This is Laura, welcoming you to ING's 1Q 2026 conference call. Before handing this conference call over to Steven van Rijswijk, Chief Executive Officer of ING Groep, let me first say that today's comments may include forward-looking statements, such as statements regarding future developments in our business, expectation for our future financial performance, and any statement not involving a historical fact. Actual results may differ materially from those projected in any forward-looking statement. A discussion of factors that may cause actual results to differ from those in any forward-looking statement is contained in our public filings, including our most recent annual report on Form 20-F, filed with the United States Securities and Exchange Commission, and our earnings press release, as posted on our website today. Furthermore, nothing in today's comments constitutes an offer to sell or a solicitation of an offer to buy any securities.
Good morning, Steven. Over to you.
Thank you very much, Laura. Good morning and welcome to our results call for the first quarter of 2026. I hope that you're all doing well, and thank you for joining us today. Sitting next to me is our new CFO, Ida Lerner. Ida joined us on the 1st of April, and we're very happy to have her on board. Welcome, Ida. Next to Ida, I'm also joined today by our Head of Risk, Andrea Cesaroni, and we have started the year strongly. The first quarter of 2026 unfolded against the backdrop of geopolitical and macroeconomic uncertainty. However, our performance demonstrates once again the resilience of our business and of our clients. We have continued to deliver strong and diversified growth, and we're well on track to achieve our full-year financial outlook.
In today's presentation, I will talk about the resilience of our growth strategy and how the consistent execution thereof is delivering increasing value. After that, Ida will walk you through the quarterly financials. At the end of the call, we will be happy to take your questions. With that, we now start on Slide 2. This slide highlights our continued commercial momentum going into 2026, with solid growth across all key areas. As you will remember, we had ended 2025 with very strong volumes, including some seasonal inflows. We have managed to maintain the strong positive momentum also across the first quarter, more than absorbing the seasonal effects and continuing to push volumes even further up. Mobile primary customer growth, for instance, is seasonally lower in the first quarter.
We managed to grow by another 125,000, and we continue to be on track to achieve our 1 million growth target also in 2026. Loan growth was again strong at an annualized pace of more than 8%. In retail banking, we've grown by 9.4% in the first quarter. Besides continued momentum in mortgages, we also saw strong growth in business banking, where we continue to expand the franchise. In Wholesale Banking, we grew the loan book by EUR 5.6 billion while keeping its risk-weighted assets broadly stable. We also saw solid inflow in deposits at an annualized rate of 4% despite seasonal outflows from current accounts in the first quarter and despite conversion into investment products.
Fee income rose by 13% year-on-year, supported by our growing customer base, by higher customer trading volumes, and by strong deal flow in Wholesale Banking. All of this translated into a return on tangible equity of 13.6% for the quarter. Finally, our sustainable volume mobilized has increased by 11% year-on-year as we continue to support our clients in their sustainable transitions. Let's move on to the next slide to take a closer look at the fundamentals of our continued commercial growth. Slide 3 summarizes how the resilience of our business supports our growth strategy also in a more challenging environment. Let me start by saying that the main driver of ING's commercial growth is the superior experience that we provide to our customers.
With a leading Net Promoter Score in most of our retail markets, we continue to attract new customers, we see even stronger growth in the conversion into mobile primary relationships as more customers choose ING as their primary bank. This deepening of the relationship with our customers is furthermore supported by the broadening of our product offering. Here we see strong momentum across all of our businesses, helping to further diversify our revenues across a growing range of capabilities. We've recently launched business banking in Italy, and in the Netherlands, we are rolling out an insurance broker model to further integrate insurance capabilities into our mobile app. We are achieving most of our lending growth in mortgages, and as the leading European mortgage bank, we benefit from continued strong market fundamentals.
The strength of our largest mortgage markets is supported by constant low unemployment rates and a resilient market outlook. Our Wholesale Bank is well-positioned to support Europe's strategic resilience with deep expertise in key focus areas, including in infrastructure and TMT. As a top 3 MLA and bookrunner in Europe, and with our strong DCM franchise, our Wholesale Bank is ready to support the investment initiatives that are needed to strengthen Europe's position in a global context. With that, we move to Slide 4. On this slide, you can see how the consistent execution of our strategy is driving value, supported by rising profitability and by our consistent deployment of share buyback programs. Our EPS has improved by 11% on a 12-month rolling basis.
With EPS and the return on tangible equity clearly on a rising path, we have set firm direction towards our profitability targets by 2027. We see a wide range of strong catalysts that will support further value creation. First of all, we continue to grow our mobile primary customer base by 1 million per year. This means that we're not just growing the number of accounts, this is growth from customers who actually use ING as their primary bank. This is the core engine of our growth strategy. This is where growth, income diversification, and superior cost to serve all come together. In addition, as number two, we continue to expand our business and develop new business streams. We are further rolling out our successful business banking franchise into several countries.
We're building our private banking and wealth management as a third retail banking pillar in our existing markets. We're continuously developing new insurance propositions to make insurance a relevant revenue stream. In wholesale banking, we're making strong progress to further diversify our capabilities in capital-light revenues. Thirdly, when it comes to growth becomes powerful only when it is truly scalable. Our continued focus on operational excellence is increasingly enabling us to achieve growth in a truly scalable way. Combined with our capabilities to scale AI solutions quickly, we see a powerful improvement in growing commercial volume at a much faster pace than our cost base. Finally, number four, we continue to improve our already strong level of capital efficiency, supported by continued capital velocity measures, both in wholesale banking and in retail banking.
All of this is not a journey that we will start tomorrow or in the years to come, but one that is already well underway, and one where we see its strong results already clearly today. Let's zoom in for a minute on that topic of scalability. Moving to Slide 5. On Slide 5, we demonstrate how we're increasingly enabling scalable growth. First, I want to touch upon what drives our ability to achieve scalable growth. ING has a long track record of digitalization, and as a result, the vast majority of our key customer journeys are already fully straight-through without any human intervention. This is a key ingredient, not only for superior customer experience, but also for achieving true cost efficiency. In addition to a high level of digitalization, we also have built strong foundational capabilities that enable scalability.
For example, we have our global hubs network, and that houses 27% of our tech employees and 40% of our operations workforce. A fully integrated and scalable network organization supports improved productivity and operational resilience. Also our scalable tech platform, which includes core infrastructure components such as our global private cloud and our global technology platform that provides reusable shared services for product development. When you add these two ingredients together, digitalization and a scalable tech and operations organization, then you have a very strong starting point to deploy AI solutions. That is why we have been able to already roll out many AI solutions and scale quickly. More than 90% of our AI pilots have successfully been moved into production. More than 75% of our customer chats are fully resolved by AI without human support.
More than 7 million customers have already received hyper-personalized marketing campaigns. We have agentic mortgages live in production in the Netherlands and soon rolling out to other countries. We are on the verge of globally rolling out conversational banking for our retail customers, which is a personal assistant with agentic experience. When you then look back over cost performance over the past 12 months and in comparison to our commercial growth, there you then see the powerful proof of our ability to achieve scalable growth. Over the past 12 months, we have grown our mobile primary customer base by almost 7%, our customer balances by more than 5%, our volumes in investment products by more than 15%, and fee income even by 15.6%.
Our FTEs, however, decreased by 0.6%, while our cost growth was limited to 2%. With our commercial growth significantly outpacing incremental costs, we are delivering clear scalable growth, supporting meaningful improvements of our efficiency ratios in the years to come. Now let's move to Slide 6. On Slide 6, we show how the consistent execution of our growth strategy is resulting in strong capital generation. Over the past 12 months, we have delivered EUR 6.4 billion in net profit, contributing almost 2 percentage points of our CET1 ratio. Of that EUR 6.4 billion, 50% has been reserved for our regular dividend distributions. Around 15% of the capital we generated has been used to fund profitable growth across our markets. Here we see a clear demonstration of capital efficiency.
We have generated EUR 65 billion of profitable lending growth over the past 12 months while consuming only EUR 1 billion of capital. Finally, the generated capital was not needed for our organic growth, we have returned to shareholders with a total amount of EUR 4.4 billion of additional distributions over the past 12 months, largely in the form of share buybacks. Let's move to Slide 7, where I will show how these distributions have resulted in continued attractive shareholder return. In line with our distribution policy, page seven, we have consistently paid cash dividends, and we have been executing significant share buyback programs for several years. Together this results in consistent and attractive total distributions per share.
The previously announced share buyback of EUR 1.1 billion has been completed this week, and today we have already started with another EUR 1 billion share buyback program, which will run for the next six months. When we look ahead, we remain fully committed to strong capital discipline to deliver strong shareholder results. We maintain our semi-annual rhythm of assessing the potential for additional distributions, and we will update you again in six months' time. Now, before handing over to Ida, let me first take you to Slide 9. On Slide 9, we confirm our financial outlook for 2026 and 2027. We are well on track to achieve our upgraded outlook, which we communicated in the previous quarter with our full year results. We continue to add 1 million mobile primary customers per year. We see continued momentum in building out our fee income.
We will deliver positive operating jaws in the years to come, and we are delivering on a broad range of catalysts that will continue to support the upward path of our ROTE in the years to come as well. Now let me hand over to Ida, who will walk you through our first quarter's results in more detail, starting from Slide 11.
Thank you, Steven. It is my pleasure to present the results of what has been a very strong first quarter of 2026. On Slide 11, we can see that commercial NII has continued its upward trend since the second half of 2025. This is supported by continued volume growth on both sides of the balance sheets by disciplined commercial pricing and by the hedging tailwind on our replicated customer deposits. Fee income also continued its upward trend, driven by further customer growth and by strong performance, particularly in investment products and in wholesale banking. All other income, on the other hand, was affected by the heightened market volatility towards the end of the quarter. This has resulted in some IFRS asymmetrical effects, of which the majority should come back over time, given lower interest rate volatility ahead.
Overall, the strong customer activity and volume growth noted in the first quarter outweighed the lower all other income and led to an uptick in total income of 3% compared to the same quarter last year. Let's now move to Slide 12, where we will show the development of our customer balances. As you can see, we delivered another quarter of strong commercial growth across both retail banking and wholesale banking. Net core lending increased by EUR 15 billion. Retail banking contributed EUR 9.4 billion, driven by continued mortgage growth with strong production in the Netherlands, Germany, Italy, and Australia. This was coupled with a particularly strong performance in business banking, mainly in Netherlands and Poland. Wholesale banking also delivered strong growth of EUR 5.6 billion while keeping risk-weighted assets broadly stable.
Within this growth of EUR 5.6 billion, we see a strong net inflow of EUR 7.8 billion in lending, which was partly offset by the repayment of a short-term working capital solution facility. On the liability side, core deposits increased by EUR 7.2 billion. Retail banking contributed EUR 4.3 billion of growth, with strong inflows into savings and term deposits, most notably in Poland, Belgium, and the Netherlands. This more than offset the seasonal outflow from current accounts and the conversion into investment products. Wholesale banking added EUR 2.9 billion of customer deposit as it continues to build out its capital light income capabilities. On to Slide 13. On this slide, we zoom in on commercial NII. Commercial NII grew by EUR 132 million quarter-on-quarter and was 7% higher than last year.
Lending NII was up EUR 41 million in the first quarter, despite a lower day count driven by sustained volume growth at stable margins. Liability NII increased by EUR 91 million quarter-on-quarter, reflecting both volume growth and a 5 basis points increase in the liability margin. This higher liability margin is a reflection of the prolonged hedging tailwind on our replicated deposits while maintaining disciplined commercial pricing across the backbone of our deposits. What it also reflects is the absence of larger savings campaigns during the first quarter, meaning that the level of acquisition costs was relatively low this quarter and will likely normalize again in the coming quarters.
Let me be clear that we should not expect the 5 basis points increase of the liability margin every quarter ahead. Looking ahead, on the back of a very strong first quarter, and especially the higher than expected volume growth, we can expect a slightly higher level of commercial NII than previously guided. We now expect commercial NII for the full year to be between EUR 16.5 billion and EUR 16.7 billion. Turning to Slide 14. Fee income growth remained strong, increasing 13% year-on-year, and was also up on the prior quarter. What is especially encouraging to see is that this strong performance of fee income stems from all products and all markets, supporting the diversification of income sources for the bank. In retail banking, fee income grew by 13% year-on-year.
This was mainly driven by structural factors, such as continued customer growth and improved cross-selling. investment products in particular performed very well. A record quarter even benefiting from 8% growth in customers with an investment account and 15% growth in asset under management and administration, of which roughly half comes from net inflows. While also benefiting from 13% more trades, which besides a higher customer base, was supported by the increased market volatility towards the end of the quarter. In wholesale banking, fee income grew by 11% year-on-year, again demonstrating its strong progress on further income diversification. Let's turn to the next slide. On Slide 15, we show the development of all other income. Here we see that the heightened market volatility towards the end of the quarter had a negative effect on hedge ineffectiveness, as well as our activities within financial markets.
It is worth remembering, however, that the P&L impact from the hedge ineffectiveness is not economic in nature. It is account driven and should reverse over time. In financial markets, we continued to support our clients through the volatile market conditions. All other income was impacted by the sharp increase in interest rates. We expect all other income for the full year to be slightly lower than our normal run rate, ending somewhere between EUR 2.5 billion and EUR 2.7 billion. Next, Slide 16. Expenses, excluding regulatory costs and incidental items, showed only a moderate increase year-over-year of 1.1%, clearly demonstrating our disciplined approach to cost management and our scalable growth capabilities. The impact from wage inflation was largely offset by savings from prior restructurings while allowing for ongoing investments to support business growth.
Quarter-on-quarter, expenses were down slightly, mainly driven by seasonally lower customer acquisition costs in the first quarter. Incidental items of EUR 13 million for the quarter included EUR 25 million of restructuring provisions for the full-time employee reduction in wholesale banking and in retail banking Belgium. Once fully implemented, these measures are expected to lead to approximately EUR 20 million in annualized cost savings. Let's move to risk costs on Slide 17. Total risk costs were EUR 346 million in the quarter, equivalent to 19 basis points of average customer lending, which is slightly below our through the cycle average, reflecting the quality and the strength of our loan book. Within this quarter's risk cost, we have included a prudent overlay to address the possible impact of higher energy prices and of the broader economic effects of the war in the Middle East.
This EUR 94 million addition to management overlays was, however, partly offset by a large repayment of a Stage 3 loan in Wholesale Banking. The Stage 3 ratio slightly improved to a low 1.5%. We remain confident in the strength and quality of our loan book. Finally, before handing it back to Steven, let me take you to Slide 18. On Slide 18, we show the development of our Core Equity Tier 1 ratio. Continued strong capital generation and overall solidity allowed us to announce and start a new EUR 1 billion share buyback program today while maintaining our Core Equity Tier 1 at our around 13% target level. In terms of risk-weighted assets for the quarter, these increased by EUR 3.6 billion. Besides a EUR 0.9 billion FX impact, this mainly reflected continued business growth.
Within wholesale banking, the risk-weighted assets remained broadly stable despite strong lending growth, reflecting the continued capital velocity measures that have been taken within Wholesale Banking. What is new this quarter is a change in our dividend reserving approach to ensure compliance with EBA guidelines. As of this quarter, our additional distributions will mainly be financed through upfront reservings. The implementation of this new reserving approach had a one-off effect this quarter of - 23 basis points. In total, the additional distribution has an impact of roughly 29 basis points on our Core Equity Tier 1. This is merely a change in reserving approach. Our distribution policy remains unchanged. With that, let me hand it back to Steven to wrap up today's presentation.
Very good. Thank you, Ida. Before we move to Q&A, let me recap the key takeaways from today's presentation. The resilience of our business supports the continued execution of our growth strategy also amidst geopolitical uncertainty. The consistent execution of that growth strategy is clearly driving value with strong momentum in our profitability metrics. We have a wide range of catalysts to further increase value. Our commercial growth is significantly outpacing the growth in expenses, reflecting our strong foundational capabilities to achieve scalable growth. As a result, we see continued strong capital generation, which enabled us to start a new EUR 1 billion share buyback program today. Finally, we are well on track to deliver on our full year financial outlook. With that, I would like to open the floor for Q&A. Operator, back to you.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. In the interest of time, we kindly ask each analyst to limit yourself to two questions only. Thank you. We will now take our first question from Benoît Pétrarque of Kepler Cheuvreux. The line is open. Please go ahead.
Yes, good morning. Welcome, Ida, and yeah, looking forward to talk to you in the coming days. Yeah, two questions on my side. The first one will be on the liability margin, the 104. Clearly we should not replicate the + 5 basis points quarter-over-quarter. Objectively looking into the second quarter, yeah, it looks like there's further support from the short end of the curve. I wanted to confirm that with you if you see that as well. Could you please also talk about the competitive environment on the deposit side, so far in the months of April?
Well, it seems to be still okay. Just wanted to get a bit of a feeling about our deposits pricing behave in your main markets so far in the second quarter. Then the second question, yeah, sorry, I will just talk about a bit more like the strategy on the insurance because it's interesting what you've done, I think, what you announced two weeks ago. You would be mandated broker in the Netherlands for NN and Allianz. What is your strategy now on the insurance? Seems that things will probably speed up in terms of growth there. Just wanted to understand your long-term plan regarding insurance.
Clearly with this move into mandated broker, I think you are stepping up in the value chain of insurance, which could probably accelerate the growth there. The long-term picture on insurance, please. Thank you very much.
Yeah. Thanks, Benoit, and for your questions, and I'll take the question on insurance, and Ida will talk about the liability margin. Look, in insurance, it's a little bit the same as we saw on investment products, so I think a couple of years ago we started to talk again to our insurance partners to look at, okay, what is the best proposition for which market, for which customer segments, and how does each market develop itself? It comes a bit back to what I said previously, which is we have been very dependent on interest income, whether it was deposits or lending, and there is nothing wrong with these two products, but in the end, we want to build up a broader client relationship when growing our primary relationships across the board.
In that regard, we have also started to do that with insurance. I think a few quarters ago we started to report on that separately. Every market works a bit differently, huh? In some markets, uh, we have, uh, one partner. In this market, we work more with a platform model whereby insurance partners can subscribe to certain products. Increasingly we're also moving up the value chain. In some of the markets, the insurance fees are still very low, huh, like I said in the past about investment business, that I said the asset under management business compared to other banks that are smaller than us is still relatively benign. That also goes for insurance. In my view, we have just nearly started. It is getting better.
We've seen that the growth was, you know, I believe 14%, compared to a year ago. This is good, but we're still rolling out in more markets. We're hiring people and specialists, and we are maturing in also the way that we provide insurance, and that could indeed also be taking over some more services. We currently don't think about taking over underwriting services, but we really tailor it in each market where we're at, and there's quite a bit of upside in, from where we currently are.
Thank you for your question on liability margin as well as on competition. I think I'll start with the competition on deposits. I think it's important to say that we see strong but rational competition, both on deposits, but also on lending in all our main markets. When looking particularly at the first quarter, that's seasonally a lower quarter when it comes to deposits. If you compare it year-over-year, you need to also keep in mind that in the first quarter last year, we did a larger campaign in Germany, which meant that we have a stronger inflow of deposits.
We still see that we have an attractive offering towards our customers and we continue balance profitability above growth, around growth, and ensure that we have a sustainable development also on deposits in line with what we've guided on in terms of an average growth of 5% where we think it would be natural to see a deposit growth. On the liability margin, it's good that you point out that we should not expect a 5 basis points increase on the liability margin every quarter. What I think is important to say is that we expect to be in the mid-range of between 100 and 110 basis points this year. Also driven by a hedging tailwind which comes in gradually but not exactly linear.
Particularly a reflection of the lower than usual campaign related deposits cost in the first quarter. That's also something that needs to be taken into account when looking at the liability margin ahead.
Thank you very much.
Thank you. We'll now take our next question from Chris Hallam of Goldman Sachs. Your line is open. Please go ahead.
Yeah. Two questions. One, the first one I see you've introduced on Slide 27, that bullet point on the right-hand side to say the range of 100-110 could be temporarily exceeded. I just wanted to ask more conceptually how you think about that opportunity. On the one hand, you could pay up to sort of source additional deposits, essentially sacrificing margin for volume, and hoping that you find the demand on the lending side to put that additional liquidity to work, given you typically run about 100% LDR. Obviously that ties up more capital and it brings in a bit more credit risk. On the other hand, you could allow volumes to react to your determined pass-through rates and just ride the tide of higher rates and underlying volume growth in your markets.
You wouldn't grow deposits by as much, but it's a higher ROE and a lower credit risk strategy. I guess from the outside in, that's a pretty easy decision to make, but I'd just be interested to see and hear how you see the balance between those two strategies. Second, of this EUR 600 million increase in replicating income in 2026, again on Slide 27, I know that's a gross number, but how much is included in the new commercial NII guidance? The haircut you're taking in deciding how much of that EUR 600 million to embed in the new guide, is that because you're waiting to see where rates really settle this year? Obviously, there's a huge amount of volatility.
Because you actually see more price competition coming through onto deposits and there being a bigger difference between the gross and the net number. Thank you.
All right. The second question I read as, or I heard as that we gave commercial NII guidance of, EUR +200 million and how much is for more liabilities. Is that my right understanding, Chris?
Effectively, your replicating income guidance for 2026 has gone up by EUR 600 million. Your commercial NII guidance has gone up by EUR 200 million. The replicating income number though is gross, so it could be high deposit cost, or it could just be that you're using the latest forward curve on that replicating income slide.
Right.
You don't want to put the latest forward curve into your commercial NII guide.
Yeah. Basically, I'll take the second question and Ida takes the first question. I think on the EUR 200 million, that is basically all the increase is all liability income. I think that if you look at our the liability income that's growing both on the volume and of course on the margin that we make and on the average duration and therefore the curves that we see. Now clearly, we have been moving up our deposits with EUR 7 billion. That is in line with what we typically would do for the year. Sometimes we have campaigns and it goes a bit quicker, but also comes at lower margin.
We didn't do campaigns, and if you strip out the campaigns, we are still at what we typically do in a quarter. Of course, the margin is supported by a higher short-term interest rate that helps our current accounts. Of course, we're also helped in this case by the higher forward curve. It also will help savings margins, in the end, but what we see in the past from competition, that always trends back to a certain level. Based on what we currently have seen and have done to date, this is the increase of liability income we expect on commercial NII for 2026. Has nothing to do with lending or lending margins.
It's just a matter of the volumes that we expect at higher margins at a better replication rate.
Thank you. I think it's important to say that the Slide 27, which I think you're referring to, is a visualization of what we would see bearing in mind a specific forward curve. That's also the forward curve that we saw in March. That has been quite volatile, as you know, during the quarter. Some of the benefit as Steven van Rijswijk also alluded to, some of the benefit from higher short-term rates is from current account volumes, and therefore structurally accretive to NII. However, most of the benefit for us comes from the savings volumes, which is more sensitive to competition and historically has shown that the margins are fairly stable over time and is expected to also come down.
I would link that to the range of 100 and 110 basis points in terms of the long-term perspective. Taking purely the forward curve from March into account, you would say that yes, we would potentially be higher than 100 and 110, but we also know that there is a fierce competition. There is also a very rational behavior in the bank, focusing on profitability above growth over time. When you'd also asked about the composition in terms of lend, will we prioritize lending over deposits. I think we've said that our long-term goal is to grow approximately equal by 5% on both sides of the balance sheet.
Thank you. We'll now take our next question from Giulia Aurora of Morgan Stanley. Your line is open. Please go ahead.
Yes. Hi, good morning. Thank you for taking my questions. I have two. The first one, the commercial momentum was very strong in Q1. Steven, you called out momentum in mortgages, also growth in business banking. How is this evolving now considering the change in the macro backdrop? Are you still seeing good demand for loans, or has that slowed down? First question. Second question, on cost of risk, the EUR 94 million overlay, what oil price do you assume there? Could we see more coming in Q2 considering how things are evolving literally as we speak? Thank you.
All right, Giulia. I. Thanks for your question. I take the question on commercial momentum, and Andrea will take the question on the EUR 94 million overlay. On the commercial momentum, look, there's many elements that we anticipate to continue and there are some elements where we could expect and could see an impact. If you look at the lending and the deposit space, I think a large part of our loans is in mortgages, and there the main drivers are unemployment rates and housing shortages, and that hasn't really changed.
We've seen it also in previous cycles, maybe except when rates increased very, very quickly as we've seen in the course of 2022 and 2023, then there was a little bit, a bump in the housing demand. Other than that, we have actually seen a continued rise in demand for mortgages given the fact that there is housing shortage and there's low unemployment rates. That's an important element to it. When we look at fees, many of our fee growth is alpha-driven. That's just having more customers doing more with us and driving more impact and relevance in the markets where we are.
I just talked also to the question to Benoit Petrarque about, okay, rolling out new insurance propositions, rolling out broader investment propositions, having deeper payment capabilities in various markets, deepening our financial markets capabilities in terms of pricing for certain products. It's just enabling ourselves because we have these customers to do more with them, and that I don't see change either. I think the biggest impact that we could potentially see, but it's too early to call, is that when we look at the lending demand in wholesale banking, and there we've seen in the second half of last year quite a pent-up demand after the pipelines were full in the first half but didn't really convert based on the uncertainty given Liberation Day.
That converts in the second half, and that we see continue in the first quarter. With all the uncertainty going on, that could be more muted in the quarters to come, but let's see what happens. That's what I could see at this point in time. Andrea, on the overlay.
Yeah. Okay. The primary purpose of the overlay which we build was indeed to adjust the quarter-end macroeconomic scenarios which feed into our credit risk estimates to reflect the potential deterioration linked to the ongoing escalation in the Middle East. From the coming quarter, consider a wider set of assumptions and macroeconomic variables than the pure oil price. From the coming quarter, we expect to revert to the normal process whereby economic macroeconomic consensus is feeding naturally into our loss provisioning process. Therefore, this overlay should diminish while the net impact on the loan loss provisions will be actually depending on how the higher oil price will affect the macroeconomic outlook.
In a nutshell, let's say this is the setup. It's too hard to come to a conclusion about the potential impact of the current oil price volatility on our loan operations.
Thank you. We will now take our next question from Delphine Lee of J.P. Morgan. Your line is open. Please go ahead.
Yes. Good morning. Thank you for taking my questions. My first one is, sorry, just to come back on the liability margins and your comment about, you know, ceding temporarily and out to years. Just to understand, when you say temporarily, just to understand, like, you do think that there will be a significant change in competition, which you're saying at the moment is rational, but the new players and newcomers could really trigger potential change. Do you think this would be sudden? Or, you know, just to kind of like understand sort of like, you know, how quickly that could bring down liability margin back into the, you know, long-term range of 100-110 basis points. Second question is on capital.
Just want to get your thoughts around, like, the change on the mortgage floor, in terms of the impact that you have on your CET1 ratio and your distribution policy? You want to run around 13%, so, you know, seeing a bit of a positive impact. Would that change how much you distribute in terms of, you know, buybacks? Thank you.
Yeah, thank you very much. I'll take the question on capital, and Ida will take the question on the liability margins. When we look at the mortgage floor, what happened is that it was recently announced also that by the DNB, that they took a decision, and as a result of which, the Dutch mortgage floor expires as per the first of December of 2026. That decision will lead to a EUR 4 billion lower risk-rated assets. That's about 15 basis points of our CET1 ratio. We've previously said, we are looking at a target of around 13%. We use that, we use our capital for growth and for distribution and normal distribution.
If there is any structural amount over that around 13% that we have in capital, then we'll pay it back to shareholders. We'll treat this, we'll treat it any, in the same way as we normally do.
Thank you for the question on liability margin. First, I think it's important to look at the composition of our portfolio as well, and also link it back to what we saw in 2023. In 2023, we saw a rapid increase in terms of margins, which then came down gradually over time as there is quite strong competition. I think it's also important then to look at when I link it to our portfolio in terms of the percentage-wise split between savings accounts and current accounts. That also means that, as I mentioned before, that we expect the savings margins or margins on savings accounts to come back to a long-term level that we have seen before.
Thank you very much.
Thank you. We'll now take our next question from Ben Goy of DB. Your line is open. Please go ahead.
Yes. Hi, good morning. Two questions, please. First on cost, it seems like you are on good cost control and you are a bit ahead of your full year guidance. Maybe you can comment a bit more on that, whether it was FX and how the benefits of the operations restructuring should help in the rest of the year. On deposit campaigns, obviously you didn't do a big campaign. Should we generally expect bigger campaigns as you did in the past, or should it be more below the radar, potentially cheaper micro campaigning type campaigns? Thank you.
I know. All right. On both of the questions, what we have been able to do is that with the contained cost discipline, but also scalability that I talked about in the presentation, we were able to largely offset the wage inflation, and therefore we also allow ourselves to make investments. In the end, what we want to do is to be able to further grow and diversify ourselves. The more we're able to have efficiencies coming from our scalability, both from digitalization and our scalable tech and ops, that we can then reuse to get better customer experience by making investments into broaden our products as we talked about.
That will then support the long-term value and the drive of our ROE. In that sense, we continue to confirm also the outlook that we have for 2026 and 2027. We, we do see, and that's what I mentioned on page five of the presentation, continued improvements on that front, on the front of scalability, and it gives opportunity to play with the levers of investments versus costs, which is very helpful. The outlook remains the same at this point in time. When we talk about campaigns, yeah, it's, it's mixing, it's, it's mixing and matching. In the end, we want to grow our customer base. In the meantime, we want to, in the long term, balance loans with deposits.
We've seen for a number of quarters that deposits were growing faster. Now we've seen a couple of quarters where loans are growing faster. We want to do that in a balanced way. In the end, our purpose is to get more primary relationships in because these people, these clients will do multiples in terms of and products, but also in profitability, and in stickiness with us. Therefore, we will tailor it as to how we can grow and develop our customer base while keeping an eye on our balance sheet. That's a mixing and matching of both more micro campaigns and potentially more above-the-line campaigns that we've seen in previous years.
Thank you.
Thank you. We'll now take our next question from Tarik El Mejjad of Bank of America. Your line is open. Please go ahead.
Hi. Good morning, everyone, and welcome from myself as well, Ida. Looking forward to talk more in future. I just want to follow up first on volumes. I understand the uncertainty element that could reverse if things get better in Iran and the conflict. What about if we have a more sustained higher energy prices, lower consumption and maybe higher inflation on your wholesale lending? If we see something more structural rather than the reversal uncertainty, how, where do, which areas you see and what could be impact on your lending? The second question is on the SRTs that you are planning to do for the rest of the year, I think 15, 20 basis points push of capital.
How is discussions with the ECB and how do you see the market evolving in this current uncertainty? Is that something you still see as, you know, on track in terms of delivery and pricing and also on what kind of loans you put there? Thank you.
Yeah. Thanks, Tarik, for your questions. I'll take the question on volumes, and Ida will take the question on SRTs. I think on volumes, look in retail, like I said, we have seen over the past six, seven years different elements that impacted the macroeconomic volatility. Again, most of our retail lending and predominantly mortgages is much more linked to unemployment rates and shortage of housing and therefore how sad the war is, however sad the war is, that is not directly impacting those macroeconomic indicators. Therefore we expect a continuation of demands for mortgages and depending on the pricing and we will therefore further grow that book.
When it comes to wholesale banking, there we saw in the first quarter if you annualize, sorry, if you now annualize the growth rate that we saw in the first quarter on lending, in total it was 8%. That is quite a bit higher than the 5% that 4%, 5% we saw previously over the years. Sectors in wholesale banking that could be affected are sectors that are, one, linked to the oil price, i.e., that have the oil price and energy price as a quite an input factor on the cost base. You could think about the chemical sector or fertilizers or construction or transport and logistics. Those are sectors that are typically impacted.
The question for those companies is, are they able to pass on those energy prices? The second element that you could see is that Asia, which is even more dependent, I would say, on the Middle East, Strait of Hormuz in terms of getting their oil, if that is impacting their production levels and therefore it would also impact the delivery of supply chains to a number of other companies in the world, including the U.S. and Europe. Those would be the main macroeconomic impacts.
So far, and we are watching that closely, clearly a number of the companies that we talk to are much more flexible than they were a number of years ago because they have been dealing with the war in Ukraine and Corona, so they are more used to changing in terms of uncertainty. So far, we don't see so much in our book. You saw the risk costs that are below the true cycle average, and it also includes an overlay. The risk costs are still quite benign. That's just a matter of waiting and looking and helping our customers. It's too close to see what is really happening. We just need to stay close to the clients, especially in the sectors that I just outlined.
On SRTs. SRTs are an important tool in our toolbox to ensure capital efficiency and also optimize our capital position. As you know, in November last year, we announced a successful completion of our first two SRTs in Wholesale Banking, which provided a Core Equity Tier 1 relief of 12 basis points. We aim to continue using SRTs across wholesale as well as Retail Banking portfolios in the coming years. We've previously also said that we expect to do additional capital reliefs in 2026 of between 15 - 20 basis points, and that still remains the plan. We have a very good and constructive dialogue with ECB. I don't see any negative trends there at all or hesitations from their side.
It is also important to say we are, kind of in the early phase of doing SRTs and therefore, are not an outlier in any way.
Thank you.
Thank you. We'll now take our next question from Shrey Srivastava of Citi. Your line is open. Shrey, go ahead.
Hi, thank you very much for taking my question. Apologies if it's been touched on already. I just joined. If you look at your 2026 commercial NII guide, it's been uplifted by about EUR 200 million, if you take the midpoints. If you compare that against the gross replicating income uplift on Slide 27, it's about EUR 600 million. Therefore you're guiding to an implied faster of close to 70% in 2026, if I'm not mistaken. Can you just explain what's driving that, what key markets and what opportunities you see? Thank you.
Okay. Ida.
Hi, Shrey. Nice to speaking to you again. As you rightly say that we saw a strong momentum on the commercial NII, which much better than expected and what we had guided for before. I think there are mainly four factors impacting this. We had a particularly strong lending growth, good deposit growth also in the first quarter, in spite of the seasonal outflows that you always see in the first quarter. We see the positive impacts of the hedging tailwinds, as you saw already from the second half of last year, really showing an impact also this quarter, and then lower deposits cost related to promotional campaigns.
When you look at Slide 27, it is important to say that that's more of a visualization of what we see in terms of replication development driven by a specific forward curve. What we're saying there is that, yes, you will see a positive impact given the interest rates environments coming into play. We're also then saying that we expect to be in the mid-range on liabilities margins in on between 100 and 110 basis points this year, and could potentially, given the interest rate path that we're seeing today, be slightly above 110 basis points in the two coming years.
We also expect, given the portfolio mix that we have, to see that trending down to more normalized level over time, as we also know that there is strong competition also on the, on the savings side, which we also saw in 2023.
Understood. Thank you very much, and good to see you again, Ida.
Thank you. We'll now move on to our next question from Matthew Clark of Mediobanca. Your line is open, please go ahead.
Good morning. More questions on liability margin, I'm afraid. I guess firstly, I was just hoping to understand a bit better whereabouts on the curve the movements were that benefited the liability margin this quarter. I mean, interest rates only really moved through March, so only for the last month of the quarter. Just trying to understand, you know, was it three months, six months, 12 months that really drove that 5 basis point benefit that we haven't seen in the past? Presumably, it would take too long for the longer end to be benefiting the margin that much. A related question is just in terms of the change in guidance from the around 100 basis points previously given.
I mean, if you're guiding for that at the end of January, start of February, to have a 4 or 5 basis point upward surprise in the first quarter implies a very high exit rate in terms of the liability margin for March in order to bring that average up. Any comment there? Is it right to think that the March liability margin would have been trending some way higher even than that 104 basis point average for the quarter? Thank you.
All right. Ida, it's gonna be a one-man show, a one-woman show.
Thank you. Thank you, Steven. Well, if I start with there's not a specific part of the curve. I think. When looking at the numbers and comparing it to what we talked about in the first quarter, you need to keep in mind that we also saw a gradual increase from the December curve. That needs to be taken into account. There is not one point in time that we're looking at here, but a gradual increase. In addition to that, you of course already saw the positive developments or the hedging tailwinds coming from the second half of last year moving into the first half, which is then also positive in terms of the outlook for the liability margins. The second part of it. Yes.
The second part of the question was. Sorry, I forgot that.
Could I just come back?
Yeah. Can you-
Any comments on.
Can you reiterate the second question, Matt? The changing guidance.
Sure. Thank you. There's two things. One, I just wanted to come back to the point that we were already seeing a benefit from the replicating tailwind last year, because I thought the guidance had been, while that was true at the long end, not to expect an overall improvement to the replicating tailwind to swing positive until later on in 2026. Was it an overall replicating benefit we were already seeing last year or was it only at the longer end? Then the other part of my original question was whether the exit rate for the liability margin in March was a lot higher than 104 basis points in order to bring the average for the full first quarter up to 104 basis points.
Sure. Ida will answer this.
Yes. I think what's important to keep in mind here is that we have lower campaign costs this quarter as well compared to previous quarters. Particularly if you also look at the first quarter last year, where we have larger costs related to campaigns. Then in addition to that, you're right in terms of your point of the shorter end.
Okay. Thank you.
Thank you. We'll now take our next question from Namita Samtani of Barclays. Your line is open. Please go ahead.
Good morning. Thanks for taking my questions. My first one, do you think the cost income target of around 52% in 2027, just based on your revenue and cost targets is ambitious enough, given there are 23 other European banks targeting a lower cost income between 2026-2028? I'm just trying to understand the main pillars stopping ING from getting to a lower cost income than 52%. Secondly, just on what you would characterize growth markets in your Excel file, particularly in retail. I noticed the loan to deposit ratio over the past four years has come down by about 10 percentage points from around 60%. I was just wondering, why are you not able to grow lending as fast as deposits, and what's the strategy here?
I would expect deposit profitability in this subcategory to not be as good as it could be in other regions. Thanks.
Yes. Thank you, Namita. I think that if you look at cost income targets, again, the implied is 52%. I think what we're driving for is, on the one hand, operational efficiencies in our existing business. The main development for ING to drive value is to grow and diversify. As I said, we are a bank that makes about 80% of its revenue based on interest rates or linked to that, whereas on deposits or lending, which is good. That's also our ZIP code, i.e., where we came from. We also have the opportunity to do a lot more with our customers. You see that we grow our fees very well in all kinds of directions and the interaction we have with our clients in that regard.
Have more people who trade with us, more people who use the app, more people who do payments with us, more people who close insurance contracts through us as a distributor. More people who do financial market transactions with us. You see it's also rising in the league tables in in-depth capital markets, for example. At the same time, because we're also growing lending in various aspects, also that part of the P&L is growing, but the goal is to diversify. What we will largely save in terms of our operational efficiencies, we are investing in broadening and deepening our client relationships. That is helping in the end.
That's what we're drawing towards the ROE, that ROE we say will be 14% this year, more than 15% ROTE in 2027, we continue to drive and focus on ROTE growth. Implicitly, that will then also have an cost income decrease as a consequence. The main driver is consistent ROTE at scale. In terms of the loan to deposit ratio, I believe the line was breaking up a little bit, I believe you said a low loan to deposit ratio in Poland. Yeah, that is every market works differently. Quite a bit of stimulus in terms of investments comes there directly through the government.
There you see it's the public spending that is increasing, but not necessarily the private spending. Therefore, you see throughout all the banks that the loan deposit ratio there are significantly below 100. Of course, we have been very successful in Poland, growing over the past 20 years to become a top three bank there, or we are continuing to do so. There is a dislocation, if you will, between the growth in lending and deposits in that particular market. That is correct.
I just meant the growth market. It's like a category in your Excel file. You still answered my question, so thanks very much.
All right.
That is correct, by the way. All these dynamics are in the growth markets, which are mostly emerging markets. Whereby if you then look at also the lending that is being done to households to date compared to mature markets, compared to total GDP is significantly lower and is going step by step to higher levels, but it takes time. Yeah, the dynamics in those markets are different. That is correct.
That's helpful. Thank you.
Thank you. We'll now take our next question from Farquhar Murray of Autonomous. The line is open. Please go ahead.
Good. Just two questions, if I may. Firstly, as you say, the rates curve backdrop has been very volatile, there are quite a range of possible scenarios that could play out this year. My question there is how are you managing around that range of uncertainty and whether you've done anything specifically to adjust for it? That would be both in terms of positioning within the replication portfolio and perhaps also competitively, where it feels maybe you're leaving room to maneuver on campaigns this year. Secondly, briefly coming back on the mortgage floor change, should I take your comments as suggesting this will be simply wrapped into the kind of exercise at 1Q 2027, probably one and done and then maybe even slightly lumpy? Thanks.
All right. On the mortgage floor, I will respond, and then on the volt curve and the campaigns, Ida will respond. I think that when we talk about the mortgage floor, what I meant to say was that there's all kinds of movements happening, whether it is model updates or SRTs or changes in regulation. We just take it into account in our semi-annual update, in this case, by the end of October, whereby we say, "Okay, we look at what is our structural capital level, and if it's structurally above 13%, then we'll pay it back." Because what we need below that, we will need for growth.
If there is a structural excess above 13%, we will pay it back, we lump what we now see in also the mortgage floor in the Netherlands into account in that whole decision. Ida.
Thank you. In terms of looking at the replication, I think it's important to just say that this is primarily a risk management tool in order for us to match the different parts of the balance sheet rather than trying to make smart moves in the short term. That's also why you see that we continuously see a good uptick in terms of replication income from the second half of last year into this year and also expect to see it going forward. We haven't changed any strategy. We're not making shift transitions purely based on the volatility.
I think overall, we have a very low risk appetite when it comes to interest rate risks in the bank and are therefore managing interest rates overall in a prudent and strong way.
For campaigns.
Thank you. That's all the time we have for questions. I will now hand it back to Steven van Rijswijk for closing remarks.
All right. Thank you very much again for your time, your attention, your good questions. I'm sure you will have a very busy day given all the banks that are coming out with their figures today. All the best with that. I'm also very happy that you have now spoken to Ida as our new CFO and to Andrea as our Head of Risk. We will continue on that path in the next quarter. See you soon. Thank you.
Thank you. Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.