Good morning. This is the operator. Welcome to ING's Fourth Quarter 2018 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.
Good morning, everyone. Welcome to the full year 2018 results call. I'm here with CFO, Koos Timmermans and CRO, Steven van Rijswijk. Let's just go through the presentation that I hope you have in front of you. ING Group posted a net profit of EUR 4.7 billion. If we exclude the settlement with the Dutch authorities in the third quarter, net profit for 2018 came in at EUR 5.4 billion. That translates into a healthy return equity of 11.2%. Also in the fourth quarter, we are continuing to work on the KYC enhancement program. As you know, we take this responsibility very seriously. Regulatory compliance is the key priority, not just for management, but for the firm as a whole. If we look at 2018 from a commercial perspective, things have really continued to progress. Our primary customer base grew further by around 10% to 12.5 million.
The core lending growth for 2018 came in at 6.4% underlining our continued growth. Basically, if you look at it, nearly all markets, while at the same time, we were able to keep the interest margins up as well. The group CET1 ratio ended the year at a solid 14.5%. If you look at the future, our ambition is to grow profitably within our risk appetite. We also see some market dynamics through which we expect maybe some lower wholesale banking growth. From that perspective, some of the programs that we have running, if we can't translate those into operational leverage to grow, we will look more on the cost side of things in order to ensure that we will continue to work on our cost-income ratio. We also see some regulatory expenses increasing, including a potential Romanian bank tax, which may be introduced in 2019.
For the year, we propose an attractive full-year cash dividend of EUR 0.68, which is obviously subject to the AGM in April. If we then turn to slide three, this basically sums up the commercial performance. You see that the strategy that we launched about five and a half years ago with a real focus on our client experience, that we are on the right track here. Primary customers up 1.1 million for 2018, 300,000 in the fourth quarter alone. Basically, a very good fourth quarter result there as well. Getting closer to our target of 14 million by the year 2020. If you look at where this growth comes from, it is really coming from all of the different countries in which we play. Specifically, Australia and Germany have shown real continued growth in primary customers, but also market leaders and the other growth markets.
It is really well spread across the many markets in which we see these customers coming in and also the primary customers coming in. Translated into net core lending growth, that came in at EUR 36.6 billion for the year. As indicated, that is a 6.4% increase. Also a good customer deposit growth of EUR 19.3 billion, and that is 3.6% increase year-on-year. Again, in 2018, from a lending perspective, we have exceeded our 3%-4% loan growth ambition. More specifically in Retail Netherlands, we have also basically returned to core lending growth in 2018, and we will come back to that later. In the fourth quarter, we were ranked number one in six of our 13 retail markets in terms of Net Promoter Score. In another three markets, we were ranked number two.
Turning to the transformation programs and where we are on these. Every quarter, we will give you a bit of an update here. If you look at the program in Belgium. And the milestones reached in the fourth quarter. We migrated the servicing of former Record Bank mortgages and consumer loans to Starter, which is an important step to show that we can also start decommissioning now the legacy Record Bank systems. If we look at the Model Bank program, which is basically a program where we build one bank for five different countries, we have reached a very important milestone. The team migrated all savings customers in the Czech Republic to the new retail platform. As you know, this will be later used for the other challenger countries.
That new platform makes use of the latest ING IT building blocks, like touchpoint architecture, our private cloud. With that, we actually create scalability, flexibility towards building the one cross-border retail platform.
On Welcome, basically the program that we have running in Germany, we continued our digitization and operational excellence initiative to build a leading digital bank for the future. We are getting closer to the end of this program. It is basically delivering everything that we had wanted, and even more on some sides and on some areas. That is actually quite good as well. On the Wholesale Bank, we continued to streamline operations and further sharpen controls through the use of real-time transaction monitoring. Progress on all programs here. Turning the page, we get into an update on sustainability. One thing that we are specifically very proud of is the Terra approach.
As you know, we launched the Terra approach, which basically is a methodology through which we engage with our clients to see how we can decrease the indirect footprint of our asset base in line with the Paris ambition, the Paris Accord. We came to a specific commitment, and we launched that in Katowice together with four other European banks. We are so happy with that because in the end, it is all about how do you create an industry standard. We pledged our commitment to decrease our indirect footprint. We pledged our commitment to this methodology. Clearly, if there is a better methodology in the future, we will certainly adopt that as well. But in the end, for you or for many other stakeholders, it is important that we do that in a standard way and that we agree on the standard.
Therefore, having the other European banks on board shows first that this is an open approach, an open source approach, secondly, that I think we can get going to really influence climate change. We do more on this. We also issued the largest green bond to date by a European bank. We got the IFR 2018 SRI Bond of the Year Award for that. That also shows that we can become more sustainable. It is not only our clients, but ourselves as well. This is another testimony to the fact that we take this very seriously. In the Netherlands, we have agreed with the other large banks to put our ATMs together in one and the same company in order to get better and give better customer service.
At the same time, be able to save costs, and that will happen over time with the Geldmaat initiative. On the innovation side, there are two things that I wanted to specifically highlight. The first one is Cobase. We invested through our ING venture fund. More in Cobase. Cobase is this multibank aggregation platform for the corporate market, and it is really successful. It is getting more and more clients. It offers payments, cash management, and treasury services all in one place. For the average treasurer, this is a real help in managing the finances of the company. On the other side, we also invested in a company called Axyon together with an Italian bank. Axyon delivers artificial intelligence to improve syndicated loan decisions.
For our syndicated loan business, in which you know we are one of the larger banks specifically in Europe, we are very happy that we get support through artificial intelligence to improve our distribution of our loans. That is the update on the innovation side. Now we turn to the year results. I am now at slide seven for you. Look at the underlying net result. It increased to EUR 5.4 billion in 2018, which is an increase of 8.7%. That is mainly supported by higher income and a lower effective tax rate. 2017 had a higher effective tax rate due to the one-time impact of deferred tax assets as a result of the corporate tax reductions in the U.S. and also in Belgium for us.
For the full year, we managed to achieve an underlying return on equity of 11.2%, while at the same time the Group CET1 ratio remained solid and increased to 14.5%. Quite an achievement. On slide eight, we can see some of the key drivers underlying the income growth. The underlying income growth itself grew 3% since 2015, so annually, a CAGR of 3%, despite the impact from the low-rate environment on our liability income. The NII has grown over the past years, as you can see here as well. Also, the fee income has progressed well, in line with our ambition of growing this by 5%-10% per annum. Basically, you see the composition of the underlying income growth in that interest result, as well as in that fee and commission income. A very solid picture here.
If you compare it to 2017, the underlying income grew 2.2% in 2018, That's mostly because of the stronger NII in the Retail Challengers & Growth Markets, and Wholesale Banking, except for Financial Markets, as well as a marked improvement in the Corporate line that we had. Net fee and commission income was up despite a more volatile equity markets backdrop in the fourth quarter, as you know. That backdrop put some pressure on investment product fees. I think you all kind of know and are familiar with that. What we also see now that is in the net fee and commission income, we see that our acquisition of Payvision, which was completed in the second quarter of the year, is also contributing nicely to our fee line. Good movement there as well. Turning to the expense side.
If we exclude the regulatory cost, you can actually see that the expenses have been well controlled in the past years, despite a substantial increase in digital investments following the decision to accelerate our Think Forward strategy in 2016. You see a CAGR there of 1.3%, whereas the volume has really increased and whereas we have truly invested in our offering to our customers to improve the offering, through which we actually get all these new clients. That's actually pretty well managed. With that, you manage the operating leverage. A real improvement there. If you look at the risk cost, they remained broadly stable in 2018 at EUR 656 million, or translated 21 basis points of average risk-weighted assets, which, as you know, is well below or through the cycle average of 40-45 basis points over risk-weighted assets.
As regarded, we expected the 2018 cost income to come in around 55%. Due to strict cost discipline, we managed to end up just below that number at 54.8%. You see the picture on the right-hand side here that if you take out regulatory costs, ever-increasing regulatory costs, and this is regulatory costs in terms of cash-out regulatory costs, you can see that we're actually running a very efficient operation with a cost-income ratio of just below 50% as we continue to work on becoming efficient. It's a continuing story. We think we can become even further more efficient, You also see that regulatory costs have a major influence on our cost-income ratio here. Going into the financial ambitions and where we are on that, now on slide 10. We continue to perform well against nearly all of these stated financial ambitions.
Both the CET1 and leverage ratios remain well ahead of the minimum regulatory requirements and our own financial ambitions. If we look at operational leverage, we see that maybe the stricter approach to new business in terms of return and see where we are in the cycle, in the economic cycle, we could see lending growth and also banking a little bit slower. The efficiency programs continue. The investments in digital continue. If the operational leverage that we achieve through that, we can't use to continue to grow, we will have to work it on the cost side through the same programs. That's the discipline that we have. At the same time, we're also confronted with increasing regulatory costs, as I just showed you on the previous page, that we have an influence as well, and some continued pressure for low rates on our liability income.
Operational leverage is certainly an important one for us to manage. In the end, it's an input factor into the key performance driver, which is the return on equity, which you see has increased a full percentage point between 2018 and 2017. There's many different drivers that support performance indicator here, return on equity. That's the one that in the end we all manage, and that's increased by a full 1%. On the dividend side, also there for 2019, our policy is to pay a progressive dividend. Let's just go briefly through the fourth quarter results and then open the call for questions. I'm now at page 12. The underlying pre-tax result was around EUR 1.7 billion in the fourth quarter. That marks an 8.5% improvement versus the same quarter last year.
This is largely caused by strong net interest income at resilient margins, which we will come back on later. The solid fee income, and there is a higher profit from our stake in the Thai bank TMB, that came into the income. If you look at things sequentially, the underlying result before tax fell 20.3%. That's mainly caused by higher expenses, of which the largest part relates to the annual Dutch bank tax, which is not a surprise. Also due to lower bank treasury results related, and if you compare the quarters sequentially, then in the third quarter, we had a Bank of Beijing dividend coming in, which we don't have in the fourth quarter. The underlying income in the fourth quarter contained a few larger one-offs in the quarter. We reached an agreement for the intended sale of a lease runoff portfolio in Italy.
That led to a loss of EUR 123 million in the investment income line. At the same time, in other income, we recorded a EUR 101 million gain from the sale of an equity-linked bond in Belgium. Turning to the NII. NII excluding financial markets increased 3.6% year-on-year, and that's driven by higher interest results on customer lending, while the overall lending margin remained stable compared to the year ago quarter. This was a result related to customer deposits compressed a little bit if you compare it to the fourth quarter of 2017. Higher volumes could not offset the pressure on savings on this one and current accounts as the reinvestment deals are lower in the replicating portfolio. The group NIM was up at 156 basis points in the fourth quarter. That marks a 4 basis points improvement quarter-on-quarter. That's fully explained by a higher interest result in financial markets.
The NII results of financial markets tend to be volatile, as you know. We report on that every quarter as to how we qualify or classify income on the financial market side. In the financial market side, there was an offset in the other income line, which we will see later. From a margin perspective, you see that an improvement of 4 basis points on the back of financial markets. If you look at the four-quarter rolling NIM which filters out some of these volatile items, the NIM was stable at 153 basis points. Looking at core lending growth, in the fourth quarter, we recorded EUR 3.2 billion net core lending. After good quarters in 2018, we see a continuation on the retail bank of that growth. Retail bank actually increased by EUR 4.7 billion, of which EUR 3.5 billion was in mortgages in almost all countries.
Other lending growth of EUR 1.2 billion mostly relates to the business lending in Belgium, you can see that here as well in this picture. On the wholesale banking side, we have reported a decline of EUR 1.5 billion, that was predominantly in trade and commodity finance, that is largely as a consequence of a substantial drop in oil prices. That is really what has impacted this number. We have seen growth in the transportation and logistics portfolio, but also the energy portfolio. The drop in oil prices really impacted the TCF of volumes, that is the resulting number that you see here. Our focus on return, as well as the appropriate risk, as I have indicated earlier already, may lead to some lower growth on the wholesale banking side going forward.
We see still a strong competition. We still see looser credit standards in the market, as you know, as a general principle and as a sign of good credit risk culture, we are unwilling to compromise on structure or amend our risk and return standards. That is how we have built the business over the last 25 years, no matter what happens in the market, this is what we keep doing.
Looking at the fee income. Fee income rose to EUR 704 million from EUR 674 million in the same quarter last year. In retail banking, this was mainly visible in the Netherlands and Germany, that is as a result of higher daily banking fees. While we saw a decrease in Turkey and Belgium. In Belgium, that is mostly related to lower investment product activity due to the volatile equity markets. The total fee income growth in wholesale banking was actually supported by the number of large deals.
You know that the fee income on the wholesale banking side can be a bit fluctuating depending on when we close deals, that is how we make the fees in wholesale bank, this was a good quarter. As I mentioned before already, specifically also on the wholesale banking side, fee income growth is also benefiting now from the inclusion of Payvision as of the second quarter in 2018. Financial markets total income, excluding CVA, DVA, was down on both comparable quarters, in line with our peers. You also see here the classification of the financial markets income into a net interest income and non-interest income, as I referred to earlier today. That changes all the time. That is one of the explanations for the peak NIM for the end of the year.
As I said, the NIM itself also on a four-quarter rolling basis is really good. Looking at financial markets, specifically, the impact for an overall income perspective was visible in the fixed income and corporate finance business. Specifically, the FIC business, that's one that you've seen with more of our peers. The lower rate environment causes lower client activity to hedge. We see challenging global market conditions as well. That's an area that, as we have already indicated last quarter, we are really looking at how we can further improve that. As you are used to, I like to spend a few minutes highlighting one of our businesses every quarter. This time, I'd like to give you a peek at what we're doing in Spain. Spain actually had a phenomenal year. It's got a strong commercial momentum across the board.
The key to Spain's success is this model of having built a fully fledged digital universal bank. Increasing primary clients with the digital bank only, increasing cross-buy. You can see that there as well in the digital bank only on the back of additional product offering. You see the percentage of clients that have two or three products. You actually see that you can build full-fledged digital universal banks with primary clients and deliver cross-buy. It's basically a proof of our strategy. What is also clear from this page is the quick change away from desktop banking to mobile banking, both in terms of contacts that we have with our clients, but also in terms of sales. 68% of our total sales in Spain is now fully digital, with mobile growing very quickly, as you can see from this picture as well.
One of the things that our Spanish colleagues have done really well is the focus on how we deliver on client experience. For many years in a row, we have been number one in Net Promoter Score in Spain with a 27-point difference versus the best competitor, and we compare ourselves to all the large banks in this market. It is the example of how you can challenge a market. It is an example of how you can deliver on superior client experience digital only, and you can really grow from a primary customer perspective as well. The Model Bank, as referred to earlier, and you know the building of one platform to cater for four different markets, that approach is fully based on the Spanish model and the Spanish success.
Looking at expenses. Expenses, excluding regulatory costs, went down by 2.2% compared to the year ago for the quarter. That's due to the continuous strict cost discipline that we have despite the inclusion of Payvision, so a real accomplishment on this one. The fourth quarter last year included some additional restructuring costs and additions to legal provisions. Quarter-on-quarter expenses, excluding regulatory costs, were up 3.9%, so that's Q3 to Q4. That was visible in most segments, except for Retail Germany. This quarter also included higher spend on compliance and KYC enhancement program. Regulatory costs remained at a high level, around 5% for the full year compared to 2017, as you can see. Bank taxes have become a meaningful part of regulatory cost. They're expected to go up even further in 2019, with the potential introduction of a bank tax in Romania as well.
On a four-quarter rolling average basis, cost-income ratio improved to 54.8%. In the quarter itself, the cost-income ratio was actually 57.1%, That's due to the higher seasonal regulatory cost. Again, lower than the cost-income ratio in the fourth quarter of 2017. You see a continuous improvement over time. Going to slide 18, the risk costs in the fourth quarter came in at EUR 242 million or 31 basis points of average risk-weighted assets. This compares to EUR 215 million in the third quarter and EUR 190 million in the same quarter last year. Retail Netherlands went through a higher risk cost in the quarter, but the increase is nearly fully explained by a more cautious approach for part of the Dutch mortgage portfolio. In the retail Challengers & Growth market risk costs are fully related to other lending, and not to mortgages.
In Germany, there was a EUR 45 million net release after a review of the consumer lending portfolio. That's also included here. Maybe to specifically focus on C&G on this one, Turkey saw an increase in risk costs for the quarter, That's partly due to the individual Stage 3 files in SME and mid corporates, Also partly due to Stage 2 migration. As you know, under IFRS 9, we have to look at the macroeconomic scenarios, That has an influence on risk cost here as well. Looking at the Stage 3 ratio for the country, it's still at a manageable 2.7%. As you know, as you're also familiar with in situations like this, we keep monitoring the situation on the ground closely.
Also, banking risk costs were low this quarter at EUR 54 million, With a few individual Stage 3 files in the Americas and Italy, No trend detected. It's really individual files here. Turning to capital, slide 19. Good progress on the CET1 ratio, improved meaningfully to 14.5% from 14% in the third quarter. That was a result of the slightly lower risk-weighted assets. For most, the increase in capital was caused by retaining most of our fourth quarter net profit. The net profit in the fourth quarter is partly used to pay the dividend and also the progressiveness in the dividends, the remainder is then put into capital. The move in risk-weighted assets, as I said, that's a slight movement there. That mainly reflects another quarter with positive risk migration, lower operational risk-weighted assets.
We also have seen other model updates and higher market risk-weighted assets, all small amounts, in the deck, in the appendix, there is more information on that. The conclusion here, though, is that we continue to be well-positioned to achieve a Basel IV fully loaded CET1 ratio of around 13.5%. We remain well ahead of our SREP requirement of 11.8% here as well. For the full year 2018, I think this puts us in a very strong position to propose another attractive progressive dividend of EUR 0.68. Looking at the debt issuance program 2019, slide 20. We are well-positioned for other regulatory requirements, most notably the buildup of our bail-in buffer for either TLAC and/or MREL. Our pro forma TLAC ratio, which only includes eligible instruments issued from the holding company, stood at a comfortable 24.5% at the end of 2018.
We've been quite active in the last quarter, the last four months, as you know, in the markets to raise substantial amounts of wholesale debt. We continue to have strong access to the main funding markets. Most notably, we have been active in the euro and dollar markets, but also in a range of other currencies and different formats as well. In the years to come, we will continue to build our TLAC and MREL position. We will do this through refinancing Tier 2 instruments and grandfather AT1 instruments with CRD IV compliant bonds issued by the group. In addition to that, we will keep recycling, as you know, our maturing opco senior debt with holdco senior debt. That's in line with our strategy of having ING Group as the designated resolution entity. It's been quite a long introduction to having a set of Q&A.
Just to wrap it up, to summarize, the 2018 performance confirms that we continue on the right track with the execution of our Think Forward strategy. The direction that we took five years ago, to build the digital bank of the future, I think is even more valid today as we see that the world around us is changing even faster. We have laid a strong operational and financial foundation in the past few years, and you should expect us to continue to have a relentless focus on achieving operational excellence and operational leverage. 2018 certainly has had its challenges, which has forced us to reprioritize. Regulatory compliance remains the key priority for the firm for the years to come. Maybe concluding, it's been a year with two sides, a very strong strategic, commercial, and financial performance.
On the other side, the settlement, clearly we will continue to work on that. I think it's also good that we start to take a look ahead, and I'm very happy to welcome many of you at our Investor Day in Frankfurt next month to give you more insight into our capabilities and digital leadership. Lastly, I know there's many fans on the line here, I wouldn't want to miss the opportunity to express my gratitude to Koos, our CFO, who has been with us for 20 years, of which 12 years in the management board. He has shown exemplary leadership, taking us through many challenges that we have had to face over the last 12 years. Restructuring from a bank insurance company into a bank, from a bank into a digital bank, with superior knowledge in many areas.
Koos, I think I'm talking on behalf of many of the guys and ladies on the other side of the line, thank you very much. With that, I would like to turn to the audience and give some space for questions.
Ladies and gentlemen, we're starting the question and answer session now. If you have a question or remark, please press star one now on your telephone. May I remind you to limit yourself to two questions. If you have any remaining questions afterwards, you can press star one again. That's star one for questions or remarks. Go ahead, please. Our first question is from Mr. Benjamin Goy, Deutsche Bank. Go ahead, your line is open.
Yes. Hi, good morning. Two questions, please. First, on your Benelux transition, maybe you can give some more color how the IT migration is going, where you're standing on your risk scores, and whether we are through, let's say, the most critical part of this journey. The second one is on industry lending and general lending revenue performance. Thought it was strong across net interest income and fee income, in particular, given the headwinds you highlighted. Some additional insights will be much appreciated. Thank you.
On the Benelux Unite update, I'll give you a transformation update. Steven can give you also maybe more an update from a risk perspective there. Unite in 2018, we really made some major steps integrating the organization using the Agile way of working, integrating the Record Bank into ING, migrating 600,000 customers onto the ING platform in Belgium, closing 600 branches. Now also migrating our portfolios in consumer lending and mortgage lending of Record Bank to an outside party so that we can start decommissioning. From a strategic milestones perspective, absolutely on track. Many challenges with these huge programs, as you know that during a transformation like this, you have to keep looking at different indicators. Do you keep your commercial momentum? Are you still getting the right returns? Is the cost really decreasing? Also is the risk within appetite.
For that, I'll give the word to Steven.
Yes. Thanks, Ben. When you look at the operational risks, I also refer to, I think the page that was once presented in the Financial Times, every quarter, and that goes for every country, we look at all kinds of operational metrics, both on the commercial side, the revenue side, the client side, but also the risk cost and also, let's say, the operational and IT risks. We do it in every country to see what goes well and where do we need to improve. You can see these dashboards as scorecards, if you will. You already saw in that page back then that in terms of the score, where we want the score to be, it is in line with where we want it to be in terms of keeping it under control.
At the same point in time, we continue to work every day on keeping our control risk and processing risk under control and our IT risk under control. The teams have done a good job in progressing further on that front.
On your second question on industry lending. Yeah, Ben, last quarter we already indicated that we felt we were kind of top of cycle. We're looking at economic growth globally, Eurozone. We're looking at the development in the world, I think that we have already indicated that we were going to be much more cautious in the leverage finance area, in the real estate finance area. We will continue to be cautious, and that may influence some of the growth there. At the same time, you know that we are very disciplined in the way we price our business in industry lending activities. This is a global activity; we have Basel IV coming. We are pricing at a higher CET1, we just don't know whether competitors will follow suit. If you combine all of this, you could expect some lower growth.
Over the last couple of years, we've grown some years 6%, 7% in wholesale. Maybe it's going to be 2%-3% going forward. We'll have to see. I think what is important is that we're cautious here, at the same time then look at how we ensure that the operational leverage stays intact. To the extent that some of these transformation programs increase the efficiency, if we can't translate it into more business, we may have to translate it into lower costs. It's ongoing, there's nothing new. You know that we are very cost disciplined and also cautious on the risk side, we will continue to do so.
Understood. Thank you.
Our next question is from Mr. Robin van den Broek, Mediobanca. Go ahead, your line is open.
Yes, good morning, everybody. My first question is on your ability to grow NII going forward. It seems that if I listen to Ralph, that on wholesale banking, you sound a little bit more cautious than before. Secondly, if I look at the Euro swaps curve, obviously, the December move has increased the pressure on the replicating liability portfolio quite significantly. I was just wondering how we should look at that from the Q4 level going forward. Second question is on capital. Your 14.5%, I guess, including your Basel IV guidance of before, which I'm assuming has not changed thus far, translate into a fully loaded Basel IV CET1 ratio of 13.1%, 13.2%. That's fairly close to the 13.5% you target to go to.
I was just wondering what your thinking was on the positive risk migration of 15 basis points over the quarters you've had as a tailwind, with IFRS 9 making things more cyclical as well. How comfortable are you on the progressive dividend policy from that perspective? Thank you.
Yes. Thank you. I think, Robin, the first question, if you look at the interest margin overall, what you can say is you state the right points, that on the wholesale side, we want to be a bit more cautious with growth. The December move with the low interest rates doesn't help either from that angle. We see the five-year swap rate right now at 15 basis points, whereas if you look at an average portfolio yield, it's higher. Reinvestments don't help. Having said that, there is still a few things what we can do to support our net interest margin. The one is, and that was what we have done over the last four years, is very carefully look at the composition of the balance sheet.
The second part is making sure that we manage the balance sheet a bit efficient in terms of the total size of it. Third element, that is also important as well, and that is to look at the repricing. If I read this morning element like an ECB saying like TLTROs, don't take them for granted, then it could mean that credit spreads go up, and we are for EUR 600 billion a credit spread receiver, and we are for EUR 100 billion a credit spread payer, because that's how our balance sheet look like. Those are sort of the offsetting things. Nevertheless, we are always a bit cautious on the margin. The low 150s, high 140s, that is what our guidance is to the second quarter 2019. As you can see, various factors play a role there.
Yes. Thanks, Robin. On your second question, that's a good question. That is exactly the reason why we keep a buffer. If you look at positive risk migration, which you see now and again, quarter on quarter, for example, due to a lower unemployment or higher housing prices, that could also sway the other way around. What we do in our stress testing, we look with certain time intervals, what that could be in a downturn scenario. As you know, we have a SREP requirement of 11.8%. That's why we say if you look at these swings that can go back and forth, including IFRS volatility, that brings us to an ambition of approximately 13.5% under Basel IV, and hence we are building up capital to get to that level by 2022.
Maybe to be clear, the Basel IV guidance basically is still the same as when you came out with it, I think exactly last year, that still stands?
Right. Yeah. I can repeat, yes. Is there anything that you mean with that?
I know your Basel IV inflation is more driven by input factors, which puts you in a different basket than your main competitor in the Netherlands. Your main competitor in the Netherlands, of course, has said that some of the capital accrual of 2018 basically wasn't sticky on their Basel IV. I was just wondering if there are any moving parts in your capital position from that perspective.
There is not. You are correct that indeed, our Basel IV requirements are largely based on input factors. We've always said that the impact could be approximately 15%-18% of RWA, everything cetera paribus. That is about 2%, that 80% of that would be a result of the input factor. I.e., by 1st of January 2024, at 2022, that we could mitigate approximately a third of that. That leaves us with an increase in capital of 1.2% approximately until that period, and that we try to build up capital to get to that level by 2022.
Okay.
Basically, your calculation of 13.1,% 13.2% is conservative in the calculation that Steven was just indicating. You get to 13.2%, 13.3%, which makes us having to generate capital in order to stay around 13.5% of 30 basis points over the next three years. In an average year, we generate 170 basis points of capital. We pay about just a little bit more than half of that. Yeah, plenty of room to build that capital and also to support growth.
Very great. Thanks.
Our next question is from Mr. Farquhar Murray , Autonomous. Go ahead, y our line is open.
Morning, gentlemen. Just two questions, if I may. Firstly, on the outlook for capital, please could you just outline whether there's anything we should anticipate with regards to TRIM, EBA guidelines, and also IFRS 16? Additionally, could you just perhaps talk through how that interacts with your Basel IV position? For instance, obviously, I think most of the TRIM impacts probably have no effect at all. Finally, just on the hedge ineffectiveness number. Again, it's quite a big swing factor this quarter. I just wondered if you could explain the rationale, both for the hedging approach and the swings we're seeing. Also, is it just fair to assume that that volatile item is normally zero in a given quarter, or is there any structural component to it at all? Thanks.
Okay. Thanks for your question. This is Steven, I'll take question one. On the CET1 outlook regarding TRIM. Like I said, the previous quarters, we've had already the TRIM investigations on the mortgage portfolios in the Netherlands and Belgium, as well as on the SME portfolio in the Netherlands. The impact on those portfolios, I expect to be limited, and we're currently in the close-out phase on these letters. At the same point in time now, the TRIM exercises are starting on wholesale banking. We're finalizing the first phase of the low default portfolio. Let's say the corporate portfolio part on TRIM, a second phase will be there with the financial institutions and specialized lending portfolios. The impact of that, I do not know yet. These exercises are just starting.
If there will be impact on that, I expect that coming later this year, most notably in the second half of this year or maybe even later. That may have an impact, that may not. Hence, again, why we cater for room in our capital, because part of the impact of Basel IV is then counter-revealed by actually the impact on TRIM. It may come a bit earlier, it may come a bit later. That depends on the impact of TRIM, but it is all catered for in the ambition level that we currently have of 13.5%. IFRS 16 is about the lease impact, we currently do not see any impact in that regard.
Okay. Farquhar, hedge ineffectiveness. Maybe there is two things for which we use swaps. We use interest rate swaps to hedge our interest rate risk on the balance sheet. Predominantly, if you look at that in combination of fair valuing some of our mortgages and swaps against it, that gives normally result number one. That means we have mortgages fair valued, they are discounted against a LIBOR curve. Then we have swaps where we are a payer swap, they are discounted against an OIS curve. If the LIBOR versus OIS, if that starts to widen, you have a mark-to-market loss. That one didn't cause a lot. Maybe it is more the second one in this case, that is the basis swap.
What we do in funding is we have a dollar loan book, the dollar loan book is basically funded for EUR 25 billion with a currency swap. That means we are a lender of euros and we are a borrower of dollars. If you do that for EUR 25 billion, you can say roughly, if you have a basis point widening or narrowing of the basis spread there, that causes somewhat a EUR 10 million mark-to-market. In essence, on your funding side, you have a negative mark-to-market of EUR 10 million. You just book that as accruals. What you normally see is in a five-basis point movement, you can easily have on that basis, that causes a EUR 50 million result.
This is the most important explanation for that arises then in Germany, where, as you know, we book some U.S. assets as well. This is the one which is causing that result right now. Indeed, all of that, what I am saying right now, and that is already in your last part of the question, it all average out to zero. In that sense, you can forget about the elaborate answer.
Right. Great. Thanks, Koos.
Next question.
Our next question is from Mr. Nick Davey. Go ahead, please.
Yes. Good morning, everyone. Two questions, please. The first one, just on the cost outlook for 2019, if you're happy to say anything about that. It does seem like ex regulatory expense, you're running about flat year-on-year in 2018. If I remember well from the last Investor Day, 2019 was the year where we should start to see meaningful step up in savings and a step down in investment costs. I know you don't like giving too much absolute cost guidance, but, can we dream of a decline in cost base this year? Second question, sort of flavor of the day, really. Maybe just some comments on the funding plan for 2019. I can see the slide in your pack talking about EUR 7 billion-EUR 9 billion of holdco senior issuance this year, seemingly above just the rolling over of existing senior debt.
Could you just talk a little bit about the overall sort of TLAC funding plan and whether there's anything in that new issuance which you think will meaningfully impact margin this year or the sort of trajectory or momentum in NII? Thank you.
Yeah, Nick, it's Ralph. On the cost outlook, indeed, we don't give kind of specific hints as to how the cost will develop. As you know, we gain market shares. Generally, we work more on operational average. If you've seen in the presentation, the last four years we've been able to keep cost increases limited to one to 1.3% per annum. Which given the sheer growth that we have been able to get in and the investment program that we have shown and that we're into, shows that the underlying costs, therefore, are decreasing in order to give room for investment. If not, they are there to maintain in almost the same level in order to create operating leverage. Now, that's the one that we really look at, the last one, operating leverage.
I think the summary of that is in a cost-income ratio, although I don't like the cost-income ratio too much, from that perspective, because there's two components there. It's very difficult to compare banks with banks. For us, if the operating leverage that we are creating and the operational efficiencies that we are continuing to create through our transformation programs, can't be used for further growth, and with that further income, it will have to come from the cost side. That's what we always do, and that's what we'll continue to do. In this case, if one way or the other, the income component is not to our liking at a certain moment in time, it will have to come from the cost. If the income on the back of continued growth is good, then we don't mind having the growth in cost itself.
Therefore we don't necessarily manage a perfectly flat cost line. We'll have to play it by ear. I will look at it quarter by quarter, and the good thing is we give you an update quarter by quarter anyway.
Yeah, on the funding plan, as you have seen this time, we have included a slide on the funding. We didn't do that in the past because we always had the idea there's not a lot of surprises on the funding part. Last year, of course, what we had is, in order to avoid surprises, we didn't issue over the summer, which means that our issuance schedule in Q4 was a bit heavy. Now we are again back to normality. Normality, what does that mean? It does mean that we are recycling opco debt into holdco debt. That has all to do with the MREL requirements. If you say, is the holdco debt we are planning to issue a lot higher than opco maturities? The answer is not really. In that sense, it's quite normalized. Does it impact the cost of funding?
To be honest, even if your holdco debt is 50 basis points higher than your opco debt, then you could say that translates into 0.2 basis point of your net interest margin, not a lot. You can also ask the question, opco debt should get a lot cheaper because there are so much seniority which is there on the holdco debt part already in. No, I'm not too worried too much on the cost of that.
Very clear. Thank you. Can I quickly follow up on the cost question then?
Yeah.
Just to ask you to maybe then talk to the cost-income ratio, because for most of this year, you've been saying it not likely to see much of an improvement on the 55.5%. What should we expect into 2019, if you're willing to talk to that number? 50%-52% range still quite distant. Do you think you'll be taking noticeable strides towards your target in 2019?
Yeah. I didn't say anything about the cost income there. It's just say that we continuously look at operational leverage. If the operational efficiencies that we gain through the transformation programs can't be used for growth, it will have to come from cost. On the cost income side, these transformation programs are delivering benefits as we go. Some are a bit behind on plan, some are actually ahead of plan. It's a mixed bag. We do expect the cost income ratio to further decrease towards the ambition. We haven't left that path.
Okay. Clear. Thank you.
The next question is from Mr. Stefan Nedialkov, Citi. Go ahead, please.
Yeah. Hi, guys. Good morning. It's Stefan from Citi. A couple of questions on my side. You mentioned in terms of loan growth, 2%-3% in the wholesale book. Are you sticking with the official group loan growth guidance of 3%-4%? Or should we be thinking more like 3% or 2%-3%? What's the implication for your outlook on the retail side of things in that regard? My second question has to do with capital. Obviously, you've been benefiting from a fair amount of positive credit risk migration in your RWAs over the past couple of years. I'm just wondering if we start getting a bit of a normalization in the credit cycle, are you expecting most of those gains to be reversed?
Depending on your assumptions, are we looking more like half of those gains to be reversed or more than 100% to be reversed? Thank you.
Okay, Stefan. I'll take the first one. In terms of loan growth, on the wholesale banking side, it could be that it is lower, as indicated before. The ambition from a lending assets perspective has been 3%-4% overall. On the retail side, we don't see any kind of reasons why we should expect lower growth, honestly. Also because we're in so many different markets and we're growing the market share, we don't have to do specific things in order to get that growth in. In the end, also there, it's about strict pricing. All of the growth that we get in has to be profitable growth. It's not like we only do stricter pricing in the wholesale bank, it's also in the retail bank.
Having said that, there is so many opportunities, we're gaining clients, that I don't think it's going to be a particular challenge on the retail growth side. For the capital side and the risk migration, I'll give the word to Steven.
Yes. Thanks, Stefan. What goes up must come down, huh? At some point in time when the cycle reverses, you will see risk migration the other way around. We have been benefiting over the last five, six years from positive credit migration. At some point in time, if the GDP cycle turns, that positive migration will fade away again. That's exactly in our stress testing in what we do to have a capital buffer over the requirement of 11.8%. If you look at what we had under the previous regime and what we have under the current/future regime, there will be two effects, which will be more volatility under IFRS 9, but on the flip side, lower volatility under Basel IV because a number of the input and output floors will decrease the volatility. That has all been factored into our capital stack.
Okay, fantastic. Just to follow up on the loan growth guidance. You guys are sticking with the 3%-4% at the group level?
Well, it's a guidance. We have been guiding this for the last couple of years. We came out higher. It could be at the 3% end, could be at the 4% end. Yeah, it's more or less.
Okay.
Yes.
All right. Thank you, Ralph.
Next question is from Mr. Benoît Pétrarque, Kepler Cheuvreux. Go ahead please, sir.
Yes, good morning. Two questions on my side. The first one, again, on capital and Basel IV. Again, coming back, sorry for that, on the positive risk migration we have seen again this quarter. That should all be neutral from a Basel IV perspective. I was wondering, again, why are you keeping your Basel IV risk-weighted asset inflation guidance stable at 15%, 18%? I think this was based on the 2017 CET1 ratio level. We had quite some migration in 2018. Could you explain us again why you keep this guidance on inflation stable? The second one will be on the growth of the fee business. You are targeting a growth of fees higher than your net interest income. I think this is working perfectly well, but what is your outlook in terms of growing the fee business in 2019?
We've seen a slowing down in PMIs across the board and was wondering are your fees on the digital lending is sensitive to maybe a slowing down in the macro. Thank you very much for that.
Thank you, Benoît. On the fee side, as you know, over time, we are changing our model in most of the challenger markets to a model that is a universal direct bank with primary customers. The reason why we are focusing on these primary customers is because they do current account business with us, and through the current account business, we have more contacts with them. If we have more contacts with them, we know them better. If we know them better, we think there is a better chance of us to be able to offer them the right products for their needs. On one side, it's a focus on doing more current account business in order to get to know our business better. On the other side, we'll have to cater for more products to be offered.
That's why I think the example that we showed today in Spain, which is a full-fledged digital bank selling more products to the same customer. That is an example that will be followed by many. With that, with the introduction of third-party products, and honestly, I think even for investment products, we have quite some room to grow because we, as a bank, are under-penetrated from that perspective with our customers. Also from an insurance perspective, as you know, we have launched this AXA joint venture, and we're very happy with that. That will also deliver third-party products against a fee. From that perspective, from a retail, on the retail side, we do expect fee and commission income to continue to grow.
On the wholesale banking side, yes, you have a point in terms of saying that if there is lower growth, maybe there's less deals coming through on the lending side, and therefore, debt fee and commission income may decrease. True. On the other side, we are also increasing our efforts to cross-sell financial markets products, specifically to the strong sector relationships that we have for which we are basically putting programs together as we speak. We also expect our capital markets business to further grow, and therefore, more fee income and commission income to come from that. All in all, this is a lot of color to confirm that we expect fee and commission income to continue to grow with the guidance that we have given 5%-10%.
Thanks. Benoît, with regards to Basel IV and capital, basically, what we said last year was that we base our 15%-18% on the total RWA of the end of 2017. That was at that point in time at EUR 311 billion. Currently, that's at EUR 314 billion, the difference is negligible. The composition of our RWA has also not dramatically changed over different books. We are largely hit by input factors, and you're alluding to ABN, I believe. They are hit by output factors. We do not see a reason to change our guidance based on a slight difference in RWA at this point in time. The answer is no.
Okay. Thank you very much.
Next question is from Mr. Kiri Vijayarajah from HSBC. Go ahead, sir. Your line is open.
Yes. Good morning, everyone. Firstly, on the Dutch mortgage margins, I think going back to the last quarter, you were sounding reasonably constructive there on the front book mortgage margin in the Netherlands. Is that outlook kind of still intact? Could you just give us some color on how the competitive dynamics are shaping up there going into 2019? Secondly, just on Romania, I wonder if you could just give us a feel for where the ROE is before and after the bank tax, just to sort of for us to see the scope, the impact there. Thank you.
Thank you, Kiri. Well, on margins, I think on a quarterly basis, I give you a bit of an insight anyway as to what we see in the market happening. Now in the Netherlands and in the mortgage business specifically, we see actually a continued improvement of margins. That's actually confirming what we said last time. The margins are improving on the mortgage business on the front book. Business lending is a bit under pressure in the Netherlands from a margin perspective. In Belgium mortgages, the margins are okay. They're kind of similar. The business lending there has a bit of margin pressure, not too much. In Challengers & Growth overall, we see improving margins. In the wholesale banking side, we see a bit on the industry lending side, given the change of composition of the production, the new production towards lower risk-weighted assets.
We see actually the new production coming in at lower margins. It's just different business, we can't really come to a conclusion there. Lending and transaction services and PCM is all either similar margins or improving margins. PCM is improving margins. That's kind of the tour of the world in terms of how we see things happening in the market. Coming back to Romania. Honestly, the whole discussion around the bank tax, there's moving parts there. We'll have to see how we deal with it, how it is exactly going to be introduced, if it is introduced, how does it exactly going to affect us. If it is going to affect us, it is never good news, let's face it. I can't give you the return specifically because we don't disclose those. It is a very healthy return business.
Specifically, from a long-term perspective, we are very positive about the developments in Romania and how our bank is doing there.
Okay, great. Thank you very much, guys.
Next question is from Mr. Adrian Cighi, RBC Capital Markets. Go ahead, please, sir.
Thank you very much. Just two follow-up questions, please. On impairments, can we confirm that the higher provision in retail Netherlands is a one-off adjustment? One question on the Italian lease portfolio that you're in the process of disposing of. Can you give us any indication of the contribution to NII on costs currently, and maybe once it comes off, we can remove that? Thank you.
On the mortgage, the impairment in the Netherlands, from time to time we review our portfolios. In this case, we found it necessary to make an adjustment towards a bullet loan portfolio, at least a specific part for that. From time to time, we do it, I do not expect that to be a recurring theme. Sorry, can you repeat the question on the lease portfolio, please?
The Italian lease portfolio that you're in the process of disposing of, what was the contribution of that portfolio to NII and costs? Just so we can maybe remove that once you actually dispose of it.
It was a portfolio in aggregate of a few billion . If you look at it from a total balance sheet perspective, it is very benign.
Okay.
Therefore, the capital impact will be benign. If we sell it, there is a positive impact on our RWA.
Okay. Thank you.
Our next question is from Miss Alicia Chung , Exane. Go ahead, please. Your line is open. Miss Chung, please unmute your line and ask your question. Go ahead. We will continue. The next question is from Mr. Bruce Hamilton, Morgan Stanley. Go ahead, please, sir.
Hi. Morning, guys. Thank you for taking my questions. Maybe just one on the asset quality side, where clearly things still look pretty good. What's the exposure, though, to the balance sheet exposed to leverage finance? Obviously, that's an area in the last six months you've got a bit more cautious on, and hence the change in growth expectation, which makes perfect sense. What's the kind of balance sheet exposure just to give us some help there? Are there any other sort of geographies or sectors where you're getting a bit more concerned due to weaker macro or other, that under an IFRS 9 format could mean a bit of a pickup as we walk through 2019? Turkey would be an obvious one, but is there anywhere else that you're getting a little bit more nervous?
Secondly, just clarifying some of the comments you made on the sort of NII in the Netherlands. It looks like that's still sort of drifting lower, though the loan book is kind of stable. I was just trying to understand it. It still looks like there's some pressure on margins. I wanted to make sure I'd understood the answer you gave earlier, which suggested things looking a little bit better as we cast forward.
Bruce, on the second question on the margin in the Netherlands. No, I think you're right from that perspective. If you look at all the different components that make the NIM, then on the savings side, yes, there will still be pressure on the margins. With the lower-for-longer interest rate environment, the yield on a replicating portfolio will decrease, and with that, we'll have and deliver pressure on our savings margins in the Dutch savings books. There is maybe some reprice to go, but not a lot. Yes, that will certainly have an influence there. On the other side, as I was just indicating, if you look at how our loan book is developing on the business lending side, we have grown by EUR 1.3 billion in the year with good margins, and the mortgage business and the new mortgage production is at healthy margins as well.
There is some compensation there. Yes, there is certainly pressure on the savings side of the Dutch business in terms of margin.
Okay, that's clear. That's helpful. Thank you.
For the asset quality question, I'll give the word to Steven.
Thank you.
Yes. Thanks, Bruce. If you look at the total leverage finance portfolio, we have a cap of EUR 9.6 billion globally. You have to bear in mind that that is a portfolio whereby we look at leverage over four times. That is a more generic book, and within that book, part of that book is what we call structured acquisition finance. These are the loans that we disseminate when a private equity company, for example, makes an acquisition. Now, typically, that part is the higher risk part of that book. There, I've already stated before, we are limiting final takes to a couple of tens of millions. We look at structures whereby we cap the structures whereby you participate in terms of both senior and total leverage levels, and we will not participate as a single underwriter for a deal. That's how we manage that book.
We've done that over the past number of years, and we continue to do so. If we get to, let's say, the cap of that book, that basically means that we need to recycle some of it to be able to participate in new transactions. We will not deteriorate on the structures because that is something that we stand by as an organization. With regards to particular concerns or books, obviously, geopolitical issues remain top of mind. As a result of it, we continue to look carefully at countries like Turkey. As you have seen also from the presentation, the total Turkish book went down from EUR 13.3 billion in the previous quarter to EUR 13.0 now.
At the same point in time, we're continuing to gradually decrease the intercompany funding. That intercompany funding decreased with EUR 300 million in the fourth quarter, and will continue to have a similar pace in 2019. That's currently what we're looking at.
Thank you.
Our next question is from Mr. Jason Kalamboussis, KBC. Go ahead, please, sir.
Yes. Hi there. Just a couple of questions. The first one is trying to look at the costs again. You have your guidance for 50%-52% cost-income ratio, and if you see consensus, it has moved from 51.5%, probably about a year ago, to 53.5%, which means that consensus is having doubts about if you're going to reach eventually this target. If I can have your comments there. Also looking more specifically on the cost ex regulatory expense, if I can look specifically at the staff costs. They have gone up by about 4% year-on-year. And if you look at the FTEs, up by about 1.5%. Again, if I could have your thoughts and how we should look at it next year. And the second quick question, it was if you could give us just a little bit of color on Belgium.
As you have mentioned, you have seen some good lending growth. That has been, I think, for three out of the four quarters. What's the driver and how do you see that in next year?
On the cost-income side. We have this financial ambition, 50% to 52%. As I said, certainly factors that influence our cost-income ratio that we cannot completely influence, and certainly not always absorb within certain time frames. It is a challenge to get to the 50% to 52% per se by 2020. However, what we find important is that the concept of operational leverage and how you continue to manage your cost-income ratio down is one of management hygiene, in my view, and that you have to continuously look as to how you can further improve your efficiency. That is what we will continue to do so. As I said earlier, operational leverage is an input factor into the key performance indicator, which is the return on equity. There is more that makes up the return on equity there.
Cost-income ratio is an important factor for us. It is one that we feel we have to continuously look at and see how you can manage it. Now and then you have a hiccup with new regulatory costs that you will have to, one way or the other, absorb, but you cannot do it at once, and you will have to do it over time. That may affect sometimes how the cost-income ratio develops. That is that point. On the Belgium side, the good loan growth, the driver there is that we have a good client base. While transforming, we keep focused on our clients, and we have a very good franchise there. Basically, that is what you see overall in ING. We are transforming in many different areas.
Even with some of the challenges that we have to deal with in KYC and people who have to deal with that, I am particularly proud of the resilience that my colleagues are showing in dealing with all these different challenges, whether it is a transformation challenge or the KYC challenge. In the end, this is a franchise that is very customer-oriented. They make sure that they continue to service the customer. On the back of that, you do more business. The Belgian franchise, particularly, even through the crisis, has always performed. It is a very strong franchise with a super focus on the customers. On the staff cost, I give the floor to Koos.
If you look at the staff, one of the things what you see with the 4% increase in staff cost, that is including also all elements of change and one-offs. The FTEs, they have grown less, but it does not mean that our staff cost, if you exclude the change element in it, then it is more in line with the FTE growth. At the same time, yes, we do have the FTE growth, and that has also to do w ith all the initiatives we are currently taking and all the KYC elements in there. That caused this. At the same time, do we say, "Hey, is that therefore permanent?" The answer is no, because these are programs. At the same time, we just want to make sure that we speed up on these elements, and that is why we incur those costs.
Okay. If I understand well on the costs, the growth, excluding one-offs, would be at around 1.5% year-on-year?
It's slightly higher than that, but not close to the 4%. Not at all.
Okay. Thank you.
Our next question is from Mr. Jose Coll, Santander. Go ahead please, sir.
Hi. Thank you. Hello, everyone. A first question on Turkey, please. On the 3Q call, I think Ralph said that there was no excess capital in the Turkish subsidiary. Now that the cost of risk is increasing and we've seen other Turkish banks increasing capital, do you expect you will need to increase capital this year or next if the credit cycle continues worsening? That'd be my first question. The second question would be on Spain. I was wondering whether you could give us a few more details, maybe net income or capital allocated to Spain or risk-weighted assets, sort of get any profitability ratio there. Thank you.
On Turkey, probably we need to play back the previous analyst call. We do not know that there is no excess capital on the sub. If the question is whether we need to inject more capital, the answer is, we do not expect us to do so. There is no need for that. As a matter of fact, I've said that already, we have both equity and intercompany loans outstanding. Those intercompany loans, we expect that there is a decrease in that the coming year. Also in terms of our capital on the credit requirements in Turkey, we feel comfortable there.
Yeah, on Spain.
Okay.
Yeah, we don't disclose all of those specifically per country, as you know. What you do see in Spain is that our business continues to grow. The lending is growing, the mortgage book is growing. It's now just past EUR 15 billion in Spanish mortgages. The other customer lending is growing, the consumer lending is around EUR 3 billion. The wholesale banking book there is growing as well. On the savings side, we see a good development as well, and the current accounts as well, on the back of increasing the primary customers. That's how we look at it from a more commercial perspective, how we build the balance sheet, and how the client business develops. Yeah, we can always give you a little bit more insight, but for that, I'll give you a cliffhanger.
Come to Frankfurt our Investor Day, and we'll take you through some of that.
Will do. Thank you. If I may, just a quick follow-up on Turkey. I'm just trying to get this straight. If the bank ended up needing some more capital because the credit cycle keeps worsening a little more, would you be willing to commit more capital to the Turkish subsidiary?
Look, if that were to be the case, we take a decision when it comes.
You have to flip the subordinated.
We also have a slab of subordinated debt in there of around EUR 600 million. The first step that we would take is actually flip that subordinated tranche into equity before we would think of putting more capital into place.
Great. Thank you very much.
Our next question is from Mr. Marcell Houben at Credit Suisse. Go ahead, please. Your line is open.
Good morning. Thank you for taking my question. Just one left. On the less quality revenue items, so investment and trading and other income, can you give us a little bit more guidance as going forward? Is the average of the last couple of quarters or years, is that the best guess, or there are certain drivers in there that we should take into account, just because it could be a positive contributor to reaching your cost-income ratio target? Thank you.
I think overall, Marcell, the difficulty is with the lower quality parts, you have a few to think about. In financial markets, yeah, we do want to restore somewhere. Yes, we had a difficult year, but again, quarter by quarter, that's a very difficult one to do. If you look at the other income items, if you then particularly look at the treasury, that was already what I told Farquhar. In the end, this is a pool to par type of business. You will see non-systemic swings in that part. In that sense, it's very difficult to give guidance on the moving parts in our income. That is why I think it is difficult to make that one. If you look at the investment income, indeed you had this quarter, it was a low number because we had a reclassification of Italy.
Yeah, we know that for a third quarter next year, if everything else exists, then we get a bit of Bank of Beijing dividends. There are some patterns in there which you can see over the past, which are in there. Particularly, these non-systemic parts are hard to put a number on.
Thank you.
Yeah, maybe one thing Ralph reminded me of that because that very clearly indicates in the corporate line, we have our so-called legacy result, and the legacy result by the end of 2021, that starts to run off. That is where we are booking a negative result every year right now. I believe it is around EUR 80 million a year at this moment. That will go down quickly, and that will basically disappear to zero. That is the one which has a pattern or a trend in there. Look for that in the corporate line.
Excellent. Thank you very much.
Our next question is from Mr. Raul Sinha, JP Morgan. Go ahead please, sir.
Hi, good morning. Yeah, just a couple of ones from me to finish off as well. On capital, there is a reasonable reliance on mitigating actions within your capital plan over the next three years. I was wondering if you can give us some more detail on how you are progressing in terms of the mitigating actions on the main portfolios, and do you have any updated thoughts on how that might impact your business and your P&L as we go forward? That is the first one. The second one is just on this gap between RWA growth and loan growth. Obviously, this quarter was quite stark, where your RWAs went down by a EUR couple of billion.
Leaving aside stuff that we've already discussed on the call, such as TRIM or these migration areas, are there any other sort of big moving parts that we should be aware of from an RWA perspective? I'm wondering whether you have any models that are pending for approval, whether you're doing any data improvement exercises like you did in operational risk, and whether the impact of these could be meaningful from a positive perspective. Thank you.
Okay, thank you, Raul. On capital, like we said before, there are a number of elements that we bring to bear when to decrease the impact. On the one hand, we can look at the rating of our corporates, and when we have external ratings for these corporates, then you can get a benefit on your capital. When you only have internal ratings, you do not. It's basically to bring external ratings to a number of our corporates to get that benefit. Two, when you look at security, there are a number of covers that you can use. Security covers that you can more specifically link to certain assets that will bring that benefit. We're currently linking those covers better to certain assets to make sure that we get that benefit.
Three, you can use originate to distribute to actually optimize your balance sheet versus your RWA. That's the third element, so that when you look at the different input and output factors in the composition of your balance sheet from a Basel IV perspective, that you optimize that. That's what we're currently doing as well. We will continue to do that, and we're comfortable that we will get to the impact that we've said before.
Sorry, if I can just come back.
Yeah. Other factors or what we should take into account when you look at the RWA movement also going forward, if you look at the model scope that we have and the model inventory, basically, a number of these models are being calibrated all the time. If you calibrate your models and it is a significant change, you have to ask for approval again from the ECB to use that renewed model. With TRIM, it may be that you say, "Well, I'm going to redevelop a couple of models," and that's what you need to have improvements, then approval for as well. With the new regulatory standards that come on in 2020, 2021, you will look more and more at rating systems. What I try to indicate with this is that model development and model redevelopment is something that is going on all the time.
Okay. Sorry, if I can just follow up on the first one, maybe to ask it slightly differently. How much of the mitigating actions that you outlined and talked to us before are already in the bag versus stuff that you have to go out and do over the next three years?
I think that is for this point in time, too early to call. We will look into it, and if we have it, we'll come back to you.
Okay. Thank you very much.
We've no further questions, sir. Please continue.
Well, thanks for attending this call. Thanks for all your questions. I think looking back on 2018, it clearly has two sides, as mentioned before. On one side, we have the shortcomings that were detected in our role as a gatekeeper to the financial system, and in our role to fight and prevent financial economic crime with a resulting settlement there. We have taken actions. We started taking actions already early 2017. We will continue those actions going forward in order to ensure that we comply with that. On the other side, we see a year in which the strategy that were launched five and a half years ago is proving itself again. With a year-on-year, you see the interest income going up, you see the fee income going up. You see the cost basically being almost stable-ish.
Whereas we have in a heavy investment program, the risk of stable year-on-year, with a resulting return on equity of 11.2%. I'm particularly happy that with all the attention that managing a settlement situation on one side and having some of those actions putting in place, at the same time, in the fourth quarter, we have been able to show further progress on strategy and strategic milestones, further progress on commercial momentum and financial performance. It shows the resilience of our colleagues, of which I'm very proud. With that, thanks for your interest in ING, your support to ING, and following us so closely, and speak to you next time.