Good morning. This is Patricia Klosov Norton welcoming you to ING's fourth quarter 2017 conference call. Before handing this conference call over to Mr. Ralph Hamers, Chief Executive Officer of ING Groep, let me first say that today's comments may include forward-looking statements, such as statements regarding future developments in our business, expectations for our future financial performance, and any statement not involving a historical fact. Actual results may differ materially from those projected in any forward-looking statement. A discussion of factors that may cause actual results to differ from those in any forward-looking statement is contained in our public filings, including our most recent annual report on Form 20-F, filed with the United States Securities and Exchange Commission, and our earnings press release as posted on our website today. Furthermore, nothing in today's comments constitutes an offer to sell or a solicitation of an offer to buy any securities.
Good morning, Ralph. Over to you.
Thank you, operator. Good morning, everyone. Welcome to this full year 2017 results call. As always, I'm here with the CFO, Koos Timmermans, and the CRO, Steven van Rijswijk. We posted a net profit for the year of just shy of EUR 5 billion, which is a solid 5.5% increase versus 2016. On the retail side, we reached 10.8 million primary customers, which shows that we remain well on our way to achieve our ambition 2020. We recorded Net Core lending for the year in a growth percentage of 4.8%, which is again ahead of the 3%-4% loan growth guidance. Good part of this growth has been funded by customer deposits inflow. We also continue to make good progress on commission income. Operating expenses rose in the quarter as we stepped up our digital investments. Risk costs remained well below our through-the-cycle average.
The Group CET1 capital position strengthened to 14.7%, and we only expect a modest IFRS9 upfront impact of around -20 basis points on the fully loaded CET1 position on the 1st of January 2018. All of this puts us in a strong position to propose an attractive full-year cash dividend of EUR 0.67, especially when you combine this with our ability to capture profitable growth going forward. That's a wrap. Those are the key points of the things I'm going to take you through. Turning to slide three. You see that also in 2017, the Think Forward strategy continued to underpin our commercial momentum. We continue to focus on customer acquisition. We managed to strongly exceed our interim target of 10 million primary customers that we had set by the end of 2017.
We're actually at 10.8 at the end of 2017, well on our way in order to meet the 14 million mark by 2020. I'm very pleased to see that once again, many of our countries contribute to this growth. This is not singled out in one specific country. This is truly across the board. In 2017, asset core lending outpaced customer deposits growth, which helps us in our efforts to optimize balance sheet usage as well. See, in the difference between core lending growth and customer deposit growth, here you see balance sheet optimization at work. Obviously, these results have not been achieved without our continued focus on improving the customer experience, and that's what you see in an increase in the number of countries in which we are now number one in Net Promoter Score, which we have increased to nine out of 13 retail countries.
That's a real achievement, particularly also that we have made now also the number one position in Net Promoter Score in Belgium. Whereas we're going through a major transformation there. That's a real good result. Let me take you through the overview of the full-year results, starting with slide four. If you look at this, the net result was nearly EUR 5 billion in 2017, which is broadly flat on last year, despite the persistent pressures in the low interest rate environment and our step-up in digital investment. The full year, we managed to achieve a return on equity of 10.2%, while the fully loaded CET1 position continues to strengthen. We ended the year at 14.7%. Slide five, you can see some of the key drivers of the underlying results. Here you see the quality of the results, particularly because of the challenging operating environment.
You see that the net interest income experienced a strong increase versus 2016. If you look at the results excluding financial markets. That's the true quality of result. The NII increased very much on the back of steady lending growth and stable margins, if not improving margins, but we'll get into that later. Our annual growth in fee income was 11.5%. That was broad-based, reflects an improvement in almost all segments and products with the relatively strongest increase of commission income in retail challenges in growth markets. Investment and other income declined due to lower one-offs and volatile items, such as, just to remind you, the one-off gain of EUR 200 million that we had last year on the back of the sale of the Visa shares. If you look at the underlying development, the underlying income, and the quality of the underlying income has really, really improved.
On the expense side, if we exclude the regulatory costs, I'm now on slide six, the underlying expense base was up due to an acceleration in digital investments, higher marketing costs, higher staff expenses to support the business growth and the challenges in the growth markets and the Wholesale Bank, and also a couple of one-offs. We continue to benefit from the improved macroeconomic conditions in most of our markets. That is what you see in the risk cost. These improved conditions are now translating into a 22 basis points of average risk-weighted assets and risk cost. For the year, well below our through-the-cycle average of 40-45 basis points. We expect the risk environment to remain favorable in 2018 as well.
As expected, with the investments coming in ahead of the savings in the acceleration of the Think Forward strategy, the cost income ratio was up for the year, 55.5%. We see the first savings from the digital transformation programs coming in the end of 2018. However, note we'll also have ongoing investments in 2018. The real improvement in our cost income ratio will be visible towards the end of 2019, but certainly 2020, 2021. On the capital side, turning to slide seven now, we've made real good progress in our CET1 ratio, improved to 14.7%. It's on the one side, a result of slightly lower risk-weighted assets, and the other side, increasing capital as we retained our profit, fourth quarter net profit, out of capital.
Through a SREP process, ECB confirmed that our 2018 CET1 requirement will be 10.4%, and while our fully loaded requirements remain unchanged at 11.8%, this gives us a real comfortable buffer. As you know, ING has a progressive dividend policy. We would like to propose a full-year cash dividend of EUR 0.67. This proposal takes into account the different regulatory developments as well as the opportunities for growth that we continue to see. We now compare where we are versus our financial targets, and the ambition 2020. On slide eight, you can see that we continue to perform well against these targets. The CET1 leverage ratio, we remain well ahead of the minimum regulatory requirements. Furthermore, we've again reached important milestones with respect to our transformation programs, and they will help us to bring our cost income down to the range of 50%-52%, as we have guided.
I will elaborate on these milestones shortly. Finally, in 2017, the group return on equity stood at a robust 10.2%, while we keep growing the lending book to face pressure from the low-rate environment. Turning to the transformation programs, just to give you a bit of a heads-up there. If you look at the overall in the fourth quarter, and we'll go back to that later. In the fourth quarter, we've ramped up our digital investment spend related to our digital transformation. We ended the year at EUR 206 million of investments, and that's just below the initial indication that we gave to you on our investor day last year of EUR 210. Basically, we guided EUR 210 for 2017, and we've spent EUR 206, and that's a little bit back-ended in the fourth quarter. We'll come back to that.
During the past quarters, we've made really good progress in Belgium, where we rolled out the agile way of working, also integrated with the Netherlands now from that perspective. Around 5,000 staff have successfully gone through a redeployment process. The lion's share of our colleagues have managed to find a role within the new organization. That's good news as well. Also, in the other countries, we have achieved some important milestones. In Germany, for instance, we now have a fully digital account opening process, fully up and running, where you can open your account fully digital in just a few minutes. In the Wholesale Bank, we keep working on the streamlining of our financial markets business, the harmonization of the global IT platform for the different lending businesses that we have.
Progress on all of these programs, and the investments within guided level of investment, as you can see here on the slide. We still have EUR 600 million of investments to go, and we still guide the same savings that we expect by 2021. As you know, I'm turning to slide 10. In order to continue to differentiate our client experience, we invest in digital, but we also innovate. The innovation, we don't only do ourselves, we also sometimes partner up. A good example of some of the blockchain initiatives that we have taken, and that we're involved in, are in the trade and commodity finance field. We've partnered with other banks in energy and commodity trading companies to digitalize documentation process for energy and commodity trades. These initiatives will be a separate venture going forward.
Another initiative focuses on agricultural commodities. We have just completed the first trade together with our partners. That was a trade from Brazil to China on soya, and that actually cut back total time of doing that trade, which would normally be a paper-based process, from 24 days to 3 days. Shows you the magnitude of impact that digital can have on efficiency in these kind of processes. It's very promising, all that. Also in the Wholesale Bank, we see all of these examples are in the Wholesale Bank, so we're really charging ahead, not only in Retail Bank, improving our client experience, but also in the Wholesale Bank. Also in the Wholesale Bank, as said, we have developed a tool called Katana. Katana helps bond traders to make faster and better-informed pricing decisions by using artificial intelligence.
Earlier this week, we announced that we have agreed to take a 75% stake in the leading payment service provider, Payvision. Our partnership will allow our customers to choose from a wide range of omni-channel payment solutions. Go to the extent there's questions that you haven't been able to raise, we can also discuss that later as to where we see this venture going and how strategically this is. Going to slide 11. As you know, as many CEOs, I also spent a few days in Davos last week, where clearly the topic of climate change is a very important one. We take this very seriously. That's one of the reasons why we have updated our sustainability direction. As part of that, we have, for instance, also sharpened our coal policy. Also committing EUR 100 million to support sustainable scale-ups well.
The sustainability efforts are recognized externally as we are ranked as one of the leading banks when it comes to the different sub-scores. We're very proud of that. Not only because we're charging ahead with climate change and sustainability and the circular economy, but also because these are the solutions that our clients really want and expect from us. That's really good work. Yet again, also on the green bond side, we supported some of our clients. One of the examples that we have here is that we acted as a book runner on a EUR 600 million green bond for Toyota. Also a good deal. I personally am inspired by the story of a town in the Netherlands, where inhabitants created the largest floating solar park in Europe. It may not be a big deal. It's the inhabitants that took the initiative.
We financed it. It shows what's going on in society and what you can do together in order to improve. It's really inspiring. Going to the fourth quarter results. Let me go to slide 13 directly then for you. Commercially, this was a really excellent quarter. Core lending was up, the NIM is up, the fees are up, the primary customers are up. The fundamental development of the fourth quarter was really, really strong. The ATF spend was higher at EUR 87 million in the quarter. The fourth quarter saw an accumulation of several incidental cost items as well. We are about to finish the move of financial markets to London. We had to finish PSD2, KYC, some extra projects there, additional temporary external support for some of the transformation elements as well. There was a ramp-up of the digital investments on one side.
There were some one-offs on the other side as well. The underlying pre-tax result was down on both comparable quarters. That's mainly the result of those higher costs, as mentioned, and a weaker quarter for the financial markets business. On the back of further growth in core lending of nearly EUR 7 billion, as well as relatively stable margins, the NII excluding financial markets, was actually up 3% in the quarter compared to the fourth quarter last year. You see that the underlying development, not only the commercial development, but also the underlying income development in NII and commissions is really strong. Going to page 14. In line with the broader market, as said, financial markets at a sharp decline in revenues due to lower client activity, lower market volatility. However, the net interest income within FM, which is typically volatile, was up.
Was up one basis point from third quarter 2017 to 158 basis points. The Q on Q move is largely explained by technicalities, as you can see here, -4 on the impact of the ending of the hedge relationships. The +3 in financial markets. The most important one here is the +2 on higher lending margins, which is as a consequence of higher lending itself, higher margins in lending, but also the composition of the balance sheet, which is tilting more and more towards higher margin lending. You see that the NIM is also structurally improving on that side. That's a good performance. If we go then to the core lending on page 15. This is a slide that you're used to, where we basically show you different buckets of growth in our lending franchise.
We grew total core lending by EUR 6.8 billion, 4.8% on an annualized basis. Growth comes in at good returns. We keep the same risk appetite. We keep the same pricing discipline, while we are certainly facing competition. We're not leaving the discipline that has gotten us here. We will stick with that. See also from this picture that there's many engines for this growth, particularly, if you remember in the third quarter last year, we saw that in Wholesale Bank, in the general lending business and the transaction services business was growing faster. Industry lending was growing less fast. Now you see it the other way around. It shows that we have a diversified activity, not only from a product perspective, also from a geography perspective and from a sector perspective. It shows the strength of our franchise.
In Retail Bank, we continue to see strong commercial performance in Belgium, Netherlands, and the growth markets. Also this quarter, the skew towards mortgages, but in relative terms, business lending and consumer finance keep growing fast as well. Going to fee growth, on slide 16. Commission income keeps growing very fast, as you can see. Year-on-year, growth came in at just over 10%, which is well ahead of our stated ambition to increase the proportion of fee income. Increase in commission income was recorded in most segments and products, with a relatively stronger growth in Wholesale Banking on the back of industry lending deals, on the back of corporate finance activities. In Retail Netherlands and Retail Germany, particularly in investment products.
In the Retail Bank, we see that also through digital channels and with the larger range of products now, that we can increase the fee income, and that will continue. We've asked questions before as to how structural this is, but you see that we're really changing the model around from a savings franchise to a full-fledged bank. On the back of a full-fledged bank, we have more cross-buy opportunities, and those cross-buy opportunities bring additional fee income. That's what you see continuing here in this picture. A key product group there in the Netherlands and the growth markets, but in the retail markets overall, is the investment products, where we recorded a EUR 13 billion increase in the balances over 2017, and that is more than half caused by net inflows. We offer investment product solutions in all of the markets in retail. We offer digital assistance tools.
Last quarter, as you probably remember, we announced a strategic partnership with Scalable Capital in Germany. We see around 1,000 new customers coming in a week. So far, we have accumulated EUR 300 million in assets under management since we launched. You see actually that is developing very favorably, and that approach is working out. Going to slide 17 on the expenses. In the fourth quarter, we recorded a substantial step-up in our digital investments, as I mentioned earlier, and we're actually close now to the initial indication of EUR 210 million, and we were going to spend extra in this year in order to do the transformation. Like in the past quarters, we had additional expenses to support business growth in the Wholesale Bank and in Retail Netherlands and growth markets.
As you know, we're growing in the number of FTEs in some of these activities because we're growing the Wholesale Bank. There is a real commercial momentum there. Same in the Netherlands and growth markets. We're growing very fast. Although we're digitizing, there is some activities that you need people for, and that's where you see some of the business growth also causing increased expenses. Some of these expenses are also caused by extra marketing programs, and you see that also back in the retail customer numbers. We should reap the benefit of that going forward. The remaining cost growth was an accumulation of incidentally higher costs and one-offs, which as both we mentioned, financial markets move, PSD2 readiness, ABC, higher temporary professional services that we needed to hire.
Combined with the slightly higher regulatory cost versus last year's Q4, also versus the third quarter, this led to a four-quarter rolling average cost-income ratio of 55.5%. Overall, we remain committed to the 50%-52% cost-income ratio by 2020. 2018 is still expected to be an investment year, as I mentioned before. We expect the full impact of transformation programs to come through in the years 2019 and certainly 2020. We remain committed to achieve the full savings of EUR 900 million by 2021. Confirming both the investments as well as the savings as we announced them just over a year ago in the investor day. Going to risk costs. Risk environment remains very benign. The overall NPL ratio is even dropping. It is now dropping below the 2% mark.
Risk costs and retail delinquencies remained low due to the improved macroeconomic circumstances from the housing markets that we see here as well. The retail challenges in the growth markets saw an increase in comparable quarters, those are mainly caused by an LGD model update in Turkey and an add-on in Spain, despite a release in Germany for the consumer lending portfolio. Bank risk costs are still low at 18 basis points of average risk-weighted assets, but we were up quarter-on-quarter. As in the third quarter, we benefited from a low number of provisions on one side and some significant releases. The underlying development was very healthy there as well. For 2018, we remain constructive, we expect risk costs to stay below or through the cycle average of 40-45 basis points.
To wrap up, if you look at the year, if you look at the quarter, you see that commercial momentum is continuing, not only in the number of customers, not only in the number of primary customers, but also in the underlying development of the business, in lending and savings, in the improvement of the NIM, in the commission income. I think that is the cornerstone, that is the confirmation that we are doing the right thing and that structurally, we had a very good year. We had actually also commercially and financially from that perspective, a good quarter. The innovation initiatives that we either develop ourselves or that we see in the market, make us still very excited. We think that it can help us to stay ahead of the competition. The acquisition of the Payvision, for example, will certainly put us ahead in the competitive payments domain.
It is a serious step to build a platform. On the capital side, we are convinced that we can meet future capital requirements. We have now Basel IV, more or less clarity. We have IFRS 9 clarity. It puts us truly in a strong position to capture profitable growth going forward and deliver on our dividend payment. With that, I would want to open the call for questions.
Thank you, sir. Ladies and gentlemen, we are starting the question and answer session now. If you have a question or remark, please press star one now on your telephone. Star one for your questions or remarks. I would like to make the announcement in the interest of time, we would kindly ask each analyst to limit themselves to two questions only. Our first question is from Mr. Stefan Nedialkov of Citi. Go ahead, sir, your line is open.
Yeah. Hi, guys. It's Stefan. I just wanted to get a little bit of color on your potential timing for new capital targets, also capital return potentially via increased dividends, potentially special buybacks, et cetera, and how that ties into Basel IV, the TRIM process as well. Thank you.
Okay. Koos? Yeah, thanks, Stefan. A few comments on this. What we have is, we have the Basel IV update, and what you see is if we would keep the same portfolio for 10 years in the same economic circumstance, then in essence, we got 15%-18% higher capital requirement. That amount seems manageable. If you look at it because, that is in terms of core Tier 1, that is around roughly 2%. What you see is our current capital ratio is around 14.7%. You know that our capital requirement is around, SREP is around 11.8%, excluding buffers. That means there seems to be room in the capital position, although you need a buffer as well. That means we might be nearly there with Basel. At the same time, what you have to think about is we like the following.
We make 10% ROE, we pay 5%, we use for growth on our loan portfolio because we like new customers, and we also pay roughly 53% out to you. That means half of our profit goes there. This is something, a practice we like to continue. What we need to do on our side is two things, if we want to continue that. It is make sure that we can cope with negative credit migration in the future and to make sure that we can cope with the procyclicality of IFRS 9.
If we can translate these two into a buffer, then we can say further, how does it work in terms of adjusting payout? This work is something which we want to do, and this is something which we hope to finalize by the end of Q1. This is the way how we look at it right now. For the moment, it just means we can continue our loan growth, and we can continue our dividend policy.
Thank you, Koos. Just as a quick follow-up, in terms of the interaction between the different buffers, on one hand, the management buffer versus P2G. Is it your understanding that some of the risks that are covered by the P2G have historically been covered by your management buffer, maybe we'll get a reduction in the management buffer on your side going forward. As a second point, on the D-SIB of 300 basis points, is there some sort of a timeline for the regulator and the central bank to basically come in and say, "Look, we had actually put in X basis points for Basel IV. Now that this has been cleared and the impact is lower, we can actually lower the 300 basis points down to X"?
I think overall, maybe on the two questions, the one is the interaction between the buffers. We always hear a bit mixed stories about the P2G. We have heard some comments from regulators who say, "Yes, you can dip into it, but if you dip into it, you are at our mercy," and that is not always a pleasant one. In that case, it's not a guidance, but it's a hard buffer. You can normally assume that our management buffer is overlapping, but maybe a little bit larger than the P2G. This is something which we will establish, but the most important one is, do we know with IFRS 9, the increased provision and the credit risk migration, that the two of them, how much effect do they have on the same time?
Can we make sure that it doesn't disturb our loan growth or our current payout? Once we have figured that one out, then we can come back. The other part on the SRB, fully recognize that still we are working under a 2% higher capital requirement than, for instance, the Spanish banks or some of the French banks. This is clearly something where we are discussing with the DNB. They are not connecting it timing-wise to Basel IV. What they are saying is we are connecting it more towards our size of banking versus the Dutch economy. By the time we are paying more in resolution funds, by the time that we become, in that sense, more European and that we have built up our TLAC, that argumentation stops to be there.
The discussion is not directly linked to Basel IV, but it's linked to us, in fact, becoming more European. This is an ongoing discussion, and this is something which we continue to push for.
Great. Thank you so much.
Our following question is from Miss Alicia Cheung. Go ahead, your line is open.
Morning, everyone. Just a couple of quick questions from me. Firstly, just circling back on the costs. From the Capital Markets Day, you had previously guided to about EUR 170 million of investments for 2018 with about EUR 200 million additional cost savings. Given your comments, would you expect investments to be higher than this for 2018, a bit front-loaded? Also, is it fair to assume limited cost savings at this stage, and again, that will be basically pushed back until 2019, 2020 overall. Then secondly, in terms of net interest income, you previously indicated that for H1, we could expect the net interest margin to broadly hold the line, but that all else equal in H2, the net interest margin is likely to be under pressure unless rates rise.
Can you give a sense of to what extent the Net Interest Margin would be under pressure from H2 next year? Can we expect a violent move, or is it like to be very gentle? Also, would we expect that to be more than offset by the current level of loan growth? Thank you.
Okay, Alicia, I'll take the first question, and Koos will take the second one. On your cost and the cost guidance, at least the additional investments that we were projecting, we are doing this according to the guidance that we have given. That's how we do it over time. The investments are front-loaded for the savings coming out of these programs. At the same time, we are benefiting from the savings coming out of the programs that we had before. You can actually see that in the annual results of, for example, the Netherlands, where we had quite some programs started three, four years ago, and you see the costs were truly going down there. What this means is that we will follow out of the pattern that we have guided to you in terms of the extra investments under the Think Forward strategy.
On one side, that we do expect that savings will continue to come in from previous programs, and that the savings from the ATF programs are more towards the end of 2019, 2020. The full savings in 2021. From a cost-income ratio perspective, and that's the thing, the most important one, is that we expect 2018 to be around this number, 2019 to go lower, 2020 to be back and making the range that we have indicated
In our Investor Day at 50%-52%. That's basically where we feel things will go, and it is according to what we have guided before. On NIM, Koos?
Alicia, maybe on the NIM, my answer would be gentle. It's based on the following. If you look at our total liabilities, because that is where the pressure is on the savings, it's EUR 540 billion. Out of that EUR 540 billion, roughly EUR 320 billion is in savings. Savings, we normally invest roughly in five years, if you look at the swap. What you see currently is that the current swap market, current five years, is already higher than the average of the swaps of the last five years. That means that your leakage on savings, if I take this as a very crude proxy, is quite low. Where you do still have some leakage is on the retail current accounts, the EUR 140 billion, because there our reinvestment rate is somewhat lower.
Overall, it is gentler than what we would have expected last year, given where the current yield curve is.
Thank you. Just to clarify, in terms of the loan growth that we can expect of, say, 3% to 4%, would that more than offset the net interest margin pressure, would you expect? We could still expect NII growth?
Well, overall, what you see is that we have still, so far over the last two years, we've always countered by being more efficient with the balance sheet and by the loan growth. We have countered the deposits, in a sense, the deposits leakage. Till so far, we have been successful on that. We're always a bit on the careful side and say: "Well, can we continue to do so?" I don't know, this is why we are saying, well, relatively speaking, the high EUR 140s, low EUR 150s is for the full year, the guidance. Again, we are a little bit more optimistic than what we were in the past, given where the current interest rates are. In the end, loan growth for us, it's not a target as such. We only do it once it passes a hurdle and when it's profitable.
Thank you very much.
Our following question is from Mr. Bruce Hamilton, Morgan Stanley. Go ahead, please. Your line is open.
Hi. Yes, morning, guys. You mentioned some interesting use cases on blockchain. You've made the payments acquisition. It feels like you're quite well-positioned on PSD2. How do you think about financial impact? Can this drive efficiencies to cost via blockchain on a three-year view or in the current midterm plan, or is it longer dated? Secondly, on the investment product growth, you mentioned fairly encouraging momentum there. Can you remind me, I think this is third-party products and I assume mainly passive, but if there's any color on what you're successfully selling with clients, I'd be quite interested and where you see the scope for that, looking out from here.
Thank you, Bruce. The financial impact of these innovation plans remains to be seen on the blockchain side. Why do I say that? What we have done on one side, on the energy side, as well as on the soft commodities, the soy side, we basically kind of rebuild whatever paper process in a digital way with the different parties there. It seems to be working. It is more safe, it is faster, and it's more efficient. Now, that's one thing. That is one deal. It is one shipment.
Before this will really become a game changer for banks in terms of cost and for the other parties on this platform in terms of speed and efficiency, this needs to be adopted as a market standard, because in the end, these trade processes are global, and for these processes, you need more banks than just a few that collaborate on the blockchain initiatives that we have launched. Having said that, they look to be very promising. As I said, the soya one cutting back in days from 24 to three. Honestly, I think there is no reason why you wouldn't be able to cut it back to one. Over time, when we get this to market standards, I think efficiency, speed, and safety will improve a lot, and that will be promising.
I think that's not for the next two years, we will charge ahead and see how quickly we can establish market standards, and then it can have a major impact. On the payment side, your second question there, Payvision. You will not see this in our top-line numbers yet. What Payvision does is it caters for many clients across the globe. It's a payment service provider that offers 80 different payment solutions in the e-commerce world, and we know that is the faster-growing world as well. It kind of solves the issue that merchants are confronted with all the new innovations and all the new payment methodologies that people are inventing. Payvision is offering a combination of those. Currently, 80 different solutions and 150 different currencies.
Where we see this going is that this will be a platform going forward to get new clients, Payvision clients, but also for this platform to offer to our clients. Then on the back of that, to generate information, score for additional working capital production, lending production. You really see that this is a major step into the digital era and into digital scoring of credit for different companies and in different countries as well. Next step, your next question on investment products. Yes, this is mostly passive. It is mostly third-party products. The success of the growth in assets under management is twofold. On one side, we are seen as the house where your money is safe because we have the reputation of being a good savings bank. That's what clients see in us. Savings don't generate too much of a return at this moment in time.
Clients are looking for alternatives. We want to show them easy alternatives that are digital because they're used to that. That's what we do. For example, in the collaboration with Scalable, we run an algorithm that matches the investment with the profile of the customer as of EUR 10,000. It's very easily accessible, low entry barriers from that perspective. It's a low-cost solution in comparison to what other banks are offering. That's a combination of success. On one side, it's the offering and the ease of access and the digital approach. On the other side is our reputation, our prime reputation as a savings bank. That's what's making the success as we see it right now.
Great. Thank you.
Our next question is from Mr. Johan Ekblom of UBS. Go ahead, your line is open.
Thank you very much. Just come back maybe to, I guess, following on this growth in AUM and things. If we look at the fee growth, clearly there was a big step-up in momentum during 2017. I think you commented before that maybe some of the particularly strong results in Q2, et cetera, might have been a bit of one-off. How should we think about fee income growth for 2018? Is there any reason to think that the sort of strong positive underlying drivers are not going to be there? Maybe just to come back on your NIM guidance. You're sort of at the top end of your range, given the strong performance in the fourth quarter. When you talk about extending that guidance for 2018, how much would you say of that comfort are you getting from a better starting point?
How much is because of the move you've seen in the swap rates, just to get a sense of how sensitive you are should swap rates move down again?
Thank you, Johan. I'll take the first one, and Koos will follow up on your second one. The fee growth momentum, I don't think it's a one-off. We're not opportunistic in this business. We're not charging fees because we can charge fees. We charge fees because we add value to our customers. What we see is that over the last couple of years, we've really transformed our savings franchises to full-fledged banks. This is the whole philosophy behind the strategy, is that if you have a primary relationship, and that relationship thinks of a bank, they think of ING, it's digital. If they think of ING for their next product, we should be able to offer that product. One of the products that generates fees is the investment product. We're also looking at new products on the insurance side. They also work.
You should see this fee income growth, not as an opportunistic growth. Clearly, it has to do with some of the market circumstances. It is a growth that is on the back of the number of customers as well, because we're growing there as well. It's on the back of the growing savings flow coming in as well, because in the end, customers then tend to move their savings into investment products. On the wholesale banking side, you see that the fee income is on the back of deals that we close. If you then look at what is more a momentum thing and what is more structural, at the overall structural element of the fees is around like EUR 650, like EUR 660 for the year. It kind of takes away then, or that answers your question on what is a one-off.
Maybe there is a bit of one-off there, it is real structural improvements of our franchise, growing our franchise, and on the back of that, better fee income. The NIM, Koos?
The question is how comfortable. Again, disregard the financial market side. You see 155, and it's still two basis points higher than the 153 we've seen before. In that sense, it's good. The four ingredients which play a role there, one, loan growth. Yeah, we had good loan growth, and we had good loan growth at different margins. We are quite comfortable there in the sense that what you've seen over the last quarters is that loan growth every time comes from something different. It doesn't come from the Netherlands, but if you look at, for instance, the wholesale bank or if you look at the NCG, it always comes out of different areas. Apparently, we are able to generate loans at decent margins from different sources. That clearly helps. Balance sheet usage, I also feel quite comfortable there.
What you've seen over last year is, the name of the game in ALM is just take deposits if you can make loans. What you've seen is, we made EUR 27 billion of loan and EUR 19 billion of deposits, so we didn't need to bring a lot of money to the ECB unnecessarily. Clearly that helps you and supports the margin as well. Like I mentioned, the leakage, what you get on the saving side, on the reinvestment starts to be lower because current rates are higher than average portfolio. If I take that simplified example of the swap, it's slightly more complicated, but nevertheless, it's better. The only leakage is a bit on the current account part. In that sense, yeah, we can be a bit more comfortable with the underlying structure.
Again, and like I said before, loan growth, we just make sure it's not a stop gap to just protect the margin. We do it because we make pass a certain hurdle. That's always the uncertainty we have in there. Overall, yeah, we feel slightly more comfortable than what we had last year.
Okay, thank you. Our next question is from Mr. Bart Horsten, Kempen & Co. Go ahead, your line is open.
Yes, good morning. I have a few follow-up questions on Payvision transaction, if I may. First of all, you mentioned you will focus on the merchants. To what extent do you also see yourself focusing more and more on the clients of these merchants? Because you will obviously also obtain that data and do you see yourself becoming a payment initiation service provider or an account information service provider to that extent, going forward? As it's also a scale business, do you expect more acquisitions in this space? My final question is a bit detailed on Payvision itself. Could you elaborate on the segments in which Payvision is active and whether you may shift some focus because of know your customer requirements and things like that? Thank you.
Thank you, Bart. On Payvision. We will certainly focus on their clients, but we'll also make sure that we offer Payvision to our clients. Payvision is a real strategic acquisition, and it's a fintech that has developed very fast with the latest technology, and is easily scalable. From the base they have, they can grow fast without too much additional investment and cost, relative to what you can achieve with it. What you in the end create is, if you will, a go-to platform for financial services, in that if you are able with an offering like Payvision, combine all the different payment methods, but also a platform where buyers and sellers come together, merchants and the individual clients. Indeed, you have a platform through which you can also gain access to new clients. That remains to be seen how we develop that.
We certainly have our views around that. It looks to be very promising. Will we consider further acquisitions in this space? It really depends on how it develops. As I said, if it comes to acquisitions, we look at where we can add skills and where we can add on innovation, and this is certainly one of them. It fits the category of what I've always been kind of indicating to you as where we would see acquisitions coming. That's that.
Okay.
Okay.
Our following question is from Mr. Maxence Le Gouvello of Jefferies. Go ahead, your line is open.
Good morning. My first question would be on Belgium. Quite surprising to have such a rebound of the lending activities, especially on the mortgage. Can you give us some color on what we should, especially on mortgages, going forward? Second question is a follow-up regarding your comment, Ralph, on primary customers. You are well ahead of your target over the year. Can you please share with us your 2018 target? Also, how much of the acceleration of the fees is coming from these new primary customers buying more products? If you can be able to quantify it a bit more on that side, it would be much appreciated. Thank you.
Yeah. Thanks, Maxence. On the mortgage lending in Belgium, actually, we've seen the mortgage book growing in Belgium over the last couple of years. Clearly, there has been a moment in which, particularly the Belgium book was kind of renewed on the back of basically the lower pricing that clients could get access to because of the low fees they needed to pay to refinance. You saw some movements in the books across the market. We've always been kind of active in the market and growing at this speed. It's a building of growth.
Again, there, we are very disciplined in risk appetite and pricing. Sometimes you have a bit of a higher market share and sometimes you have a bit of a lower market share. On the primary customer side, the 2018 target, we don't really have an annual target, honestly. We have the 2020 target of 14 million. That's what we focus on. We focus to make sure that we get there on one side. On the other side, we shouldn't exaggerate it either. Sometimes, new customers come in directly as a primary customer. Sometimes, these have been customers with us from a long time and now suddenly become a primary customer because of our offering. It's a mixed bag.
As for the fees, I think that in the end, and that's the philosophy, and that's what we're working on, and once we have more information on this, we will certainly go about it. When we had the investor day, I showed you a formula. A formula in which we basically indicated that the client value or the value of the company was made of the number of clients versus the percentage of primary, multiplied by the cross-buy, multiplied by the product value. It's literally that formula that we're following. Growing the number of customers, improving the percentage of primary, improving the cross-buy across the primary by offering more products, and improving the value of the products.
Now, the numbers I can give you behind this, not so much in terms of fees related to it, but certainly there will be more fees coming from primary customers than from non-primary customers. The most important thing as to how they create value is that primary customers are eight times more loyal. In the first years of ING, they increase their value by three, multiply by three, and have a cross-buy that's twice higher than any other client. Overall, if you recalculate that in value, primary customers generate two and a half times more value than the average ordinary customer. That's the number to keep in mind, because that is what we do with future value creation. Now we give you these numbers of growth in primary customers all the time.
Some of this is costing us money, but it is because we are convinced that they will create, and they are creating more value in the future. Hope that helps.
I understand the logic. We saw all the figures growing, now we need to, at a certain point to see a revitalization of the acceleration of the revenues. When I'm listening to you, it's most likely going to happen end of 2018, mid of 2019. Is it a right assumption?
You see the revenue is already increasing. If you look at the commission income, as I said, a lot of the commission income increase is on the back of the increase in share of primary customers. The primary customers that think of us as doing more business with us and looking at different products from the initial products which they came in. Normal acquisition products for us are savings for sure, or mortgage on the other side. Once they're a client, the question is whether they can become a primary customer. They produce the real fees, because on savings, we don't make fees. On the mortgages and the challenges of growth markets, to the extent there is a brokerage model, we actually pay fees. It's not an income generation on the fee side.
Fees that you see in the retail space is more or less related to how primary customers do more business with us.
Okay. Thank you very much.
Our next question is from Mr. Matthew Clark, MainFirst. Go ahead, your line is open.
Good morning. First question is on Net Interest Margin. You mentioned better lending margins. Could you just talk a bit more about which product areas, what is driving that strength, why, and whether you think that that is sustainable? A follow-up question is on the dividend. It seems to be a statement of intent that you are only increasing the dividend by the EUR 0.01. What would really have to change for you to materially increase the pace of the dividend increasing? Is it really just the accounting issues around IFRS 9 and procyclicality, or is it really just a case of you saying, we see ourselves as a growth story rather than a payout story? Thank you.
Sure. Maybe if I look at a few things of margin improvement, it goes here. It is structured finance looks good in this quarter. We also see, real estate finance was positive, but marginally positive. If I look at general lending, it looked good. A lot of products on the wholesale side were quite good. PCM was flattish. If I look at the other contributors, if I look at the Netherlands mortgage, flattish. Mid-core did quite well, actually similar to in Belgium. Overall, the picture is slightly better on a number of the business-like products. That is how I would summarize that.
In that sense, on the margin side, I'm quite happy. On the dividend side, it is one basis point. Please remember that over the last year, we have had quite a lot of RWA migration positive. In that sense, this is something which at a certain moment can turn around. Also, although the IFRS 9 impact at the start will be maybe only 20 basis points or something like that. For us, the puzzle is, in a scenario where you move into a downturn, how will at that time, the stage migration that is called in technical terms in IFRS 9, how will that create additional or earlier recognition at provisions? That is exactly at the same time when you have negative credit provisions.
This is the one we want to figure out, and there we need to play around, to be honest, with our models for the next three months. By that time, we can translate that into a buffer, and then we know, if you take our current ROE, how much is now for payout or how much is now for loan growth. If we can take these steps, because we prefer the continuity of it, rather than to be too quick and then later on create a sort of a start-stop in either loan growth or dividend. Give us in that sense a little bit of time, and we will come back on that. By the way, overall, the payout is not that dramatic at 53%.
Okay.
Yeah. Okay.
Thank you.
Our following question is from Mr. Alex Koagne of Natixis. Go ahead, your line is open. Sir, your line is open. Hello? Mr. Alex Koagne.
Yes.
Thank you, sir.
Hi, this is Alex Koagne. Thank you. A few questions from my side. The number 1 is on the cost of risk. I do understand your comment that the cost of risk should stay below the guidance, the true side guidance. From the 22 basis point we have in 2017, what should we look for going forward for 2018? Is there any provision release you can activate, or should we expect the first implementation of IFRS 9 to have a negative impact on the cost of risk? The second point is on your operating expense guidance. I'm not sure I clearly understand what you say for 2018 when you say that we should stay at the same level. Is it in term of overall cost, or is it in term of cost-income ratio? Yes, those are my two questions. Thank you.
Alex, it's Ralph. I will answer the second one quickly. It's in terms of cost-income ratio. Not necessarily in terms of cost. The cost-income ratio, we manage flattish for 2018. Yep.
Yes.
Steven, for the risk side.
For the risk side, if you look at IFRS 9, the initial impact that we had both on the credit and the investment book is around 20 basis points negative. That also includes stage 2 migration based on the new regulation, i.e., based on IFRS 9. What we currently see is a positive outlook on GDP and on the industry. That means that insofar that continues, the stage migration to stage 2 will be limited. In that sense, as long as we have that outlook, we feel that the risk costs for 2018 will be well below the long-term average.
Okay. If I may have an additional question, please. If there is any capital excess above the buffer and what you can envisage in terms of impact of IFRS and a particular cyclicality, what is the use you're looking for? Is that a special dividend only, or is it can be also a form of share buyback?
Yeah. I'd like to have that luxury, I first want to cross that bridge and think, okay, what is it now that we really need to keep and preserve the stability? If we have crossed that bridge, you can look at the means, how you would get there or how you would pay that out. You can add a third answer. You can say it is a buyback. You can say it's a one-off dividend, or you can say it's over time. Let's first figure out that in terms of buffers to preserve that loan growth, what we have right now, and to preserve the dividend payout under also more economic difficult circumstances. We get there.
Understood. Thank you very much.
Our next question is from Ms. Sofie Peterzens, JP Morgan. Go ahead. Your line is open.
Hi, here is Sofie Peterzens from JP Morgan. I just wanted to ask on your NII, the hedging had only an EUR 8 million impact on your NII in the fourth quarter versus EUR 91 million impact in the third quarter. Going forward, what kind of impact should we expect? Is the EUR 8 million the run rate going forward, or will it be a bigger impact? My second question is, if you could just give us an update on litigation. Thirdly, just a follow-up on TRIM. You said that you expected earlier impact on your risk-weighted assets. Steven, could you just give us an update on how your discussions with the regulator is going, when we should expect this impact to hit your RWAs? Thank you.
On the NII, expect actually nothing in the future in terms of hedging or other amounts in there. It just will be simple clean. On the litigation orders, there is no other update than kind of repeating that we are subject to this investigation on fulfilling requirements and conditions, if it comes to client onboarding, money laundering, and fraud and the processes that we have in place. There is no update we can give you there. We're in full cooperation with the prosecutor on this one. We expect more news in the coming months on that one. On TRIM, I'm referring to Steven.
Yes, thanks, Sofie. On TRIM, for mortgages, we have different parts of TRIM. That is, they looked at the portfolios in mortgages in the Netherlands and in Belgium. The Netherlands is largely done, Belgium currently underway. The ECB looks at the SME portfolio in the Netherlands, and there was an investigation as to the trading book globally. Later this year, there will be a look into the low PD portfolios or the low default portfolio, largely in wholesale banking. With TRIM, what the ECB will do is they will compare results between all the banks. When we have now done the mortgage part for the Netherlands and a bit later for Belgium, it will need to be done for other banks as well, after which the ECB can make a comparison, and only then they can give feedback.
I do not expect feedback on the whole TRIM exercise this year. What I do expect is some feedback, at least on the mortgage portfolio later this year. That remains to be seen.
Thank you. That's very clear.
Our next question is from Mr. Benoît Pétrarque, Kepler Cheuvreux. Go ahead, your line is open.
Yes, good morning. 2 questions on my side. Coming back on the procyclicality of IFRS 9, you implemented already your models on the 1st of January. Could you maybe share with us the impact of different macro scenarios, say downtown scenarios, how much impact it could have in terms of sharp deterioration of the macro, for example? It would be interesting to know. The second question is on Basel IV. If you look at Basel IV like it stands now, what type of management actions are you planning in the coming years? I guess you will be working on pricing going forward a bit more, while you have been also working on pricing already. What type of management action do you expect, maybe de-risking in some bucket of loans? I was curious to know more about actions you could take potentially before the implementation.
Thank you.
Yes, thanks, Benoît. Good question on IFRS 9. This also comes back to what Koos said earlier today about that we need to look at macroeconomic scenarios and what will it mean in different scenarios, both for your risk costs and RWA. We're not at this point that far that we can communicate what do macroeconomic scenarios exactly do.
On Basel, there is many different management actions you can take. We're reviewing the different books and the way it impacts the different books. You can reprice, you can sell. There's different ways to manage your balance sheet there. Maybe stop some businesses altogether if they're really unattractive or if you feel you really can't get the scale. We don't see any hints of that, honestly. For the moment, we think it is going to be a combination of a bit of repricing here and there and flexibility in the balance sheet in terms of which assets do we originate and which assets do we keep on our own books, or which ones do we originate for parties that actually have a better return on that same asset because they are under a different regime, like insurance companies, for example, or other investors.
Yeah. Thank you very much.
Okay.
Next question is from Mr. Jean-Pierre Lambert. Go ahead, sir, your line is open.
Yes, good morning. I have a general question. We see that your strategy in fintech is quite successful. There are out something like 430 fintechs in the Netherlands. You have a good base to choose from. The question is more big tech. If we see in India, they've already implemented PSD2. Google is proposing a mobile payment system. It's not impossible that a big tech would enter your market before the horizon of 2021.
Which part of the magic formula you think, the ING formula, would be eroded or impacted by such moves? Thank you.
Thanks, Jean-Pierre. Challenging question here. I think you're completely right. I think PSD2, which we have supported in view of ensuring there is innovation and there is competition, and specifically smaller players have a chance, and for which there is different kind of anti-barriers. I think that's what PSD2 is supposed to support. On the other side, there is a disadvantage in PSD2, and specifically if it comes to the powerful big techs who can come in, and they already have a lot of data, and then we have to give the client data, if the client so allows and permits and requests, and then they have the full client view and we don't. Which basically shows you that PSD2 is not creating a level playing field at all, and that basically we're serving all of the data on a plate, the ones who already have a lot of data.
From a market power perspective, it is something that is not necessarily desirable. Having said that's not your question. Your question is, which part of magic formula may be impacted? It is certainly the part of whether clients will see us as their primary bank. If clients start doing their payments specifically with another party, basically that is an act of disintermediation. If they see that party as their most important day-to-day banking provider, you may escape from their mind in terms of your brand as the bank to go to. That's why we are charging ahead on being the primary bank and the bank of choice and building our own go-to platforms in financial services. It has always been in our strategy that we have to make sure that we do two things.
One thing is that we build our own platforms and that we build those platforms in a way that clients really love us. That's why the love brand is so important and the recognition as being a love brand is so important. That's why the Net Promoter Score is so important. That's why I'm so happy that we're actually in nine out of the 13 countries, number one, because this is a real compass for us to improve. On the other side, it's also a predictor of future business and future customers to come on. On the other side, it's important that you stay connected to third-party platforms as a service. Also for that, it is important that while these customers are in the social media or on those other platforms, they think of you if it comes to a financial service.
Branding is a core element to fight the big techs. If it comes to financial services, the trust element of banks should still help us there. The point is that if the big techs come in, yes, we're really at a competitive disadvantage because the PSD2 is a one-way deal in terms of giving client data, not a two-way deal.
Great. Thank you very much, Ralph.
Next question is from Mr. Marcell Houben, Credit Suisse. Go ahead, your line is open.
Good morning. Thank you for taking my questions. I have a couple on the Benelux market, a couple of P&L questions, if I may. First, on the fee income line in the Netherlands, you see a 10% growth increase year-on-year. Was just wondering what extent is that sustainable, or can you expect a similar growth going forward? On the cost in Netherlands as well, we see a 2% increase year-on-year. Would you be able to expect to generate a positive JOS for 2018, or would it come in 2019? On Belgium, the NII was negative 6% year-on-year, despite the pretty strong growth there. What extent is explained by lower investment yields or lower margins from competition? Also we've seen in Belgium the OPEX line there, a 5% increase.
Again, the same question that I asked on the Netherlands, do you expect to see somewhat positive JOS in 2018 for Belgium, or would we have to wait until 2019? Thank you.
Thank you, Marcell. On the fee income in the Netherlands, specifically, yes, this is recurring. Where have we seen somewhat fee income growing? At first it is the change in the law in which we basically have to charge fees, or at least clients have to pay the mortgage provider, the mortgage advisor, and therefore, there is fee income there. That is recurring. We are currently at a market share of 12.5%, at least that is where we were in the fourth quarter in the production of new mortgages in the Netherlands. That is kind of a recurring income stream if you keep that market share. There is a recurring income stream in the Netherlands on the back of the Payments and Cash Management business. There is a recurring income stream on the back of the investment products business as well. Yeah, there is also there.
We are a bank that is very transparent in what we do. This is what makes our reputation, this is what makes our Net Promoter Score, we are not opportunistic on fees. We charge fees for services that clients actually see as valuable. I will also announce the fees will be recurring. Now, in the Netherlands, the cost of the year, you actually have seen a cost decrease in the Netherlands, not a cost increase, because you see actually the benefit of the earlier programs coming in our cost line. Overall, in any scenario, any country, in any business, we try to manage or we manage for positive jaws. Whether we will make an overall positive jaw for 2018 with some of the investments that we want to continue to plan. We will see also how the income develops.
The units know that overall, that cost increases are only allowed if there is also a structural income increase. Again, it is the structural element of the income increase that we are also showing in Q4. That is what we are looking at, and not at the fluctuating part of the income increase, because it is about building a sustainable business that we look at. That is kind of the answer to cost. Maybe on Belgium, I refer to Koos.
I think overall, what you see is if I look at the year in total, indeed you had the negative jaws in 2017. Particularly what you see is the lower savings and deposits income that plays a big role or that is the biggest contribution on there. As you know, in Belgium, we stopped our rock bottom rate at 11 basis points rather than lower than that, so we did not have the offset. Also in Belgium, what you will see is reinvestment yields on savings will start to become gradually better as the example I explained earlier. At the same time, loan production will help to a certain extent as well. The other point, which is clearly the case, but that is an overall point, we would like to make sure that we keep our cost in check.
At the same time, if I look at Q4 2017 versus 2016 in Belgium, you can say that overall, the total amount of cost increase was not that high in the Belgian portfolio. Nevertheless, we can be affirmative about 2018 and 2019 that the savings will be a bit better and loan production will be there, we have to keep our costs somewhat in check.
Excellent. Thanks.
The following question is from Mr. Bart Joris, Degroof Petercam. Go ahead, your line is open.
Yes. Hi, thank you for taking my questions. There's a few follow-up questions, as most of them already have been answered. Regarding the usage of your capital, you're speaking of around five of the 10% return on equity going to loan growth and 5% to dividend. If we're looking at loan growth, are we looking purely organic here, or should we also look at non-organic growth? Do you have any M&A plans that's outside, let's say, the fintech universe? And then regarding the cost outlook for 2018, does that still include a lot of restructuring charges, or have those for the main part been taken?
Okay. Bart, thanks for your question. Basically, how we have guided in the past and going forward, we do generate capital and the capital that we generate, in the end, we have three uses for. The first one is making sure that we have sufficient capital, because that is important in order to stay a bank. It's important to continue growth in the first place and play our role in the economies in which we're active by lending. The second usage is to grow, and the third usage is to pay dividend. This is not in this order. We rank them equally. This is kind of how we manage the bank all the time. From a capital perspective, we're in a good shape, but we have Basel, we'll have to see how we make sure we make that over time.
If it comes to the anorganic growth, you see again, also this time around, that organic growth is something that we do very well, that we have the right skills for generally, and what we have indicated as to where we would consider an acquisitionary strategy. It would either be in the area of when consolidation is happening in market in which we are a player. We have to look at what will be the consequence for our own activity. From that perspective, we would have to decide at that moment in time to play in with that consolidation or opt-out like we did in India. We were forced to consolidate, we made our calculations and our organic plan was not generating the value that we could actually generate by a merger with Kotak Mahindra.
You can expect that we go about these kind of things like that. The second area in which we are interested in considering acquisitions on top of the organic growth would be in the area of skills. As you know, we want to develop our skills on the asset side in order to make sure that we can diversify our balance sheet away from mortgages. We do so in sector lending, in the wholesale bank. We do so in consumer lending in the retail bank. If it comes to SME banking and mid-corporate banking, that's where we think we can gain. If there is skills or portfolios that we can look at, we'll certainly consider that. We haven't seen those coming by over the last couple of years, it would make me wonder whether they will come.
For example, the acquisition of Payvision will help us to get in touch with new clients and to generate loans in a new way as well. That's one of those opportunities there. The third area of acquisition is, as you have indicated, and where you see most of our activity currently, this is in the FinTech space, is we feel that there is a technology or there is an approach in the market that really adds value to our strategy. Again, not from an investor perspective for us to make a lot of return, but really from a strategic perspective as to whether it really adds in delivering a differentiating experience to our customers, we will consider it. That's basically where you have seen most of our activities in our joint venture with Kabbage, but also in the acquisition of Payvision.
On the restructuring charges, we have seen some in the fourth quarter, as we have indicated to you. We've seen some in the Netherlands. If it comes to a project called S2020, banks are putting their ATM machines together in one company. We had a charge there. We had some small transformation elements in Turkey and Germany. These are all kind of smaller restructuring charges that we had in the fourth quarter. Some of that will continue, but we don't see any major restructuring charges to come in the future.
Okay, that's very clear. Thank you very much.
Our next question is from Mr. Adrian Cighi, RBC Capital Markets. Go ahead, your line is open.
Hi there. This is Adrian Cighi from RBC. Just one follow-up question on capital, please. You've articulated a very helpful framework for us to think around Basel IV, IFRS 9, and management buffer. However, in terms of the timing of regulatory headwinds, how do you see the potential overlap between TRIM and Basel IV? Thank you.
Yes. Thank you, Adrian. In the end, what TRIM potentially may do is that it may front-run Basel IV to some extent. That looks more particularly at certain models where Basel IV both looks at input factors and the output factor. The floor, if you will. That introduction period after, by the way, political and regulatory endorsement will be 10 years until 2027. Outcome of TRIM will be a bit earlier. What we said before in terms of TRIM, we are quite positive in terms of that exercise because TRIM actually gives also input to get better statistical models. Basel IV, to some extent, is moving back to standardization, which is not something that we favor. There is some overlap, at least also in the timing, in terms of the pillars that we look at. Basel IV is pillar one closure, and TRIM is pillar two.
In that sense, there is a difference.
Perfect. Thank you.
Following question is from Mr. Robin van den Broek, Mediobanca. Go ahead, your line is open.
Yes, good morning, everybody. First question relates to Basel IV and maybe some second-order derivative impacts on non-European exposure. If you look at your loan book, 37% is non-European, and the impact studies we've seen before in Basel always indicated that the most RWA inflation is for European banks, not so much outside. I was wondering how would that impact the level playing field, and could that be part of your management actions on that part of the book? Second question is on robo-advice in Germany. I think it's a fairly new initiative, and today you seem to earmark already that the first results are quite encouraging and are boosting the fees. I was wondering if you could maybe spend a few words specifically on that addition of services for customers.
Maybe thirdly, Ralph, with Big Tech, would you rule out any collaboration there, or do you think Big Tech would never consider that with a bank? Thank you.
Thank you, Robin. I will take the last two questions, and then Wout or Steven will take the first question. On the Big Tech, you should never rule out anything, honestly. You don't know how things are developing, and it may very well be good to collaborate at a certain moment in time. At the moment we don't see it, but it could very well happen at a certain moment that if it comes to providing payment services, the one way or the other, you try to be the favorite player in their platform. Remains to be seen. Remains to be seen whether they really want that, and remains to be seen whether we would really want that, because in the end, it is about what will we actually get out of it. I don't rule it out at all.
On robo-advice, we've just started. It looks promising from a client experience perspective. It's really simple, it's digital, it is personal, all the things that are important as part of our strategy. Let's face it, there is another side to it, is that at this moment, people don't make a lot of money on their savings, but they are looking for alternatives. On one side, we can label robo-adviser a success because of what it does and the experience. To a certain extent, that is the case. It's really also because clients are looking for an alternative, and this plays to that in a way that fits ING, which is simple, understandable, transparent, and matching honestly, the risk appetite of the customers.
It fits the digital player, it's our brand, and that's why we're quite happy with the collaboration that we have with Scalable. Steven?
Yeah. Regarding Basel IV, Robin, like I said before, Basel IV to some extent brings us back to more standardized models than previously. That has more impact on one bank than another, that has more impact on one region than another. Hence, we have never favored Basel IV. Indeed, outside of Europe, that could potentially impact the level playing field, it's still relatively early days. There's a long phase-in period. We're still investigating a number of our sub-portfolios. Our franchises are well possible also outside of Europe, we have time to take actions when needed in terms of portfolio composition if ever needed, or in terms of pricing, if ever needed. We're still looking into it. At this point in time, it's too early to say if there would be an impact. When that would be the case, we'll come back to you.
Okay. Thank you very much.
We have a question now from Mr. José Coll, Santander. Go ahead, your line is open.
Thank you for taking my questions. Looking at total income in the quarter, it came at EUR 162 million, which is roughly half the quarterly average for the year, and also half of the quarterly average of 2016. My question is this a one-off? What can we expect going forward? My second question is concerning Basel IV. Could you please give us more color on what is driving most of the risk-weighted asset increases. I suppose it is credit risk, but is operational risk also an important factor? Within credit risk, could you specify by lending category, is specialized lending, specifically a large contributor to that 15%-18% risk-weighted asset increase that you mentioned?
José, could you repeat your first question, because I didn't quite understand it.
Of course. I'm looking at total other income in the quarter, and it came at EUR 162 million, which is roughly half of the quarterly average for the year. It's also half of the quarterly average for 2016, so it's significantly lower. My question is this due to one-offs? What can we expect in total other income going forward?
Great. Thank you. Specifically for the fourth quarter, a large part of that is in the FM side. We have seen that in one of the slides, it was indicated that the total result of FM was actually going down to EUR 227, but that the way the FM result is accounted for is much larger in interest income this time, and that's why the NIM has also uplifted. The other part of the income of FM is actually much lower. It's a lower FM income, and within that, a lower other income of FM. In addition to that, we know that the CVA/DVA has also impacted the other income. Exactly, the other part of the explanation of the other income is also what we explained under the NIM, is the shift in the way we recognize the designation of the hedges.
there's three categories there. Yeah, RWA. Steven.
Yeah. On RWA, there are several movements. In terms of the volume, that is the core lending increase you see there, an increase of EUR 6.3 billion. There is some negative effect from the credit model and risk migration, which is EUR three and a half billion. There is some FX elements in there, which is EUR minus 1.2 billion. A negative or decrease in RWA of operational risk or non-financial risk based on a change in the external database that we use for capital calculation of about EUR 1.9 billion. There's a decrease in market risk of about EUR 0.4 billion, which then brings the RWA down from EUR 311 billion in the third quarter to EUR 309.9 billion in the fourth quarter. That's the composition of the change in RWA. Volume up and models and FX down, basically.
I thought you had a third question on Basel IV, whether we could give some further insight into composition or impact on portfolios. One step back, that is more the technical side of it. Input factors, because we have input factors in our internal models and you have an output floor. The input factors give approximately a two-thirds effect on that 15%-18%, and the output floor in the end will give a one-third effect. That's approximation for now. Within that, different portfolios, as far as we can see, are impacted differently. By and large, areas which are more impacted are general lending for large corporates, lending for financial institutions, and mortgages. Other areas, including structured finance, are to some extent less impacted.
Perfect. Thank you very much.
We have no further questions, sir. Please continue.
Okay, thanks everyone to stick with us for the last hour and a half. Thanks for your attention. Also, thanks for your questions. As always, makes a good discussion, keeps all of us in charge. Just to wrap up and to summarize. Fourth quarter, to summarize, was a real good quarter. ATF is being implanted. We have good commercial growth, whether it is about clients, whether it is about lending, whether it is about savings. We have good NII growth, like real sustainable interest income growth. We have good commission income growth, also sustainable. We have a NIM that is actually improving because of the way we do our lending.
Commercially, been a real good quarter, and that is not only a commercially good quarter for this quarter in financial terms, but also going forward, given the fact that we are growing on the lending side, given the fact that we are growing on the customer side. Next to that, if you look at IFRS and the Basel IV impact, although we are disappointed in the Basel IV impact, in the aspect of that is still not creating a level playing field. We do feel that both impacts are manageable, which is also good news. Overall, we feel it is a good quarter. Thanks for your attention and speak to you next time. Thank you.
Ladies and gentlemen, this concludes this conference call. On behalf of ING, thank you for attending. You can disconnect your line now.