ING Groep N.V. (AMS:INGA)

Earnings Call: Q2 2018

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Aug 2, 2018

Good morning. This is Patricia Croesoph welcoming you to ING's 2nd Quarter 2018 Conference Call. Before handing this conference call over to Ralph 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 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. Hi, good morning. Good morning, everyone. Welcome to the Q2 2018 results call. As always, I take you through today's presentation. Our CFO, Koos Stenmann and our CEO, Stephen Reitschreich are here with me. Just to go through the key points, I think can be happy with the quarter. ING's group net profit was up 4.2% in the same quarter last year at 1,400,000,000 dollars Just like in the Q1, we recorded a strong core lending growth of just over 14,000,000,000 and that's well diversified, disciplined growth. Also fee income was strong and risk costs remained low. On the retail side, primary customers increased by €400,000 to €12,000,000 and that's real good growth and partly helped by the inclusion of record buying customers as per the Q2 and that's €80,000 out of those €400,000. The 2nd quarter was a very important one for our colleagues in Belgium. They successfully completed the legal integration. They successfully migrated all of the Record Bank customers to ING. And I will provide you with some more details later in this presentation. And given our strong focus on transformation, the digital spend remained fairly high in the quarter. You will see that as well. The group CET1 ratio ended the quarter at 14.1%. That's mostly due to the strong lending growth and the fact that we keep setting aside profits for future dividend payments. Over the first half of twenty eighteen, we will again pay an interim cash dividend of £0.24 Turning to Slide 3. The slide illustrates that we're on the right track with regards to our Think Forward strategy. Total retail customers now exceeded 38,000,000 while primary customers are up to 12,000,000. Euros As said, this now also includes Record Bank. And that's versus the target of 14,000,000 by the end of 2020. Again, this quarter, we saw net core lending growth outpacing the customer deposit growth that helps us in this low rate environment to defend the NIM. Netcore loan growth for the quarter stood at CHF 14,000,000,000 That brings the balance to 4.6% growth since the start of the year. Net customer deposits inflow were just over CHF 8,000,000,000 €8,000,000,000 in the first half year €5,800,000,000 for the quarter and over $8,000,000,000 in the first half year. As per the second quarter, we ranked number 1 in 6 out of our 13 retail countries in Net Promoter Score. In other 4 markets, we ranked number 2. Across ING, as you know, we're all focused on ensuring the success of our digital transformation and our delivering on our ambition to create a scalable banking platform across different retail markets like we had basically done across all of the wholesale businesses as well. And given the importance of the Belgian and Dutch markets for ING, we'd like to give you kind of a heads up as to where we are in the future integration of these Retail Banking businesses. So on this slide, you basically see the trajectory and the steps that we are making towards the full integration of the Belgium and the Netherlands platform. In 2017, the end of 2017, the beginning of 2018, we already put in place a cross border delivery organization. We rolled out the agile way of working in Belgium and made it consistent with the way we work in the Netherlands. And these are now cross border integrated teams, the way we operate. And I think that most important transformation milestone today has been reached in the Q2 of 2018. And that's a successful migration of all record bank customers to ING in Belgium. The 600,000 record bank customers now benefit from one consistent client service model that we deliver from an ING perspective. And basically, they're now catered for by the ING branch network. I think there is making these milestones, knowing that making these milestones smoothly, doing this integration, doing this migration of clients smoothly, That is only because of the relentless efforts and focus of our colleagues in Belgium and the Netherlands. At the same time, that we're undergoing this major transformation, as you can see later in the presentation, have also managed to retain the strong commercial momentum and keep their focus on the customers and have enormous respect for our colleagues in Belgium and the Netherlands as to what they're pulling off. It's really a job very well done up to now. Turning to Slide 5. Just to give you an insight as to how we are building the go to platform for all financial needs. Also in the Q2, we continue to build on this ambition in order to ensure that we can actually cater for all the financial needs of our customers. As you know, we announced this quarter the partnership with Oksa to create a fully digital insurance platform. Our platform will be offering clear, easy, customizable protection products to the weaker customers in 6 of our challenging markets. And this is what we do. This is how we build a client base that is delivered and serves in a digital way. And then we look once they are primary customers, we look as to what are the other needs they have and how can we fulfill these needs. And in fulfilling those needs, we don't necessarily need to do that with our own products. If our colleagues like AXA can help us delivering differentiating products in our differentiating experience. That's platform business. And therefore, I'm pretty excited about these partnerships because several in this one, in the AXA case, we will offer 13,000,000 existing ING customers and growing as well as, of course, non ING customers, the opportunity to get access to a new personalized and digital insurance offering. We also do this on the SME side. For example, for SME customers in the Netherlands, we have partnered with Funding Options. That's a digital platform that will help Dutch SMEs to find the best funding solutions for their growth. Again, here offering next to our own solutions in terms of loans. To the extent that doesn't fit the need of the customer, they will have an option of 3rd parties to help them. It's the same in Germany. By investing in Fin Compare, that FinTech empowers SMEs to easily compare financing alternatives as well. And the comparison element of these services that helps building platforms. We also develop things in house, as you know, and then I basically, I'm turning to Yalt. Yalt now has 400,000 registered users, is ready for the next step in its early life, which basically means that we have decided to expand France and Italy with Yalt. Turning to Slide 6. This is an update that you get every quarter as well because sustainability is integrated throughout our business, And we are mindful of the important role that we can play in, amongst others, the energy transition. It's a crucial one in order to make sure that as a whole we fulfill our commitments to the COP21. So in the Q2, we continue to pioneer sustainability linked financings. What we did is we offered loans that are linked to a company's own sustainability KPIs. So where in the past, the innovation was in making sustainability loans that were tied of which the margin was tied towards the relative performance of externally rated sustainability indices. Now basically, we go one step further and we look at what are the internal sustainability KPIs of a company and can we actually connect margin to their progress on those sustainability KPIs. We did so with DSM and the renewing here in the Netherlands. We also work with Chekina, which is what you see here on the slide as well. That's a real estate trust. Also there, we did a sustainability linked loan, and this was the 1st revolving credit facility of its kind here as well. And for Dutch retail customers real estate customers, I beg your pardon, Our energy robot was launched to help them detect how much energy is being wasted in buildings. Basically, what this robot does is it makes its can generating recommendations, reducing waste up to 15%. And you know that basically energy efficient buildings are the ones you have on your books. And therefore, we help our customers by making sure that they do have the right buildings and they invest in this as well. And last to be mentioned here is that for Australian Bank Macquarie, well known to you as well. We acted as green structuring advisor for green loans. That was structured according to the green loan principles as published by the Loan Market Association. And we, as ING, helped to co develop that. As you're used from us, every quarter we highlight a particular part of our business. So let me now take the opportunity to talk about one of ING's platform businesses that we actually don't talk too much about externally. And that's Intrieb. Intrieb is the largest mortgage broker in Germany. It's fully owned by ING. It's a true example of a fintech that revolutionized a market which was dominated by traditional players. So it started as an online offering and it built also physical distribution and the combination of it is what makes it so successful. That online offering and the complete digitally enabled mortgage platform that they have built can now offer mortgages of well over 400 banks. And if you combine that with independent advice and through more than 100 offices, you understand why they are ranked so high in terms of customer satisfaction and win the different awards over many years in a row already. This business is a fully income driven business. It's got very strong profitability, focuses on net promoter score just like the rest of ING does as well. And the volume share of banks on the Hintree platform fluctuates because basically they advise what is best for the customers. ING is one of the banks that ING Germany is one of the banks offering their products through InterNIP. And through the combination of strong processes and attractive product features, we consistently rank amongst Intripe's top 3 partners. But again, they advise specifically clients. So they actively distribute 3rd party products here as well. What we also do, at least ING in Germany does, we refer clients to ING that do not match our INGs in that credit criteria. And those clients who ask for personal face to face advice, and we basically refer them to the intra hip offices. It's a very good model, a very nice example of an open platform, and it also shows you how the 2 can go hand in hand and create a combined success. Now turning to the 2nd quarter results. Slide 9. Look at the numbers here. The underlying pretax result was just over SEK 2,000,000,000 in the 2nd quarter. It's the highest quarterly pretax result we have seen during the past years. The quarter's pretax profit is basically as a result of continued loan growth at resilient lending margins combined with higher fee income. Risk costs remained relatively low. On a 4 quarter rolling basis, the return on equity, the underlying return on equity improved to 10.4%. In the quarter, the underlying return on equity 12%, and that's because Q2 has lower regulatory costs in the basically, the regulatory costs are seasonal. And therefore, in the Q2, we show a higher number. Sequentially, underlying income was up about €30,000,000 and that's largely due to the stronger income in the Wholesale Banking Lending franchises. Year on year, underlying income was also supported by the strong underlying business in retail and wholesale, but was affected by a weaker performance in financial markets and foreign exchange impacts. And if you compare year on year, in the Q2 of last year, we had this one off gain on the sale of an equity stake that was basically contributed €97,000,000 to the result a year ago. So if you correct for that, you see that the underlying business is really developing very well and supporting the income going forward. The NII, excluding Financial Markets, and now I'm at Slide 10, increased 2.1%, as you can see. And that's mainly explained by higher interest result in the retail Challengers and Growth Markets and Wholesale Banking. Customer deposit margins continued to be impacted by lower reinvestment yields. In the quarter, the savings margin was positively impacted by core savings rate reductions in Germany and Austria. We further decreased our savings rates there. So we have been able to cushion or absorb some of the pressure there. Net interest income on customer lending improved year on year as we continue to lend at higher overall margin overall lending margins. And that, as you know, is partly the result of our changing asset mix. Our NIM continues to be at healthy levels and in line with our high 140s to low 150s guidance that we have given you over the last couple of quarters. So that looks like a good performance as well. Then if you look at let's zoom into the core lending businesses and the growth of CHF 14,200,000,000 in the 2nd quarter. And I'm sure the questions are going to be are going to come, but this growth does meet our risk appetite framework. We do see a bit of increase in competition. And in all of that, we remain return focused and do not compromise on structure. And that's a core element of how we are basically how we do our business. Again, this quarter, nearly all lending franchises contributed to the net growth. See a very well diversified picture here from both a retail wholesale bank perspective as well as a regional perspective. Regional Netherlands saw modest growth in both mortgages and business lending. I think it's a positive sign. The Netherlands from that perspective has really cut the corner now, has basically has come around, is doing quite well. Retail Belgium, as mentioned already, continue to have very strong commercial momentum, notwithstanding the transformation. Retail challenges in growth markets also continues on its growth trajectory. And you see a well balanced expansion to both mortgages and non mortgage lending on Slide 12. In the Wholesale Bank, the net lending net core lending growth was CHF 6,100,000,000 We saw much higher number of longer dated deals and that supports a small increase in lending margins that I talked about earlier. So as I mentioned, Slide 12, in terms of the diversification of the different sorts of lending that we do. You may remember that when we launched Think Forward in the beginning of 2014, you basically indicated that we should build different lending capabilities. And I think that this slide shows you that we have become are less dependent on one asset class. And 4 or 5 years ago, we were very dependent on the asset class of mortgages. And basically, you now see what we have looked at to grow in terms of auto lending that is actually happening. For example, in the retail bank, where you see auto lending, which is higher yielding, non mortgage lending, that is growing by CHF 4,500,000,000 in the quarter. And in the Wholesale Bank, you see also basically different areas growing. But again, to mention, I think it was important that it's the longer dated project in asset based finances, which has supported the NIM, but also the fee income. So from this picture, you can actually see that we have well diversified lending growth in product, sector and geography. Turning to the fee income. In commission income came in at a strong 717,000,000 dollars That was up 56,000,000 or 8.5% quarter on quarter. This was driven by the increase in most of the retail countries despite an overall weaker activities in retail investment products. And that basically put some pressure on the fee levels in countries like Belgium and Germany. Q2 also saw higher fee income in industry lending and general lending and transaction services. The latter is supported by the inclusion of Payvision now. We're consolidating the results of Payvision. And the commission income and pay vision to report as part of transaction services. Fees in financial markets were down, and that's as a result of lower deal activity in Corporate Finance and Capital Markets. We had a very good first quarter in that and the second quarter was okay. Financial Markets in general had a difficult quarter. Client activity was lower. Revenues were furthermore impacted by the lower rates in Europe and the tight credit spreads, but I'm sure you've heard that from some of our colleagues as well. Looking at cost, as you know, if you're going through a major transformation in which you have high investments, it is very important that you do make the right investments and that from that perspective, you do allow some cost growth. That cost growth should be under control and discipline. If you look at the cost growth in the first in the second quarter, if you basically see that you were up $56,000,000 versus the Q1, flattish year on year Compared to the previous quarter, away from the release of a legal provision in the Q1, There was an approximately $30,000,000 quarter on quarter increase in the digital investment spend. We also saw some higher headcount in industry lending, support the growth in the wholesale bank. And also here, we had a bit of an effect of the inclusion of Payvision as we are consolidating that in our numbers. So you see it on commission income and you see it on cost and the inclusion of Pivision. We are very strict about the management of cost. Those areas that can evidence profitable growth, we will allow cost growth. If not, we take measures On a 4th quarter rolling average basis, the costincome ratio on the back of all of this was up slightly at 56.1%. Excluding Q2 2017 in this average, and that was a quarter, as I earlier mentioned, that had this €97,000,000 one off in order income. So here that's why you see a bit of an uptick, although the quarter costincome ratio came out at 52.3%. And all of this, I can confirm that what I've said in previous quarters on cost. We remain committed to the 50% to 52% costincomeratioambition range by 2020. 2018, as I have indicated earlier, is still expected to be an investment year, but we do expect the benefits of the transformation to come through the years 2019 2020. Turning to risk cost. Q2 was another solid quarter for the risk cost. Loan loss provisions were $150,000,000 versus $85,000,000 in the previous quarter. Basically, on the back of a continued positive macroeconomic outlook and combined with a benign credit environment, most regions where we are active, you see that, that delivers low risk cost, relatively low risk cost. And as you can see in the graph here on the left hand side, EBITDA Netherlands recorded a release of €47,000,000 Also banking risk costs were 50 $9,000,000 compared to a net release in the Q1 and the effect of IFRS 9 was visible here as a number of performing files were classified as Stage 2 under IFRS 9 rules. So that's an interesting concept now under IFRS of performing files are attracting provisioning. And so I think we all have to look at that and get used to that as well. Nonperforming loans for ING as measured by the Stage 3 ratio and IFRS 9 dropped from 1.7% to 1.6 percent. For the remainder of 2018, we would expect risk costs to stay well below our through the cycle average of 40 to 45 basis points. Overall risk weighted assets. On the capital side, CET1 ratio remained strong, ended the quarter at 41%, down 20 basis points quarter on quarter, but still well above our SREP requirement of 11.8%. Since we reserved last year's full dividend already in the 1st three quarters, as you are used to, so basically we keep it outside of the capital build on one side, the profit in order to ensure that the 1st three quarters we reserve for the full year dividend. On the other side, we grow. And therefore, it's not surprising that CTE run ratio moves down somewhat during the 1st quarters, especially since we do see the opportunities to profitably deploy capital to grow the business. And that's what you see in improved lending margins. And that's and with that, we do expect NII and return on equity to be supported by this new loan growth. During the quarter, the CET1 ratio benefited from the inclusion of $600,000,000 of interim profits. So what we didn't reserve as a dividend is here, but it was on the other side impacted by risk weighted assets growth because of the higher lending volumes, but also because of a macroprudential add on for the Belgium mortgages and some adverse currency impact. In line with the last couple of years, we will pay an interim cash dividend of €0.24 later this month and with most of Basel IV impact coming in 2022, we remain well placed to comply with future capital requirements. Finally, Slide 17 now. If you look at all the different indicators and the ambitions that we have for 2020, you see that we perform well against all of these ambitions. Both the CET1 and leverage ratios remain well ahead of their minimum regulatory requirements. We reached some very important transformation milestones like, as mentioned, the full integration of Record Bank in Belgium, which will help us to bring down our costincome ratio to the target ratio of 50% to 52%. Same time for 2018, as indicated, we do expect the costincome ratio to remain at a more elevated level since we are still investing digitally on the digital transformation for 2018. And the savings are expected later on in 2019 2020. Finally, as already mentioned on the 4th quarter rolling average, looking at this picture, the group return on equity stood at a robust 10.4%. As we keep growing the franchise while facing continuous pressure from the low rate environment and foreign exchange impacts. To wrap it up, our 2nd quarter performance confirms that we keep executing well on the Think Forward strategy, whether it's on customer numbers, primary customer numbers, lending numbers, savings numbers, whether it is on the milestones of the transformation, keeping our costs under control, you see that bottom line benefits from all of that. Looking ahead, we will continue to focus on managing expenses, optimizing our operational excellence, enhancing our compliance and non financial risk practices and executing our digital strategy. And on a particular point, and I'm sure you are wondering about the criminal investigations. ING Bank has engaged into discussions with the relevant authorities on potential resolution of the issues, but such discussions remain ongoing and their outcome is uncertain. And for the full status on this, I refer to the paragraph on Page 20 of the press release. I think as a full summary, I'm confident that our efforts that we're putting together will further strengthen our company and enable sustainable success for the long term of all stakeholders. And with that, I think the wrap up is done and we have some time for questions. Thank you, sir. Ladies and gentlemen, we're starting the question and answer session now. Our first question is from Mr. Bernard Petrarque, Kepler Cheuvreux. Go ahead sir. Your line is open. Yes, good morning everyone. Two questions on my side. The first one will be on the net interest income and NIM outlook for the rest of the year and next. If I look at your NII and strip out the 2 small one offs on NII, I think you are growing it around 2% year on year ex financial markets. At the same time, you're growing the loan book, I think it's about 7% over the past quarters on average. So I'm a bit surprised actually the difference between growth of loan book and Klin and I. And I was wondering there what you can tell about the underlying commercial margins and also the underwriting deposit margins. So what is the outlook for those two components? And whether you think loan growth will translate into higher NII growth overall going forward? So that will be the first question. The second one was on the cost side. In the past, you update us on where you were in terms of cost savings and achievement of the cost savings. Could you update us on the €900,000,000 where you are in terms of achievement of this cost cutting plan? I think you were planning to get to €400,000,000 cost cutting by end of 2018 originally. Now you've been getting that figure a bit down, but where are you now in the end of Q2 in terms of achievement of this cost cutting plan? Thank you, Benoit. Paul will share the answers around the table here. Bose, if you could Yes. Maybe Benoit, first, if I look at the net interest income, indeed, you spotted well that you see a modest growth. So we are growing by 2%. And this quarter, what you see loan growth is outpacing debt. Overall, what you also see is our net interest income, it edged down from EUR 100 and 52,000,000 to EUR 151,000,000. Three factors play a role. 1st, loan growth is accretive. So in that sense, that helps on the margin side. On the other hand, what we still see is the reinvestment of our savings money is still costing some. And then the third element which plays a role and that is also what you see particular this quarter is we also took some actions in lengthening funding particularly in dollars and that had to do with LCR requirements and with the fact that we took an LCR on a gross basis with regards to cash flow. So sometimes you take some repair actions on side and that is not helping on the margin side. So overall, I think these three factors are there. If you would then ask like what does it mean going forward? In general, on the lending side, things, yes, look quite good in terms of at least what you see in current production in terms of margins, not real concerns. If you look at the savings side, then what we do see is that on the savings side, we still expect some margin erosion over the next quarters. But then again, still we feel we are confident with our overall guidance that we said like the high 140s, low 150s, that is what we see for the second half of this year. Maybe to complement that in view of, I'm sure, follow-up questions that could come. If you look at the current market circumstances, I think the NIM will be managed as indicated by Koos. Basically, the big effect going forward will be to continue to change the asset mix towards higher lending margin. So that helps. That's the way it works. We do see room for selective repricing. And if you look at the Q2 in the major franchises in which we work, whether it is in structured finance, real estate finance. And on lending, we see margins to be stable, if not improving a bit in the transaction services, at least in the PCM area, the payments and cash management area. We see margins improving a little bit as well on the back of the U. S. Dollar business that we have there. Then look at the retail markets, see a bit of pressure well, pressure on stable margins and pressure maybe because of some marketing actions in the Netherlands. But for example, in Belgium, we see margins stable, if not improving. And in Germany as well stable, if not improving. So we do feel that given that situation in the market that we can do some selective repricing going forward and that combined with the change in asset mix and then how we manage the savings margin that is the guidance as indicated by Koos. Specifically on your cost question, the update on the ATF savings. Koos, if you could yes? Yes, Sure. If you look at our transformation program, well, what you know is that indeed we are expecting CHF 900,000,000,000 benefits over time to kick in. But at the same time, the first thing what we got to do is invest €800,000,000 in terms of cost. That €800,000,000 is what we said like we were going to invest over the next 5 years. And what you've seen is it was €38,000,000 in Q1 and it is €70,000,000 in Q2. So we are still making those costs currently. That's also why we ended up giving a rolling cost guidance around the 55% for this year, which we expect that will start to decline over the next year for two reasons. 1, investments will slightly go down. Secondly, benefits will start to kick in. And that is how we see it overall. But the savings, indeed, they are there. The one thing what we have seen is there where we had savings in, for instance, Belgium right now in terms of merging operations, The temporary external staff hiring and IT support we need for that overshadow that, but that is of a temporary nature. Yes. And how much have you realized so far out of the SEK 900,000,000 roughly? We don't want to measure it this way because it becomes very piecemeal and incremental because remember, we also had old programs like in the Netherlands and there you see absolute cost going down. And at the same time we are making cost currently and we are realizing benefits. So we'd like to express ourselves more in the overall cost to income ratio, how we see that progressing. And there again, for this year, we maintained that rolling forward for 4 quarters, we want to keep it under the 55. Okay, great. Thank you very much for that. Our next question is from Mr. Bart Jooris, Degroof Petercam. Go ahead. Your line is open. Yes. Good morning. Thank you for taking my questions. There's sort of a follow-up on Benoit's questions actually. If I take out the Belgium mortgage effect and the FX on your RWA increase and normalized the dividend dividend reservation, your CET1 ratio remains stable over the quarter. So my question is, do you see short time levers to increase that CET1 ratio? And also on the longer term, if you look at what you say on your cost income target, saying that, that goes to 52%, you would save around €800,000,000 there, you would gain that there. But you could lose that also if your risk costs would normalize again to 40, 45 basis points. So basically, if we look beyond 20 18, what do you expect there in NIM? Because NIM will have to improve to improve your capitalization, I think. And also, maybe could you give us an idea of how you see your commissions evolve to that will also be needed to improve your capitalization? Thank you. Well, that was a long question, Ward. Sorry. So let's try to decompose it in a couple of elements here. So your first question is on the CET1 ratio. I'll give that to Koos and then we'll see how we fare with some of the other stuff. Go ahead. Bart, on the core Tier 1, the good news is we are roughly making around north of 10% of ROE. And what we have always said is our ROE is used for 3 things. It's used for facilitating growth. It's used for strengthening the capital and it's for paying a good dividend. And to be honest, in the longer term, we don't need to change something significantly on that because the composition is fine. Now if you look at it per quarter, this quarter, we had a bit more growth. And what we also do is we reserve full year loss dividend in the 1st 3 quarters. So that means like we are a bit stringent in setting aside the dividend and not accumulating that in the capital. So that is what you can see then is that a slight edging down of your capital over the 1st three quarters and then it increases in Q4 and that might be a bit exacerbated if you have good loan growth. But if you look at all things underlying, that looks actually rather fine. So in that sense, we are not too concerned on the core Tier one ratio from that angle as long as you make good margins on your loans and stay disciplined. Yes. On the other part of the question Sorry, if you have the question from Rachel. We've gone through this before. And just to give you kind of the basic recipe as to how we manage, we do expect costs to really come down in the Benelux area. That has been the recipe since 2014 and the transformation is really focused on getting the cost really down in the Market Leaders area. So that's an important element. Then in the Wholesale Bank, we have indicated that as long as we feel we can grow profitably, so business that we book there makes right returns. And if we need people on the front office side in order to support that growth, we will allow cost growth on the front office side, that should be funded by savings in the further digitization of the machinery, if you will, of the wholesale bank. So a flattish, if not a bit of an improving costincome ratio for the wholesale bank over time is what we are working on. But we would allow cost to increase if overall we feel that the costincome ratio can go down in Ulster Bank. And in the challenge in growth markets, clearly, we have commercial momentum. We are the leading digital bank in many of these. We have a differentiating client experience. We continue to grow in number of clients. We continue to improve our offering in order to ensure that we build a client franchise rather than a product franchise. And for that, we don't mind some cost increases as long as over time again here, we do expect income increases. And with that, the costincome ratio also to decrease. Now you can't compare us to some of the incumbents that are just doing the transformation and seeing no growth because then you only expect cost to go down and you should. But we are an incumbent and a new bank at the same time. So in the more incumbent areas, you should expect from us to get the cost really down. But in those areas where we are much more a technology company and in which we are much more a fintech, if you will, or a platform, and we're growing so fast that we don't mind cost increase if over time, from a customer relationship perspective, we do expect the income to increase as well. Specifically then, if I then go into, in general, the NIM development for the year, we expect this still to be at the 540s. The fees, as we have indicated before, coming from a base of 6.50, 6 €6.60 a quarter, we expect fees on the back of how we develop our franchise, specifically in the Wholesale Bank and in the Challengers and Growth Markets, we expect actually to grow faster than the other income components by 5% to 10% per annum. And as a consequence of that, the fee component of income to increase and getting closer to the 19% or 20% of total income. I think these are I'll just try to decompose your question into a couple of areas, and I think these are the areas that you need to know more about in order to help you there? Yes. Well, I was more looking about your NIM after this year because probably your reinvestment yields on your deposits going down will bottom out somewhere there. So you could maybe profit from some loan margin expansion. So that was more my question about the NIM. No. Honestly, I think the as we were indicating, we don't see too much pricing pressure at this moment in time. We will look for selective repricing, not only because it needs to be done in order to get the right margin, but also in order to ensure that the increased capital requirements that will come in over time in Basel, we do some repricing in order to continue to have profitable growth. So that will influence the NIM. And therefore, it will, in our view, be stable over time, if not maybe improving a little bit. Our next question is from Mr. Robin van den Broek of Mediobanca. Go ahead. Your line is open. Yes. Good morning, gentlemen. Sorry to come back on the margin again. But I think over the last quarter, you've given a little bit of detail on the replicating liability portfolio where you allocate €300,000,000,000 on the EuroSoft's 5 year point and another €120,000,000,000 spread over the EuroSoft 7 to 10 years point. If I look at that, I can still see some residual pressure come through also next year, which you cannot offset by deposit rate cuts anymore. I was just wondering if I look at your narrative so far on margin, it seems that repricing could be a new element. So could I basically assume that you're going to be able to offset that residual pressure on the replicating liability portfolio by this repricing? And then the other elements within NIM still remain in place? That is the first question. The second one, unfortunately, is also on costs. On your investments compared to your Capital Markets Day plan, I think so far this year you've done roughly €110,000,000 dollars The budget for the year is €170,000,000 So contrary to last year where you were back end loaded on these investments, it seems now you're more front end loaded. And you've also indicated that the record bank integration on the Belgium platform is now fully over. So I was wondering if there are any I don't know, you can put the platform off. Are there any cost reductions coming through from that in H2 already besides the lower investment spend in H2? Thank you. It's Kurt, maybe on the NIM, the following point. What you have seen in the past in Belgium where we hit the low of 11 basis points, by that time it started to have influence on your NIM, but also realized that that was already more than a year ago. And by that time the portfolio yields were still a lot higher than how the money was reinvested when it matured. What you see right now, we are in a slightly different situation because we are approaching 0 in the other countries, But average portfolio yields have already dropped and reinvestment rates are actually a little bit higher. So the consequence of not being able to lower your savings rate is less than what we faced in Belgium in the past. And that is also the reason can we then say it's completely not there? The answer is no. But that is why we say like it's 1 or 2 basis points of FX which you could expect over the year, but not a lot more than that if we take the current forward rate as something which is about to materialize. So in that sense, we are not too much under pressure there. Then the question is, can you really compensate that with loan growth and additional loan margins? Well, that is what we have been doing over the past, but at the same time, yes, loan demand, it needs to meet our capital hurdles as well. So as long as it does, we will do so. If it doesn't meet the capital requirements, then loan growth will be a bit less and it won't compensate. So that's the way how we work as a team. Okay. And then maybe it goes to one question on that. I think the current 1 year of 5 year Eurusubs is 35 basis point. The 1 year forward is at 65 basis points. So it is an important assumption that we will move that that forward rate will materialize basically. If we stick at 35 bps, then there will be more residual pressure on this replicating portfolio presumably, right? If you have the current yield curve not moving an inch and just staying as is over the next 1 or 2 years, then that has implication for your income. You're right. Robin, we don't manage these projects quarter by quarter from a cost perspective. Clearly, these are major transformations that have often are seeking for the same IT specialist and therefore sometimes we prioritize one versus the other. And that's how we manage them because in the end, given the fact that this is such a major transformation in ING from so many different perspectives, whether it is more from a country perspective or more from a function perspective as to what we do in risk and finance and what we do in the foundation in order to move to the cloud or building a data pool. All of that has to do with IT. All of that comes in the end to often to a couple of specialists. And with that, we prioritize over time. So we don't manage specifically on a quarter by quarter basis, but we are managing this project and getting it done. And that is, I think, the important message here is that we are, on all projects, making progress. And sometimes we accelerate some of these elements. And sometimes in some projects we delay some because of what I just mentioned. And with that, the cost could come sometimes a little bit early or come a little bit late like last year. This year, specifically in Belgium, we saw a peak and that is on one side because of the extra digital investments that we needed to make as part of the brand. It's also because we had to backfill on some of the people that left ING early. And in order to make sure that clients, specifically the new clients that are coming on from record, get onboarded in the right way and get their questions answered quickly through all the channels. We have hired some additional people in order to ensure that they do benefit from that service. And we do expect that to fade away for the total organization and to absorb that extra volume. So the cost there, you should expect to decrease, but more in the 1st couple of months of 2019, not so much in the second half of 2018, in Belgium specifically. So as I said, we will invest as needed to complete this transformation and we will get these benefits. And related to the platform of Record Bank, anything to say there that effectively you could switch it off, I guess? There's no potential cost saving connected to that? There will be. There will be. And you will see that coming through at a certain moment in time. So I mean the whole idea is that we will move from 3 platforms and now I'm talking about internal platforms and not about external client platforms, but internal IT platforms and core banking Benelux and market leaders, we will move from 3, basically Record Bank, ING Bank Belgium and ING Bank Netherlands. We will in the end, in this program, move to 1, being the revamped platform that we have in the Netherlands. And as we speak, we are preparing that platform in order to be able to migrate the ING Belgium clients onto that. And then at the end and therefore some of these savings specifically if it is all about decommissioning, the biggest savings in this program are a little bit back ended. If it comes if we're talking about decommissioning savings, It will be back ended because you can't switch system until the final client has left the system. And that is an important thing to notice. Therefore, we do expect cost to go down. We do expect cost income to go down still. And you will see that next year already and then 2020, 2021 as well. So we're confident about reaching that costincome ratio. But at this moment, for 2018, we are in an investment year. Thank you very much guys. Very helpful. Our next question is from Mr. Bruce Hamilton, Morgan Stanley. Go ahead please. Your line is open. Hi, good morning guys. Thanks for taking my questions. Firstly, just on the sort of industrial lending book. Obviously, there was a pickup in the longer dated lending, which helped fees and NII in the quarter. How much is that part of a kind of more sustained push? Or is it just a function of the opportunity seen in the quarter? So should we kind of normalize that? And how do you sort of balance growth there against the risks that we're getting sort of later in the cycle and any segments that you're sort of actively looking to avoid? And then secondly, linked to that, how meaningful were the benefits from restructuring files in Q2 from the industrial lending and the general lending books, just to get a sense? I assume quite small, but just wanted to check. Thank you. I'll give the word to the floor to Stephen. Sunny on the second part, maybe also on the first part, and then we'll come back in the first part as well. Go ahead, Stephen. Yes. I think you agree. So with regards to lending, I mean, if you look at and we've shown it also over the past number of quarters, typically, at 1 quarter, you'll grow in longer dated lending. Other quarter, we grow more in working capital solutions. But if you look at the growth that we've seen in the past quarter that was specifically focused on shorter dated lending in trade and multifinance based on a higher dollar and higher oil price. So in that sense, you could see more of that quarter as an anomaly than typical growth in structured finance overall, where we grow our projects in our projects finance business all across the world. Then with regards to the link to the risk costs, I mean, we will we stay and Ralf already said that within our risk appetite, we typically focus also in our project finance lending on 1st quartile cost producers. Often, our loans are secured. Often, with regards to shorter term funding, they are self liquidating. So there is no move and no desire to move in our risk appetite because we know what we know, but we are not going to diverge from that, especially not in this part of the cycle. Then I think your other question was with regards to the height of the risk cost or what that does in terms of restructuring files and how you should potentially break down, I guess, the risk cost within Wholesale Banking. I mean, if you look also in the press release, on the one hand, we had a benefit of one of the restructuring files coming back to performing, and that had an influence on the performance of industry lending. On the other hand, and that's what you see actually in the total risk costs, the last quarter we had a number of releases on Stage 3 of files that were in restructuring that came back to normal performance. This quarter, we had less of those releases. What we did have was a number of files that are actually performing but that moved to Stage 2, for example, because of sanctions. And when you move from Stage 1 to Stage 2, you go from 1 year losses to lifetime losses over the term of your loans. And that has an impact on the total risk cost that you provide for in your P and L. And that has impacted the risk cost in the Q2 of this year, also linking. Got it. And so just to follow-up, I guess my question is more, I thought you'd had a benefit through NII in Q2 from those restructurings. And I was just trying to size how big an impact that was. Yes. That we indeed that's what is also in the press release, but that's a small benefit of the total. Okay. Okay. Thank you. And maybe, Bruce, to on your first part of your question, as indicated by Stephen, You see from a lending growth perspective in euros, you see a bit of an inflated number on the back of the dollar and the commodity prices, specifically in the TCF. If you look at the longer dated business, the number of deals that we did in the 2nd quarter is the normal number of deals. It's just that in the Q1, it was a bit too low on the number of deals. So if you just move away from kind of the euro number that we're showing and you correct for the dollar effect and the oil price and commodity price effect. That's always part of our numbers there. And you look at number of deals on the long term side, the Q2 is a normal number of deals. Okay. That's helpful. Thank you. Next question is from Mr. Benjamin Goy, Deutsche Bank. Go ahead. Your line is open. Yes, hi, good morning. One follow-up on fee income. So you mentioned your target growth in industry or in Wholesale Banking, sorry, and the challenges. Also in the Benelux, you did very well in the quarter. So just wondering what was the driver here in an also easy quarter. And more generally, deposits are still flooding in, particularly in the Netherlands. So is it more potential to convert savers into asset management products or anything else here? Thank you. Well, I think the fee income in the balance is if that's a specific question, it's a little bit across the board. There is some conversion happening from savers into Investment Products, but actually that's not where we see the most of the activities, honestly. So basically, the fee income and the balance is really a little bit across the board. It's in payments areas. It is on closing more mortgages. And therefore, specifically in the Netherlands, there's fee income related to that as well. So it's a little bit of everything from that perspective. Thank you. Our following question is from Mr. Stefan Nedialkov, Citigroup. Go ahead. Your line is open. Yes. Hi, guys. Good morning. It's Stefan from Citi. Two questions. The first one on costs and the second one on your fintech partnerships and the AXA partnership. In terms of the costs, specifically in Belgium, could you please give us an update on how many branches have been closed at this point following the legal merger between ING Bank Belgium and Recruit Bank? And what's the time line over the next 2 years? And similarly for employees, I think the initial plans were to basically get or I should say lay off 3,000 500 employees, where are we now in terms of that number? And over what time frame are we going to get to 0 from the 3,500? And a related question to that, just looking at your costs disclosure, external employees and external consultants account for around 10% of your overall cost base. What would you expect that percentage to be sort of halfway through the digital transformation that is end of 2019 and at the end of the digital transformation into at end of 2021, that is? So sorry, that was that might have been a little bit of a longer question. The second one is much shorter. Can you give us an update on the AXA partnership? Where are you in terms of designing the modular products? Can you give us some more disclosure on your expectations for fee generation from 2019 onwards? Thank you, Stefan. On the cost, so in Belgium, if it comes to branch closures, we have now integrated the Record Bank into ING Bank. And from of all the Record Bank agents, I think just short of 70 are becoming ING agents. And that is then again from that perspective optimized into a total branch network, a distribution network of 6 65 branches or distribution points or franchisees as however you want to call them. Now that has basically been done now. Now then your question is going to be, so what about my cost? Now the Record Bank used to work through agents. And therefore, the cost savings in terms of costs that are in running a branch and having a branch and all that were always with the agents. So where you could see in the future a bit of a difference is more on the commissions you pay agents as to how to manage your client base. So there is no direct benefit, well, not a big one, from those branch closures if it comes to the record bank agents being closed. Now on the FTE development, without going into specific details as to which number will exactly be reached by when in the Unite migration. But from a Belgium number perspective, towards and including 2021, you can expect that effect on FTEs to be more or less evenly spread across the different years. That's on the FTEs in Belgium now. On external FTEs in the Netherlands, I think that was your question there. Externals in the Netherlands have a lot to do also with the basically the digital investment program because these are many of these are IT people. So as long as we continue to invest and as long as we need it, we will have externals there. So these are not externals that backfill like we have a bit in Belgium, but these are externals that we work through on a contract basis and have worked through for many years because it has always been a pretty high number. And they work as part of our IT workforce. And so it's just not that they will be decreasing well, they will be decreasing if we decrease our investments in the end. The what they will deliver though is a much more efficient process. And therefore, the savings that you can expect in the Netherlands and in Belgium is much more on the operational side and the operational cost base in the Netherlands. So I wouldn't focus too much on internal, external FTEs because they do support the franchise and the investment program from a Dutch perspective. Now on AXA, we're only starting as we speak with AXA. So we concluded that deal. We're now setting up the team. Clearly, this is going to be a team that needs to come up with a different approach to insurance because otherwise, we would not be delivering a differentiating client experience. So this is about decomposing insurance needs, looking at the insurances that some of our clients may already have and then ensure that they kind of are not over insured on one side or don't have a lack of insurance on the other side by decomposing the products and making it very simple, very clear and very transparent. That's how we want to go about this. Now the first products you can expect to come into the market in 2019. And I think the first products will probably be on the credit link side. So basically products at one way or the other are cross bought by our customers as part, for example, as part of a mortgage. That's where the first steps will be made. And then on top of that, we will further develop new products. We're not giving any indication as to what we expect from a revenue perspective on that. Okay. Thank you. Our next question is from Mr. Farquhar Murray, Autonomous. Go ahead please. Your line is open. Good morning, gentlemen. Just two questions, if I may, and I'll try and keep them brief. Firstly, the CHF 6,300,000,000 of wholesale industry lending in the quarter seems very strong. You say it's consistent with your risk appetite. I just wondered maybe could you give us some kind of quantitative comfort that you're not sacrificing structural terms and pricing to get that on the book? Secondly, so the follow-up on the answer to Robin's question where you indicated 1 to 2 bps on NIM, I think. Can I just clarify that is 1 to 2 bps negative on NIM year on year, probably from the high of 140 bps guidance for the second half? And is that with the yield curve as it is with no deposit rate cuts going forward? Just so I understand what's implicit to that number. Thanks. Okay. Stephen, for the first question, and I'll give the second question to Koos. Yes, okay. Thank you, Farhar. Well, with regards to the first question, we continue to have a diversified book in Wholesale Banking, including Industry Lending. We are continuing to focus typically on 1st cost quartile producers with secure structures where we typically are senior secured or super senior. So there is no deviation whatsoever from the current structure that we have. Like I also said in the past, with regards to certain sectors such as acquisition finance or real estate finance, we put caps in place to make sure that we do not focus on cyclical sectors or that we stay within the risk appetite that we have. And at this point in time, we feel comfortable to continue to work in that way. Going back, by the way, on the question that Bries asked a couple of minutes ago regarding the releases of a few of those files and getting them back into performing. Both of those files have a release in terms of single digit in terms of NII, and this is a release of accrued interest. And on the question of the NIM, could you say the 1 to 2 basis point negative year on year, is there no deposit could forecasted? Well, maybe a little bit because I mean we don't give indications on when we could, but we are not completely flat at 0 at all countries. So there is maybe a little bit of room to do something. And in that case, that is included. At the same time, is it based on the current yield curve? Yes, that was the current yield curve as about 2 weeks ago. At the same time, we also see that reinvestment yields are now 5 basis points higher than it was 2 weeks ago. But at the same time, that is what we didn't factor in. So overall, what is it that we do? We said like, well, reinvestments will still be at slightly lower rate than current portfolio yield that has a 1 to 2 basis points drag including that we say like, well, we might drop deposit rates where there is something possible in the future. But then again we never give indications when that is that we do that or if we are going to do it at all because you also look at the competitive situation. Okay. Thanks so much. Our next question is from Mr. Marcel Hugen, Credit Suisse. Go ahead. Your line is open. Yes, good morning. Thank you for the presentation and taking my questions. I have 2 left. Of course, on the Basel IV mitigation, I think you stated earlier that you can mitigate roughly onethree of it. Can you say anything regarding the timing? And can you I know it's top down and early stage still, but can you split that onethree into, for example, synthetic securitization deals? That was the first one. The second one is Ralph, on the cost to income ratio guidance sort of, it obviously also implies a revenue growth assumption. So if I assume roughly 7.5% fee growth, 2% NI growth, so you're looking at roughly 3% revenue growth per year. Is that sort of the is it good thinking there? Thank you. Yes. So maybe first one on the Basel. Indeed, we think there is ways how the impact of Basel can be mitigated. If I give you a few examples, if I look at high end corporates and if I look at rating all your corporates, well, there is a few unrated corporates around. And if we do apply a rating to them, that has an impact of €2,000,000,000 on your RWAs. Well, €2,000,000,000 is not the same as a 15% increase of your RWAs, which is €45,000,000,000 but at the same time it helps. So these kind of actions will work. Originate to distribute, yes, that will something which will start to give some RWA releases as well. But I think the most important part is actually just allocating more smartly. So if there is business where either we say like, well, there a bank is not the best provider, given Basel that should be other institutions, then you can say like, hey, let's refocus on some other activities. And that is something which will happen over time. Do we have it detailed out already in a work plan where we say like this is the allocation of savings per work stream? There the answer is not yet. But at the same time, you also realize we have till the end of 2022 to basically cover most. But we do feel comfortable that around a third of the 15% to 18% increase what we see is what we can mitigate. Also because that was basically at that 15% to 80% what we indicated earlier that was replicating the same portfolio exactly in the future, and you would normally never do that. So that is basically the actions we have. So OTD, rating the unrated, come to a different allocation and maybe look at other structures. So you can say like is our collateral well divided over the facilities and can you do that smarter with clients. So all these actions they will help and all of them we will set them in motion. And over time, we will come with a more detailed time line on that. Yes. Marcel, on your costincome side, as you know, we don't necessarily guide on NII. We do guide on how we grow the loan book in a profitable way. So basically, if we can grow our loan book profitably with the right returns versus the capital that we need to reserve for these loans. That's how we grow the NII also in the next foreseeable future. And the fee income on the back of the having more primary customers as well as the strategic review that we did in the Wholesale Bank in order to ensure that these client relationships that we do more business with also outside of lending that the fee income is expected to grow faster than the NII. But overall, we don't give guidance on it and there is a reason for that. It's not that we don't want to give it. It's just that we run a prudent shop, which basically means that if the revenue is not there, we will deliver it on cost. And therefore, clearly, we have our dynamic plan and we're agile in the way we plan. As long as we see the revenues coming in, we don't mind investing and growing. At the moment, we feel that the revenues are not going to come in on the back of what we're delivering and it will have to be delivered on the cost side also across those franchises that in principle need to grow. And therefore, we have guided on cost income. And I think that should give you much more certainty and specifically in Income 1. Thank you. Okay. Thank you. Next question is from Alicia Chung, Exane. Go ahead. Your line is open. Good morning, everyone. Just a couple of questions for me. First of all, just looking at the corporate center, the run rate of net profit over the last couple of quarters has been quite good mainly on revenues. Just wondering why that is? Is this just volatility? Or is it something a bit more sustainable? And then secondly, just looking at the costincome ratio in the Financial Markets business, now we see it's being quite structurally high for a while. When can we expect to see the benefits of the consolidation of the trading floor and trading activities coming in? And is there also other further opportunities beyond that for the cost to move lower given that revenues may well stay cyclically low for a while? Thanks. Okay. On the copper line, I'll give the floor to Koos. Yes, Alicia. So on the corporate line, I mean, in general, what we have there is a few things. 1, we have some capital related activities and that has to do with the investment of the capital, the FX hedging of the capital. Now the investment of the capital is gradually sort of gradually giving you a lower rate because we reinvest there. So that is not so good. On the other hand, the foreign exchange is always choppy. But at the same time, what you see there is that overall, it's a good result right now. I think if you ask what is now structural, structural is that in the past we when we started to extend our funding and then this goes back into 2012, we said like, hey, if we have to lengthen our funding and implement LCR and everything, we didn't want to retroactively price that to all our commercial units. So then we took a negative hit at our corporate line. That one and that was running with a run rate of around 80 or so 80 a quarter. That one is going to disappear gradually. And by 2020, 2021, that one is gone. And so that is, I think, the most important part where we do see over time, and that is particularly beyond 2020, that this element will disappear out of the corporate line. So barring that, we would be quite positive on it. And on the costincome ratio for FM, I think it's a good question, but it's about costincome ratio. So actually, the guys have done a real good job merging the different trading floors across Amsterdam, Brussels and London. And that has happened. So that's done from that perspective. Now the cost will come out, specifically the direct cost will come out because of decommissioning some of the stuff and also saving on basically on coordination costs and what have you. So that restructuring is done. The next step is also to ensure that indirect costs, so through the whole value chain, and you know that Benchmark has quite an integral value chain into the risk systems and into the finance systems that, that will be rationalized as well. So on the cost from that perspective, you can they will continue to manage that. But the integration of the trading floors has been done completely. Also as part of that plan was the managing capital much more efficiently. And basically, what you've seen also this quarter is that there is some release on risk weighted assets from the financial markets practice there as well. Having said all of that, while costs are under control and actually cost saves are being realized, we see that the markets are not helping the financial market franchise on the income side. So and costincome has 2 sides. So the question is how far can you go in trimming your franchise on one side in order to reap the benefits when the markets come back. And that's basically where we are right now. If you look at the income side on in Financial Markets, we've actually seen on a year on year basis that the FX business is actually generating more income. But the Rates business has is under pressure, as you know, and you know the reasons why. The Equity business, the Equity Products business, part of that is sold and transferred. So the income is decreasing there as well. Then on the Debt Capital Markets and Corporate Finance business, this quarter was just a lower quarter than same quarter last year, but that can be picked up anytime as well. So on one side, yes, the team is doing quite well actually on restructuring and on integrating and have finished the transfer onto 1 hub. Costs are being managed further down. But on the income side, the market is not helping except for the foreign exchange side of the market. Thank you. Thank you. Our next question is from Mr. Kiri Vijayarajah of HSBC. Go ahead. Your line is open. Yes. Good morning, guys. I've got a couple of questions on the wholesale bank. So in terms of you're lengthening out the U. S. Dollar funding, I was wondering, do you push the cost of that down to the wholesale banks kind of individual desks that actually use the U. S. Dollars or do you keep it in central treasury? And in terms of kind of better understanding the LCR issue itself, is it because so much of the volume growth you're generating at the moment is really skewed towards U. S. Dollars and of course all the deposit inflows are kind of all predominantly going to be in euros, in which case is this kind of potentially an ongoing issue for your currency LCR? Thank you. Thanks. Well, maybe on the first question, lengthening the dollar funding profile, what happened is the following. Indeed, we have seen over the 1st two quarters also a significant amount of growth in our trade and commodity finance. So and that needs to be funded because, I mean, dollar got stronger, trade commodity finance, underlying commodities got higher. So that got funded. And that means like, okay, then we normally use also short term debt to fund short term assets. If you ask like how do we price things, normally what happens is in case we need liquidity, for instance, if it's for backstop facilities or anything, all of this is transferred through to the business. So contingent liquidity and all these things that's charged to the business so that there is not a form of free arbitrage around it. Now what happened as well and that is second and that is a bit irrespective of this. If I look at LCR, what happened is we do businesses with clients cash pooling and that can be euros only or that can be multi currency. And in cash pooling, the fact that balance sheet needed to be grossed up also meant that you need to hold liquidity for this type of thing. And that growth element, that is where we needed to cater for and lengthen a bit of funding and make investment in securities. So that is the part what I earlier mentioned in the call. So I think you see 2 effects. Yes, on your first question, is anything what we do on liquidity side or on funding side repriced to clients? The answer is yes. Secondly, the LCR repair, which we did, that had to do with grossing of net balances and that is done. And to be honest, also these kind of things get priced through to the end customers because in the end you want fair pricing. Great. Thank you. Next question is from Mr. Nick Davey, Redburn. Go ahead. Your line is open. Good morning, everyone. Two questions, please. The first one is a bit of a follow-up actually on that dollar funding question. I seem to remember in the past, you've talked about possibly having a sort of risk limit on the balance sheet in terms of how much dollar denominated assets you're willing to have. And my question is, are you anywhere near that limit? Do you think you're anywhere near sort of peak dollarization of the ING balance sheet? The second question, I may be pushing my luck, but on the cost of risk, you've obviously been quite a few quarters now miles away from the 40 to 45 basis points through the cycle target. And I suppose I would humbly suggest that having a through the cycle guidance is just not that useful for us given that you'll run for many years below it and then for some years above it. So my question would be, could you sort of dissect the 40 to 45 bps through the cycle average into what you would expect it to be in a good year and what it might be in a bad one? Thank you. Maybe on the dollar part, are we reaching a limit? The answer is, it's not one number, but what you see is we are still replacing debt. And that means like we are recycling debt and we can do that partially where we in the past issued more euro based MTNs. We do it a bit now more in dollars. So is there still room because in the past we were more a frequent euro issuer and now we are a little bit more a dollar issuer. So there is still some room there left, but can you sort of infinitely continue to grow with 4% or 5% on also by the side in dollar assets? Only the answer is no, but we have not bumped up against a hard stop right now, But we want over time a moderation of this year. Yes. Thanks, Nick. Regarding risk costs, I mean, clearly, as you look at the cycle now and people have been asking me, are we at top of the cycle? Well, that's always difficult to exactly pinpoint. But if you look at the growth of GDP and the further growth forecast, you see some of these forecasts being flat or some of them tapering off. And we see consumer confidence and macroeconomic confidence in the industries being at a high level as well. And you also see at this point in time that the risk costs indeed, as you well point out, are very low. And I think that risk costs in this quarter is one of the lowest quarter we've had for many quarters. If you also then look at what you see in Stage 2, the total risk book actually goes down a bit. And if you look at Stage 2, it goes up a bit. And there you see indeed based on sanctions or other elements, and then suddenly you see it appears some risk costs appearing in the Stage 2 element. Those are all indicators, if you will, that we are at the top of the cycle. If you go back for the past 10 to 20 years, you see that the risk costs as a percentage of risk weighted assets are between 40 to 45 basis points. And now they are, at this point in time, between and then 20 basis points and they were a bit higher than the 40 to 45 basis points at the solvency cycle. At the point in time when we hit higher risk costs, which was I believe 2011 or 2012, it still included a book called Real Estate Development. And we've at that point in time, we built off that book and have, by and large, limited real estate developments that we have done that we did in the past and focus in real estate only on real estate finance. The difference between what we see now with Stages 1 through to 3 compared to what we had under the previous IAS 9 or IAS 39 is that we have Stage 2. And it also means that in cases of economic downturn with the macroeconomic scenarios that come in on GDP or loan to value, for example, in mortgages, that has an impact on the loan losses. So it may therefore well be that risk costs as a percentage of risk weighted assets will be a bit more procyclical, if you will, than we've seen in the past. But for now, we stay well stay confident that at least for now, we stay well below our risk cost average of 40 to 45 basis points. Okay. Thank you. Next question is from Mr. Tarek El Mejjad, Bank of America Merrill Lynch. Go ahead. Your line is open. Yes. Hi. Thank you for taking my questions. Just two quick questions. First of all, on the fintech initiatives you have, I mean, I understand this is all small businesses and contribution to revenues taken individually must be small. But if you add them all together, can you give us a sense on how much that will boost your revenues? And is that significant or should you just ignore it? And maybe linked to that, if it's a small number and you don't communicate on it, is it just a sense that you basically offset what would be loss of revenues or is it really incremental? And my second question is on costs. I mean, I really hear you about the back end loaded nature of the savings versus investments. But I want to know what you're thinking here in terms of the need to invest more in the next 2 years because I don't think the investments on digital are finished yet. And you probably need to keep investing to keep pace with all the new banks and the fintechs and improve the systems. Thank you. Okay. The I think most of the fintechs that we are after are really services that otherwise we would lose either clients through or revenue through because basically what they are doing is they focus on how to improve the client experience. And as you know, that part of the Think Forward strategy is exactly that. That's the focus. And ensuring that if you focus on the client experience and to a certain extent you can develop that yourself, that unique client experience. And to a certain extent you have to get it from the outside. That's what you do. So these fintechs help you on one side to make sure that you continue to deliver on that. And with that, that you continue to deliver on your Net Promoter Score and with that, that you continue to deliver on your client growth. And that's what you see. So it's kind of included in the overall way of managing our franchise and growing our franchise. And it doesn't kind of add on top of it from that perspective. And some of them though, if it comes, for example, to our acquisition of Payvision, it will automatically deliver additional clients and additional income. So some of those who are not really kind of fintechs anymore, but already kind of scale ups and have a client base with an offering that is almost unique, which is beyond delivering a better client experience. There you can expect that there will be income growth from. On the overall ING income, it will help, but these are not the numbers that will make our P and L. But it is crucial in terms of building our platform over the future. Now on your cost side, do we need to invest more in digital up and above the ATF investments? Well, currently, our progress is so comprehensive and we're in the middle of it that before we think about do we need more, I think let's just make sure that we focus on executing what we got your mandate for because that's the way I think we work. You presented you a plan. You supported that plan. We have to deliver within that mandate. And that's what is important to us. Will there be more investments needed on the back of that? Yes. I can already kind of paint you a picture that on the back of this transformation plan, we will have a platform in the Benelux And we will have a platform in ModelBank across 5 different digital banks. And from that moment onwards, we will take the next step and see how you can deliver truly one platform across all of these countries. So yes, there will be more investments needed at that moment in time. But having said that, every incremental investment in order to support each country's business will be much lower than if you still would have a country by country business, whether it is on commercial opportunities in terms of delivering a better customer experience, introducing a new product or service like scalable, which if you develop it for 1 and you connect it to 1 app, you can actually develop it to all of the other apps in those countries as well. So there is where you benefit by scaling very, very quickly on these investments. You also benefit honestly if it comes to, for example, operational costs as well as, for example, compliance costs because if you are fully standardized across a couple of countries, then the incremental investment in order to improve specific processes or procedures or improve your IT risk and defend against cybersecurity, all of that will be incrementally lower in a platform approach than a country by country approach. So the benefits will be because of the scale across border at that moment in time. But the picture is that after this transformation program and if it does work out that you can deliver also in banking, a standardized service from 1 platform to clients in different countries, then there can only be one plan thereafter, which is you do it for all. And at that moment, we will also then be benefiting from the fact that we have already done a major transformation in the Benelux, in the Market Leaders and a major transformation in some of our digital franchises at that moment in time. Okay. Thank you. Next question is from Mr. Timat Logevelo du Timat from Jefferies International. Go ahead. Your line is open. Good morning. Maix de Gourve, Jefferies. A quick question two questions on my side. The first one, can we come back on the gross market on the caustic pension? How are you surprised about the speed of the acceleration? And is it driven by the success of ING offer? And how long you believe it's going to last? The second question will be about Turkey. We have not spoke about it. Can you let us know what are you doing over there in light of the recent political element? Stephen will answer the question on Turkey. I'll come back on the growth of costs in the Challenger Growth Markets. On Turkey, yes, I mean, we are watching the developments in Turkey carefully. We have a loan book of about €15,000,000,000 which we by and large have kept flat. It has decreased a bit in or quarter on quarter based on a change in FX rates. Our total loan book there as a part of the total loan book in the for ING is about 2.3%. The Stage 3 provisioning is of a similar level, so about the 2% to 2.5%. So that's actually very low. And if you then look in the composition of that loan book, we have a mortgage book of a bit below €1,000,000,000 So we keep that limited and relatively short dated. On SME amid corporates, what we have done is we have we are working also with the state in terms of the guarantee that they give for lending, which currently is about CHF 1,500,000,000. And we want to limit that to some extent because you want to be careful not to overextend your loans, which are supported by that guarantee because that guarantee is also subject to a certain level of NPL levels and we want to stay within that. And when it comes to foreign exchange loans, which are largely in Wholesale Banking, there we want to make sure that to the extent that we give loans these companies in euro or in dollars that they also have euro or dollar revenues deal with that. And that's what you see in mid corporate, but also with the corporates and the way that they publish their results compared to some other countries, there is good information available to actually see that they make dollar or euro income. And in that regard, we are trying to match the funding that we gave in foreign currencies to the revenues and the income that they make. So in that sense, we keep a keen eye on the developments over there. But until now, based on what we're doing, the size of it and the resources that we make, it's well under control. And Maxence, on your other question, well, in other CNG, because this is basically ex market leaders and ex Germany and then retail, there's a lot going on. What is going on there? We have a ModelBank brand, which is basically investing in order to create a platform, a standardized banking platform across 5 countries. We are working on introducing new products, for example, a scalable initiative we have there and we want to connect this into the service in other countries as well. We have the AXA initiative that will also have some cost increases in order to ensure that in the end, the move towards primary customers and the move towards a full fledged universal digital bank that you also have the product offering there. So there is a lot going on there. At the same time, these franchises are growing very fast. So if you look at the growth of the primary customers, the 400,000 for the quarter, That apart from the 80,000 that come from record, out of the 320, most of the 320 is coming from countries like Spain, Poland, Australia, Romania. But we're growing very fast in all of these markets. And we're not just completely digital yet. So basically, that means that growing customers, growing lending also means sometimes growing FTEs. And then we have some improvement programs if it comes to ensuring some of the systems that we have if it comes to improving the customer onboarding processes that we have and that's costing as well. Now the point here to mention is that we continuously look at whether these cost increases that we allow will deliver revenue increases and whether they will and do support growth because if not, the cost increases will not create value. We're very disciplined in that. And if we have the feeling that it's not happening, we'll just not do it. The timing of the cost increase versus the revenue increase and with that the timing of an improvement in costincome ratio also for these customers, yes, it's not always they don't run Para Health. So it's €1 for €1,000,000 or €1 for €2,000,000 in the same quarter. But it's over time, with that, it's important to look at number of customers and specifically number of primary relationship. We are building value for the future. That's important. Okay. Have a good break. Next question is from Mr. Jean Pierre Lambert, KBW. Go ahead. Your line is open. Just one question. When you look at financial markets, could you apply the same principles as you do in retail banking and envisage a platform where services will be provided rather than internally generated in order to reduce your cost? Thank you very much. Yes. Jean Pierre, I think you hit the nail on the head here. I think that is that's one of the things that we are looking at, that some of our peers are also looking at and seeing a first as to can you more or less reinvent the way you do the business in a fully digital way? That's the first step. And the second step is, can you with that improve the total value chain and the cost of the value chain, even using blockchain and those are the things that we're looking at just like we have announced a couple of these successful initiatives on the trade side of the business. We think we can replicate some of that success on the financial market side. And then as a next step, as a third step, so first is reinvent second, use blockchain to really digitize the total value chain? And then 3rd, is there a way that you can actually platform your business and then be open for 3rd parties to offer products to your clients? So those are the 3 elements exact three elements that we're looking at for Financial Markets. Our next question is from Mr. Rajesh Kumar, Societe Generale. Go ahead. Your line is open. Hi. Good morning, all. I'm Pradeesh from South Korean Research. Just two questions for me, please, both related to funding. In terms of TLAC plans, in your recent fixed income presentation, you mentioned that ING has a good had quite manageable in state TLX shortfall. So do you have any internal percentage target for your in state thickness for your HoldCo senior tranche? And number 2, more specifically for 2018, so far we've seen that you've done just 1 benchmark Holcore Senior compared to $8,000,000,000 to $9,000,000,000 opcom assuring in 2018. So can we expect you to be more active in the whole co senior space in next 5 months maybe? And what about whole co sub debt? Any plans there, more so in 81, given you just have 0.9% in CRD compliant form? Thank you. Okay. Thanks for the question. If you look at the TLAG plans, then what you see is we are currently already at where we should be in 2019. So we are at 21.5%, I believe. So we're north of that. So in that sense, terribly in a hurry, we are not. At the same time, what you've seen over this year is we have done some issuance. We've done some covered bonds, SEK 1,750,000,000. We've done some floating rate notes, SEK 0 point 4,000,000,000. We have done some other covered bonds in Belgium. So and we have given a sort of a recycling strategy where we say like usually our senior OpCo will be replaced by senior OpCo. And we will do that and that is basically the structural path we are on. But from time to time, we escape into more opportunistic things as well. So the normal expectation would be that we do more holdco also for this year because that is our structural approach, But we never comment on like what's the next issuance plan for the next quarter. Sure. Fair enough. What about sub debt? What are you thinking out there? 81, you have quite a bit to do yet? Tier 1, we are actually at the moment also above our self proclaimed target. So we are north of the minimum. We are north of we are, I believe, at 1.6 and 1.5 is where the minimum is and 1.7 is what our target is. So yes, I mean not in a terrible artery. And if I look at Tier 2, actually, we are way north of the 2% we need to have. So can you say big plans? The answer is no. Okay. Very clear. Thank you. German, there are no further questions. Please continue. Okay. Thanks, everyone, for joining us this morning and looking at our Q2 results. I think wrapping it up, another strong quarter from a commercial momentum perspective, both in terms of the growth in customers, primary customers, the lending franchises, very well diversified across products, geographies and sectors, the funding side as well as the business. We made progress in delivering a better client experience if it comes to our own improvements, if it comes to teaming up with Fintechs. And I think we have reached a really important milestone in one of the bigger parts of the transformation program, the Unite program, where we basically successfully migrated 600,000 record bank lines onto the ING Belgium systems. And that went rather smoothly. I think that sums the whole thing up, delivering a net profit of SEK 1,400,000,000 for the quarter. And I think it's been a real good quarter. Thanks a lot. This concludes this conference. On behalf of ING, thank you for attending. You may disconnect your line now. The conference is no longer being recorded.

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