Good morning. This is Regina welcoming you to ING's Fourth Quarter 2019 Conference Call. Before handing this conference call over to Ralph Hamers, Chief Executive Officer of ING Group, 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 involving an 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.
Okay. Good morning, everyone. Welcome to our Full Year 2019 Results Call. As always, there's a whole team here to support us in order to give you as much details as possible. Both Tanate Phutrakul, our CFO, and Steven van Rijswijk, our CRO, are here as well. After my introduction, as you know, we'll have plenty of time for Q&A. Let's go through the presentation. I hope you all have it now in front of you on a screen. In our annual results, we posted a profit of EUR 4.8 billion in 2019. For earning the primary relationships, 2019 was actually another strong year. Our primary customer base has increased to 13.3 million. We grew by 130,000 primary customers, which is nearly 100 new primary clients per hour, and that is in a 24/7 world, which it is in a digital environment.
24/7, 100 new primary clients an hour. On the back of this commercial growth, we were also able to increase our core lending. That was up almost 3%, and at the same time, we were able to keep our pricing discipline, and that translated into higher lending margins, especially in mortgages. These clients do more business with us, and as a consequence of that, we see good fee growth. Also that largely countered the margin pressure that we see coming from customer deposits, as well as the higher expenses that are related to KYC and further increasing regulatory costs. Risk costs increased as we saw a number of larger uncorrelated incidents. However, risk costs remained below our through the cycle average, and the quality of our loan book remains strong. If you combine all of that, we generated a return on equity for 2019 of 9.4%.
The CET1 ratio ended the year at 14.6%. That already includes the EUR 13.2 billion of expected supervisory impact on risk-weighted assets. If you were to exclude this risk-weighted assets increase, CET1 ratio would have increased to 15.2%. Overall, also in 2019, we are earning the primary relationships, developing better analytical skills, and increasing the pace of innovation. Cost discipline remains a focal point, with KYC increasingly weighing on cost. As you know, countering financial and economic crime remains a priority for us, and we thus continue our efforts to improve the effectiveness of that environment. We propose an attractive full-year cash dividend of EUR 0.69. Of course, subject to our AGM, in April. Turning to slide three, just look at the continuation of our commercial momentum, specifically in retail. You can see that our private customers increased by more than 830,000 for the year.
Very well spread over all of the countries, particular growth in Germany still going strong, Australia, Poland, Romania for the years, Spain in the last quarter as well. Real good results and very well spread. Net core lending growth, a key enabler, as you know, came in at EUR 17.2 billion for the year or 2.9% year-on-year, mainly realized in our retail markets. Net core lending growth in wholesale banking slowed down. That, we indicated that already about a year ago. It's in line with what we have been guiding since. Aside from the caps that we have on certain sectors, we flagged that our focus would be on return with higher pricing hurdles and appropriate risk. That does result in us passing up on deals.
You see the effect of that here, combined with a subdued syndicated loan market in the first three quarters of last year and higher loan prepayments as well, and specifically, also in the last quarter, we saw that. Overall, we maintain our ambition of 3%-4% of loan growth with a slightly lower level for wholesale at 2%-3%. Customer deposits grew by EUR 23.4 billion. As I said before, we do not see the effect of increased spending due to low rates. Rather the opposite. Basically, we see that customers save more because they are uncertain about their own financial buffers. The monetary easing is doing exactly the opposite from what it's supposed to do.
At the same time, we also see that over time, the low rates may lead to businesses having a higher impact when the rates would increase back again, because businesses are getting used to very low risk costs or very low costs. I think that we have to be mindful of the financial impact for these businesses once the interest rates would return to normal. Again, that is not on the horizon. In terms of the most recent Net Promoter Score, you see that we score number 1 in 16 out of 14 retail countries. As of now, the Philippines are included as a retail country. We're turning to slide number four. I'd like to share with you the achievements so far of our digital-only, mobile-first approach. As we are increasing the pace of innovation in this field, especially mobile is key.
Basically, the strategy that we set out some six, seven years ago, really going for digital banking, going for mobile-first banking, that one is really banking the trend. You can see that here, more and more customers spend their time on their mobile. The mobile is part of their lives. You need to be there if you want to make a difference. You need to be there and interact with them. Today, 37% of all of our customers only interact with us on their mobile devices. You see that that is growing very fast, and that comes from 12% in 2016. On a growing customer base, at the same time, we're also growing our customers. This is a CAGR, an annual growth rate of 56%.
You see that in the middle bar chart that mobile is by far our customers' preferred channel to interact with us. In 2019, 82% of interactions with our customers was mobile, up from 52% in 2016. This is on a further increasing number of interactions, reaching 4.5 billion in 2019, or 20% higher than 2018. As we said in our investor day in March, growing the number of interactions is very important because we see every interaction as an opportunity to engage with our customers and convert it into a higher purchase of products or services by them. The last graph that you see here shows that we're also more successful at delivering products and sales digitally. The number of mobile sales per thousand customers in 2019 was almost seven times higher than in 2016. As said, it's clear that we are banking the trend here.
All in all, these are the achievements that we're proud of, and these numbers show that we're delivering on our purpose to empower people to stay a step ahead in life and in business. Let's turn to the 2019 results on slide six. Here we can see some of the key drivers of the underlying income growth. Despite the impact of the lower rate environment on liability income, we have managed to grow our net interest income over the past years, and also the fee income has progressed in line with our ambition of growing this by 5%-10% per annum. Compared to 2018, underlying income grew by 1.2% in 2019. Mostly because of stronger NII in retail, other challenges in growth markets, and wholesale banking, as well as a marked improvement in the corporate line.
Margin pressure on customer deposits resulted in a lower NII in Retail Benelux. That's driven by the Netherlands. We also see some of that now in Germany. Net fee and commission income was also up, as you can see, despite a subdued syndicated loan market in Wholesale Banking. Overall, seeing the pressure we get from negative rates and then seeing that we manage to absorb the pressure by growing the book, by being very disciplined in our asset pricing, and this leading to a growth in NII, I think we did a good job on that aspect. Note that we have announced in the Netherlands that we will be charging negative rates on credit balances over EUR 1 million. That's for business customers starting in April 2020, and for retail customers starting in July 2020.
On the expense side, also excluding regulatory costs, we saw costs increasing in 2019. That mainly reflects the increased spending on KYC, continued investments in business growth, and also some higher staff-related expenses. This should not be taken as a sign that we do not focus on our cost discipline. As I said before, we have proven throughout the years that we're capable of absorbing higher costs. If you look at the CAGR of 2.7%, all these increasing costs are coming together, and we're committed to absorbing these costs. They come in in specific years, and it takes us a couple of years to really absorb them by digitalizing further, by making sure that we improve the operating leverage. That's what we're working on every day.
Regulatory cost is one of the costs that we have to absorb, and also this year, they again increased by 8% compared to 2018. That's driven by higher contributions to local deposit guarantee schemes, higher bank taxes. Regulatory costs are now 10% of our cost base. Overall, notwithstanding the growth on the income side, our cost-to-income ratio was up in 2019, and that's coming in at 56.6%. When you focus on our operations, excluding those regulatory costs that are growing faster than the other costs, the cost-to-income ratio came in at 51%. Although these show an efficient operation, we are not happy with this, and we're not happy with the increase in costs that we are seeing. We will have to continue to work very hard on becoming more efficient. You can expect some of that come in this year.
Our transition to a digital bank is going to help us realize that. It's a lot of effort that we are putting in. Moving on to the risk costs for 2019. Risk costs came in at 18 basis points over average customer lending. That's below the cycle average of around 25 basis points. It's up from 2018. As you know, we always monitor whether we see a trend of risk costs originating in a certain geography or a certain sector, or whether we see a correlation in underlying causes, and created development of risk costs in 2019. Especially in the fourth quarter, this has led to higher scrutiny within the risk chain, the credit risk chain. Over the quarters, we do not see that a certain specific geography or a certain sector is consistently generating higher risk costs.
Also, when we look at the underlying causes, it's not just one factor that we can point to. We see clients impacted by trade wars. We see clients impacted by commodity prices. We see them in businesses that are being disrupted and not being in time in changing their model. At the time of the fourth quarter, at the end of the fourth quarter, we also saw a sizable suspected external fraud case coming in. That's included here as well. Furthermore, when we look at the loan book, we see the Stage 3 ratio further improving actually to 1.4%. Also the exposure of clients which we have placed on watchlist, has actually come down over 2019. We can have a discussion about it in the Q&A. So far, when we're looking at things, we see these risk costs happening in different areas.
We don't find a common denominator. We don't find any correlation. The underlying book is actually improving. Turning to the slide nine now. Looking at the result. Our net result came in below 2018 due to the higher risk cost, increased expenses, especially related to KYC, deposit guarantee schemes, bank taxes, as mentioned, as well as having a higher effective tax rate for the year. For the full year, the result led to a return on equity of 9.4%. If you compare where we are versus our ambitions, that's slide 10, I think, in my presentation, just to make sure. You see the CET1 ratio, and the leverage ratios remaining well ahead of minimum regulatory requirements. For the return on equity was slightly below our ambition.
I believe we continue to produce an attractive total return despite higher capital requirements, despite the lower interest rate environment, and despite the increased regulatory cost. Our cost income ratio, as mentioned, impacted by some of these factors. To reiterate to you, cost income is not how we run our business, but it certainly remains an important input for return on equity. We look at operating leverage in terms of really looking at the efficiency of our business. From a cost income ratio perspective, we do still think that for a business that we run, if you digitize your processes and your customer experiences, that the 50%-52% ambition is still achievable. For 2019, our policy is to pay a progressive dividend, like we did in the past years, with a proposed cash dividend of EUR 0.69 per share.
Turning to the fourth quarter results, I'm on slide 12. Here you see a summary of what we're doing on the KYC side. Countering financial and economic crime, as you know, remains a top priority for us. It's also reflected in the number of FTEs, has further increased to 4,000 as we speak. We're still working and implementing our enhancement program. As part of this, all countries now apply what we call a Uniform Systematic Integrity Risk Analysis, or SIRA. SIRA provides guidance on KYC integrity risk, helps determine which clients to accept, as well as the required type and frequency of monitoring that you have to apply to those. In Italy, we continue with the implementation of the improvements required by Banca d'Italia, where we still refrain from onboarding new customers, but we fully service our existing customer base.
We've also invested in Ascent, which is a company which provides tools based on artificial intelligence. These tools help companies by tracking which regulations apply to their business, helps them manage the associated regulatory obligations, provides audit reporting on these obligations as well. You see that from an innovation perspective, we saw a lot of things coming up, focused on KYC and AML and transaction monitoring. You see that we're buying and investing in companies that help us there as well. In the end, we really want to do this very well and we want to do it our way, which is an intelligent and digital way over time. We're working on it.
In order to improve the effectiveness of all of this, we have to work together with other banks, but also with law enforcement and regulators, to be able to develop our joint analytical skills in this area. The Netherlands, we've taken the cooperation with other banks a step further. Also in Belgium, we have now joined forces with other banks and fintechs. In our view, it's really a necessity to increase the effectiveness of safeguarding the financial system. I think that's really the next step, which is how do we make it even more effective? Turning to slide 13, on innovation. Just a milestone in Poland where we are the first bank to introduce account aggregation. An update in Yolt. In Yolt, as you know, that's the account aggregation app that we have developed in-house. We launched that in the U.K. some two years ago.
We are now exceeding 1 million users and also businesses can now use Yolt aggregation services. We are getting a lot of recognition that Yolt is a success and is receiving quite some awards for best personal finance app. Innovation continues both on customer experience, but as said, also in the KYC area. Our leadership on the climate change side and fighting climate change has also been recognized and reinforced as for the fifth consecutive year, we are now recognized as an A-list company by CDP. That's a leading global environmental disclosure platform. Commercially 2019, also in the sustainability area, was very strong, with the number of deals actually doubled and the amount of sustainable finance deals doubling. A few examples are outlined here for an Italian client as well as a Norwegian client.
You basically see that our specialists in this one are in high demand in order to help these customers across the globe to manage their improvements on sustainability. They want to do that also through receiving incentives, in the way we structure these loans. Also tapping different parts of the market from a sustainable bond perspective. Turning to slide 14, the financial results. That's where we start here. The underlying pre-tax result was over EUR 1.3 billion. That's EUR 355 million below the same quarter of last year, and that is due to slightly lower income, higher expenses, and higher risk cost. Year-on-year underlying income was EUR 62 million lower, and the higher negative valuation adjustments in financial markets this quarter and the exceptional EUR 50 million higher profit from our stake in TMB in the same quarter last year.
More than offset the combination of higher margins resulting from our pricing discipline as well as the higher fee income. Basically, a positive one-off last year and negative one of this year is really blurring the picture on this one. NII underlying fee is actually good. Sequentially, the underlying income was also down by EUR 187 million, and that is, again, largely explained by the Bank of Beijing dividend we received in the third quarter of this year, to the amount of EUR 93 million, and then the higher negative valuation results of financial markets for the fourth quarter. Turning to NII. Basically, the business. The NII was up on last year and up on last quarter, and I think that's quite an accomplishment. Excluding financial markets, it was up 0.5% year-on-year. Slight growth, despite the increasing margin pressure on customer deposits here.
The important driver for this is that we have been able to keep the pricing discipline, as we had indicated to you, and grow volumes at the same time, especially in mortgages. We do really benefit from the fact that we have activities in non-euro retail countries, and also negative rates that we're charging on deposits. As indicated earlier, we have now announced that we will extend the Netherlands negative rate to deposits over 1 million. In addition, deposit tiering came into effect during the fourth quarter, which cancels out some of the negative rates on our deposits. Actually, cancels out the negative rates on our deposits at the ECB, lowering our losses there. Our net interest margin was three basis points higher this quarter at 157. As you can see, it was driven by financial markets and the treasury.
You know that those are a little bit more volatile, but also driven by improved lending margins. As mentioned before, this is an important metric for the market, the NIM, but we really look at the NII more and more, because of some of the volatile aspects of the NIM. From a development perspective on NII, that is positive. Partially, that is because of the growth in our lending book. Partially, it is because of repricing. In terms of the growth of the lending book, we have the known picture on slide 16. Here you see that the core lending was up EUR 2 billion, driven by EUR 2.6 billion growth in retail and a decline in wholesale. retail Netherlands was a bit lower. That's mainly driven by business lending. That's the seasonal pattern that you see there.
Over the year, we actually grew also business lending in the Netherlands, but for the quarter was down. On the retail Belgium side, you see an increase that's almost fully due to an increase in business lending there. Retail and challengers were up, especially in mortgages. EUR 2 billion in mortgages in retail and retail challengers in growth markets. EUR 500 million increase in consumer lending in challengers and growth markets as well. The decline in wholesale banking was predominantly driven by lending. As you can see in this chart, reflecting some larger prepayments. While on the daily banking and trade finance side, it was really up, and that's driven by the positive impact because of the higher oil price for the quarter in trade and commodity finance. You know that fluctuates.
Sometimes it goes down because of the oil price, sometimes it goes up because of the oil price. This quarter, it actually went up. Now on to fees. An important component, as you know, and also a driver for showing that the primary customer focus is working with the introduction of new products. If you see the fee income, including some of the accounting adjustments, the fee income increased, according to the slide, 4.4%. If you do some accounting adjustments, it's 5.3%, actually. That's driven by retail, other challengers and growth markets, which is up by 18%, and retail Belgium up at 10%.
Specifically, the one for retail, other challengers and growth markets shows you, because this is a lot of the digital franchises that we have there, it shows you that our focus on primary customer relationships and on the back of that, increasing the cross-buy, introducing products for which clients do want to pay fees, that is truly breaking through now. That's an important trend to be picked up. Also with the mentioned accounting adjustments, FM adjustment in the third quarter 2019, total fees increased by 1.6% sequentially. That's coming from a very strong third quarter, which included a record quarter for ING Group in Germany. The third quarter was really good in Germany. That's where you see that leveling off sequentially. Year-on-year, that's a structural growth. That's an important factor to look at. Turning to financial markets.
As you know, we have been working on turning this business around from a cost perspective in centralizing our trading activities in London. From an income and commercial focus perspective, moving away from equity derivatives and into more client business on the rates, and credit side. Basically, you now see in this bar chart that we're on the client businesses, we're actually turning the corner, and year-on-year, you see a real improvement, at EUR 41 million higher year-on-year. Sequentially is lower, but that's the quarterly effect. It's the seasonal effect. Turning to the fair value adjustment that you see again in the fourth quarter at EUR -74 million. Some of that is because of the methodology that we use and what the effect of that is in the fourth quarter.
Some of that is because of actually changing the methodology, going forward, we have less of this volatility coming through our results. Also there, we're taking actions in order to ensure that we reposition financial markets, and that's feasible on the client side. Let's make sure that, going forward it is then continuing, limiting the volatility will help us and yourself as well to analyze this business and make sure that it will lead to better returns. We move to the expense side on slide 18. You see the expenses, excluding the regulatory costs, were up EUR 69 million year-on-year. The main factor driving this is KYC. The KYC-related activities had a quarterly cost increase by EUR 75 million. There is another effect here that you see if you look at the fourth quarter of 2019 versus the fourth quarter of 2018.
You may remember that we had a reduced accrual for performance-related pay last year on the back of the settlement. That's an important factor, as a consequence of which now you see an increased cost if it comes to performance-related pay for this year. Quarter-on-quarter, expenses excluding regulatory costs were EUR 38 million higher. This was mainly driven by a KYC-related cost, some investments in business growth. The CLA impact that we have seen in many different countries, in which the salaries are basically increasing, have been generally absorbed by cost discipline. We were able to neutralize most of that, so that the real cost drivers are KYC, regulatory cost, as well as some business growth, where we can afford it. On regulatory costs, you know that they are seasonal, and you see that peak again here in the fourth quarter.
It's not only the peak, it's also an increase year-over-year. That is because of a higher DGS contribution and a higher bank tax in the Netherlands and a new bank tax in Romania. Turning to slide 19. The risk cost in the fourth quarter came in at EUR 428 million, 28 basis points of average customer lending. That's up from EUR 276 million recorded last quarter and EUR 242 million a year ago. Basically, you see that increase coming from wholesale as well as retail Benelux. Compared to the third quarter, retail Netherlands was lower as the previous quarter included higher risk costs due to the change in the house price index for mortgages. In retail Belgium, the risk costs actually increased, and that's partly due to a number of individual mid-corporate files. As you know, that's part of the retail business.
In Retail Germany, we saw EUR 23 million of net release versus EUR 7 million net release last quarter, due to model updates here. Risk costs were flattish in other challenges in growth markets. Wholesale Banking that's, I think, where most of the attention goes to, those risk costs were high at EUR 254 for the quarter, driven by additions to existing files, some new files. Out of the new files, there's one sizable suspected external fraud case. As mentioned earlier, we don't see a correlation of geographies. No correlation between sectors or underlying causes, this increase. We see the quality of the loan book remaining strong. That's confirmed by the non-performing loans for ING as measured by the Stage 3 ratio under IFRS 9. You can see that this is decreasing from 1.5% in the third quarter to 1.4% in the fourth quarter.
If it comes to 2020, we continue to expect risk costs to stay below through the cycle average of around 25 basis points of average customer lending. That's where we see it, and we can have a discussion on that. Turning to capital. Good picture here. You see that the capital remains strong at 14.6%, and the buildup is as follows. We have profit added, EUR 838 million of profit added to the as we only have to reserve the progressive part of the dividend in the fourth quarter, combined with lower operational risk-weighted assets and the impact of positive risk migration, this would have resulted in a CET1 ratio of 15.2%. Real strong on capital. However, we already took a EUR 13.2 billion risk-weighted assets increase, reflecting expected supervisory impact on risk-weighted assets, which translates into a 0.6% reduction of the CET1 ratio.
That brings it back to the 14.6%. The EUR 13.2 billion that I referred to is largely TRIM-related. It's based on our own scenario analysis, as well as extrapolating earlier feedback on TRIM model reviews to the models for which we still need to receive final closing letters. We expect to receive these final letters in the coming quarters, we will then have more clarity on the total impact on risk-weighted asset from banking regulation and model reviews. As mentioned last quarter, this could bring earlier impacts on the CET1 ratio, though the magnitude of the remaining risk-weighted asset inflation for now is still uncertain. Overall, we remain well-positioned to achieve the CET1 ratio ambition of around 13.5%. To wrap it up. Commercially, 2019 was another strong year. Continued growth of our primary customer base is very important. It's really value accretive.
This is how we build the value going forward. Our digital-only mobile-first strategy is on the right track, and we're banking the right trends. Impressive growth in mobile-only customers. We're growing the number of customers, but we're also growing the percentage of those customers that are actually mobile only. You see the mobile interactions growing fast. That gives ample opportunity for us to continue to convert these interactions into more purchases of services by the same customers. Core lending was up by almost 3%. While we have been able to keep our pricing discipline, the good thing is, again, here, that we are diversified. We're banking in many markets, so we're not dependent on one specific market to basically offset the pressure on the savings side by repricing. That's why we can keep the pricing discipline. It's a very important part of our story.
We see higher interest rates, margins, specifically in mortgages. Combined with good fee growth, we managed to offset most of the pressure on the margins, savings margins. Most of the KYC-related expenses have further increased regulatory cost. We did see higher risk costs in 2019, but we remained below the through-the-cycle average, the quality of the loan book remaining strong. CET1, very solid, 14.6%, already taking 13.2 of expected supervisory impact. Excluding this, 15.2%. As said, KYC, countering financial economic crime remains a priority. Overall, we delivered on our ambition to continue to grow profitably within the risk appetite, despite the continuing challenges of the rate environment or geopolitical uncertainties. It's been a challenging year with good results, and I think quite some room now for your questions. Thank you.
Ladies and gentlemen, we will start a question and answer session now. To be registered for question and answer queue, please press star one. In the interest of time, we kindly ask each analyst to limit yourself to only two questions. First question is from Robert van den Broek , Mediobanca. Go ahead, please.
Yes. Good morning, everybody. Thank you for taking my questions. My first question is around capital and dividends. In the past, you've always guided for regulatory overhang to be 15%-18% to RWA. Today, you take a 60-basis-point impact. I think the guidance was pre-mitigation. Is it fair to assume that we're basically roughly halfway through taking that regulatory overhang into your capital ratio? In connection to that, some of your peers are starting to get a little bit more enthusiastic about the Article 104a, which allows you to fill your Pillar 2 with lower quality capital instruments. Can you comment a little bit on that, and how that would possibly lead to maybe a bit more than EUR 0.01 dividend accrual in the year?
Secondly, on return on equity, Ralph, I think in your introductory statements, you mentioned that you're still happy with the total return package the company is offering. Clearly, it's short of the 10%-12% target. I was just wondering on how quickly do you think you could get to that target range, also considering the step-up on capital you probably still need compared to the average base in 2019. Thank you.
Thank you, Robert. I'll start with the last question, and then the other questions, I will give it to Steven and Tanate here. Return on equity. It's the first time that we step out of that range. It is particularly because of the last quarter here. Yes, we're not happy with that. Indeed, the further pressure on capital. On that, having said that, we're looking at a low-rate environment. We may have some capital increases coming still. We have some regulatory costs. We have some KYC costs. On the other side, we're also management, and as management, we are here to manage these kind of things.
The big thing still stays our strategy of making sure that we move to a platform, that we get more customers, that they buy more products, that we charge more fees on the back of selling products, that we expand in also non-EUR areas, that we decrease the cost to serve because of digitalization. That's how you manage it. Clearly, from a more how do you go about pricing perspective, as you see this year, both in wholesale as well as in retail, we have pricing discipline, and we don't mind to walk away from business if it doesn't yield the return that we need to have. As a diversified bank in many different geographies and many different sectors on the wholesale banking side, we have the opportunity because we're not tied to one specific geography like some of our competitors have.
That repricing is happening, and we will continue with that discipline. Is to continue to grow the lending book versus the cost. You should expect that we will continue to improve in what we call operating leverage. It is to change the lending mix, which we will continue to do, moving to a higher NIM lending businesses. That's still how we think we can manage things. Will we be able to be back in the 10 to 12 tomorrow? We're working hard on it. At this moment, the guidance that we have is the guidance that we keep. Maybe on capital, Steven, and on B2R Tan ate.
Thanks, Ralph. With regards to the capital, like I said the previous quarters, we would expect the impact of the regulations, including TRIM and the new regulatory technology standards coming up in the next four quarters. This is now what we are seeing. We will see some more impact coming up in the next couple of quarters. We are confident that we will remain in our ambition level of around 13.5%. This was a big impact, and one or two will follow. By the third quarter, we have had a by and large impact of all new regulation that has been coming up.
I think just to supplement Steven's statement, I think if you look at the original calculation on Basel IV, we talked about a 2% reduction of our core Tier 1 because of Basel IV, and that after mitigation, it's around 1.5%. Where you see us standing today at 14.6%, having already taken 60 basis points on TRIM, which is related somewhat to Basel IV, you can see that our capital targets remain actually on track. I think there are some new things happening, for example, the introduction of DoD, which could have a potential impact. At the same time, we do see, as you mentioned, the introduction of CRD V, which is beneficial from a core Tier 1 perspective. We are still in discussion with the ECB on the precise impact on CRD V, that indeed would be positive on our core Tier 1 development.
Okay. Thank you, guys.
Next question is from Mr. Pawel Dziedzic of Goldman Sachs. Go ahead, please.
Good morning. Thank you for the presentation. Two questions from me. The first one is on cost. You reported EUR 25 million increase in KYC-related expenses, I think in the fourth quarter alone, and you talked in your presentation about EUR 75 million increase throughout the entire year. I think your comments also pointed out that this is still an ongoing process and you're intensifying your efforts rather than maybe reducing them. How should we think about increase in this line going forward? Should we see similar rate of growth in 2020, or you think this can be contained? That's the first question. The second one is on cost of risk, and I think you rightly point out there is a lot of noise. You mentioned there is no common denominator, and that your Stage 3 assets are down while your impairments are up and so on.
I was hoping if you can comment on your confidence that cost of risk will actually remain below through the cycle levels this year. Where is it coming from? We are late in the cycle, and you would expect that recoveries will be lower. You would expect that single case files will probably happen more often and so on. Where does your confidence come from? Thank you.
Yeah, thank you, Pawel. I will take the first one. Steven will take the second one then. The first one. On KYC. Clearly, you know that we're still in a phase of massive file enhancement, just getting the documents in place, getting all the customer information in place. That will continue. Also in 2020. At the same time, we're looking at how can we do this smarter, how can we digitalize these processes, what kind of tooling can we introduce? We're in the midst of introducing a lot of tooling, both in dealing with these files, as well as a tool on the transaction monitoring side. That will be introduced and rolled out this year as well. From an overall cost perspective, there may be a bit increase, but I actually think that 2020, it will plateau. The KYC cost will plateau.
On cost of risks. If you look at the fourth quarter, we see a number of files. If you look at Wholesale Banking, it is around 25 files. That is a similar amount that we would typically see for the quarter, both existing files and a few new ones. Within that, I point out that the press release in the section on Wholesale Banking regarding daily banking and trade finance, there is a big suspected external fraud case. That is a special one, I would say.
If you look at our watch lists, our forbearance levels, the number of increased risk files, the number of files that we're dealing with in our credit restructuring departments are all not going up or even going down. That gives us confidence given the current economic circumstances, to continue to guide below the through-the-cycle cost average in risks for 2020.
Thank you. That is very clear. Maybe just one follow-up. If the KYC expenses will plateau, is it then fair to assume that your total cost base could actually go down in 2020? Is this how you would see it?
Maybe I give you a bit more detail about the evolution of cost in Q4, right? If you look at it, we have three buckets of cost increases. Clearly, KYC is one where we flag as being EUR 75 million in cost increase. If you look at our total wage bill, it's roughly about EUR a billion, one per quarter. Right? If you estimate the inflation cost of that on a quarterly basis, 3.5%, you're talking EUR 45 million or EUR 40 million in cost increases there. Right? As Ralph mentioned, this year is somewhat unique because of the lower accrual for performance pay in 2018 affect 2019 numbers.
What you do see is that our efficiency programs are working, right? We have negated the inflation in terms of our labor cost inflation as well as the impact of additional performance pay. What we are unable at this point in time to negate is the impact of the KYC enhancement program, and that we hope to do over time. As mentioned, we expect those costs to plateau in 2020.
Thank you very much.
Our next question is from Mr. Benoit Petrarque, Kepler Cheuvreux. Go ahead, please.
Good morning, Benoit Petrarque from Kepler Cheuvreux. Two questions on my side. The first one is to come back on capital. There will be a lot of clarification on most of the regulatory uncertainty this year. When do you expect to be able to update the market on capital management? Do you think you could start to update us maybe end of this year? Clearly, ECB is coming with a big update on Basel IV, and I think most of the regulatory uncertainty will be clarified by year-end.
You mentioned also that you are still building up capital, i.e., the CET1 capital is still going up. Where are you basically in that process? Do you think you are finalizing this ramp-up of capital, or you are still in the phase of building up capital? The second question is actually on the negative rate, so moving to negative above EUR 1 million. What is the kind of deposit base which will be impacted by that one? Thank you very much.
I'll take the one on capital, I guess. Thanks, Benoit. The regulatory levels are coming on in, both on the redevelopment of our models as well as on the finalization of TRIM. Of course, we get the macro-prudential impacts on the mortgages in the Netherlands that will come in the third quarter. Basically, for ING, that basically means that based on what we currently see in all regulations, all the major impacts we then have had as by the third quarter. That basically means that we can give you an update in the second half of the year on our capital planning.
I think as Ralph mentioned, we have gone negative on accounts of over EUR 1 million. While we don't give precise numbers in terms of our standing, our expectation is on a full-year basis, the pressure on our negative rate gets less by approximately EUR 70 million.
Great. Thanks. Thank you.
Our next question is from Mr. Farquhar Murray, Autonomous. Go ahead, please.
Morning, gentlemen. Just two questions, if I may. Firstly, on the topic of negative deposit rates, I just wondered if you could outline how you see that developing across the businesses you have. Clearly, we've seen movement in the Netherlands. I just wonder what you might expect from the competitive dynamics in Belgium and Germany. Just on the recent loan officers' surveys for the Netherlands, there seems to have been a bit of a drop-off in loan demand. Is that something you're seeing on the ground? Is that potentially related to the nitrogen crisis at all? Have you seen any asset quality consequences from that at all? Thanks.
Okay. On the negative rates, clearly, we can tell you what we do. We're not allowed to tell you what we're planning to do if it comes to rates, because these are market prices and there is authorities that are very clearly indicating to us that we should not guide things around that. What we can say is what we do. It is clear that in order to shield some of the negative effects and the losses coming from the deposit base, specifically if it comes to the larger deposits and the companies that bring the larger deposits, as well as the private individuals that bring the larger deposits, that we will be really looking into that. That is what we're doing in the Netherlands.
That's certainly something that's in the Eurozone, because we also have many non-Eurozone businesses like Poland and Romania and then Australia, where this doesn't play a factor. On the loan demand, it's not so much the loan demand that we see. In the fourth quarter, we had this kind of decrease on the business side. We think it's more seasonal than anything else. Over the last year in the Netherlands, we saw quite good loan demand. It's nothing indicating overheating, nor the other way around. It's okay. From the Nitrogen Crisis, specifically, we know that our customers are taking measures, specifically in the construction business, but we don't expect more impairments from that.
Okay. Many thanks.
The next question is from Mr. Stefan Nedialkov, Citi. Go ahead, please.
Hi, guys. Good morning. It's Stefan. A lot of interesting questions until now. Just to get a couple of clarifications and additional color. On the NIM. When you put it all together, right now you're guiding through end of 1Q 2020. Could you give us an update on your guidance for the next couple of quarters beyond 1Q 2020 or maybe through the end of 2020? Secondly, to come back on the compliance/KYC costs. Right now, you have 4,000 people working on that. It's up from 3,500 last quarter.
That's an addition of 500. Can you give us some color on the increase? Is that mainly from external people or internal people that have been moved from front office or middle office functions temporarily, as well as the split of the 4,000 overall in terms of external versus internal. The split on the increase and the split on the stock of employees, if you will.
Thank you, Stefan. Thanks for the questions. As you know, we're not really guiding NIM these days anymore because, as I said already in my introduction, there are so many factors there that also bring some kind of a volatile nature. What we really want to continue to guide on is how we see the net interest income develop. That one we see as stable-ish, given the margin pressure from the savings side, the NII. With the repricing efforts that we have, the pricing discipline that we have installed, we think that we can manage the margin protection on one side, pricing at 10% minimum return over 13.5% risk-weighted assets. On the other side, we do expect lending growth in the retail bank to be more like 3%-4%, and also bank lower than that. That is how we manage it.
Making sure we have the pricing discipline, making sure that we change the mix, making sure that we continue to grow on the lending side, where it is profitable, and that's how we basically manage and offset the pressure from the savings side. On KYC, the 4,000 is actually excluding the internal workforce if it comes to the front office that also has to work on this. For the total effect of KYC, you would have to add that even. That has two sides. Basically, it has a cost side. It also has an opportunity cost side, because clearly if people are working on KYC, they can't be working on specific deals. That's the picture there. The 4,000 FTEs are to a large extent externals, as we would call them. Basically, companies that we work with that have these services.
We are internalizing a lot of these skills as we speak. The large number has very much to do with the enormous work that has to do with the file enhancement. From a number perspective, that may, at a certain moment, drop off from the enhancement perspective. As you know, we also have a business as usual, as well as we will continue to have to improve the effectiveness with new tools and new skills. That's why we're more looking at the euros, and that's why I said earlier that we think that 2020, from a KYC cost perspective, will more or less plateau. That's where we are.
Having said that, also in terms of managing the cost from this, and just also to come back to some of the questions on cost, and adding to what Tanate was indicating, the transformation programs are really paying off. You can't see them specifically, maybe, because there's a run of KYC. If I could just hint at looking at market leaders where costs have really gone down for the year, including KYC costs, and that the recipe there is for cost to go further down, that is certainly what we are working on and expect in 2020.
Ralph, just to follow up on your comments about the opportunity cost of moving front office employees to deal with KYC issues. When you go back to your October 2016 cost savings targets for this year, for 2020, what is the percentage of that original target that you think you will be accomplishing this year?
We refreshed that during our IR day in March, as you know. From a market leaders perspective, over time, we would expect next to the 2,000 that we already saved in market leaders, that we would over time for the next, 2020 and 2021, we would be able to save another 1,500 in FTEs. Those are the numbers that we gave you at the IR day, and that is certainly the numbers that we are still managing and expecting.
All right. Thank you.
Next question is from Mr. Raul Sinha, JP Morgan. Go ahead, please.
Hi. Good morning. Thanks for taking my questions. I've got two, please. The first one is on the decision to obviously reiterate the progressive dividend policy. We know at some point last year you were debating whether or not you should tweak that. That's why I was wondering whether that option is still open in terms of once you have full regulatory clarity, you might still look at the appropriateness of that progressive dividend policy, or do you think that that is something that you believe is very much set in stone, given how you view your capital position, which is obviously quite strong. Then the second one is on fee income.
If I may ask a little bit about retail Benelux especially, whether or not you think that we might have a slightly better performance in fee income for 2020, or do you think this is still going to be a challenging area, whereas the other areas within fee income will be the main drivers? Thanks.
Yeah. Thank you. I will start with the second one. On fee income market leaders, actually Belgium, over 2019, did a good job. From that perspective, in Belgium specifically, we have seen fee income really increasing. We didn't see as much in the Netherlands, but we do expect that fee income will increase in the Netherlands because we have already announced the increase in commissions on the payment packages two months ago. That should really lead into higher commissions for the market leaders altogether. We do expect a better performance in fees in market leaders in 2020 because of the announcements that we already made. That's one. Specifically on your dividend one, as we said, so we feel that we can reiterate progressive dividends for 2020 as a policy.
Clearly, we change the policy when we change it, so I'm not going to be hinting at that as we speak. For 2020, we propose to continue with the progressive dividend. We will consider specials if we deem capital is sufficient. The next two, three quarters, we do expect some further clarity around some of the impacts from TRIM and DoD. With those uncertainties at that moment in time, hopefully being clarified, we can come back in the year on this, whether we want to continue with that or alter it.
Thanks, Ralph. If I can just follow up very quickly on the capital point. As you know, within CRD V, there's also this Article 131, which is quite a negative impact from a systemic risk buffer perspective, depending upon how you interpret this. Have you had any discussions with the regulator about this? Is that driving your view that CRD IV is actually likely to be positive?
Indeed, this is Tanate. We did have that discussion. I think what you're talking about is whether the different buckets of systemic add-ons are additive or not. We have been getting those clarification that what they say to us is not in addition. It's not the three numbers added together. We don't expect that to be the case.
Thank you.
Next question is from Mr. Tarik El Mejjad , BofA. Go ahead, please.
Hi. Good morning. Thank you for explanation about the ROE target 10-12 and how you working hard to get back to this range. I just want to focus on costs. I want to know what are you doing actually to try to absorb the KYC costs? You mentioned it will take probably two years to absorb these. You are confident, but can you give us some qualitative things you're doing? Do you exclude old kinds of traditional cost-saving things, you invest more and then with hopefully getting more savings down the road or is this more like everyday discipline and some more tweaking of operations? The second question is more qualification on capital.
Are you saying that TRIM impact is a front loading of Basel IV fully, so it's not on top, it's within, and the only extra bit will be Definition of Default that you hope to offset by potential Pillar 2 relief? Is my understanding correct? Thank you.
I'll do the first one, and Steven is already waving at me that he wants to do the second one. Steven, you will get the second one.
Thank you. Shall I start?
Yeah.
On capital, yes, you're right. We have TRIM, DoD, and the macro-prudential measure that the Dutch bank took on mortgages. That will all come in in the next couple of quarters. The impact of further Basel IV or whatever Basel IV comes for us will be very benign. That's where we currently are. That's what we're waiting for. When we have that, then we can give clear guidance or clearer guidance on our capital planning.
On the cost side, it's a mix of everything, literally. Clearly there's a lot of cost discipline and all the things that you can expect, from procurements, travel, stuff like that we're putting under the magnifying glass just to make sure that we only do the things that need to be done. That's on one side. What really is going to help us is that the change in tech that we already had indicated during our IR day that, for example, in the market leaders, we will extend the channel offering that we already have in Germany, that we already have in the Netherlands, so the one app, one web, that we will extend that into Belgium in the next coming months to all of our retail customers.
That we are focusing all of our investments in market leaders, for example, in further digitalization of a lot of the processes, ensuring that Service processes actually become available on the app. That will lead to higher Net Promoter Score. It will lead to lower cost as well, running cost. On the wholesale banking side, we're very much looking into the digitization of process as well. There is a massive program to go after, just go through every process and digitalize whatever you can digitalize. Those programs continue to need investments on one side, on the other side, they structurally solve your cost issue and make your model very scalable. It's in line with the strategy, we're putting extra effort on this with short-term reward as well.
Perfect. Thank you for all that. Thanks.
Next question is from Mr. Omar Fall, Barclays. Go ahead, please.
Hi there. Could you just highlight where we are on the Unite plan, please? I know Belgium isn't the only beneficiary; expenses are still growing at 3% there. Any sense at this stage of giving us what you think the EUR amount of savings to come, particularly given the migration to the new app and the internet banking environment that's happening in the coming months? Do you still expect somewhat of a hockey stick effect on cost savings to come from next year?
Similarly, sorry, again, on expenses, but just so we can get a sense of the underlying developments, what would be helpful is if you could give a sense of how the increase in KYC costs, either the EUR 75 million or the Q1Q number, is split across the divisions. Maybe just even a sense of how the stock of KYC costs is split across the divisions. That would be great. Thanks.
Omar, on the first one, just to update you on Unite. To go back three years ago when we launched it, at that moment, we envisaged and we announced a total number of FTEs that were going to be affected by it, in the range of 3,500. That was specifically Unite. 2,000 of those, and you can literally go through the numbers we have done. We changed tactics earlier last year. Again, the effect of that pretty much focusing on how can we speed up the customer experience to the Belgian clients, and thereafter, then look at further digitalization. That would lead to a further saving of FTEs as well. That effect you will see during this year. You will see that effect during this year. It's not a hockey stick from that perspective. The end of the hockey stick is where we are now.
The next two years is where you see where the benefits continue to come in. I still want to also say there is that, don't look at Belgian numbers only, don't look at Netherlands numbers only. The more we have this Unite working, sometimes the cost in Belgium will increase because we spend more on the teams that do specific work in Belgium for the combination. Sometimes you see the cost decrease in another area, or we see the cost increase in the Netherlands because we have the tribe in the Netherlands working on something for both countries.
Look at the combination, and that's where you see a continuation of a decrease of cost already this year. As you know, that's a recipe to continue that, and that you will see this year. On the KYC number, how it is split across the divisions, honestly, I don't have it here, so I'm not sure whether we have any of that. Tanate, do you want to say something?
Yeah. I think our preference is not to really give you divisional numbers, right? A number of our KYC programs are run centrally, and those costs are then allocated. Our preference is just to give you the overall bank numbers. If that's a guide, you probably can expect in terms of the number of customer in each market as a guide of how these costs are shared, but the program and the costs are more centralized.
Got it. Very clear. Thank you.
Next question is from Mr. Kiri Vijayarajah, HSBC. Go ahead, please.
Yes, good morning. Kiri Vijayarajah, HSBC. First question, just really clarification on the EUR 70 million benefit from the negative interest rate. Then secondly, going back to the fee and commission outlook. You've got your 5%-10% growth ambition. Do you think that's achievable specifically for 2020? And within that, the wholesale bank fee and commission was a drag, in 2019, and I wondered, do you think that still remains a bit subdued in 2020 given your cautious risk appetite there on volumes, at least, in the wholesale bank? Thank you.
On the fees, well, yes, we do think it's feasible for 2020, because we are looking at many different aspects there. If you just look across the retail activities, it's the introduction of behavioral fees, that we introduced last year, but that will really come kind of into the P&L also this year. The introduction of fees around payment packages in different countries in the retail sphere, where we haven't done that earlier. The increase in some of the fees there. It is the introduction of new products, around, for example, the insurance products that we are delivering now digitally to our customers. The investment product area, that is growing fast for us in a digital way where we expect a fee growth to come from.
From a retail bank perspective, it is a little bit more predictable, because of what actions we are taking and have taken already, and the growth that we see on the customer side and the primary customer side, that we can say, well, yeah, we feel that that ambition is feasible. On the wholesale banking side, as you know, it is very dependent on how the markets develop. It's dependent on the demand in the market, it's dependent on the syndicated loan market, where we are a player. It's dependent on the debt capital side, where we have quite some fee income coming from as well. Whether that is actually specifically going to pan out to have a growth of 5%-10%, I don't know. Clearly this year it was lower and therefore, from that base, a bit of growth is always feasible.
Okay. Thank you.
Our next question is from Ms. Daphne Tsang, Redburn. Go ahead, please. Ms. Tsang, your line is open. Go ahead, please.
Hi, it's Daphne from Redburn. Am I on the line?
Yes, you are.
Oh, okay, cool. I've got two questions please. One on margin and the second one on cost. On margin, regarding charging on negative rate, how much deposits have you got above EUR 100 million and EUR 100K respectively? You mentioned you will focus on shifting business towards higher NIM products. What specifically are they that you're shifting to? My second question on cost. Are you able to give a rough sense on the KYC cost as a % of your cost base, please? How many of those costs in terms of FTE and absolute cost would go down after the KYC cost plateau in 2020, please?
Thank you, Daphne. Today, they're going to answer some of these questions first. Kiri, just to make sure, you had one more question outstanding, and we'll come back to that one as well. Tanate?
Kiri, maybe to address your question, we start in terms of implementing our negative charging for accounts of more than EUR 1 million, I think, just to be clear on that point. Second, I think we do simulation, of course, based on what could potentially be attrition. Just to remind you, one of the other major banks in the Netherlands have already started charging negative rates. We take that into account in terms of our assumptions to provide you that guidance. Okay? In terms of margin improvements, I think we're looking at a number of actions that are ongoing. Clearly, we talked about the overall repricing in every segment where we can. We also looked to see that our consumer loan growth should be growing at a higher pace than, for example, our mortgage or business lending, where consumer lending has a higher and more attractive NIM as well as return on equity.
Right? The other factors that we do is the diversification for some of our Euro zone markets into the CNG countries, in particular. You see that in the shift of loan growth in those countries where the interest rate environment remains more positive for us. Lastly, we prioritize really wholesale banking returns and NIM over perhaps volume growth. That's why you see in the last two quarter, perhaps even somewhat slower growth, even negative growth, but in lieu of better net interest margin in those markets as well. In terms of KYC costs, I think I just addressed those question. We talk about the increase being approximately EUR 75 million. We expect those costs to plateau during 2020. We don't really provide guidance on divisional KYC expenses.
A follow-up on the negative rates. How much deposit have you got above the EUR 1 million mark?
Sorry. As I mentioned, we give you the guidance on the less negative impact on our P&L, but we don't guide on the absolute amount of our deposit base.
Got it. Thank you.
Our next question is from Alicia Chung, Exane. Go ahead, please.
Morning, everyone. Just a few quick questions from me. Firstly, sorry to go back on cost, but when you say that the KYC cost will plateau in 2020, is that versus Q4 levels or versus 2019 levels? Would you be able to give the split of ongoing KYC costs versus project costs in the EUR 75 million? Secondly, just on the capital, obviously, you had a very nice boost to capital from the EUR 7 billion lower RWAs.
I'm just wondering how much of that you see as sustainable, because of the EUR 7 billion, you have about EUR 3 billion related to op risk RWAs, which tends to be quite volatile and move by up to a few billion every quarter. Of the EUR 4 billion lower credit risk RWAs, how much of that is due to positive credit risk migration that might reverse over the medium term? I also have one sort of longer term strategic question.
Okay. Where is your strategic question, Alicia?
It's just thinking a little bit, obviously, the fashion at the moment, and I expect it's going to be a very structural fashion, is ESG. Just wondering what your thoughts are right now in terms of how you think about the growth and risks of your lending book in oil and gas and metal mining and natural resources, which is close to 10% of your loan book at ING. How do you think about that within an ESG context in terms of the longer term growth risks and potential rise in capital requirements around these portfolios as the sector transitions to decarbonization and likely lower CapEx requirements for those sectors? How are you preparing for that now? I suppose I'm wondering, is this a good opportunity to descale your wholesale banking further over the medium term? Thanks.
Yeah. Let's pick up on that one, and then we'll go back to capital and then to KYC cost. On the last one, on ESG, in a broader sense, because ESG is a very broad concept, right? More importantly, the E part of it, the environmental part of it, or more important part of that again, being the carbon footprint coming from the different industries. As you know, Alicia, we actually came out in September 2018 with an approach called the Terra approach.
In that Terra approach, we have agreed basically an approach with the 2° Investing Initiative in how we can calculate the impact of the footprint of the different industries that we bank, and how we can calculate a trajectory that will get us in line and develop that footprint, our indirect footprint, in line with the Paris Agreement, and preferably a little bit more ambitious. We came out with, in September 2018 already, with a commitment that based on these methodologies, we are committed to decrease our indirect footprint in line and a little bit more ambitious than the Paris Agreement. The nine sectors that create the biggest indirect footprint for us are oil and gas, the energy area, so the power generation area.
It is the cement industry, the steel industry, the automotive industry, the aviation industry, the shipping industry, and then it is commercial real estate and residential real estate. For each of these sectors, we have agreed a trajectory, which has been tested by the International Energy Agency, for us to decrease our footprint. Now, this does not mean that we will massively decrease our exposure on specific sectors. It does mean that we have the obligation to really enter into real discussions with these sectors for them to apply new technologies, as a consequence of which their footprint is actually decreasing.
Clearly, if they can't provide us with a trajectory that works for us because they are not going to invest in these technologies, or for some of these activities, there is a real alternative that is leading to a lower carbon footprint, then we will actually stop the business and exit client relationships. That is what we have done, for example, in our coal policy. Two years ago, we have come out indicating that we will not continue to finance coal-fired power plants, and we will not continue to finance clients whose total revenues are for more than 5% dependent on coal-fired power. We are exiting those clients. I think your question is spot on. We have taken a lead role in this one. When we came out with the commitment in 2018, we were the only one.
Within four months, we were followed by four more banks, which we're very happy with because through that we can have real impact and really change things going forward. That was in Katowice that we came together with the other banks, and now we are joined by another 30 banks, in total representing EUR 13 trillion of banking assets. Through that, it is more the effort to change some of these industries by making sure that they apply the technologies through which they can actually decrease their footprint and with that, our indirect footprint. Again, if they can't, and there's a real alternative out there that is much cleaner, then we may exit as well. That's the answer on the third one. For the risk-weighted assets one, I give the floor to Steven.
Yes. Thank you. Maybe less inspirational, but still also true. On the RWA, we're focusing on, if you look at the risk migration, part of that comes from increasing housing prices and growing GDP. Part of it was due to management actions in that we have better linkage of covers, i.e., loan covers to particular loans, or that we are improving our data quality. There were these two elements that have caused the positive risk migration, and we continue to work on that. That was for around EUR 4 billion. Indeed, the operational risk-weighted assets decreased to EUR 3 billion. That more consists of internal scenarios than an external database. We continue to calibrate that.
You've seen that coming up in the first half of the year and then gradually coming down a little bit in the second half, and we try to measure it as stable as we can. I would say it's a mix of factors, but part of it has to do with management actions, not only by risk migration due to economic circumstances.
Alicia, on KYC costs, I think you see the ramp starting in Q1, Q2, going to Q3 and Q4. I think they're now flying in Q4 at more what we think is the plateau level. If you compare the KYC cost in 2020 compared to 2019, you would see somewhat of a modest increase given the annualization of this impact.
Very clear. Thank you very much.
Ladies and gentlemen, if there are any additional questions, please press star one. Go ahead. First question is from Ms. Anke Reingen, Royal Bank of Canada. Go ahead, please.
Yeah. Thank you very much. Just two follow-up questions. Firstly, on your comment that you work hard on improving operating leverage. Is it too early, I mean, it's not in consensus expectations, but is this now you can actually already deliver operating leverage and positive operating leverage in 2020 without being too optimistic on the top line? Then secondly, just on your capital return policy, I understand that you announce changes when you do, but given some of the banks now talk about buybacks, I was just wondering conceptually, would you consider replacing part of your cash dividend with a buyback, or is that only really an option as an additional capital return? Thank you very much.
Well, thank you, Anke. On the operating leverage one, the way we look at operating leverage is basically, can you manage your cost base versus the volume that goes through your business? It's not against the price of your volume, it's not against the income, cost versus income. It's cost versus number of transactions, the volume of the balance sheet, et cetera. Actually, from that perspective, the market leaders have really improved on operating leverage. Even in 2019. In C&G, we've seen that stabilizing. The reason for that being is that we're always growing the business there. We're investing in new products, et cetera. In the remaining part, you see an improvement of operating leverage there as well.
Given the fact that we're really investing in broadening the product scope, you see that the operating leverage is not really improving in the C&G countries. Again, you know that we're building that for future value, and we're really looking at things more or less as a real strategic value creation play. Given the plans that we have in digitalization of the customer interactions and all the processes, you will see that there is still some investments going into these plans, and therefore the operating leverage itself as a concept will more pan out over time with positive scissors, therefore, also to be expected over time. Again, in Market Leaders you see some of that already also in terms of the cost going down, and we expect that to continue there.
We have always guided that market leaders really had to take the cost down. C&G are allowed to grow the cost if the income is growing as well. We just make sure that the scissors are good there. Wholesale Banking is a flat cost business for us over time. On dividends. For the moment, as I said, we're on progressive dividend, and we pay it out in cash. We may want to consider it, but we're not actively working on that now.
Okay. Thank you.
Next question is from Mr. Bart Jooris, Degroof Petercam. Go ahead, please.
Yes, good afternoon. Main questions have been asked. I have a detailed question and a more conceptual one. The detailed question is your net core lending is up for a large part from Retail Belgium. What's the effect there of the disappearance of the loan bonus this year? Is that important in that number, or is that very small? Secondly, more on a conceptual basis, you're planning on using AI and machine learning in your KYC processes. However, as I understand it, those machine learning processes often lead to black box algorithms that give you the results. Are your regulators happy with you using black box algorithms in your KYC processes?
I think regarding your first question, the impact is benign. We do not see a big impact of that. On the second question, we are in continuous dialogues with regulators when we use artificial intelligence. When we do more validation on certain parts, for example, and there are AI guidelines that have been coming out from different regulators, we will use that to discuss with those regulators, because in the end, we need to have explainability in our algorithms. Currently, we buy in our views internal developed AI, which in some stages is still in sandboxing, but in other stages it's further advanced. When we come to validation in line with our regulatory standards, we will then discuss with the supervisor.
Okay, thank you.
Okay. Thanks for all the questions raised, and thanks for making the time and to go through the annual as well as the fourth quarter results with us. Maybe just to summarize, commercially, 2019 was another strong year with further growth of our primary customer base asset. It is still 2,000 customers a day that basically choose ING as their digital home bank, as their digital primary bank, which is really a driver for future value. We also see the underlying digitalization in terms of the behavior really increasing in terms of the transactions, the interactions, which gives us ample opportunity to really deliver a differentiated experience with more than a third of our customer base now actually only working with us through the digital channels. On the back of all of this, core lending was up by 3%.
Pricing discipline is coming through in the results as well. You see that in the NII. We had a good fee growth. Through the combination of that, we are able to offset the margin pressure on customer deposits, able to offset some of the higher KYC-related expenses and further increasing regulatory cost. The fourth quarter specifically showed higher risk cost. As indicated, it's more individual files. We don't see a connection there. We do expect that going forward, the risk cost will be below through the cycle average. From a quarter one perspective, pro forma 15.2%, but already taking expected supervisory impact on risk-weighted assets in the amount of EUR 13.2 billion, leading to a 14.6% core Tier 1.
A good buffer there. Overall, it's been tough, it's been hard work, but we can be content. Thank you very much. If there's any further questions after this call, you know the IR team is always there to help you also to dig into some of the details and to help you making your write-ups. Thank you very much.
Ladies and gentlemen, this concludes the analyst call. Thank you for attending. You may now disconnect your line. Have a nice day.