Good morning. This is Anita Ogulin welcoming you to ING's First Q uarter 2020 Conference Call. Before handing this conference call over to Ralph Hamers, 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, expectations for our future financial performance, and any statement not involved in 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, Ralph. Over to you.
Thank you, operator. Good morning, everyone. Welcome to the first quarter 2020 results call. For many of you, thank you specifically because I do know that for many of you it's actually a public holiday today. Thanks for joining us. I truly hope you're all in good shape, healthy, in light of the COVID-19 pandemic. As always, I'll take you through today's presentation, which is a bit longer than usual, because we are trying to give you as much information as possible. For the Q&A session, as usual, our CFO, Tanate Phutrakul, and our CRO, Steven van Rijswijk, are here with me as well. Let's go through the presentation here. On the key points, the first quarter is not what I would call a standard quarter.
For me personally, it's not as it is the last quarter I will be presenting as the CEO of ING, but even more so given the extraordinary times we're living in, marked by the COVID-19 pandemic, which is having a profound impact on the entire world. It's our priority to support our customers, and it's our priority to support our employees and societies as a whole during this time, and to help them cope with the impact of the pandemic. At the same time, to keep our operations going. I'm proud to see that our digital and agile business model is actually supporting this, while at the same time maintaining strong operational results, as you can see. Our support for customers was visible in core lending growth for the quarter, where growth in Wholesale Banking was mainly driven by providing liquidity in light of the COVID-19 pandemic.
At the same time, we also saw continued growth in our retail book. Combined with a very strong fee growth, this largely countered the margin pressure that we have on customer deposits and negative impacts from mark-to-market valuation adjustments driven by the market dislocation as we observed that at the end of March. On the risk costs, they're a clear focal point for this quarter. While stage three provisioning was more or less stable, stage two provisions are elevated and reflecting a collective stage two provisioning mainly driven by the worsened macroeconomic indicators, and to a lesser extent also as to reflecting a drop in the oil price. This resulted in risk costs coming in above our through-the-cycle average. We have time to take you through some of that there.
The CET1 ratio was also impacted by market volatility, overall coming in at a 14%, so around 60 basis points lower than last quarter. Around 40 basis points of this is caused by a foreign exchange impact and valuation adjustments on capital, some of which has reversed already as we speak. Market risk-weighted assets were inflated because of the volatility in March. At the same time, we also absorbed EUR 9.9 billion, or 43 basis points of risk-weighted assets, as an impact related to the new Definition of Default. Going forward, we can clearly expect further impact from the COVID-19 pandemic. There are, however, many unknowns which play a role in determining how large this impact will be. We're not going to speculate on this. There's many things we simply don't know. What we can say, though, is that we're very well positioned to face these headwinds.
The change in customer behavior to our digital channels is really a wind in our back in order to continue a good operational result. We have a good capital position, a strong funding base, and low stage three ratio going into this. Those are the key points. Now, over to slide two. As I said, our priority is to provide support to our employees, customers, and society. We made a very smooth transition to around 80% of our employees now working from home, helping them to adapt to the new situation and at the same time stay available for our customers. We kept the branch network open. Clearly, we had to tweak things here and there in order to ensure safety for our employees and our clients as well.
Talking about clients, we help both our private and smaller business customers with payment holidays, and to support safe payment behavior, we've also increased limits for contactless payments. Also playing to our strategy, by the way. We're in close contact with our business customers to see how they are impacted and how we can support them through this. For smaller business customers, we provide credit facilities on the local government guarantee schemes.
For larger corporates, we look for tailored solutions, as you can expect, providing them with liquidity when needed. We have long-standing relationships with many of them. We've worked with them through previous cycles, and therefore, we will continue to support them as well in this cycle. All this has today resulted in about 100,000 payment holidays, EUR 120 million in loans extended to SMEs and mid-corporate customers under government guarantee schemes, and EUR 5.6 billion liquidity provided to larger customers.
As we have seen, part of these drawdowns already reversing. We can't be detached from the societies in which we're active, and these societies have been under major pressure given the COVID crisis. We've been running collections in order to make donations to charities, matching employee donations. We're working with UNICEF, with the Red Cross. We have donated laptops to enable homeschooling, many of those things that we can help to support the societies as well. On the next slide, what you will see is that our digital and agile abilities are great assets under these circumstances. We see actually a revolutionary change in the behavior of our clients rather than an evolutionary one. We're very well-positioned given our business model in order to support these clients because they all go for digital banking.
It's a safe choice, and we have experienced a smooth adoption to working from home in order to support this. The systems and channels have been available all the time, so our IT investments over the last couple of years are really paying off in order to support a business that is increasingly digital. The share of mobile interactions further increased to 86%, with the number of interactions, again, increasing if you look at this on a annual basis. EUR 1.3 billion of interactions just for the quarter. As the last graph shows as well, on an annualized basis, we are more successful in using our mobile channel, offering new products, and actually conclude sales, and that has increased to 84 sales per 1,000 customers and continues to increase. Our operations also continued uninterrupted, whereas the volumes that went through were very high.
For example, in March and April alone, we opened 170,000 investment accounts globally, of which 100,000 in Germany. Up till now, we also processed and approved over 100,000 payment holidays and credit facilities under government guarantee schemes. Happy to be digital and being able to support all these customer demands but also the new account openings that we see. The next slide is one that we wanted to show you that although we are in uncertain times, we're in a very good starting position, having built a very resilient bank by focusing on primary customers, increasing about 5 million over the last couple of years since we launched the Think Forward strategy. Today, we have over 13 million of them, representing 1/3 of our total customer base. That has resulted not only in higher income, but also in more diversified income.
In retail, we saw the highest growth in fees, reflecting our focus on increasing fee income. The share of fee income in total retail income has increased from 11% in 2014 to more than 16% in 2019. Digital primary banking does work. Our total income also diversified geographically, with the main growth realized in our Challenger and Growth markets, which is in line with our strategy as you know. Their contribution to income increased from 30% in 2014 to 40% today, with income coming from non-Eurozone countries increasing from 13%- 17%. Specifically the non-Eurozone countries, as you know, they still have healthy yield curves. That helps us also weather some of the pressure there. The increased share of both fee income and income from non-Eurozone countries is also helping us to better cope with the pressure of the lower interest environment as mentioned.
The next slide shows that with all this growth coming through, with the number of clients rapidly increasing, over this period, we've actually been able to control our costs. The regulatory costs have clearly had an impact, if you look at your real underlying operational costs, they've only increased by 1.7%. Basically, most of the salary increases, most of the investments in ATF, most of the KYC costs have been absorbed by being far more efficient and getting more volume through the system, and with that, generate more income. If you now look at the cost-income ratio over the time, we were already more efficient at the beginning of Think Forward than our peers in 2014. Although we have been coping with a low rate environment and increasing KYC-related expenses, and that certainly has had an impact on our income ratio.
As you know, we continue to absorb those over time. We actually see that our advance to eurozone peers in terms of cost income ratio over the time has actually increased from 5.3%- 7.9%. To the way we do credit risk management, you see that also through the cycle, and that's why we go back a little bit longer to 2008, that we have a strong track record in credit risk management. Both our risk costs over average customer lending and our stage three ratios are low compared to our eurozone peers, and also compared to equally or higher-rated peers. That reflects the strong risk management framework that we have in place. We operate with a strict risk appetite, including exposure caps, to manage concentration risk with extensive sector knowledge on the Wholesale Banking side, and knowing how to work with our clients through the cycle.
Our loan book, with 42% in mortgages at 60% LTV, is for more than 99% senior secured, senior, and secured to a large extent with a focus on structures and collateral. All our efforts result in a good quality loan book with a low stage three ratio, which puts us in a very good position to deal with the challenges of the current cycle. Turning to capital, that's been quite a journey over the last couple of years. Since 2015, we are looking at that, given the fact that at that moment we deconsolidated the insurance activities. Over that period, the CET1 ratio has increased to well above the ambition, despite paying over 50% of our net profit to our shareholders and absorbing substantial risk-weighted assets impact from our model methodology and policy changes.
We've also maintained our strong funding structure, as you can see, with the majority coming from a sticky deposit base. While in the low-rate environment, I've had to explain often why this is a strength. In the present time, with volatile and even dislocated financial markets, the stable source of funding again proves its value. It's been always our strength and it will continue to be our strength going forward as well. This also sets the frame going into the cycle. A strong capital position, a solid and diversified senior secured asset book, a solid funding structure, and a proven digital operating model. Now, turning to the first quarter results. If you look at the first quarter results, we saw a strong increase in fee income combined with higher treasury income and disciplined lending margins on one side.
On the other side, we saw clearly at the end of March, market volatility resulting in higher negative value adjustments. That is basically what makes the income as we see it. If you compare it year-on-year, in 2019, the first quarter of 2019 actually had a one-off gain of EUR 119 million, which you probably still remember, which was related to the sale of our stake in Kotak Mahindra. If you take the literal year-on-year comparison, it resulted in a EUR 65 million lower income year-on-year. If you correct it for the EUR 119 million, we actually see a bit of an increase in income there. Sequentially, income has also improved by EUR 72 million, and that reflects higher treasury-related income and higher fees, while NII was lower, with the fourth quarter 2019 NII, including some one-offs reflecting higher prepayments of some fixed loan rates.
As you may remember, in the Wholesale Bank, there were a couple of large loans repaid at that moment. Pre-provision results, excluding volatile items and regulatory costs, show an increase in operating results, and that's by more than 5% year-on-year and quarter-on-quarter. The pre-provision result, excluding these volatile items and regulatory costs, shows a more than 5% improvement year-on-year and quarter-on-quarter. It's a reflection of the higher income excluding the volatile items, and it's also a reflection of a quarter with lower cost. Turning to slide 11. If you look at the NII development, excluding financial markets, it was 0.2% higher year-on-year, slightly up despite continuing margin pressure on deposits. Versus the previous quarter, it was 2.3% lower. While NII and mortgages improved, margin pressure on customer deposits actually continued.
The fourth quarter also included some one-offs in Wholesale Banking, as I just referred to, the prepayments, as you remember. Overall, we continue to see the effect of pricing discipline coming through, volume growth continuing. As mentioned in previous quarters, we do benefit also in this from our activities in non-Eurozone countries, as well as the negative rates that we have started to charge on deposits. Now mainly versus the first quarter last year, we benefit from the deposit tiering, which came into effect in the fourth quarter, which largely cancels out the negative rates on our deposits held at the ECB. Our net interest margin decreased by 6 basis points, as you can see. It's actually been remarkably stable on a four-quarter rolling average at 154. Quarter on quarter, it decreased 6 basis points, and that's explained by an increase of the average balance sheet.
It's around 2 basis points. Some lower result in financial markets by 1 basis point. Then a 3 basis points impact from the combination of lower margins on savings and on non-mortgage lending. The increased balance sheet for the quarter was driven by Wholesale Banking in order to provide liquidity facilities on one side, but also institutional clients trusting ING with a considerable increase in deposits. Although we do discuss the NIM all the time with you, and it is certainly a factor that we look at how to manage it, we do think it is better to look at NII development and as part of the P&L. How did the lending develop? That's in slide 12. First quarter, we saw EUR 12.3 billion of net core lending increase. Main growth was visible in Wholesale Banking, as you can see.
That increased by EUR 9.4 billion, and that has basically two components. It has EUR 11.2 billion in extra financing, largely because of liquidity facilities. To date, we've already seen part of these drawings reversing, and we saw a decrease on the trade finance, on the Trade and Commodity Finance, and that is basically caused by the lower oil price and therefore the value of the contracts and the value therefore of the underlying activity is lower, whereas the volume is the same.
Retail core lending grew by EUR 2.9 billion, as you can see. The increase in Belgium was fully due to the increase in business lending by one large client. Retail Challenger and Growth Markets continued to grow as well, largely driven by mortgages in those fields. The net deposits also increased by EUR 9.2 billion for the quarter. That was mainly driven by a EUR 6 billion increase in Wholesale Banking.
That's partly reflecting some of the funds drawn on the revolving credit facilities, but also partly explained by institutions trusting us with their money. It's kind of a show of confidence in these times. Retail banking deposits were EUR 3.2 billion higher. Now over to fee growth. We had a particular strong quarter in fees this quarter. Fee income increased by 16% year-on-year, by EUR 108 million. EUR 72 million of the EUR 108 million was actually in Retail Banking, 17% up year-on-year, and that was mainly driven by Germany with higher fees on investment products as the number of trades more than doubled in a volatile market. Also in Belgium, we saw fees and investment products increase following a very successful marketing campaign. We also saw increased daily banking packages fees increase there.
In the Wholesale Bank, we saw the fees increase by 13.4%, and that reflects increased syndicated deals in the first two months of the year, and higher fees in Financial Markets. Compared to the previous quarter, so sequentially, fees were up 6.5%, and that's fully due to Retail Banking. In Wholesale Banking, fees were slightly lower, and that's because of a lower activity in Corporate Finance in the first quarter versus last quarter. The low oil price affected the fee income in Trade and Commodity Finance. I already referred to that on the lending side. Over to Financial Markets. The results of Financial Markets were impacted this quarter by the market volatility at the end of the quarter. The first two months of the quarter were really good. On the client side, you actually see that the business was holding up quite well.
It was lower by EUR 8 million. We also had some losses in credit trading given the abrupt downward movement in the market at the end of the quarter because of the crisis. If you correct for that, the client income actually was substantially higher. That's a good sign of underlying business and a recovery of this activity. Sequentially, client income rose by EUR 25 million. That's benefiting from volatile markets. The negative value adjustments impacted FM income by EUR 92 million as you can see. That was partly caused by the dislocation of the bonds versus CDS prices at the end of March. It's clearly visible in the lower table on the slide there as well. You see the drop there. Mark-to-market valuation on our derivatives portfolio also had a negative impact, while increasing bid-offer spreads required for higher fair value adjustments as well.
Part of these negative value adjustments were offset by positive movements. That's mainly because of our own hedges that we have in place. As the market volatility that we saw at the end of the first quarter has somewhat subsided already, some of these negative impacts have, in the meantime, reversed, as you can expect with a normalization of the market. Over to cost expenses, excluding KYC. This is additional information for you this quarter, because you asked for it to have a little bit more transparency around the KYC costs. Basically we have dissected it here for you. If you exclude KYC costs and regulatory costs, the costs were actually down EUR 29 million year-on-year. That's a 1.3% decrease of cost year-on-year. You see that the cost control is actually working on the operational side.
Also some positive one-offs, they countered some of the CLA salary increases. If you look at the quarter-on-quarter development, expenses excluding the KYC and regulatory costs were lower as well, but by EUR 52 million, and that's a 2.3% decrease. You also see that this quarter has a lower KYC cost than the fourth quarter. If you really look through, we do expect, and we already guided that we would expect KYC costs to plateau around these levels. We do expect them to come out around EUR 600 million for the year. As you can expect that in these times, we are very focused on cost going forward, and are very precise as to what we want to do, where we want to invest. We will continue our cost discipline going forward.
That has resulted in the first quarter already in lower expenses in almost all segments. From that perspective, also a good quarter. The regulatory costs, as you can see, are seasonally higher. In the first quarter, they were EUR 11 million higher than the same quarter last year, and that is mainly driven by a higher SRF contribution and higher bank taxes in Belgium and Poland. Over to risk cost. We're basically disclosing quite a lot of additional information today to all of you to analyze, and I'm sure it's a lot to cope with for the day, but we'll have a lot to work with going forward. Turning to slide 16 here, you see that the risk cost came out at EUR 661 million. That's 42 basis points over of average customer lending.
That's above the through-the-cycle average of around 25 basis points, up from EUR 428 million in the previous quarter. If you look at the increase, it is mainly driven by higher collective stage two provisions, that reflects the worsened macroeconomic indicators, as well as historically low oil prices. In the next slide, you will see some more detail as to how the stage two provision has been per segment. If you look at how the stage three ratio then has developed, I'm still on slide 16, not to confuse you. You see that in Wholesale Banking, the stage two ratio has increased to 5.9%. In Retail Netherlands, higher risk costs were driven by stage two provisions as well. Retail Belgium, we also had stage three risk cost increasing, that's mainly due to some larger additions to individual files in mid-corporates.
Retail Germany risk costs on consumer lending were slightly higher as well. The increase in other Challenger and Growth was driven by the allocated stage two provisions. While stage three risk costs were stable and mainly visible in countries like Poland, a bit in Romania, Italy, and Australia. If you look at this picture and you take a different perspective, the risk costs were up by EUR 119 million in Wholesale Banking. Again, fully reflecting allocated stage two provisions. The stage three risk cost in Wholesale Banking stayed almost the same level. They remain elevated, and they reflect some larger individual clients, and split between additions to existing files and also some new files. The stage three ratio increased from 1.4%- 1.6%, and that's driven by the implementation of the new Definition of Default in Retail Banking. For the Wholesale Bank, the stage three ratio remained flat.
Turning to slide 17, here you see basically how the stage two provisioning is affecting the Retail Banking risk cost versus the Wholesale Banking risk cost. You see that the majority of the collective two provisions are actually allocated to Wholesale Banking, with about EUR 114 million reflecting the worsened macroeconomic indicators due to COVID-19 pandemic. Another EUR 41 million was allocated to Wholesale Banking, reflecting the potential impact of low oil prices on our reserve-based lending books. EUR 114 million more COVID-related and EUR 41 million more oil and gas price-related, and related to the reserve-based lending book in the U.S. EUR 92 million of the collective stage two provisions was allocated to Retail Banking, EUR 25 million in the Netherlands, EUR 20 million in Belgium, EUR 1 million in Germany, and EUR 46 million divided over the different markets in other Challenger and Growth.
Now overall for 2020, we can expect risk costs to come in above the through-the-cycle average as a result of the economic impact of the COVID-19 pandemic. I don't think that will be a surprise to you. That impact and how it really pans out depends on several factors as to how long the lockdown measures will last, how effective government support schemes will work, how quickly the economy can start to recover. We do recognize that since closing the books, macroeconomic indicators have worsened. Turning over to the book, and why we feel confident with the risk management framework. This slide provides you a brief overview of that book, highlights some of the segments. Let me focus on a couple of sectors here. Residential mortgages, EUR 298 billion, at 60% average LTV, low stage three ratio.
If you look at the consumer lending there, limited book as well. Business lending, limited book as well. We have basically giving you some more color on the more sectors at risk, as agriculture and retail and hospitality in that as well. The percentage of total book, very manageable. Turning over to the Wholesale Bank. Oil and gas clearly received a lot of attention in the past weeks. I would like to stress again that there was only EUR 4.6 billion of this book directly exposed to oil price risk, which is 0.6% of our total loan book. That covers reserve-based lending and the offshore businesses. As mentioned, our main focus here is on the EUR 1.4 billion U.S. book in reserve-based lending. If you look at the hospitality sector, also the exposure there is limited to 0.6% of our book.
We've always been very restrictive on this sector, very selective, and you also see that we have a low stage three ratio in that sector. Same goes for aviation, a very small exposure to aviation, only 0.4% of our total loan book. Also there, we've been really selective and our exposure in stage three is basically nonexistent in that one. As you know, we were ahead of the curve about capping certain businesses, like the leveraged finance book. We're closely monitoring the development of this portfolio. It's well diversified, and we follow a strict risk policy, as you know, only taking senior debt with limited leverage, and a maximum EUR 25 million hold, and no single underwrites. Turning to commercial real estate. That's where we are a larger player, with a capped exposure also since the third quarter or fourth quarter of 2018, in order to avoid concentration risk.
We're very experienced in this, from previous cycles as well. We have a very strict risk policy. Retail-related assets are limited to 18% of that book, and generally financing of hotels is not allowed in that book. Clearly, the current circumstances will have an impact on our customers. We'll have to closely monitor that, and also as to how our book develops. The risk framework that we have in place is strict and has been strict. We remain confident on the asset quality. The next slide shows you the CET1 development. We're at a healthy 14% with clear impact from market volatility, and I'll take you through. On the capital, we had a EUR 1.4 billion negative impact from the revaluation reserve, as well as foreign exchange movements and Bank of Beijing. Combined, this lowered the CET1 ratio by around 40 basis points.
To date, we have already seen some of this negative impact reverse. We added EUR 0.7 billion of profits. Basically, the first quarter profit was added to the capital. In risk-weighted assets, we absorbed EUR 9.9 billion impact from the implementation of the new Definition of Default. We also saw some positive impact on this side with the release of EUR 6.6 billion of the expected supervisory risk-weighted assets impact taken in the fourth quarter 2019. That was mostly related to TRIM, and that release follows the announced delay in TRIM, as announced by the ECB. We have remained part of the impact in risk-weighted assets, reflecting the model changes as we would need to implement them regardless of the TRIM implementation anyway. Market risk-weighted assets were also inflated, clearly, because of the volatility in the markets, and they increased by EUR 4.5 billion.
Overall, with the announced performance of Basel IV, TRIM, and also the floor on Dutch mortgages, further risk-weighted assets impact coming from the banking regulations and model reviews will be delayed. With the new Definition of Default and part of the TRIM now included, we feel comfortable with our current capital position and the remaining future expected risk-weighted assets impact of all of that. Although delayed, they may still come, and we do feel that we've already taken quite some, so we are very comfortable there. You know that the COVID-19 pandemic also resulted in several supervisory measures, which have lowered our SREP requirement. You can see that in the slides. That has decreased to 10.5%. Our buffer at MDA level now stands at 3.5% versus where we are right now.
As you can see on slide 20, the CET1 ratio and leverage ratio remained ahead of our ambitions. For return on equity, it's below our ambition. That's certainly true, I believe we continue to produce an attractive total return despite higher capital requirements, a low-interest-rate environment, and increasing regulatory costs. The current crisis, the current pandemic, could clearly have impact on the metric. However, we don't want to speculate on this, and the ambition that we have on this remains unchanged. As mentioned also in the previous quarter, our cost/income ratio was impacted by factors such as the low rate environment, regulatory costs, and I want to reiterate that the cost-income ratio is not how we run our business, but it remains a very important input for our return on equity, and we have an ambition to reach around 50%-52% as we digitize further.
As for our dividend, nothing new for you. You know that following the ECB recommendations, we have suspended any dividend payments until the 1st of October. We'll see what the situation is. The EUR 1.7 billion that we reserved last year for the final dividend payment over 2019 is kept outside of regulatory capital. To summarize, the first quarter has not been a standard quarter, given the pandemic, leaving a mark on our customers, our employees, and our society. It's our first priority to support our customers, our employees, and our society. We also saw the impact of the pandemic on the market and market volatility on our financials. Loan growth, combined with very strong fee growth and cost control, largely countered the margin pressure on customer deposits and negative impact from market-to-market value adjustments.
Risk costs were impacted by collective stage two provisions reflecting the worsened economic indicators, and to a lesser extent, the drop in oil prices, all resulting in risk costs coming in above our through-the-cycle average. The CET1 ratio was also impacted by market volatility, coming in at 14%. Just to remind you, we had 43 basis points risk weighted impact already related to new Definition of Default. The pandemic, as it continues, will continue to generate uncertainty and stress to some of our clients. We recognize that since closing the books on the quarter, the economic indicators have worsened. There's many unknowns on this one, and I said before, then the only thing you can look at is how strongly you feel about your capital position, and we're very confident around our capital position. We have a very solid and diversified asset book.
We have a very strong funding position, and we have a proven digital operating model that will give us some tailwind to help us also here. With that, and I know it has been a little bit more elaborate than normal, but I do think that there is reasons to give you more information. I'll give the floor to you to raise some questions for us to answer. Thank you.
Ladies and gentlemen, we will start the question and answer session now. To be registered for the question and answer queue, please press star one. In the interest of time, we kindly ask each analyst to limit yourself to two questions only. If you have a question, please press star one. Go ahead, please. The first question is from Mr. Raul Sinha, JPMorgan. Go ahead, please.
Hi. Good morning, Ralph. Good morning, everybody. I've got maybe two. One, a very long-term question for you, given we might not get another chance to ask you this. How do you think, Ralph, the riskiness of the loan book at ING has changed since the GFC? I'm sorry for such a long time duration, but it'd be useful to get your perspective. Just in terms of where do you think the risk concentration might be given the sort of crisis we're seeing, and what are the areas that you're closely managing, particularly if you could touch upon how you think the oil book will react, given you had very limited losses in 2015. How should we think about that? Is past any guide to the future, when it comes to your risk costs?
The second one is just around capital and the moving parts, perhaps some detail there. Maybe, Tanate, could you give us some more detail around what are the positive driving factors, maybe later in the year that might help your capital ratio? I'm thinking about smaller things like the SME supporting factor, the software deduction. Is there anything else you can do in terms of managing the loan book? If you'd like to flag, perhaps, the credit risk migration, which was a positive in this quarter, does that become negative going forward? Thank you.
Thank you, Raul. I think for the people around the table, I can actually kind of take you through how it all has changed. Remember, when we were in the financial crisis, that moment in time, ING was largely a savings bank, using those savings to invest in bonds. We had quite some concentration risk in some of these investment portfolios. These were a couple of hundred billion of investment portfolio at that moment in time. Basically what we have done over the last seven years, eight years, actually longer, we have moved away from using these savings for investment portfolios, but actually to generate client business. That's what you actually see in the composition, the change in the composition of our balance sheet, and therefore also a higher interest income over time, coming out of the lending.
What we have learned in the global financial crisis is that you have to stay away from concentration risk, because no matter how risky the sector or a specific asset is, whether it is low risk or not, if the market thinks you have too much of it, you have a problem. That was really one of the bigger learnings from us in that crisis, is that we should really manage concentration risk in specific sectors and asset categories. That's what you see. That's what we have been doing with the growth in Wholesale Banking, but within Wholesale Banking across many different sectors with capped exposures to every sector, with a growth a little bit on what we would call business lending, in the economies in which we're active, but also only to a limited extent, and some growth in mortgages across different geographies.
Well spread there. What is the difference? One is less in some kind of an investment fund that is investing in bonds. It's much more client-related lending. Secondly, it is much more diversified, both geographically as well as through asset categories and sectors. For the more specific question on oil and gas, I'll give the floor to Steven.
Thank you, Raul. Let me start with saying that what we currently see, what's happening to oil and the oil price, that this is not new. We have seen this in previous crises. Therefore, particularly, I want to focus your attention on the page where we are splitting up the book, in portfolios that are more or less exposed to oil price. Hence we focus on the RBL book, the reserve-based lending book, particularly in the U.S., as there it is more shale related with a potentially somewhat higher cost price, and hence we focus on that part of the book. The part of the book that we have in the oil and gas exposure that we see that is directly exposed to oil and gas prices is very limited.
Raul, just adding your question with respects to capital. I think you're right. We are monitoring the changes in CRR quite carefully, whether it's the SME supporting factor, when we're looking forward, for example, for the RTS on the software capitalization to benefit from that. Also, I think we're looking at their flexibility in terms of how prudential value adjustments and CVA will be treated over time. These things will have a positive impact on the capital of ING going forward. Lastly, of course, as we have mentioned over the quarters that, with the implementation of Basel IV, which is being delayed, we are still working on management actions, to make sure that we optimize our risk-weighted assets, whether it's data, whether it's treatment of sovereign exposure. Those efforts are ongoing.
Part of the positive risk migration that you see in Q1 is also to this improvement, for example, in data that we have.
Thank you.
The next question is from Mr. Pawel Dziedzic, Goldman Sachs. Go ahead, please.
Good morning, and thank you for the presentation. Two questions from me as well. The first one is on cost of risk. Thank you for all the comments you made so far. I was hoping that you can maybe give us a better insight into the cost of risk trajectory in the coming quarters. I know there is a lot of uncertainty, but essentially to what extent you feel you have front-loaded any of the costs and how it can develop going forward. You booked 42 basis points in Q1, and if we go back to slide seven, which you very helpfully show us, it's close to peak levels of 2009 and 2013. Could you comment, again, this is a longer term question, but could you comment if this crisis is likely to be similar in magnitude or perhaps greater than those two peaks in the past?
I think, more specifically, if you can, you mentioned that the assumptions that you are relying on for stage two provisioning have deteriorated somewhat already. Could you outline your baseline scenario that you took to calculate stage two provisioning this quarter with regards to things you mentioned, so length of the lockdown, effectiveness of government scheme, and pace of macro recovery. That would be the question on cost of risk. Also, if I can squeeze in the second question, it will be just on the cost initiatives. I think you mentioned in your press release and in your presentation earlier that with uncertainty in the current environment, you will need to have another look at the cost base. Can you just give us a sense on what initiatives you're looking at, which part of a bank, and what exactly do you mean by that?
Thank you.
Okay. I'll start with the second question and then Steven will take the first one. On the cost initiatives. The first thing, Pawel, is clearly we were all, I think the whole world, was set for growth, and therefore you have investment plans in order to support growth. Some of that growth will still be there, given the fact that we have tailwind because of our digital model. Some of that won't be there, and therefore you can cut back on some of the investments there. That's basically the first step that you take. The second step that you take is that given the fact that digitalization and the behavior of clients has changed much faster than it has up to the crisis, basically, it gives also more room to accelerate digitalization in many of the processes and the channel environment.
In channels environments and in processes and product processes, you can expect further investments and therefore also further decreases in cost across. How that pans out across the different segments that we manage, it will still stay the same recipe, as earlier indicated, which basically means that the market leaders you can expect, as we are showing also in the Netherlands now, a further decrease of cost. The continuation of the investments will help us to digitize further. Therefore, you can expect the market leaders a further decrease of cost. In the Wholesale Bank, its maximum cost flattish, if not the cost decrease. We are looking at that as well, also in view of the current circumstances.
At C&G, honestly, if this crisis is indeed continuing in terms of the use of digital channels and some of the aspects that we see, for example, in Germany, with the opening of 100,000 investment accounts just in two months, then we would still allow for some cost growth in those areas. If we see that that is warranted because of the growth and the demand of our customers. Those are the areas. It is further digitalization across in processes as well as channels, and therefore a decrease in cost. The way it works across the different areas is market leaders, cost decrease, also banking, cost flat if not decrease. At C&G, we'll see as to how the growth will continue or not. Steven.
Thank you, Pawel. Let me start by saying is that we stuck to our process, which basically means that we have closed the books as per end of May, therefore Sorry, end of March, sorry. We've also closed sometimes the book of end of May, I think, that will be after May. End of March. Then we also then use the process to look at the GDP forecast at that point in time. Then we take the consensus, that for us is the basis to take our stage two provisioning. Now, please note that the stage two provisioning has many more elements than GDP alone.
Moreover, it's really dependent on how your book looks like in terms of country, sector, security, type of product, that those all are factors that have an impact on your stage two provisioning rather than GDP alone or house prices alone. That's one. Two, it's not for us to comment on what will happen to the forecast. We will do that again at the end of the second quarter. Clearly, these forecasts are changing all the time. We will follow that with interest, and we will go through our process again at the end of the second quarter. If you look at the crisis, clearly this one is different from the one 10 years ago. That was a financial crisis.
Now we have a health and subsequent economic crisis. Every crisis is idiosyncratic, which basically means that it is unpredictable what will happen because the comparisons and the statistical evidence of one crisis, you cannot measure with another. Hence, the only way to weather you against crises like these or very deep crisis is to start with diversification. That's why, compared to the previous crisis, we became very strict in diversification in all ways and shapes, in countries, in products, in sectors, in limits, in one obligor. Like I already said on the investor day in March, that was really March 2019, those are very strict policies.
Second of all, we want to be senior because in the end, if something happens, if we can see that, if you're senior, you are better off than if you are in a second or third category of lenders. Linked to that is that you want to have security. Close to 80% of our book has security, either completely or partially. In that sense, also please note that if you look at our total loan book, that close to half of our loan book is mortgages with a loan-to-value of smaller than 60%. We want to limit our activity or put hard caps on certain more cyclical sectors. Already two years ago, I put caps on leverage finance and real estate finance also with taking levels of unit sizes in terms of what is the maximum amount that you will take on a specific deal.
You want to stay clear of or limit your exposure to certain cyclical sectors, hence our activity in sectors like aviation, agriculture, and hospitality is relatively limited. Now, that does not shield you completely from what is happening in a crisis. Because we are such a large bank and we're present in many locations, many products and many sectors, if something happens, chances are that we will be there. On most occasions, the impact will be there, but will be limited. That is the way that we manage our book, and that is the way that we steer our business.
All right. That's very helpful. Thank you. Maybe just to follow up, do you feel you front-loaded any of the losses in Q1, or you feel that as environment gets perhaps or expectations get a little bit tougher, this charge essentially will remain high or maybe slightly higher in the coming quarters? What would your process result in if the environment is as slightly more challenging than you thought at the end of March?
Thanks, Pawel. The process will remain the same. We will again look at the end of the next quarter in terms of the economic indicators that we then have, given the models that we then have and the activities that we then have, and then we will look at our calculations again. That will not change. Clearly by definition, the stage two provisions that we have taken, including, by the way, the stage two overlay for oil and gas is forward-looking because those are not loans that are currently not performing anymore. By definition, that's forward-looking.
Right. That's very clear. Thank you.
The next question is from Mr. Benoît Pétrarque, Kepler Cheuvreux. Go ahead, please, sir.
Good morning. First of all, Ralph, good luck at UBS. I think your digital focus has been very useful, and you saw it right since 2013. Well done, and thank you. All my questions will be on risk, well, almost. The first one is actually on the oil and gas exposure. It seems that you are pretty relaxed actually on this exposure, and there's also quite a big gap with the market participants, which have been, I must say, quite scared by this oil exposure. I wanted to try to reconcile that you had an opportunity to take some stage two provisioning, in Q1, you did not take that. Is that just a matter of you took the oil price end of March and you were relaxed on that level? What do you see clearly on this book and what can we expect?
There's a big gap again with what we see on the market and what you booked this quarter. The second one linked to risk as well was on the leverage finance. Page, slide 30. I see an Asian exposure of 39%, I guess this is a typo. More focusing on this, U.S. leverage finance exposure. Could you talk a bit about your sector exposure specifically to the Americas? What type of stage three you see currently on this portfolio and also the developments over the quarter? Finally on the state guaranteed loans, I was just curious to get the take-up of those guaranteed loans at the end of April and how much you expect going forward. What is the pricing model, for guaranteed loans, maybe starting with the Netherlands.
I read that it could be a quite generous pricing model for the banks. I wanted to confirm that with you. Thank you very much.
Thank you, Benoît. I'll take the last one, and then Steven will take the first two ones, okay? If you look at the different government schemes that are literally all over the place in Europe. You have the Germans guaranteeing almost 100%, if not 100%. You have Belgium with a particular scheme. You have France. Well, actually, every country has their own schemes. The attractiveness of the schemes as to how we can actually structure loans in order to support our clients differs a lot. Also the attractiveness, not only from a risk perspective, because that's still the first attitude going in, but also then the second one is the attractiveness from a return perspective. From that perspective, I don't have the numbers readily available as we speak right now at the end of April.
We are financing under these schemes. There is demand under these schemes. We're structuring loans under these schemes. Again, it's very difficult to be general on how attractive they are because they really differ. I think in Holland we just came out with a new scheme for the smallest companies with a guarantee up to 95% of the loan sum and a max interest rate of 4%. It really supports us to support our clients, and we will do so. Again, per client, you'll have to look at what you can do and what you can't do, because in the end, we also have a duty of care, and we should not load them up with debt that they will not be able to repay at a certain moment in time, whether you have a guarantee or not. That's also a role we need to play.
What I can say is that at the end of March, we had in total EUR 120 million across the board financing under these schemes and a total of EUR 5.6 billion of specific liquidity facilities and financings under these schemes. We had 100,000 requests honored, in order to delay the repayments under both mortgages and SME loans. That's a little bit of summary there. Steven.
Thank you. Benoît, first of all, good spot on page 30 of the presentation. Indeed, the colors Asia and EMEA should be swapped. That's one. Two, on the oil and gas exposure, well, we actually did take an additional provision. First of all, we have our normal stage three provisions for non-performing loans. Two, you have your normal stage two provisions for deteriorating but still performing loans. On top of it, we took an additional EUR 41 million for the North American RBL book. If you, again, drill that down, we have a total book directly exposed to oil and gas of EUR 4.6 billion. Of that, there is about EUR 1 billion in offshore services and drilling. You remain with EUR 3.6 billion.
Approximately EUR 1.4 billion of that book is in the U.S. and particularly on that book, given the structure and the nature of that particular market, we have taken on top of the normal stage two provisioning an additional overlay provisioning. On leveraged finance, to the page that you studied well, based on your comments. This is a completely diversified portfolio, so there is no direct correlation risk with any of these exposures, and they're all small. Because as I said, and I've said that before, I kept the single unit size at EUR 25 million. That basically means that if we get hit on an exposure, it doesn't correlate with another exposure, and if we get hit, it will be limited.
You do not disclose the stage three on that book specifically because it is just diversified and across different sectors, I guess.
Yeah, that's correct. Maybe I should then add to it that the number of stage three provisions on individual files for this book have been very benign in the first quarter.
Okay, great. Thank you very much.
The next question is from Mr. Stefan Nedialkov, Citi. Please go ahead, please.
Stefan, you may be on mute.
Hi, guys. Hi. Sorry about that. Good morning. It's Stefan from the Citibank team. A couple of questions on my end. Number one, in terms of dynamics between loans and deposits. Deposits went up quite a bit, loans went up quite a bit. Can you just give us some color on what you expect to happen over the next few quarters? Are we going to start seeing more of a drawdown on deposits from corporates as the liquidity needs really start hitting? What is happening with the undrawn lines? Believe you had around EUR 120 billion or so at the end of the year. How much of that has been drawn down? What are you expecting for utilization going forward as well? That's on loans and deposits.
Secondly, in terms of your capital targets, you are pointing to a pretty solid MDA buffer of 400 basis points. Would you consider moving CET1 target in case your RWA consumption shoots up through the remainder of the year? Are you sticking with an bsolute, as far as you can see at this point? Thank you.
Okay. On the general dynamic, Stefan, if economies shrink, the need for working capital decreases. The general dynamic normally is that liquidity in companies is freed up. Clearly, what we saw in the beginning of the crisis is just, in order to secure funds for these corporates to get through in the beginning and the uncertain moments when the markets were so volatile, they basically want to reserve quite some liquidity in order to have it for unforeseen developments. If you stay away from an initial action there, and you just look through the normal economic cycle with a decrease in GDP and with that a decrease in revenues, normally the need for working capital decreases. The need for further investment decreases because nobody's investing. You would expect a loan demand to come off a little bit from that perspective.
Therefore, also on the deposit side from the corporates, they could maybe withdraw a bit, because they've also drawn under their committed lines and, kind of reverse that. I do think that they will actually, in the end, have more liquidity if they're a normal, healthy operator than in a economic growth environment. They will need to bank even less. That's the general aspect. What is happening with the undrawn lines, as you were indicating, is that we have quite some. We saw basically in the midst of the uncertainty, that was drawn and we've given you the numbers, and that a large part of the EUR 11 billion of Wholesale Banking growth was actually because of that. You saw the drawdowns there under the undrawn, under the committed lines.
That is what had happened at peak uncertainty in the market. That gives you a little bit where that goes, and it's coming back already now because basically that uncertainty has faded, and all of us are now basically concentrating on how to manage our companies through this now. With that, I give maybe then, Tan ate on the capital.
I think as we mentioned, if you go into this particular situation and crisis, you want to be liquid and you want to be well capitalized, right? The fact that just to complement Ralph's point on deposits, it's really the strength of ING that we find ourselves predominantly with retail deposits. That's something that, certainly we're not going to discourage more inflow of deposits during challenging times like this. From a capital target perspective, you're right that we are sitting on a 3.5% cushion compared to MDA. As the regulators have pointed out, some of these relief that they provide in terms of capital relief may be temporary in nature, right? Some of it may come back. Having said that, we're going to take an assessment, as we mentioned, in terms of capital structure and dividends.
We'd look at that at the end of Q3, so beginning of Q4, we will give you more updates then.
Okay. Thank you guys. If I may, just a quick follow-up. In terms of loan growth, as far as you can see for 2020, would you say 0% overall at the group level is something realistic, or should we expect something more positive than that? In terms of the deposit base, this increase in deposits, how does that affect your replicating portfolio strategy, and obviously implications for the NIM going forward? Thank you.
Yeah. Stefan, on the loan growth. Clearly, there's two different businesses here. On the Wholesale Banking side, that will be pretty limited, from what we expect. You will have the occasional maybe drawdowns under those committed revolvers, in times of uncertainty. Overall, they will make less investments, long-term investments, so less term loans needed, less working capital needed. On the Wholesale Banking side, we do expect that to be limited in terms of loan growth. On the Retail Banking side, it's the machine that continues. Clearly, depending on the markets in which we are active, the lockdown doesn't really provide for a lot of opportunity to look for a new house and therefore the mortgage business has come off in some markets. In many other markets, like in Germany, we see it just continuing, and we see still volumes coming through.
In the Dutch and the Belgium markets, we also see quite some refinancing happening on the mortgage side. Honestly, I think on the Retail Banking side, you may still expect, given our model, some growth, because we're taking market share of the branch banks, so to say. That's where we are then. Clearly, the money that is deposited by Wholesale Banking clients, we don't replicate it. There is no replicating value in those deposits, because there is no term aspect to that. From that perspective, it doesn't affect the replicating portfolio. On the NIM side, the only impact it will then have is the lightening of the balance sheet. As said, we already see it moving back, so I don't think it will have a big effect going forward.
On the Retail Banking side, as we see most of basically the governmental support schemes in salary support and consumers basically spending less, given the uncertainties, you can expect the deposit base, either directly in savings or in current account, to continue to increase. We're not changing our replicating portfolio for that, because if you move away from the characteristics of that money, then basically you start inherently taking a position on it, which is not what we do.
Great. Thank you so much for that, color. Ralph, good luck at your next opportunity.
Thank you, Stefan.
The next question is from Mr. Robin van den Broek, Mediobanca. Go ahead, please.
Yes, sir. Good morning, everybody. Hope you can hear me. I just wanted to follow up on the risk migration within the book. Over the last years, you have sort of consistently shown 15- 20 basis points tailwind per quarter. You've already briefly mentioned what the drivers are for that. I was just wondering, I think there are some worries about this turning into a headwind at some point. What are the critical drivers for that to happen? Is it the LTVs within your mortgage portfolio that's the most important driver? Can you say something about the likelihood of this becoming a similar headwind into the future? That's the first question. The second question is coming back on your target level.
Sorry, I know you want to clarify more with Q3. I appreciate all the detail you've given on cost of risk, which I think is quite reassuring. At the moment, your MDA level is 10.5% roughly. I think a lot of peers are alluding to willing to keep a buffer of roughly 200 basis points on that level. If this whole world basically will deteriorate much quicker and much worse than we currently can see, what is a critical level for you to maintain, basically, apart from the 13.5% Basel IV target, which is a longer term target, basically, at the moment? Thank you.
Okay, thanks, Robin. On the first question, if you look at the risk migration in the first quarter of this year, basically, it's an improvement of the collateral value that we see in the different markets, mainly the Netherlands, Belgium, Germany, and Poland. That's basically on the mortgages. That's not so strange if you see what happened in the first quarter, a large part of the first quarter. Also in that regard, and I point back at the previous crisis, what you see in many of these markets is that the impact on the loan-to-value in Netherlands, Germany, and Belgium was quite limited. If there was impact at all, it was delayed.
That, of course, has to do with the social structure and the way the unemployment laws would work here, where you still get money for quite a lengthy period of time, after which people typically would find a job. That's the reason why we are not so concerned about big shifts in loan-to-value levels for these mortgage portfolios. True, if you look at, let's say, the macroeconomic circumstances, that will have an impact in your PDs, and that basically means if your PDs increase, that will cause negative risk migration.
To answer your question on management buffer against requirement, I think prior to Q1, we had a management buffer of approximately 175 basis points right from the MDA trigger at 11.89%- 13.5%, or around 13.5%. Clearly, that buffer has increased to 3.5%. As I mentioned before, some of it may revert back because countercyclical buffers may come back. We'd also know that some of it is structural, right? For example, the implementation of CRD V. That's clearly something that will be with us going forward. I think, again, to say we look at also post Basel IV implementation whenever that may come, and we'll give you guidance on that. Clearly, there is room for a narrowing of our current management buffer given what I've said.
Okay. Thank you for those answers. Ralph, good luck at UBS. Any words on your succession? Probably difficult to say something there.
Well, I'm not working on it, so that's the word. No, clearly, so this is the Supervisory Board working on it. The process is followed thoroughly. Until the 30th of June, I'm in the saddle and running this beautiful company.
Okay. Good luck again.
Thank you. Further questions. Well, according to our information, Omar was the next one to raise a question.
Hi. Can you hear me?
Yeah. Sure. Go ahead.
Great. Hi, good morning. Just a couple of questions. Firstly, on commissions, could you give us a sense of what you think is sustainable versus what's more a function of the Q1 volatility? Given the number was extremely strong. I know there's seasonality, but should we basically be looking at the EUR 50 million sequential improvement as a pretty good guide of that? Otherwise, maybe another way to look at it would be how much growth the 170,000 in new investment accounts in March and April represents in percentage terms. I don't know what the base is. The second question is just a clarification. Sorry, I may have missed this, but could you give us the actual amounts of payment moratorium across the entire group, as of today would be even better. I know you mentioned the 100,000 accounts, but just the absolute loan amounts would be helpful.
Since I'm last, I'll be cheeky and try and fit in a third, but I didn't really get the answer from one of the first questions as to what the actual GDP assumptions were that you used end of March based on consensus? Thank you.
Thank you, Omar. On fees. There's many different ways to cut this one. In effect, what we have been telling you is that we think the model, in the end, the more primary customers you get, the more new products you introduce digitally, the more likely they will actually take products that you offer digitally. What we've seen over the last couple of quarters, by the introduction of new products, new services, but also with the introduction of increased fees on, for example, payment packages in order to stimulate specific behavior, like in Germany, we have introduced behavioral fees, but also in the Netherlands and Belgium, we have actually increased the fees on payment packages as well. That's what you see coming through here. On top of that, you see the additional products that we have prepared for.
The investment products has been one that we have invested in many more countries next to Germany in order to benefit from a moment in which there would be confidence and appetite for our consumer clients to actually tap into the markets. That's basically what we have seen, that this volatility or this major correction of the market, has certainly wet the appetite of our consumers to go in. If you look at the total value of our investment products, whereas the market has gone through a major correction, the actual value after the inflow was down by 7%. You see there's quite some inflow coming in, 50% more trades being done. Basically, in Germany, in that model, we actually get paid per trade.
If you then go to the next step in your analysis for your models, we think that 1/3 of this increase is sticky, that will be around, and therefore we can continue to guide the fee growth over time, over the next year, to certainly be in the 5%-10% growth bucket, where we don't expect further increases per se in wholesale from this level. On the retail side, we still expect further increases on the back of many more investment product accounts that deliver a base for charging fees as well. That is the answer to your first question. On the payment moratoria, I am not sure where we stand, but Steven, can you give?
We don't disclose the absolute amounts, but what we did disclose was the 100,000 clients for which we granted and executed payment holidays, and that we will track and trace. With regards to the third question, yeah, I can't make it any clearer than that we took the consensus of the GDP forecast of the end of March, and we did that for every country and every business that we were in. You have to look at all the countries and all the businesses and all the house prices in all of these countries. Those are the consensus levels that we took.
Great. Just as a follow-up for Steven, maybe a stupid question, but how do you define direct oil price risk in your oil and gas book? I only ask because some of the profile trade finance companies that have encountered difficulties recently, I'm guessing would be in the no direct oil price risk as per slide 32 of your slides. I'd be interested in exactly how this is defined. Thanks.
You're right on that one, and Steven can fill me in. You're right that the Trade and Commodity Finance clients in this one, we don't see as directly exposed to oil price risk because the value of the carry is in itself financed, and therefore will also fully repay what you finance. They are outside of that bucket. What is normally determined as to be exposed directly to oil price risk is where the repayment of our loan is literally determined by the value of a barrel of oil and the number of barrels produced by the well and the operator. That's what we call project finance. That's what we see as directly related to the oil price risk.
Yeah, I couldn't have said it any better.
Okay. Thanks.
Great. Thank you. Good luck.
The next question is from Mr. Tarik El Mejjad, Bank of America. Go ahead, please.
Hi. Good morning, everyone. Just a couple of questions, please. First, on capital, and coming back on Raul's question about the potential headwinds in terms of capital, could you maybe give us just magnitude in terms of the SME support factor and the software amortization in basis points? Still on capital, I wanted to understand why you would put back only half of the TRIM impact you booked in Q4. Why only half? Why not all of it? Just to understand that. On the dividend. You referenced the 2019 final dividend. That seems to be like a Dutch approach, very different from how the French approached it. Can you maybe explain why on that? Clearly, it's a signal that you still intend to pay the dividend, but just to understand.
Equally, I find it a bit contradictory with the fact that you don't accrue for dividend for 2020. The second question is on costs. Ralph, can you maybe tell us how actually it's difficult to, or not, to continue your cost initiatives in the current societal and political environment where it's very difficult to move people from function to another, relocate, cut jobs, and so on? That would be very helpful to give us indication on that. Thank you very much.
Yeah, Tarik, you're right. Clearly, on the cost side, if this is about massive restructuring, you're right. This is not the time to do so, where a lot of people are uncertain, and you don't know what the job market is all about. That is very clear. From that perspective, I think it is warranted that you've got to take a look at it from a more medium-term perspective and not an immediate perspective. Having said that, I think that we all understand that it's important for banks to stay healthy, and therefore banks also have to make sure that they are efficient. From that perspective, we can continue on many of the programs that we have started and finish them.
There is quite some flexibility then also in terms of what we're, for example, doing in the Netherlands, reskilling staff from positions in branches to KYC, where initially we had some external help. Basically, we can now cover that with our own people after a good training. That's a live project that we're doing, which looks very promising. There is quite some still levers there to continue to reap the benefit of further efficiencies while reskilling your staff into other domains. That is one. On the dividend, clearly we had a profit in 2019, and we decided on that dividend, and we withdrew it from our AGM. We have, at the same time, indicated that in October we will see, and we will judge by the situation at that moment in time, whether we still want to pay it or not.
In order to be able then to take the decision in full liberty, we decided not to put it back into capital but keep it reserved outside of capital. That is the 2019 dividend. The 2020 dividend, given the fact that we have indicated to the market that we have suspended our dividend policy, basically we will accrue it in capital, and if in October we come to the conclusion as to how we want to go about the 2020 dividend, in terms of size or payment at all, then we'll have to take it out of capital. I don't know whether it is different from peers. It doesn't really matter. You can make the calculations either way. You can also add our current dividend that is outside of capital.
If you want to make it comparable to some of the peers, you have to add another EUR 1.7 billion. As said, if we tell the market that we will look at the situation in October 2020, then we think it is more prudent not to accrue the dividend back into the capital and keep it reserved for that payment until we have taken that decision. That's on the dividend, and that's also following the recommendation of the ECB, as you know. On the risk-weighted assets movements in capital, I'm going to give the floor to Steven.
Thank you, Tarik. On the SME support factor, we're still looking at it, but they're pushing this forward to an earlier date. We're currently looking at an impact of around EUR 5 billion RWA that we could have a benefit of. I think if you look at software, we look at around 10-20 basis points.
I think on software, as is stated, it's really depending on the RTS to be issued by EBA. If they say simply only software which are purchased, then maybe on the low 10 basis points for us, and if they're more liberal, including developed software in deployment, it could be potentially as high as 20 basis points. That's the range, between 10- 20 basis points. We are awaiting the RTS on software to come out.
On the capital, if you look at our models, we also have an own model risk management framework with many rules and definitions that's based on the regulatory technological standards. Based on these standards, we also do model validation of all of our regulatory models at a given cadence. In that cadence, then we say, "Okay, where do we, based on the newest and latest regulatory technological standards, need to make changes?" On that changes, we take an add-on. Separately, we have looked at, okay, if we look at the potential outcome of a TRIM mission, what could that in total mean? Hence, we have taken the EUR 13.2 billion. Now we take that back, but we leave as part of that our own improvements still in there, and hence we've taken out of the demand EUR 6.6 billion.
Very clear. Thank you very much. Good luck, Ralph.
Bye.
Thank you, Tarik.
The next question is from Mr. Benjamin Goy, Deutsche Bank. Go ahead, please.
Yes. Hi, good morning. Two questions, please, from my side. Just wondering on your markets outside the market leader, do you see the crisis as an opportunity to gain further market share, or is there at the moment more protecting the book and more risk management in focus? If so, maybe you can specify countries or products in particular willing to grow on the lending side. Secondly, back to Trade and Commodity Finance. I think it was now the third more visible loss in less than three years. I might have missed some smaller ones here and there. Does this change your appetite in TCF, or pretty much still the same? Thank you.
Great. Thanks, Benjamin. I think that in C&G, we have a model that is very attractive to customers. Even if we would want, if customers really want to come to ING, we're very happy for them to come to ING now. That is in terms of general banking, it is in terms of current accounts, savings, investment products, for which we don't really need appetite in itself. On the other side, in terms of whether we also see this as an opportunity to take market share on the asset side of the business. Clearly there we have to be careful not to have too lenient underwriting standards. We've basically looked already at these underwriting standards to ensure that also, given the current uncertain circumstances, we don't load up on customers that may not be able to repay those loans.
To the extent the model itself, our business model itself, the digital model itself, provides the opportunity at same risk appetite. We will certainly continue to grow, but it's not because of having a different risk appetite. That's not what we're going to do here. We'll have to be very strict there as well. On TCF, Steven?
Yeah. Thank you. Indeed, we had a case in Q4, and we had a case in Q1. Those have both been provided for. That's in the risk costs already. Look, in this book, the good thing is that we are very much focused on a number of the larger traders, typically focused on hard commodities, focused on very clear end-to-end chains in the supply, client, ship owner and insurance chains. Generally, that works well. Now, there's always, especially in a crisis or in a deteriorating situation, there will be one or two or three of these payers where that doesn't work out that well, and in that case, you will eat a loss. In and of itself, that's not a reason now to leave the trade commodity space.
We look through the cycle of how the book was performing, and that book for us has been performing very well, also in the previous crisis.
Understood. Thank you.
The next question is from Mr. Kirishanthan Vijayarajah, HSBC. Go ahead, please, sir.
Yes. Good morning, everyone. Just a couple of questions from my side. Firstly, coming back to RWAs, clearly lots of moving parts, but in terms of the underlying, what's the organic growth rate in RWAs we should really be thinking about for the rest of the year? If we park a lot of that regulatory noise to one side. Linked to that, coming back to the credit facility drawdowns in wholesale. I think you said that started to reverse after the quarter end. Could we have a sense of magnitude? Do you think most of that EUR 11 billion, I think you said drawdown, did that fully reverse? We can say by the end of this year. Thank you.
I think on the RWA, typically, if you look at our RWA density, that's around 60%. If you project a certain growth, and I think we alluded to what Ralph said, what we thought about Wholesale Banking, what we thought about Retail Banking, then that's basically the calculation that you could make. If you look at drawdowns Maybe I should add an RWA, that if you look at retail growth compared to Wholesale Banking growth, that the density of our RWA in retail is lower than in wholesale. I think that gives you some pointers of how to calculate it. If you look at the drawdowns, how much has it come back? Let's say, half of the normal level that we see. The levels that it increased with, half of it came back.
We have disclosed in the presentation how much the loan book in Wholesale Banking grew, especially in general lending, and half of that came back already.
Okay. Very clear. Thanks, guys. Best of luck, Ralph, at the new place.
Thank you, Kirish.
The next question is from Ms. Martina Matoušková, Jefferies. Go ahead, please.
Hi. Good morning. Many questions have been answered, but if I go back to the KYC program, just thinking if there is any risk it could be delayed this year with all the lockdowns and everything, or what is the progress on that? A second question, apologies for coming back to the oil and gas book, but I think you've made a sort of internal stress test internally on oil and gas back in 2015. If I remember, the maximum loss you predicted was about EUR 300 million. I wonder how this ties back to the current situation. You booked EUR 41 million this year, and how to tie this back, and more or less, I know it's difficult to reconcile the figures, but more or less how the conditions have changed on the, if you were supposed to rerun the step again. Thank you.
Well, thank you, Martina. On KYC, as you know, the enhancement program has a couple of pillars. It's got the pillar of look backs, and that's generally done. It's got the pillar of file enhancement, which basically means, how can we go through the client files, how do we make sure that we have all the information, et cetera. Clearly in the beginning, when people needed to work from home, that was maybe we lost a bit of productivity there. COVID itself may still impact some of that file enhancement, given the productivity loss that you have a little bit, on the more operational side of things. Yeah, there could be some of that, but we don't feel uncomfortable with it.
On the structured solutions, where basically we, for example on some of the structured solutions, we really have to get our IT teams into the countries in order to make the right connections into databases, local systems, and all of that. That's where we may run into some delay there, because we can only partially do that from a distance. Overall, we're looking at many different ways to do that. There may be a bit of a delay, but it is more in the implementation of some of the more IT solutions with teams having to fly down than anywhere else. As you know, we keep the regulator up to date on this almost on a daily basis, so they know very well where we are. Steven?
Oil and gas for a change. Yes, indeed. We made a stress test, Martina, you're completely right, in 2015. At that point in time, we then made a stress test at $30. That would then be about EUR 200 million- EUR 300 million in losses, if that would pertain during the lifetime of the loans. We've now looked at a stress test of $20 per barrel, also completely during the lifetime of the loans. Remember that the duration of these loans on average is between four years and five years. In that case, the risk cost would be a little bit higher.
Okay. Thank you.
The next question is from Ms. Anke Reingen of RBC. Go ahead, please.
Yeah. Thank you very much for taking my question. Just following up on Martina's question. On your $20 stress test, a little bit higher, is that on top of what you've already provisioned, or is that gross of what you have already provisioned? In that context, would it be possible, when you talk about the 2.4% stage three ratio in oil and gas, what the coverage ratio is? Secondly, just on net interest income, in the past, you've talked about a flattish outlook. Is that still achievable given the many moving parts, or is it just too uncertain? Thank you very much.
The $20 stress test, that is gross because in the end, you look also at what you already provisioned in your stage two. The second question was focused on?
The NII, so I can do that.
No, there was one more question.
That is the, I mean-
On coverage ratio. Yeah, I see that. The coverage ratio we do not disclose. The 2.4% is for the oil and gas book as a whole. Again, I want to stress that the oil and gas book that is under attention, at least under my attention, is the directly exposed risk to oil and gas price like we also discussed on one of the previous questions. The 2.4% pertains to the whole of the oil and gas book, which is EUR 35 billion. We do not disclose coverage ratios.
Ralph?
You're not able to give us any more indication about the net hit of a $20 price for a longer period?
I've given, I think, a fair indication of that. It is a bit above the EUR 300 million that was indicated based on $30 per barrel.
Just to clarify, that's the gross number pre any provisions taken?
Yes.
Okay.
On NII, Anke, we're looking at a flattish yield curve, and we're managing the margins. As you know, we have very disciplined pricing, so that should continue to help us on the margins there. What is unknown is generally new production. New production in Wholesale Banking is going to be limited, so more or less a flattish book. On the Retail Bank, we expect to see some continued growth on the book. There is this effect that we don't know quite how it will work out, but clearly, if you give payment holidays, if you extend the loans, less will be repaid and that will actually have a positive effect, if you may, on your interest income. Basically the outstanding will continue at the same level because there is no repayments coming in.
The payment holidays will actually delay the decrease of the book. The combination of some increase in the Retail Bank, flattish wholesale and the effect of payment holidays, margins being managed and the flattish yield curve, we still feel that we can guide around a flattish NII for the next quarters.
Thank you very much, and all the best.
Thank you.
The next question is from Miss Giulia Aurora Miotto, Morgan Stanley. Go ahead, please.
Hi, good morning. Two questions from me as well, please. The first one on the TLTRO. Of course, the new conditions announced by the ECB are quite, or at least seem quite interesting for banks, 1% paid. Can you make any comments on, do you see this as an opportunity? Are you planning to use it? Also on the PELTRO. That's my first question. The second question, if I could go back to slide 30. You disclose the cap on leverage, which is, in my view, quite high, 6.5x. Do you disclose the average leverage of the portfolio? That would be quite interesting. Thank you very much.
Thank you. Tanate?
Yes. Giulia, on TLTRO III, indeed, it's improved from what we've seen before. 1% based on certain growth rate of our book. That we do find attractive, and it's likely that we will utilize that part of the funding. The petrol is less favorable. I think we would focus more on the TLTRO III over the PELTRO funding.
Yeah. O n the leverage book, 6.5x Is an absolute cap. I gave it as an indicator. Clearly, on some of the books that's lower, on other books it's a bit higher, but at least it will not be above the 6.5x . I put that cap in there to make clear that in a number of structures where they went beyond those levels, that we were not going to play ball there, and that we do not make any exception. You run always the risk in these type of structures that you make one or two exceptions, and before you know it, then you will be caught up by your own inconsequential policy. As you did it once, why don't you do it twice? Why don't you do it 10 tim es? So I said there is no exception. This is it.
Here we stick to, regardless of the sector. Now, the level is below what the cap says. We do not disclose it because one day it is this, the other day it is that. Clearly, if the sector is more cyclical, the caps of course will be a lot lower.
Understood. Thank you very much and all the best, guys.
Thank you.
The next question is from Miss Daphne Tsang, Redburn. Go ahead, please, ma'am.
Hi, Daphne from Redburn. Thank you for taking my question. I've got one on capital and one on NIM. On the capital side, would you be able to give an RWA inflation outlook based on your forecast growth in loan book that you indicated earlier around wholesale and retail, and also any further negative risk migration you would expect to see for the rest of the year?
Also on capital headwind, the Dutch mortgage floor, for example, what is the latest timing and scale, please, that you are expecting to hit? Then on Basel IV, now that you have taken the DoD impact and half of the expected TRIM impact, I am assuming they are somehow overlapping with Basel IV. Could you please give an update on the expected Basel IV impact on RWA versus your previous guidance, and how much of that you could mitigate? Then my second question around NIM is actually more focused on the loan guarantee schemes. How efficient it is to translate that to the SMEs and corporate at the moment and what is the impact on NII and NIM you would see for the rest of the year?
Thank you, Daphne. On the NIM. The NIM is on our total portfolio, our total balance sheet. These governmental schemes, generally because they are supported by government guarantee, you could expect the margins to be lower than if you would have a flat-out risk in your book. Having said that, the total book versus the new production coming out of these schemes will not heavily impact the NIM in itself in my view. Therefore, with all the circumstances, the flattening of the yield curve, the lower for longer even, we do still think that the NIM will be, at least in the next quarter, the next quarters, towards the high end of the 140s. Whether this may have been a dampening effect and others will have an increasing effect, that's too detailed even for us to go through.
In the grand scheme of things, the way we calculate the NIM is over the whole balance sheet, and the new production under these government schemes with maybe a bit lower margin than if you would outright generate these loans, is not going to have the biggest impact in our view. That's the first one. The second one I'm looking at. Tanate?
As mentioned, normally we don't give a risk-weighted asset forecast. As I think Ralph and Steven mentioned, you can look at our loan growth and then make an estimation of what the inflation of the risk weight may be. In terms of negative risk migration, again, I just want to reiterate the point that it potentially will come with the potential changes in property prices. At the same time, we're taking steps, as we mentioned, in terms of data improvement, sovereign treatment of certain bond holdings, which should mitigate some of that as well. We can give you color, but not in forecast. The Dutch mortgage add-on indeed has been delayed.
Our current estimate is that it would have an impact of around EUR 8.4 billion on risk-weighted asset inflation, that potentially could come over the next couple of years, given what the DNB has told us. If you look at Basel IV, again, as we mentioned, the Dutch mortgage add-on is front-running Basel IV. The TRIM impact is front-running Basel IV. The DoD impact is front-running Basel IV. A significant part of the Basel IV impact is either already in our numbers or you can define that number over time. Of course, we are working on management actions as we disclosed before.
Is your previous guidance of 15%-18% inflation still hold or that should be reduced to reflect the full of DoD and TRIM?
I think we gave guidance back, I think based on 2017 figures even, whereby we said that that 15%-18%, it represents roughly 2% compression of our core Tier 1 and that we would take management action of roughly 50 basis points and that remains, including what has already appeared in our numbers that I just alluded to. Yep.
Around 20% could be mitigated?
50 basis points. Yep.
50 basis point is the mitigated number.
The next question is from Mr. Farquhar Murray, Autonomous. Go ahead, please.
Morning, gentlemen. Sorry for dragging out the call. I will try and stick to the two questions and keep it brief. Firstly, on stage three impairments, given your macro outlook from here, can you just give us a sense of how you expect those to emerge over the coming quarters? I imagine there's different dynamics between some of the books, and I also just wondered if you could give a bit of sense of where you're seeing emerging stress at the moment. Secondly, briefly on the favorable risk migration you saw, you'd mentioned housing collateral. I presume that was the vast bulk of the 19 basis points we saw, but you've also mentioned data improvement. I just wondered if there's a split between those two elements. Thanks.
On positive rating migration, it's basically increased collateral values. That's the largest part of the risk migration over the first quarter. stage three macro outlook.
If it would be there, it would have been stage three, or stage two, which it isn't. Yeah, we look, of course, at the watchlist and other early warning indicators. Yeah, those are developing, and you see them moving up. Again, that will need to play out. At this point in time, that would be too early to call.
Is there any kind of focus points within that watchlist in terms of sub-sectors?
Like we said, we look at the hardest hit sectors are aviation, agriculture, hospitality, the leisure sector. Those are particular sectors that we look at, and in our case, those sectors will always be small, but we monitor them by the day.
Okay. Thanks a lot.
There are no further questions.
Okay. Thank you, operator. Okay. Thanks all for being on the call. Just to give you a quick summary. I think given the circumstances, we had a good set of commercial and operational results. It's very difficult to look into the future at this moment in time of all happen. That's basically why we look at what we do know. What we do know is that we have a strong business model, a digital business model that actually has tailwinds because of this crisis. We have a strong asset base, and we've shown you much more granularity there today also as to Farquhar's last question as to the sectors that are specifically hit. We have very small exposure there. We have a very strong funding base and a very strong capital.
If you can't predict the future, then you have to look at what you have, and that basically shows that we are well positioned to go through this and support our clients. Before we close, let me then take this opportunity to first thank my investor relations team here for supporting us and me personally for the last 27 quarterlies that we've done.
The presentations and the information have always been super prepped. Thanks a lot for that. I think they do a lot of good work for us here and hopefully also for you out there. Let me thank you, basically the analyst community. You've always taken a very keen interest in ING from the start. When I started, we were still facing and looking at this bank insurance company that I had to sell the U.S. insurance company. I had to list the European insurance company. We had to repay the Dutch state, all of that you kind of followed closely. We kept you up to date on that. At the same time, we were trying to build a future for the bank, we decided to go into a digital direction.
I feel that you have followed us and me personally with a lot of interest, with a lot of in-depth questions, and therefore always keeping us on our toes. I think that's how it should work. I mean, you are a critical bunch out there following us with questions that are often spot on, that help us also to stay sharp in order to ensure that we run this company well, and that we also prepare it for some more difficult times, which regretfully we are heading into right now. Thanks for keeping us on our toes. It's made what ING is today, well-positioned to weather the crisis, well, I hope that some of you I will speak to in a different capacity by the fourth quarter of my next employer. Thanks very much. Bye.
Thank you for the conference call. Thank you for attending. You may now disconnect your line. Have a nice day.