Earnings Call: Q1 2019

May 2, 2019

Good morning. This is Patricia Grozof welcoming you to ING's Q1 2019 conference call. Before handing this conference call over to Ralf Hammers, 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. Thank you, Patricia. Good morning, everyone, and welcome to the Q1 2019 results call. As always, I'll take you through the presentation that you have been provided with. With me are our CEO, Stephen Van Eiswijk and our new CFO, Tanate Futrikho. Welcome, Tanate. During the Investor Day, at the end of March, we were already able to cover a wide range of topics. It was really a pleasure to spend quite some time with many of you in Germany. You'll see that many of the things that we talked about there are covered and reflected in these Q1 results. So let's turn to the key points of this quarter's performance. ING Group posted a net profit of $1,100,000,000 in the 1st quarter. That's leading to a 4 quarter rolling underlying return on equity of 11% for the quarter. So strong performance there. On the Retail side, we recorded a net inflow of 150,000 primary customers to reach 12,600,000. Australia and Germany were the strongest contributors for this quarter's growth, but we see growth everywhere on primary clients. First quarter was another strong quarter for loan growth with net core lending up by 8,700,000,000 again, well diversified by the businesses and the geographies, you'll see that later, and a net customer deposit inflow of around €5,000,000,000 Next to the loan growth at resilientmargins. Results were supported by solid fee income despite challenging market conditions and the release of a currency translation reserve related to the sale of Kotak. The cost side, we maintained a good cost discipline as we had expected. The retail balance cost continuing to trend down, showing the effect of the transformation program. The group CET1 ratio came in at a strong 14.7%, up from 14.5% at the end of the quarter to the Q4 2018. That was, amongst others, supported by the sale of our Kotak stake. As a key priority, you know that we continue our work on the global KYC enhancement program, We just rolled out across the whole bank in all client segments, in all business units. And we have more than 2,500 FTEs working on KYC, of which around 500 FTEs are involved in file enhancement and therefore more on a project related basis. On Page 3, basically, we kind of come back to the key value accelerators that we presented to you in Frankfurt last month. So it all begins with growing primary customers in both retail and wholesale. As you know, these are people and businesses who have a deeper relationship with RNG. They're more loyal. They're more profitable. They create what we call lifetime value. On the back of their loyalty, they do more business with us, whether or not with our own products or third party products and services. Next to that, we see the trend that customers, consumers, corporates alike that they expect the same superior differentiating service and experience no matter where. And that provides us with a great opportunity to deliver cross border scalable efficiency through which we can adapt fast to the needs of our clients and the service that we can offer on a more scalable basis. And once you have that, you can increase the time to volume for new products and services. Very simple explanation, rather than going country by country, you can reach many more customers and faster when launching a new service because basically you can launch it across different countries at once. We will also continue to benefit from the attractive position as a retail funded player and a net credit spread receiver going forward. And as we have indicated, sustainability is something that is part of our purpose. At the same time, it's also a driver for growth and value that's integrated throughout all of the businesses. And this quarter as well, you see some real proof points of this. Then let's take a look at the commercial performance. The Q1 2019 shows that we kept good commercial growth momentum. I already mentioned the primary customer growth that's progressing well towards our new ambition. And around onethree of our total customer base is now primary. You see that has gone up over the last couple of years. These results can't be achieved without our dedication to our customer experience and digitization across the new markets where we operate. You see that if you look at the logins, the digital interactions that we measure through logins to the mobile app, that we have increased these interactions dramatically. It's up by more than 25%, and we reached the €1,000,000,000 digital interaction mark this quarter. So that is clearly showing that the strategy that we launched 5, 6 years ago to really focus on digital banking, to really invest in technology and make sure that we create a differentiating experience. That has actually kind of evidence here that we saw that right, and it's really looks very promising for us going forward. Furthermore, if you look at the underlying customers and the way they interact, 26% of our customers currently are mobile only. And this percentage actually more than doubled in the past 2 years. In the Q1, we ranked number 1 in 6 out of our 13 retail markets in terms of Net Promoter Scores. In other 4 markets, we ranked number 2. So also there, we keep a close eye on the underlying improvements in client experience and how that affects the Net Promoter Score because this is not only our compass, it is certainly also a leading indicator of future growth and then success for us. That's why we keep presenting it to you every quarter. Now for this quarter, this led to a further core lending growth of €8,700,000,000 and a customer deposit growth of €4,800,000,000 euros Turning to Slide 5, kind of showing that we continue to lead the way with innovations that improve the customer experience. In the Q1, we made it certainly easier for our customers to make payments in the Benelux by being part of the initial launch of instant payments in the Netherlands and Belgium. So what this will do, this will allow customers to have their funds credited to the beneficiary account within 5 seconds, 20 fourseven. So this is really kind of a breakthrough in banking, I guess. This is literally real time banking, 7 days a week, 24 hours a day. So this is a breakthrough in our view. Clearly, we will continue to expand this to other countries later this year. And as you realize, we can't do this by ourselves because the other banks have to make these investments in their systems to have real time clearing more or less as well. Also in the Q1, we took several steps with our blockchain and distributed ledger technology, helping to improve the offering to our clients, to decrease the costs for our clients, to improve the client experience. We've done so in a consortium with MineHub as well as the first client transaction on the Comgo platform that we have reported to you earlier has now materialized. So promising steps into a direction where things will be cheaper, faster and safer in an environment that is very important to us, which is trade and commodity businesses. Now all of that and clearly also our own DLT work, the Swedish Ledger Technology work is being noticed in a recent analysis, Forbes Magazine Analysis in Forbes Magazine, investment strategy firm Reality Shares ranked ING the 5th among global listed companies for its blockchain related potential. So clearly, we are leading the way there and basically creating quite some opportunity for further efficiency and safety in Banking. You're familiar with our strong commitment to sustainability. I'm now on Slide 6 for you. Our commitment is clearly to our own footprint and how we can further reduce that, but also the CO2 impact that our clients have and the support that we can give to reduce this. Now in the Q1 alone, ING supported 12 sustainable bond transactions and 16 sustainable loan transactions, clearly giving us the lead in ESG issuance segments. Many of these deals were first as we empower our customers in transition to a low carbon economy. Customers really trust us in kind of devising their own kind of plan in order to ensure that they are able to issue green bonds, and we really know how that works for them. But we do more than just advising customers and doing these transactions. We're also advising governments in Austria, Poland and Spain to achieve their sustainability goals. And the transactions that we do with companies are basically everywhere in the world. During the quarter, we were recognized for our leadership by several independent institutions. As you can see here, we were named for the 4th year in a row to CDP's A List of 126 Companies that are leading the fight on climate change. We also remain a sustainability leader according to Sustainalytics, ranking us 9th out of 3 100 banks globally. Now turning to the results. I'm on Page 8 now. The underlying pretax result was nearly €1,600,000,000 in the Q1. As you can see, results were down 6% from the year ago, but this is fully explained by higher but still relatively low risk cost. The increase in operating expenses year on year was more than offset by higher income. The higher income mainly reflects a €119,000,000 gain on the release of a currency translation reserve related to the sale of our Kotak share. And when this gain is excluding, year on year income was broadly unchanged because if you really look at the underlying, the business growth that we are able to generate was largely offset by lower treasury related results and negative value adjustments in FM. Sequentially, the lower pretax result is fully explained by seasonally higher regulatory costs in the Q1, as you know, despite lower operational cost. We'll come back to that. 1st, turning to Slide 9. If you look at the NII here, excluding Financial Markets, it increased 2.8% year on year. That's driven by higher interest results on customer lending due to the volume growth that we have indicated and better margins on mortgages. So the interest margin on non mortgage lending declined slightly as we generally notice increased competitive pressures in the market. However, if you really kind of dig deep, the commercial margins saw selective improvement as we increased internal funds transfer pricing pretty much across the board. So visavis our clients, we are selectively able to reprice. So that's what we do see coming through. So on mortgages, we see it in the margins directly. And in the other businesses, we see it beyond the increased internal funds transfer pricing. So because that is the all in price for our customers. Margins on customer deposits were slightly lower due to the replicating portfolio yields in our main markets, putting pressure on liability income as we can no longer offset that by further reducing our core savings rates. The group NIM was down only 1 basis points to 155 basis points in the Q1, as you can see. And that's explained by the lower always volatile interest result in the financial markets environment. While the negative impact of our of the deposit margins were offset by also the smaller balance sheet that we have and the way we calculate our NIM. On our 4 quarter rolling average, which filters out the volatility quarter by quarter in the NIM. You actually see and it's the blue line for the ones you have color printed that the NIM was actually up 1 basis points at 154 basis points. So overall, a good result on managing our margins here. Looking at where the lending comes from. The total €8,700,000,000 further explained. You see that on Slide 10. Again, well spread across the different businesses, Retail Banking actually increased by €4,800,000,000 of which €2,900,000,000 was in mortgages in almost all countries. €2,000,000,000 was other lending growth, mostly in the form of business lending in Belgium and Netherlands, but also a bit across the board. Wholesale Banking reported an increase of 3.9 $1,000,000,000 of which part is explained by volume growth in trade and commodity finance, and that's on the back of higher oil prices in the quarter. And this was next to the growth in transport and logistics as well as energy, which explains the most of the other lending growth in Wholesale for the quarter. Going back to the Investor Day. We already guided to you that our focus on return and appropriate risk may lead to lower Wholesale Banking lending growth going forward, particularly because of strong competition on looser credit standards in the market, and we are cautious. And as you know, as a general principle, we are unwilling to compromise on structure or our prudent risk and return standards. Our focus is return on equity, and so pricing Turning to Slide 11. On the fee income. Fee income has increased by 2.1% year on year, €675,000,000 now versus €661,000,000 in the same quarter last year. In Retail Banking, this was mainly visible in the Netherlands and Germany with increased fees. In Turkey and Belgium, fee income actually declined. In Turkey, this was largely due to less business activity. In Belgium, this mostly related to lower investment product balances during the Q1 due to the still volatile equity markets at the start of the year. Fees in Wholesale Banking were down compared to the Q1 of 2018. Sequentially, fees in Wholesale Banking were also down due to seasonally lower deal activity in our lending business in the Q1. Financial Markets total income was down on the same quarter last year, but up from the prior quarter. Development was also seen with most of our peers. Actually, if you look at the underlying, the client business was actually rather strong in Financial Markets, and the drop was mainly caused by negative valuation adjustments. But in rates and credit trading, we actually saw much better results in Financial Markets. And that is also the sequential development there. Turning to 12, we see and cover the expenses. If we look at the expenses, excluding regulatory costs, they went up 3.6% year on year, and that's mainly in the Retail Challengers Growth Markets to support the business growth that we have there, but there is also a growth in the corporate line, and that's due to higher shareholder and KYC related expenses. It's a central KYC organization that we have there. Wholesale Banking expenses, excluding regulatory costs, were broadly flat when corrected for the release of a provisioning in Luxembourg, which you may well remember in the Q1 of 2018. So if you correct for that and if you correct for the inclusion of Payvision since the Q2 of 2018, we actually have flat costs in the wholesale bank. And with that, proving the recipe that we again repeated at the Investor Day, and I'll come back to that later as well. Now in retail Benelux, we continue to see our transformation efforts paying off with the underlying cost base dropping 4.1% year on year. So also proving the recipe that in that area where income will be under pressure, that cost really has to decrease and the transformation benefits are coming through if you look at the cost decrease in that area. Quarter on quarter expenses, excluding regulatory costs, were down as well. So if you compare it to the Q4 of 2018, that's a decrease of 1.3%, and that's due to lower staff and transformation related expenses as well as lower marketing costs, primarily in the Retail Benelux, and that's just a quality effect. Regulatory costs, as you know, in our Q1 are seasonally high, and that's due to the booking of the Belgian bank tax and most of the resolution fund contributions that we booked in the Q1. Year on year, that went up 4.5%, and that's mirroring developments in our balance sheet as well as some annual contributions in Poland that we now take in the Q1. Bank taxes have become a meaningful part of our cost base, as you can see, are expected to grow a little bit further with the introduction of Romanian bank tax, which we are currently estimating to be around €11,000,000 to €12,000,000 a year. On a 4 quarter rolling average basis, the costincome ratio remained broadly unchanged at 55%. When taking out regulatory costs, one can already see that we are very efficient with a leverages below the 50%. Looking at risk cost, Slide 13. Here, you see an overview of the asset quality developments. Risk cost came in at 200 €207,000,000 so 207,000,000 euros That's 14 basis points of average customer lending. And guiding risk costs in basis points over average customer lending is the new metric that we use since the Q1 To better align with some peer reporting, under the old definition, Q1 risk costs were 26 basis points of average risk weighted assets. This compares to the $204,000,000 in the 4th quarter and a very low $85,000,000 in the same quarter last year. Retail Netherlands recorded a low risk cost of $11,000,000 in the quarter. Retail Belgium was broadly stable at $42,000,000 as you can see here, and that's mostly in business lending. In Retail Challengers and Growth Markets, the risk costs were mainly recorded in Turkey, Spain and Poland. In Germany, risk costs were negligible for the quarter. Turkey saw a substantial decrease in risk costs in the quarter. If you compare it to the Q4, because in the previous quarter, we saw a large Stage 2 migration under IFRS 9, as a result of which as a result of the worsened macroeconomic outlook there, which mostly affected business lending. Stage 3 ratio in the country is still manageable at 3.1%. Clearly, we keep monitoring the situation there closely. Wholesale Banking risk costs were again low for the quarter, €71,000,000 As always, a few individual Stage 3 files, this time in Belgium, the Americas and Italy, and no trends really detected there an industry perspective or geographic perspective, just in the specific individual files. Now turning to capital. As you can see, we're making good progress in our CET1 ratio, which improved 26 basis points to 14.7% from 14.5% as per the end of 2018. The largest contribution this quarter was the sale of our stake in Kotak Mahindra Bank, which led to a meaningful reduction of risk weighted assets. We also added back $238,000,000 of net profits to capital, which further helped the CET1 ratio. The remaining move in risk weighted assets is largely explained by the positive impact from risk migration and lower market risk weighted assets, which were partly offset by volume growth and model updates, including a modest impact of IFRS 16, that's the operational leasing accounting treatment in effect since January 1, 2019. Actually, and we can discuss it later, Slide 22 shows you more detail on the underlying risk weighted assets movements. As you can see, we're well positioned to achieve a Basel IV fully loaded CET1 ratio of around 13.5%. As you know, that's the ambition that we have to manage around the 13.5% level. And we're certainly remaining well ahead of our current SREP requirement of 11.81%. As Teneid has also indicated to you during the Investor Day, our CET1 ratio could develop in a more volatile way during the quarter during the year due to potential TRIM impacts and model updates coming through, which may lead to the risk weighted asset variability in the quarters to come. However, as you know, the overall impact is more or less determined by what we expect from Basel on our portfolio, and that has not really changed. And therefore, we feel comfortable with this picture. As I already alluded to earlier in the presentation and I've shown you during the Day this slide, I'm now on Slide 15. We have been repeating this for the last 5 years as to how to look at the total set of results as per the recipe that we have for the different areas in which we're active. And this slide summarizes exactly that. And therefore, you have to look at the kind of the results in more in this way rather than in a consolidated way and come to a conclusion. So it's important that in a retail better looks environment that the costs actually really go down, whereas in the retail challenge in the growth markets, we don't mind costs going up if it supports profitable growth and you see income increasing. And in the Wholesale Bank, clearly, depending on how we fare with the development of our lending book and repricing, If income continues to increase, then we can manage a flat cost base. Clearly, if there is more pressure on income, then we'll have to look at the cost picture. Because in the end, what we look at is at cross border scalability and efficiency operating leverage, which we explained to you during the Investor Day. That's really important to us. The cost income ratio is not necessarily how we run our business on a day to day basis. It's one of the input factors, but the underlying operational efficiency, basically the volumes of operating expenses, That's what we look at to see whether our digitalization efforts and our transformation towards a digital bank, a digital dynamic player platform, if you will, whether that is really delivering the results. And so that's an important one to know. As said, if we see pressure on the top line because of lower growth or if we see higher costs coming through regulatory or KYC expenses, then from a return on equity perspective, we'll have to look for further cost control, which can't always be compensated in the actual quarter. But over time, we will continue to look at the cost income ratio to go down. But again, we don't manage that on a day to day basis. Getting more efficient is what we are champions at. We've proven it before. And I think what you see in this quarter in Market Leaders, it's really delivering results on the back of the transformation that we started a couple of years ago. Summarizing from a financial and business perspective, I'm now on Slide 16. We continue to perform well against nearly all of these financial ambitions. CET1 up and therefore, a comfortable cushion towards the 13.5% asset Basel IV. Leverage ratio well above the 4% ambition that we have right there. Despite higher capital requirements coming through, we continue to produce a very attractive underlying return on equity, which on a 4 quarter rolling basis stood at 11%. So midrange there. As I reiterated in the previous slides on the cost income ratio, it's not how we run our business, but it does remain an input factor for our return on equity, and we remain committed over time to get to the fifty-fifty 2, but it's operating leverage that we really are after. And as for 2019, our policy is to pay a progressive dividend like we did in the past years. Wrapping it up. Q1 performance confirms we're still on the right track with the execution of Think Forward. We see the organic growth coming through, a number of customers in the lending book, in the savings book. Overall, we retain a good commercial momentum, keep being disciplined on cost, continue to improve the way we manage our non financial risk within the company as well. Another step, I think, closer to being a real dynamic digital player and making sure that we empower customers to stay a step ahead in life and in business. With that, we have plenty of time for questions. So let's start that session. Thank you, sir. Ladies and gentlemen, we're starting the question and answer session now. Our first question is from Mr. Stefan Nedialkov, Citi. Go ahead. Your line is open. Yes. Hi, guys. Good morning. A couple of questions from me. On the fee side of things, could you please update us in terms of your partnerships? For example, Scalable Capital was supposed to be rolled out to other countries. I believe it's still only in Germany. And how much of the sort of weakness versus consensus that we're seeing today would you say is seasonal versus more structural? Obviously, you're paying more fees to external brokers in Germany. At the same time, fees in Belgium seem to be quite resilient, etcetera. Just trying to understand the seasonality versus structural trends here in terms of fees. And the second question is in terms of your German strategy. Obviously, there's been quite a few headlines. I'm not going to be mentioning specific names, but if you could just tell us in what kind of context would having more branches make sense for you in Germany? Thank you. Thanks, Stefan, for the questions. So looking at fees, as we had indicated on the Investor Day, getting every day, we're getting closer to being a dynamic digital player, a platform, if you will. Every day, we're adding more primary customers. So every day, the opportunity for us to kind of also offer 3rd party products or even peer products to our customer base, we're getting closer to that. So the opportunity for us to increase our fee income is there. Now and that's why we're very confident that the fee income over the next couple of years will increase by 5% to 10% per annum. However, if you now look at this quarter results specifically, we paid away a little bit more fees on the mortgage origination in different countries. Although in Germany, we actually we had a bit less origination there. So therefore, you will see the fees going up on mortgages. We see behavioral fees coming through in Germany as well. We see fees in the Netherlands coming up as well. So where you see a bit of a dampening effect on the fee income growth, it is on paying a little bit more fees away for mortgage origination. And in Belgium specifically, if it is related to the assets under management, as I indicated already in my introduction, It's on the back of the more volatile equity markets in the Q4 that came off at a kind of a lower and or, well, a weaker start, and that's where we see lower fees coming in. So our partnerships like the AXA 1, like the Transform 8 1, like the Provision 1 as well, they will generate more fee income and more partners to be sought after and looking at how we can roll out new services and products to the 12,600,000 primary customers that we have. Now in Germany, specifically, we don't comment on market rumors. You know our strategy. It is organic, and it is successful as an organic player. We're growing very fast in Germany, as you know, and we have close to 9,000,000 customers now. It's the biggest franchise from a number of customer perspectives that we have. It's so it's a dominant part of what we do. If it comes to inorganic elements to our strategy, we've always indicated that, that would come through a couple of dimensions. The first one, if we see an opportunity to buy lending capability skills with a portfolio or without a portfolio, we would certainly look at that, and that's what we have been doing in the past here and there. If we see potential in acquiring companies that provide us with new technology through which we can either get closer to our clients in the value chain, like through the acquisition of Payvision or an acquisition that provides us with technology that helps us to improve the customer experience, we do that. We do that on a regular basis. And then if in markets in which we're active and we're a large player, if consolidation is happening in those markets, we have a duty to look at what's happening there and how that could affect our position. That's what we've done in India when we when consolidation was forced by the regulator. We took a position there as to what we wanted to do. You know that in Thailand, we are also in preliminary discussions there as to how we can counter the effect or how we can actually consolidate in that market. So that's it. Thank you. All right. Thank you. Next question is from Mr. Benoit Petrarque, Kepler Cheuvreux. Go ahead please. Yes. Good morning, guys. Three questions, 2 on NII. First one is around the replication drag, especially in the Netherlands Q on Q. I will assume this drag to continue in the year, but is the Q on Q trend or can the Q on Q trend be replicated for the rest of the year? Or do you assume a bit lower pressure going forward? And also broadly speaking on replication drag, do you think you can push client rate further down on maybe SME, mid corporate segment or take over actions like maybe on the investment side to offset clearly low interest rates, which is likely to continue? That's the first question. The second one is on the World Cell Banking. NI down 6% Q on Q. Surely, Decont has been a drag there. But do you see commercial margin pressure? Because I'm a bit confused with Ralph's statement that you have the ability to reprice, to pass on this transfer pricing to clients. So are we going to see more pressure on the commercial side in the wholesale banking? Or is that a temporary issue in the Q1? And the last one is on the cost, up 2% clean year on year. Is the 2% the kind of run rate for 2019? Or do you think cost savings will materialize in the summer, especially around the restructuring and we could end up definitely below that level on a clean basis towards year end? Thank you very much. Hi, Benoit. So maybe I just this is Taneet. I just gave you a bit of a comment on the saving replication question that you had. I think it would not be fair to look at because it's a combination of 2 factors. I think within those numbers, you see some volatility from bank treasury results in there as well as the actual replication in itself. But indeed, we do see compression in terms of savings margin that is happening in the Netherlands given the fact that we are now at a very low level in terms of our deposit rates in that market. To address that question, how you should look at it, I think our applications is anywhere between the 3, the 5 and the 7 year part of the curve. So you can work it out depending on how those curve moves, how difficult or how good it would be in terms of replication, right? Having said that, I think we are taking steps whereby, as we mentioned in the previous quarterly call, that we are increasing the fund transfer pricing to the front office in terms of lending origination, and that is happening across the whole of ING, which means that the origination margin that you see going forward is actually quite robust, right? As Ralph mentioned just now, in retail banking, particularly in mortgages, which is a major part of the Netherlands, you see margin improvement across the whole of our ING mortgage book in all of our geographies. So that is part of the mitigation that we are taking to make those steps, okay? In terms of Wholesale Banking NII, I think it's again a combination of things because within that NII, it reflects not only the underlying margin for the lending business, but it's also in terms of the impact in financial markets where the results for Q1, while I think reasonable in the context of what's happening in that particular part of our business, but it still has a negative impact on our net interest margin as well, right? And the last point I think on Wholesale Banking is there's a shift in terms of our mix at least in Q1, whereby we are doing somewhat less in terms of industry lending, a bit more in terms of trade finance, and that comes with somewhat lower margins than what you normally see from us on wholesale, yes? Then in terms of cost guidance, I think, again, if you look at our cost discipline, we're still there. We still have the 3 pronged approach, which basically mean that we do expect cost reductions and cost efficiency to go forward in market leaders. You see that visible in the Q1 there. We do allow cost growth in Challenger and Growth where you see robust growth continuing to be there in Australia, in Poland, in, for example, places like Romania. So that's actually helping us in terms of revenue growth and margin growth. And of course, in Wholesale Banking, we are taking steps to look at cost reductions where we need to and cost growth if required, for example, on KYC program. And I think when you study our results in detail, you can see a fairly substantial cost reduction in our financial markets where we are matching revenue pressure with cost decline during that period. Okay, thanks. Okay. Thank you very much. Our next question is from Mr. Adrian Cighi, RBC Capital Markets. Go ahead please. Thank you very much. Two questions from my side please. Just one follow-up on the potential banking consolidation theme. Very helpful color on the criteria for potential acquisitions. Can you maybe talk about any specific return hurdles and over what period you would hope to achieve these? Should you pursue any acquisitions that maybe don't fit the capability or the skills criteria you outlined? And then on the capital progress this quarter, you've showed a positive risk migration of 28 basis points. Can you maybe help us understand how much of this would impact the Basel IV guidance that you've provided or not? Thank you. Okay. So on the first one, Adrian. So in organic growth, as we were indicating in terms of seeking additional lending capabilities, that's been there over the last couple of years as a focus point where basically we indicated in the beginning of the Think Forward strategy that we felt that we had a too high concentration risk in our balance sheet if it came to mortgage exposure. And we wanted to diversify our balance sheet, our asset mix into more consumer lending, SME lending, midcorporate lending and Wholesale Banking lending. Now for a lot of Wholesale Banking activities, we had our own kind of specialists already, and we grew our sector units there. On mid corporates and SMEs and consumer lending, we've always been looking at new technology being applied in those areas with instant scoring and instant lending, but also to the extent available specific portfolios. From return on equity criteria, our return on equity is the emission is what it is. So we would always look at the same kind of criteria as on the basis of which we run our own business. So that's how we would look at that. On CET1, I will give that to Stephen. Yes. Thank you. Thanks, Adrian. So if you look at the risk migration, that is largely due to a number of impacts. We are doing some better collateral and data quality management. There were some write offs that were going through the books as a result of which it is taken out of RWA. Sort of led to releases. There were some price increases in both the housing prices in retail as well as in our real estate in Wholesale Banking. So these are temporary blips up, but these blips could also go down to the other side. In that sense, we do not change our guidance on Basel IV, which again is 15% to 18% based on our RWA balance sheet at that point in time with about onethree that we can achieve lower as a result of management actions and 80% of that increase will come due by the year 2022 because Basel IV mostly depends with us on input factors. Thank you. Thank you very much. Our next question is from Mr. Farquhar Murray, Autonomous. Just two questions, if I may. Firstly, on the NIM outlook, the performance for 1Q 'nineteen is quite solid and you refer to favorable moves on commercial margins and mortgages. Could you now extend the kind of guidance for high 140s, low 150s NIM to the end of this year then on the back of that? And then secondly, just on the new risk cost guidance of 25 bps on average customer lending, how does that compare when you look at your internal analysis versus the kind of previous guidance? And would you actually be able to give us some indication about what that means at a kind of segmental business level, so say down to Wholesale Banking? Okay. Well, on the NIM outlook, indeed, looking at how we've been able to manage it over the Q1, where basically you have the pressure more on the savings side and how you can kind of manage that pressure on the savings side, at least from an interest income perspective. Maybe on the asset side, repricing is an important driver there. And repricing, we do in 2 ways. It is by shifting the FTP, the internal fund pricing, transfer fund pricing, and the other one is the commercial margins on top of that. So both we're doing. And so vis a vis the client charging being able to charge a bit more helps you kind of offsetting the pressure that we have on the savings side. And the back of that for the next two quarters, we can guide as you are used to, that we can move manage the NIM around the high 140s and the 150s. As to the cost of risk guidance, I'll give it to Stephen, where we move from a guidance of risk cost over risk weighted assets to lending assets. Yes. Thanks. I mean, basically, the 25 basis points is a translation or an exact translation where we were with the 40 to 45 basis points guidance over RWA. Please note that, that is a through the cycle RWA, as a result of which you cannot compare directly to what it is today based on the current RWA of €310,000,000,000 but we look at it through the cycle RWA to come back to a translation of 25 basis points. So in that sense, there is no shift in our risk appetite and our policies and the legal and obligor levels that we have. That has remained the same as before. We give that guidance on a bank basis only. This is not this is a broader risk appetite, but we, of course, steer our risk appetite much further into detail into countries, products, sectors, legal and obligors and the way that we deal with our security and our, I'll say, restructuring units. That's the way we manage the risks and the risk costs, and it is a guidance to basically translate it into a figure for the market. So no change there. Just one quick follow on, if I may. I mean, obviously, if I do the math of the static RWA and lending numbers, I'll get a slight difference from the survey. You're kind of saying that reflects kind of over the cycle RWA view. Can I just ask how much of that over the cycle kind of increasing RWAs from where we are now would not come through in Basel IV, I? E, how much is Basel III only? Pre provision profit in both Challenger segments was flat year on year only. So wondering whether Q1 cost inflation was a bit on the high side and should come down throughout the year? Or you were quite happy with the progress these guys are making and happy to invest into growth here? Thank you. Yes. Thanks. On Basel IV, the way we look at our growth, it is clearly one of the components whether we have capital to grow, but the other one is whether what we can kind of do fits our return and risk criteria. So if we would have more capital to grow, we would not necessarily translate that into higher growth because we stay very disciplined and strict in terms of the return criteria and the risk appetite that we have there. So but if the opportunities are presenting are in the market, and this is in the business that we know, yes, we could grow a bit faster than that. But again, it is not like if we have surplus capital, let's grow faster. That's it really has to kind of show the right return and risk appetite criteria. Now on the cost in CNG, actually, we are happy with the performance in C and G if you look at the commercial performance but also the financial performance. Looking specifically at the quarter, we see a bit higher cost in the Q1 in Germany, and that has to do with client acquisition cost. And that is something that is not necessarily one that is that's a level that we would expect going forward for the year. Our next question is from Mr. Paul Zizic of Goldman Sachs. Go ahead please. Good morning. Thank you for the presentation. Two follow-up questions. So first one maybe on cost. You mentioned that you have a good performance overall. There's some seasonality in 1Q. If we look at your 4 quarter rolling average, your cost to income is at 55%. And I know this is now not a primary target, but to what extent do you expect to make some progress towards lower level this year? Would we see more one off cost related to client acquisition perhaps or rollout of projects investments KYC later this year as well? So to what extent you have a capacity to go below this 55%? That's the first question. And the second question is also a follow-up and it's on cost of risk, your guidance, 25 basis points. And I wanted to ask it a little bit differently. And it is in what operating environment what would need to happen for you to actually be at a basis points? Or should we expect to see current low levels to continue in the foreseeable future? Thank you, Pavel. I will take the one on costs and then Stephen will come back on the risk cost question. So looking at costs here, clearly there's a lot of seasonality built in from a regulatory cost perspective. That's why we kind of calculate the 4 quarter rolling average. If you look at the coming year, we're still in a major transformation in Unite where you could expect further cost decreases to come in As we have kind of briefed you on in Frankfurt in the Investor Day, We do expect FTE decreases over time. At the same time, where we are in the Unite transformation program, we have made almost all strategic milestones. But at the same time, we decided that going forward, we want to kind of speed up the client migration from Belgium to the omnichannel digital interaction layer, basically for them to benefit from all the digital interactions with the bank. And so we are actually moving that forward and moving the migration of products a little bit later as a consequence of which some of the cost benefits will also come a bit later. So if you then look specifically for the year, really, we managed to further decrease cost in the market leaders environment. In CNG, we'll always play it by ear if we see the opportunities and we would allow some cost growth. But for the year, we're cautious there as well and the Wholesale Banking as well because we really want to see how we kind of go through this year. So I can't really guide you on costincome on this one. But you can expect from us to be really focused on the cost developments visavis the transition that we're going through. On cost of risk, Stephen? Yes. I mean, I think, Paolo, in general, a significant worsening of macroeconomic circumstances obviously has impact on risk costs. Had a 25 basis points is the average over a longer period. So it's hard to directly pinpoint exactly what the exact circumstances are because there are many factors impacting that. Like I also said during the Investor Day presentation, also you had to manage the tops down, if you will, or the peaks. We do it amongst others by compartmentalization and a good risk awareness both in the first and second line and personal accountability. And as you look at this year, the current circumstances as we've seen in previous years, we would expect these risk costs to remain below the long term average. Next question is from Mr. Robin van den Broek, Mediobanca. Go ahead please. Yes. My first question is on NIM. The ability to put in higher cost in the internal transfer pricing model. In Q4, credit spreads widened materially, which probably gave you the rationale to do that in Q1. In Q1, though, credit spreads tightened significantly. So I was just wondering if that offset is structural in your view or that we could see that to dissipate going forward, leading to some more NIM pressure on the longer term? That's the first question. And the second one, I think your answer on cost of risk, the change in guidance seems to imply that your RWAs are somewhat understated from a point in the cycle perspective. I was just wondering how that would feed into your fully loaded Basel IV target level of 13.5%. I mean, should we either assume that you want to be above that level given where we are in the cycle? Or should we start to factor in more DPS progression than $0.01 a year given the fact that you basically are where you want to be on a headline level today? Thank you. Okay. Thank you, Robin. Well, on the internal FTP and the credit spreads tightening, specifically, we don't manage that necessarily on a quarter by quarter basis. But we do look at where the margins are in terms of new production as well. And that's where we see that over Bank side, have been flattish to maybe even a little bit improving. So that's so a higher pricing altogether there in the new production for the Q1. In terms of the other businesses, we see and we've seen in the Q1, the mortgage margin in the Netherlands improving, in Belgium improving and the businesses the business lending margins over this higher internal FTP to be flattish. And so I'm talking new production here, right? So I'm talking what happened in the Q1 of 2019. So that's what I can give you on that one. On the cost of risk, I'll give it to you, Stephen. Yes. Thanks, Robin. I mean, clearly, we are at a from an economic point of view, at sort of a high point of the cycle, it seems, and also therefore a lower point of the cycle in terms of RWA. If you look at the past 5 to 6 years, you have seen a risk migration coming in on a quarterly or yearly basis. And when the cycle changes, one would expect some impact of that risk migration going back. So in that sense, it doesn't change our guidance. And that's why we said if you look at the average cost of risk through the cycle with ups and downs, we go to a 40 to 45 basis points, translated now into 25 basis points on lending assets through the cycle, and that's what we will remain at. In terms of capital return, I don't think that you should read anything into this. I mean, at this point in time, also with what we have in the quarter, there are some blips up and that means positive risk migration that is relatively benign. That doesn't change our overall guidance on dividend policy. Okay. Ralf, just to come back on the margins. I think you're saying that commercial rates are basically higher, but the margin is sort of stable on the back of the higher FDP. But again, if credit spreads tighten this significantly, isn't that an issue? I can talk what we I can talk about what we saw in Q1. So and specifically on the credit spreads, we look at it specifically in the wholesale market. It is really on a client by client basis. It's a sector by sector basis. So that's how we manage that. So whatever happens in the capital markets specifically does not necessarily influence the client rates directly. Next question is from Mr. Nick Davey, Redburn. Go ahead please. Two quick questions, please. The first one on KYC costs. Could I just ask for a bit more detail about the charges that have appeared in Q1 and the outlook there? Was there any sort of temporary one off costs in there that would mean corporate line costs could fall from here? Or conversely, is this, as you've outlined at the Investor Day, a bit of a project for the year? So any expectations we should have for higher costs from that source, either in wholesale bank or corporate line? And then second question, just coming back on the Challenger and Growth Markets. I think the question was already asked about stable pre provision income and the pace of cost growth. The only question I would have is if you could just provide the impact of FX in the Challenger and Growth Markets in general, just so we can get a feel in constant currency terms about how revenue and cost growth is progressing? I don't know if you have that to handle or if it's the kind of thing you'd be able to provide in the future. Yes. Nick, I'll give the second one to Tynae to follow-up on either now in the call or maybe later. On KYC, as we have indicated, there's 2 components to the program that we're running. 1 is the structural improvements. And for the structural improvements, we're beefing up the organization. We're hiring more people, and we're investing in systems and processes. And that basically we do by clearly increasing the investments in that area, but there's only so much you can do. So we are reprioritizing some of the investments that we had envisaged to do in other areas towards this area. So although it may although we're investing more in that area, it doesn't necessarily lead to a big cost increase from that perspective. So that's the more structural improvements for which we really have to kind of reprioritize some of the investments that we are making on the IT, etcetera, etcetera, etcetera. Now in the total KYC organization, as we were indicating, we have some 2,500 full time employees now working on it, and it is growing. Around 500 are working on the nonstructural business, which is more the project related to a part of this program, which is the file enhancement. So when we're through the file enhancement, it goes to what we would call business as usual in terms of your KYC element of this. And then basically, you can the cost on the FTE side will go down. But at this moment, it's $2,500 for the total. We envision some increases there. The underlying actual investments are being reprioritized from other areas into this. So that's a picture I can give to you. So the one to hold on to maybe for you is then the 500, that once the file enhancements are done, that is something that is that you can expect as a cost going down. But having said that, the structural improvements going through in this area will continue for a while and and will be reprioritized from other areas. Tanate? Just to address your question, Nick, on the cost evolution in CNG. As Ralph mentioned, half of that is in Germany, the other half is in the other Challenger and Growth countries. And your question on foreign exchange is predominantly driven by Turkish lira against the euro. And the positive impact of that in Q1 is approximately €10,000,000 to €15,000,000 Okay. Thank you very much. Yes. Thank you. And just following up on the KYC. Ralph, am I then okay to assume that plausibly these KYC charges could drift up through the course of this year whilst you're making some of these permanent investments and running the 500 staff on top and then the reductions may come in 2020. Is that fair? Yes. So on the announcement for your side, you should expect during 2020 to call that, that will actually come off. On the structural improvements, that will stay also during 2020, yes. Next question is from Mr. Bart Jooris, Degroof Petercam. Yes. Hi. First question, the negative valuation adjustments in Wholesale Banking Financial Markets were rather big if I look at Slide 21 with the negative €58,000,000 Could you give some more color on that? Is that MVA, CVA, DVA? Why is this figure so large compared to the previous quarters? And then a little bit on the timing How is that the timing of it? Could you give some more color on where you are? What measures you are still planning to take? Thank you, Bart. The first one I'll give to Tanate. The second one is for Stephen. Bart, so yes, indeed, the value adjustment in financial market in Q1 was more pronounced than previous quarters. I think it's driven by 2 impacts. I think the first one is really in terms of our position in terms of bonds against which we do credit default swaps to hedge. And in this particular quarter, in terms of the funding value adjustment, it was more than normal, let's put it that way, because of lower liquidity in the market. And the second impact is really from our credit trading desk, where we do macro fair value hedges on them. And there are certain movements between long dated credit positions against short dated credit positions where again we have negative value adjustments. But both of these, on a like for like basis, should pull back to par over time. Yes. Thanks, Bart. On Basel IV and management actions, on the one hand, we are still in the years to come to Basel IV. So first, we have, of course, the outcome of TRIM that still needs to come on a number of the portfolios, which is a prelude to Basel. So it starts with TRIM that is then partially offset in Basel. So that is still to come. In terms of management actions, we have, of course, you can see it in the press release in the segment financials. We also show the results based on our 13.5% CET on RWA results for different segments. So we also steer on that in terms of pricing, which basically means that we need to price up to be able to meet the return hurdles that we have, and we have been talking about it during this call. Secondly, we continue to work on improving our covers on our loans. And you've seen a bit of that creep through in the risk migration that you saw in the Q1. We work we continue to work on, let's say, external ratings for corporates as a result of which that will limit the rating in that regard, and that will help us also in terms of our RWA requirements. And we continue to see if there are portfolios which consistently have a lower risk cost over a longer period of time because if that is the case, you can become eligible for lower risk rates. And then on the last place, we continue to work on the originated distribution whereby portfolios that would become more hurt by Basel IV that are a lot less favorable from a return point of view, and we see how we can shift the mix in our activities to cater for this. So that's ongoing. Could you give a timing on how we can see that evolving in this year, next year? I mean, all elements will continue to go on continuously to be able to mitigate the effect of Basel IV of 15% to 18% with onethree, and that is something that will come through over the next couple of years on an ongoing basis. So that's not something that is being done in 1 quarter or something like that. That will be ongoing. Okay. Thank you very much. Next question is from Mr. Bruce Hamilton, Morgan Stanley. Go ahead, sir. Hi, there. Good morning, guys. Thanks for taking my question. I mean, most of the questions have been asked. But maybe just following up on consolidation and Ralph, you've given some very useful color there. But when you talk about not wanting to dilute the return, the return target of the bank, obviously, is good news. But do you give us sort of time line for any, say, larger deal that you'd hope to get up to that sort of double digit ROE? And how appealing is the sort of redomiciling, I mean, to get any benefits in terms of reduced domestic SIFI buffer? And then finally, I mean, just on cross border deals generally, do you think the sector as a whole is close? I mean, how do you think about the time frame and likelihood of deals happening from here? Yes. Again, I won't comment to the specific rumors that are going around. I can talk about in general about what I expect in the European banking landscape to happen. And we are a supporter of the banking union as the most pan European bank, I guess, around with so many kind of local activities in several European countries and Eurozone countries. But for the banks as a whole, including ours, to benefit from the banking union, we need to finalize the banking union. So from a regulatory perspective or supervisory perspective, it is being done. We have the SSM, the single supervisory mechanism, that works. It works quite well actually. We have the Single Resolution Board as well in order to make sure that if banks fail, that there's a recipe through which we manage these failures. And that's and then the fund to support the resolution of banks is also being filled as we speak. So that's done as well and will be done over time. But there's a third part, which is how to protect depositors in bank failures as well, for which we have to come to some kind of a common deposit guarantee system, which basically needs to be finalized before banks can actually benefit on an additional 2 out of 3 benefits that consolidation can bring. So there's 3 benefits that consolidation can bring, which is the cost benefit that is always there, which is generally if you can't do cross border scalability the way we can, you it will be limited to what you can do in a country. Then the second one is liquidity optimization and the third one is capital optimization. Now the second and the third one will not be there, not to a large extent, in my view, if we don't finalize the banking union in full. So basically, what banks need to focus on then is to which extent you can actually have cost synergies. And therefore, I think for most banks, this will limit the opportunity to local M and A for the moment. So that's it. And so that's the color I can give. Thank you. Thank you. And the next question is from Mr. Jean Pierre Lambert of KBW. Go ahead please. Hello. Most questions have been answered. Just a follow-up on the digital indication of activity, which was up quite a lot, I think 25% or 26% year on year. But this is maybe inflated by people just checking their accounts on a more regular basis on their mobile. Can you distinguish between the fundamental transactions and basically review of outstanding or situation of accounts? Jean Pierre, I think you're completely right from the perspective that an element of the number of interactions is inflated by the change in behavior of customers that while they do their banking on the mobile, they just check-in more often on something that they wouldn't check-in as frequently in a desktop environment or let alone going to the branch 5 times a day to check your balance. Having said that though, I mean, you have to look at it from the different perspective that if you build a platform in which you have a daily interaction, it's like people checking the news 5 times a day on news sites, that basically this provides banks with a great opportunity to build a broader relationship with those customers who maybe indeed only check-in to check their accounts a couple of times a day, but nevertheless, you are in touch with them. So yes, if you would only look at what that provides for an opportunity as a bank only, then yes, there will be a further upside because you have more interaction, and you will get to know your customer a little bit better in terms of behavior. And the whole digitalization will be able to generate more intelligence around the client. But if you look a little bit beyond that and you have that traffic and you think of yourself as a platform a little bit more than a bank, then the opportunities are much broader. And that's why on the Investor Day, when we alluded to the fact that, for example, in Holland, we are the number 10 app in daily usage for the average Dutch person, whereas the number 1 through 9 are all Facebook and Google apps, that is what shows the opportunity that you have. So you have to think beyond your role as a bank and start thinking platform. And then these digital interactions do matter. But clearly, there's certainly some inflation there. Great. Thank you very much. Our next question is from Mr. Marcel Houben, Credit Suisse. Go ahead please. Good morning. Thank you for taking my questions. First one is on the fee side here. Ralf, can you give a little bit of color on the fee growth within the retail division or I mean the drivers, the key drivers? I know I understand the ambition of 5% to 10% growth. But there's assets under management and investment product line in there. It just seems there was a lot of volatility seen in the past couple quarters within retail Germany and Belgium, Holland as well as the other challenging growth. Can you just give us a little bit of key drivers here to give a better accurate model capabilities for us as analysts? That was my first one. 2nd one is on the wholesale lending or lending growth. This quarter, we see some nice lending growth of close to 6% annualized. A large part of it is driven by wholesale lending, which if I remember correctly, you wanted to slim down the exposure a little bit. How should we read into this lending growth in this quarter of the Wholesale Bank? And then if I could just put through a third quick one on the cost of income ratio target. I know it's not a key focus anymore, the 50% to 52%. But you dropped away the timing off by 2020. Your base case scenario, when would you expect to reach this level? Is it past 2022? Or is it a little bit earlier than that, for example? Thank you. Well, on the fee growth, So there's different dimensions in which you can grow fees. And we use all dimension here. So the first one is, for the services that you already offer, depending on how the cost the underlying cost develop, you increase your fees. For example, in daily banking activities, for the use of your current account, your card, the additional services that you offer around salary accounts, you can increase fees just because the services are increasing, and the cost may be going up as well. Then there is an element in that same area where which is what we would call behavioral fees. So basically, how do you kind of make sure that people who interact with us, either by withdrawing cash from an ATM or making calls into our call centers, how do you make sure that people really do that if they need it? So how do you make sure that people don't go to your ATM 5 times a week for €25 but they go one time a week for €125 So there's assets like that, that specifically in the Challenger markets is important for us because we don't have our largest ATM networks there, but we pay fees to other banks on the back of the behavior of our own customers. And then clearly, the 3rd element, if it comes to fees, is the more primary customers you have and the better you know these customers, the more and the more services that you either develop yourself or offer from 3rd parties, whether this is investment products or whether this is insurance or whether it is non banking in the future, that's the real upside because you should realize that the success of our model has always been that we don't charge fees for things that we feel don't add value. And so we're not in the business like many others maybe are to charge fees just because we can charge fees. That's not what we're going to do. It doesn't fit us. It doesn't fit what the clients expect from us. So if we charge fees, it is because they do see it as a value added. So that's the one on fees. On costincome guidance, So it's great that you asked, but as we have said, the real important element for us to see whether the transformation is delivering the efficiencies is the operating leverage component, which is the volumes over operating cost. And clearly, some volumes with margin pressure make less income than others, and some costs could just increase just because government's introducing new bank tax. So we want to eliminate from that, which doesn't mean that we want to kind of that we don't want to compensate for those increasing costs or income pressures, but these are blurring our way to measure whether the digitalization itself is having effect. So that's why we separate the 2. In the cost income, clearly, there is a component of margin pressure or repricing, and there is the element of regulatory cost. And therefore, we do keep it as an input. We will manage it down. You can expect us to manage it down towards the fifty-fifty 2, and you will see steps into that direction, but we're not giving a specific date by which we will have achieved that. And maybe on the Home Banking loan growth, I'm actually going to give it to Stephen. Thank you. Thanks, Marcel. So regarding the loan growth, as you look at the total loan growth of €8,700,000,000 this quarter, approximately €4,000,000,000 comes from Wholesale Banking. Within that, approximately half of that within Wholesale Banking comes from trading and commodity finance on the back of higher oil prices. And we've seen it also in previous quarters. In previous years, sometimes the price goes up and goes down. And immediately with the same lending volume, the value goes up because of that higher oil price. When we look at the remaining growth in Wholesale Banking, quite a significant part of that is by further drawdowns on revolving credit facilities. So again, that is relatively cyclical. So we still stick to the 3% to 4% loan growth over the year, and you will see some quarters which are impacted by these type of reasons. Thank you. That's very helpful. Can I just follow-up on the fee side? Do you can you disclose the SMA management per retail division? We can. We're presound. All right. Fair enough. Thank you. Our next question is from Mr. Kiri Vijayarajan of HSBC. Go ahead please. Yes. Good morning, everyone. Can I just come back to the weaker fee result in the wholesale bank and linking that to your lower risk appetite there? So just wondering if that lower 1Q fee number in the wholesale bank is kind of a good level going forward? Or could it compress a bit further as those self imposed exposure caps start to bite a bit more as the year progresses? So you do kind of less of the leverage loan and so less fees from that. And then secondly, just very quickly, could you give us an update on Italy? Any impact that the ban on onboarding new customers, has that had any impact on the underlying franchise at all? And any visibility on how long that ban will stay in force? Thank you, Kiri. Well, on also banking fees, clearly, if we have restricted risk appetite and we're cautious to enter into deals that don't kind of fulfill our requirements from risk appetite perspective or from a structure perspective that, that does limit our ability to do large deals. And with that, it will and may have an effect on our fee income. Having said that, I'm willing to take that because in the end, they will never pay. And clearly, in the Leveraged Finance business, we do see that there is a risk appetite in the market that doesn't match ours and that does have a dampening effect on fees in the Wholesale Banking side. In addition to that, in the Q1, from a market's perspective, whether it is more debt capital markets or equity capital markets, it wasn't a very strong fee quarter either. And at a certain moment in time, you would expect that to come back. So over time, in the markets that we're in the sectors that we know very well, we do expect that business will just continue, whether it is in the transportation business, in the oil and gas business, the sectors that we really know. We don't think that there's going to be like strange players coming through. So we'll be able to do our deals. So we will be able to charge arrangement fees and distribution fees there. And also on the DCM side, we do expect that market to be back. And on the back of that, be able to kind of increase our fee income there as well. Then turning to Italy. Now clearly, the customer ban is not good news for the franchise itself in terms of how do you maybe motivate your people, right? Having said that, what we need to do there is important, which is having to ensure that we do play our role as gatekeeper the way the regulator expects from us. And that's what we're doing. So the enhancement plan that we rolled out globally is clearly also being implemented in Italy and was already implemented in the process of being implemented in Italy. So we will continue with that. As to how that influences the timing of the customer ban itself, I don't know. We don't we will have to kind of work with the regulator to get a feel or the supervisor to get a feel as to when that can be lifted. We don't have that as we speak. Okay. That's very clear. Thank you. Our next question is from Mr. Maxence L'Oguvelo Dudema of Jefferies International. Go ahead please. Good morning everyone. Most of my questions have been answered. Just the last one regarding the appointment of Mike Rys at the Supervisory Board. It's quite a surprise considering Mike's profile on the wholesale and Asian exposure. And we are just wondering how it fits with your strategy on digital retail banking or will this focus would be only on the wholesale? Thank you. Thanks for the question. So Mike comes with a whole set of experiences, including the Asia experience, where we are active. And as a wholesale bank, we're also active as a digital bank. As you know, we are testing, for example, the Philippines market. So as Asian experience comes in, His Wholesale Banking experience comes in as a welcome experience as well as he is also a formidable banker. And in the end, the core of what we do is still banking, so it's good to have good bankers on board. Next question is from Mr. Jose Coll, Santander. Go ahead, please. Your line is open. Two questions, please. The first one would be, well, according to the press about 2 weeks ago, they claimed that you are in the process of closing down your SME business in Spain, which arguably was small, but I thought this was a segment in which you wanted to expand. I guess this fits with your previous minding the operating leverage, but could you comment further on this move? And is this something that we can expect happen could happen in other CNG units? And my second question is on Turkey. I see that total lending net of FX decreased about 4 percentage points in the quarter, which considering that the Stage 3 ratio is quickly rolling from 2.8% to 3.1%, might not be too impressive. So I wonder if you could give us some guidance in terms of lending reduction for the rest of the year? And what is your target or guidance for intra group lending by the end of the year? Thank you. Thanks, Jose. So on the first one, I'll give the answer. The second one, Steven will take that. So on the how do we go about SME business. So in Spain, we started the SME business, and we also work with Kabbage on that one. And as you know, the way we do these kind of things, we look at whether they develop well, whether they in the end, we feel they can become profitable. And if not, and this is the way we kind of go over these things as an innovator, is that in innovation, you also have to dare to pull the plug if things don't look to become successful in the way you have approached them. And that is what we've seen there. That doesn't mean that this is also for the rest of CNG. So we have to look at it country by country. And the SME business that we do and many other CNG businesses, specifically in Poland and Romania. We're very committed to that, and this is doing quite well. On Turkey Stage 3, I'll give the word to Stephen. Yes. Thanks, Jose. I mean, in Turkey, the book went down with about €1,000,000,000 in the Q1 of this year. Part of it is currency difference, but the largest part is just the rolling off of loans as well as clients deleveraging. So we're still, in that sense, conservative and focused on derisking. If you look at the intercompany balance sheet or intergroup funding, that came down in the first quarter with an additional €300,000,000 So we had €3,000,000,000 by the end of the year coming down to €2,700,000,000 now. And you said the Stage 3 ratio went up a bit from 2.8% to 3.1%. And in that sense, we keep a keen eye on making sure that we remain also within risk appetite in that country. A large part of the book is Wholesale Banking. We stay close to our clients, but clearly, especially on FX loans, we are very strict in that. We also need to see revenues in foreign currency before we actually grant also loans in that currency. Thank you. So maybe just a follow-up on Turkey. So is it fair to assume that the roll off of the Q1 is sort of the run rate for the rest of the year in terms of both the lending book and the intra group funding? Thank you. No, that will be a bit too straightforward to assume that. But clearly, we manage the risk in Turkey on a daily basis. Part of the loan decrease also came from clients not rolling over their loans because also clients are deleveraging in that respect, but we remain conservative. Thank you very much. There's no further questions, sir. Please continue. Okay. Thank you very much then. Well, thanks for taking us and for giving us all these questions. It's good that you you raised them. I'm sure that after going through the material, you may have some more. You know that our team is always ready to take you through and give you some more insights where we are able to. Just to summarize the Q1, underlying, you see a continuing good commercial momentum, which we're happy very happy to see. And we're keeping discipline on the cost side, although you have to kind of differentiate between the different areas that we manage, market leaders versus C and G versus Wholesale Banking, and we continue to improve the way we manage non financial risk. So from that perspective, we're satisfied with the performance also financially, and thanks for your interest and support. That's it. Thank you.