banking, which actually were not so good a couple of years ago.
Now we get a lot better. And the same we now start to do with private banking as well. So that means we focus on making better foundations, getting more relationship managers in, also, making more bespoke and specific offerings. If you say: Oh, I only offer you, the BlackRock or Goldman Sachs funds, these are all general funds. Good luck with it. Here you can click on and buy. Yeah, that's interesting and good, but it's still a very simple offering. And if you want to be more specific about, I can give you advice, you also need to click and play with also smaller funds, if you will. So we need to build out those foundations.
If and when it makes sense, we don't say, well, we cannot, because I always said, either if we, we can grow organically very quickly, and we do that, we do 750,000 clients, et cetera. But if we can speed that up in markets, so that because in-market consolidation makes sense rather than post-market consolidation in retail, then I will look at it. If we can buy additional skills so that we can quickly improve the offering to the customer, then we will look at it as well. And one of those elements would also be wealth management, but then it needs to fit.
Did I already ask about Belgium and the independent agents you would like to use over there? Because there was a bit-
Not today.
No. Okay. Well, could you explain that? Is that something in relation to what you were just explaining?
We already used independent agents. I mean, that market works with the agents. I think what we did over the past couple of years is reengage with the independent agents, how to best align incentives for both parties to actually grow and develop. That's what we have done.
I didn't see anything about a share buyback program. I wanted-
Are you also disappointed?
No. No, I thought maybe I missed it, but...
Yeah, well, no, we said capital is good again, and so it's 14.7%. I think there was also a remark made by one of the analysts, like, "Yeah, yeah, you're not doing a very good job in agreeing your capital. This was 14.5 last year at the end of the year, and now it's 14.7." Yeah, so true. And we have always said, look, we are gradually moving to around 12.5%. Therefore, every half a year, we will come back to the market by giving them an update, and we will also do that again in the Q1. So typically, the dates on which we would announce something, if there is something to announce, we will do that as for the Q1 results and the Q3 results.
I know every quarter, the analysts ask again, "Why don't you do it now?" Yeah, because we don't. Again, also for, for them, we steer the bank for our stakeholders in aggregate, and we steer the bank for longer term than for the next three to six months. And I, I fully know that they want to... They, they would prefer that I now already give them a spreadsheet, as we will do for the next eight quarters. Yeah, I'm sorry. It also depends on market circumstances, even where we can grow, how we can grow, if there are interesting opportunities, and then, and that makes also, an adequate return or, or, or, or this distribution plays a role as well. Yeah.
The last quarter was higher than analysts had expected, a EUR 2.5 billion buyback. I'm not wrong in November.
Yeah.
you know, 1.5 before that. So can we expect now, given your outlook for 2024, that this space is going to reduce?
Tonight. If you don't give a comment, you have to wait until May the first.
I'll do that. Thank you.
Okay.
All these new customers in Germany, Holland, in the Netherlands, where do they come from?
Well, they come from across the board. So, you mean from other banks, you mean?
Yeah.
Oh, well, I mean, it's a bit both. So first, the number of households is still increasing.
Okay.
So that's where they mainly come from. There are also many international clients, and in the past, we didn't have a very good international language offering that we have. So that's where they come from. So that's the Netherlands. It's a more-
We're focusing more on expats and-
Yeah, we've been calling more... Well, and on expats, and on the fact that there are more households, and the fact that people are at a younger age, so when they open a bank account, so it's from different parts. In Germany, there are still a big difference between a company like ING and many of the incumbent banks in terms of what they offer and how they offer it. And so, we are in the Netherlands, pride ourselves with being very strong digitally. If you look at how the customer perceives that, then the gap between one player and the other in this country is not so big. So people just say, and it's not that people are their whole time thinking about, oh, how do I, oh, my bank, oh, fantastic.
They have better things to do. Also, Germany have better things to do, surprisingly. But in Germany, there is a big difference between how we offer digital and how other banks offer digital, and that is therefore giving us big growth opportunities in the market, and the same goes for Spain and for Italy, and then all of the other ones. Many of these banks were not so digital. When we came, when we started in the market, we just started digital, that's it. Many banks come from a completely different environment and are moving there.
You got a letter from the Milieudefensie.
No.
One and a half weeks ago.
Yeah.
They say that ING has to do more in reducing of carbon emissions. Just wondering if you could respond to that. The second question is, ING reported that the emissions are 61 megatons. How did you do this year with reducing that amount?
Yeah. So, do we need to do more? I think we all need to do more. Because in the end, we want to go to 1.5 degrees, and for that, we need to do more than where we currently are. We have a clear approach. Well, we have an approach that is, first of all, based on science. And the science, as we need to transition to a lower carbon economy, and they don't call the transition for nothing because it takes time. And why does it take time? Because also the scientists balance the fact that what is the energy demand, how much renewable energy is there now already available? So there is not enough yet to fulfill the demands. What's the pricing of it, and how can we make also sure that the energy is secure?
And in that mix, they say we need to transition to a lower carbon society. And unfortunately, not my wish, reality, there is not yet enough renewable energy. So we have said we follow that, the science path, and we want to be in line with science, and therefore, by sector, we focus on that. And that's also why by sector, we follow exactly what the climate scientists say to get to that one and a half degree path by 2050. That's in line with Paris, that's in line with COP, that's in line with the Green Deal, that's in line with the commitments that these countries made. By the way, these are commitments for the countries. But anyway, we follow those commitments, and we have stayed up.
As a matter of fact, we were one of the first global banks who said that we would commit to Paris 2015, and we have repeated that. In that setting, and I come back then to what we announced, we also announced that we would phase out of oil and gas. And why did we do that? Because the scientists updated their scenario and said, "Guys, we're not going quick enough. If we want to get to that 1.5 degrees, we need to phase out completely of upstream oil and gas by 2040." So we said, "Okay, if there is now a new scenario, then we will again follow that scenario." That's what we're doing. I'm very confident with our approach, and still there are a number of dilemmas per sector.
Since we follow the where data are the most energy intensive sectors, that's where we have the data of. In other sectors, we don't get at the data. So steel, cement, oil and gas, real estate, houses, mortgages, those are big, shipping, those are big sectors. But there are sectors that, that are dilemmas, and how do we now best deal this, deal with this? Let me give you two examples. First of all, the, the steel sector. There is a demand for steel in refrigerators, and people say, "Oh, we don't need the heroes anymore, or, cars, electrical cars, electricals." But if you even don't wanna go there, windmills. Windmills are needed to get more affordable, renewable energy there. So we need windmills, and they are made of steel.
As steel is made of iron ore, and they heat it up, and they heat it up with coke and coal ovens. And coke and coal is even more polluting than thermal coal. Thermal coal is more pollution oil and gas. To be able for these steel companies to transition, they need to replace their ovens with, let's say, hydrogen, clean hydrogen ovens. That is a big investment, and the steel price is set by the market, not by them. They cannot influence the price by themselves. So to put it very simply, who first goes loses, they will go bust, so they cannot sell the steel anymore.
So that's why we call upon governments to say, "You need to set policies for these sectors that cannot move by themselves because it's too expensive." It's just like people; people also want to go green, but they don't or cannot pay for it. So you need to set standards for the sector that they all move at the same time. And so we are arguing, also in Europe, for setting sunset dates, which is when the sun goes down. Say, "Well, this is the last day or year that you can use coke and coal ovens." Because what does that do? Then you force the entire industry to move at once. So that's the dilemma that we need to deal with.
And so one of the criticisms that, that they have, they say, "Well, okay, are you in line with Paris?" Answer, yes. And then they also say, "Well, you also need to have climate plans of these clients." Well, we have them. But then if they don't do, to be in line with Paris, in one year, you need to exit them. Well, that is too difficult because it really depends on the company and the sector in which they're working, and that means that we need to, to work all together, and the sector of assets themselves, and the governments, and the banks, and the people who buy the energy. But you just say, exit everybody in a year, that's just impossible. Let me give you a second example, closer to home. There are, how do you call it? Milieu zones.
Emission zones.
Emission zones. Okay. So that means that as a new company, like bakeries or little transportation companies who need to bring and get stuff from their shops, they need now to buy electric cars, vans, minivans. But these minivans are a lot more expensive than the combustion engines. Now, okay, what do we do? We help them with tools. So yeah, okay, but if you do that now and we have—we give you a loan that is for a longer tenor, and you'll get... We also put solar panels on your roof, and you can bring the electricity down, and therefore, on average, the cash flow will gradually be lower. But they need to make it up from the investment. So it moves all from gradual investment, all to the first step.
So we need to work with clients for them to be able to do it. So even if they want to do it, it could be that there is no regulation, or it could be that they don't have the cash. So it needs time for a number of clients, for them to adjust and adapt. And in the end, we believe it's better for better to stick with our clients than just go on a feeding frenzy to say, "Exclude, exclude, exclude." We will exclude in two cases. First, if the scientists say that certain sources of energy are no longer needed, and the scientists have said that there's no longer a need for new oil and gas fields. So we said eight years ago, we will not finance any exploration in new oil and gas fields. We still did anything.
There's no need for coal, new coal. Okay, we have said we will phase out of coal, and we'll be completely out, if you take with some EUR millions here and there, we still have in a project, by end of 2025. We're already 80% down. There is no need anymore for oil and gas by 2040, or at least it's not warranted. Okay, we phase out new oil and gas, we phase out oil and gas exploration completely by 2040. That's the first reason. It is no longer needed to fulfill that demand. The second reason why we phase out, if companies say, "Yeah, I'm very sorry, it sounds all very interesting, but I'm just not willing to participate yet," then we get out as well.
That's happened, but you won't say with which companies?
I will not give you names of companies. You can clearly see that, with some companies in some new oil and gas fields, you don't see our name appearing anymore because we just say we stop with it. You have seen maybe in the past, it was 2017, where we said we're going to phase out of coal, that the number of coal and German certain buybacks.
My second question about the-
No, I want to say one more thing, because I mean, because I don't debate with them. This is not about moral superiority. They are concerned about the climate, so are we. It's not about that we don't think it's important or what needs to be done, but it's about we debate about how you do it. And I think that we're right, and they think we're not.
My second question about the megatons of emissions.
Oh, yeah. Yeah, okay. Yeah, that comes back to the total emissions. And gives you—let me give the broader context. Yeah, I know you should not give first interviews to them and to us. But for the world to go to 1.5 degrees, the world needs to decrease the total CO2 emissions by 45% by 2030. And to figure out this a little bit, because excluding nitrogen, it's 43, and including ammonia, nitrogen is 48, so let's say around 45%. We are not a representation of the world, and we are not a copy of the world. This is what the world needs to decrease by that date by 45%.
We are a derivative of the world, so we are not an exact copy in a small... We are not, let's say, a small Earth. We are more exposed to some sectors, and we are less exposed to other sectors. So some sectors need to go down with much more than 60%, other sectors need to go down much less than 60%, and it also depends on the geography. And why did the scientists do that? Because some of the countries cannot move that quickly. It would also not be fair to ask for some countries in Africa or Asia to move with the same speed, because their energy demand is so much higher than the supply. Why give the same target to them as they will give to us? So it really depends on country, sector, company.
Now, we are not an exact representation, so we are dealing therefore with these derivative scenarios per sector, how we deal with this. At the same time, we grow or we could grow. So if we grow and if we become much bigger compared to others, it also could mean that our emissions would increase. So you cannot move those figures one-on-one. We need to focus on the sectors that we have in our portfolio, and we need to bring those sectors in line with one and a half degrees. That's what we need to focus on.
That's one of the critical points of Milieudefensie, that the targets that financial institutions set, it's relative. So you can grow and still emit more carbon, but the world cannot have more CO2 in the air. So I already heard that ING is like, it's a derivative of the world.
Yeah.
But ING was a forerunner in digital banking. Can't ING also be more in front of going down with carbon emissions?
Yeah, if the whole world is going down with 45%, we will also meet our targets. And despite whether it then goes up or down, in the end, I believe it will go down, although because we get more data, you can also more precise what you measure. But this is a target for the world, and you cannot link that to ING. I know that they want to debate that, but that's just, just not in line with science and how these targets are supported. And that's just how it is. We look at the coal sector. They need to come down with 60%. Okay, we came down, we're coming down with 100%, basically, because we phase it out.
On oil and gas, you can do it more precisely, because oil and gas isn't absolute, not relative. That's why we set absolute targets on oil and gas. So, to your second question or comments, we are a front runner, and I know that Milieudefensie doesn't like to hear that, I'm sure. But we were one of the first global banks to sign up to Paris. We are actually, as far as I know, of the big international banks, the only bank who said they would completely go out of oil and gas upstream by 2040. We're the first bank who said that we would triple renewable energy by 2025, five years before COP said that they would do it by 2030.
We are a front runner, but we can't move away from the reality of society too much, because then also our impact, then we're not impactful. I do not agree with the fact just to exit everything, then the impact that we make as a bank is absolutely zero. It helps nothing.
Mm-hmm.
Excellent. Excellent. Thanks very much for the time. I presume there's no questions from the call?
No.
That's great. Thanks very much, everybody. Have a good day, and I think you will have some time for lunch.
Yep.
The rest of it.
Thank you for joining today's call. You may now disconnect your lines.