Earnings Call: Q1 2017

May 10, 2017

Good morning. This is Monique welcoming you to ING's First Quarter 2017 Conference Call. Before handing this conference call over to Rolf 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 a historical fact. Actual results may differ materially from those projected in any forward looking statements. 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 20F 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. Well, thank you, operator. Good morning, everyone. Welcome to this quarter's results conference call. As always, while we're walking through today's presentation, I'm pleased to welcome our new CFO, Koos Timmermans as well as our CRO, Wilfred Nagel. And Stephen Reisweig, who will take over from Wilfred later this year, joins us for the first time as well. If we go through the key points then, ING Group posted a net profit of over €1,100,000,000 The underlying pretax result improved 39% year on year to €1,600,000,000 50,000,000. We continue to record good lending growth, while operating expenses were stable. Again, this quarter, we had another quarter of low risk costs as well. We'd specifically like to highlight our Wholesale Banking results, where we particularly which were particularly strong, helped by a good quarter for financial markets and higher commission income. On the retail side, we added another 150,000 primary customers, which will help us to drive cross buy in the coming years. All of this has contributed to a 4 quarter rolling average return on equity of 10.8% and a costincome ratio that continues to make further progress, and we're now at 53.1%. Our group CET1 capital position increased 30 basis points to 14.5%. As you can see on Slide 3, we maintain good commercial momentum. Executing our Think Forward strategy continues to drive customer acquisitions as we added another 300,000 new customers, of which 150,000 primary customers just this quarter. I'm happy to see that our customers continue to value our services and the experience that we provide, which has led to being ranked number 1 in Net Promoter Score 8 of the 13 retail countries, and that's up from the 7 countries last quarter. So as our customer promise reads that every day we try to become a little bit better, it is noticed by our customers. In our Retail Challengers and Growth Markets, we made good progress on diversifying our balance sheet and generating additional fee income. That's what you can see on the slide as well. Fees were up 28% year on year. Consumer lending as well as assets under management have been growing fast. As I said before, and I think that you will see that going forward, we add customer numbers. We add and we increase the higher share of primary customers. As they buy more product generating higher fee income, this will ultimately enable us to deliver higher customer value and in turn higher shareholder value. So customer growth now will lead to better value in the future. And this trend, we continue to demonstrate quarter after quarter. An update on the transformation, Slide 4. It's probably one that is starting to look familiar to you as we keep you posted and updated on our large transformation programs. We're very pleased that we have managed to reach an agreement on a social plan with our trade union partners in Belgium. I'd like to thank all parties involved for the constructive dialogue that we have had in these past months. Also, the other transformation programs remain well on track. The Central IT team in Madrid is reaching the scale needed to support the ModelBank and is preparing now for a rollout into the 1st challenging market, which is the Czech Republic for us. Germany, with its own welcome project, has now fully digitalized its account opening process and has substantially increased the consumer loan processing speed as well by investing in digital. And then on Slide 5, we show you some of the most successful innovations at Paycomic and TwiP. As you remember, we've launched Pick Comic in Belgium. We now have more than 25,000 retailers signed up. We have 2,000,000 customers signed up. We're now planning for the rollout of Paycomic in the Netherlands as well in collaboration with other large Dutch banks. In Spain, we see more and more consumers using TWIP as well as TWIP cash. At the end of the quarter, there were more than 530,000 registered users for the 2, offers 330,000 for trip alone. And of that 330,000, 40% are non ING clients. So basically, you see that through this, we actually also gain more customers. And then in the end, we can hopefully turn them into ING customers as well. Well, these are both examples of innovations that we developed in the house, just like Yalt. As you may remember, in the U. K, we also partnered with Fintechs to strengthen our leading position in financial innovations. Now let's turn to the Q1 results. Slide 7. On the top left, you can see the strategic roadmap until 2020. It's stated the menu as to how we think results will develop in each of our regions. We see that top line growth in retail Benelux is slowing. Absolute cost savings clearly become visible as underlying costs went down 10% year on year. Retail challenges and growth is growing revenues as fast and we provide more and more product to our larger customer base. At the same time, we're investing in ModelBank, we're investing in Welcome to digitalize the businesses. So you can also see that reflected in the cost base. But again, the cost base, you may see going up in order to generate the scale to have a cross border offering. So in the end, that is certainly going to be translated into further efficiency. Lastly, the Wholesale Bank delivers good growth on the back of low risk lending and an improved financial market result in this quarter. And you see strong positive jaws versus the expense line. So real good results for the Wholesale Bank this quarter. Turning to Slide 8. You can see that our underlying pretax result came in at a strong EUR 1,650,000,000 corrected for the seasonally higher regulatory costs and the absence of positive volatile items this quarter. We actually delivered a very strong result of EUR 2,100,000,000, so EUR 2,100,000,000 pretax, which is up from the previous quarter and strongly up year on year. Now the underlying result benefited from a robust net interest income, which is up both comparable quarters, as you can see on Slide 9. In the quarter, we continued to grow our mortgage book. We also recorded good growth in other retail and wholesale lending. The NIM, the net interest margin, remains in line with our guided range, came in unchanged at 152 basis points. Clearly, the low interest rate environment continues to be a drag. But overall, lending margins remained broadly stable year on year, though we are now starting to feel the pressure in the wholesale bank. Coming to growth and the core lending growth on Slide 10. 1st quarter, we grew core lending by €5,700,000,000 which is in line with our loan growth guidance for the year of 3% to 4%. This core quarter, we saw strongest contribution from other challenges in growth markets as well as general lending and working capital solutions in the wholesale bank. And although there was no net growth for industry lending quarter, we see a good pipeline of deals and expect growth next quarter. Also important to note here is that we keep having financial momentum in Retail Belgium. So with all the transformation going on, our colleagues are very much focused on the clients and making sure that we continue to service our clients very well, and you can see that in the growth here as well. Turning to 11, Slide 11. This quarter, we achieved an important milestone, as you can see, from a portfolio perspective. For the first time, mortgages represent only 50% of our lending book as we continue to grow our non mortgage lending faster than we grow mortgages. So you see that the component of mortgages in value is still going up, but in percentage, it's going down. And you may remember from our Investor Day back in 2014 that this is exactly what we wanted to achieve, 50% of our lending book in mortgages and further diversification by 2017. Meanwhile, half a year ago on the latest Investor Day, we indicated that our ambition is to go even further in 2020 to 48%. From a geographical standpoint, the balance now represents just over half of the lending portfolio, and we expect this to come down further to 46% by 2020, with strongest growth foreseen in the challenges in growth markets as we build sustainable balance sheets in our deposit rich countries. This is also a process that you know very well, and we continue to execute into that direction. And you can basically see that there's a move of concentration risk. We're moving away from the concentration risk in mortgage in our balance sheet and getting a much more balanced and diversified franchise going forward. Turning to commission income, something that we discussed last quarter as well. Commission income rose by 12% year on year to just over EUR 680,000,000 Commission income growth was visible in all segments, and nearly all products as well, with an above average contribution from industry lending and retail challenges in growth markets. In the Challenges in Growth Markets, commission growth is driven by increasing numbers of primary customers buying more products as we diversify our product range available through digital channels. So basically, you see strategy at work here. In Industry Lending, the fees were also up, though this, as you know, can be volatile quarter on quarter because it has to do with the number of deals that we close. In financial markets, we did very well this quarter. We booked EUR 321,000,000 of total income. The unit had a tailwind from supportive market conditions for client activities in credit, equities and capital markets businesses. Moving to the operating expenses. As you know, the expense base remains impacted by regulatory costs. The Q1 is always a heavy quarter in that regard with over 50% of our full year regulatory expenses. And this year, they come out in line with last year, more or less in line with last year. You see the gray bars in the slides. Excluding regulatory costs, our underlying operating expenses were actually slightly down this quarter. 4 quarter rolling average costincome ratio improved further to 53%, and that's just north of the target range of 50% to 52 that we have for 2020. Turning to the risk environment. I think I can be brief on risk costs this quarter. The risk environment remains benign, and that means that the NPL ratios keep trending down. Risk costs are coming down and came in around last quarter's number, just over 130,000,000, about 17 basis points of risk weighted assets against our 40 to 45 basis points through the cycle average, as you know. Turning to Slide 15. In keeping with presentations that we've had in the past quarters, I'd like to highlight one of our countries, and this time it's Australia. Had a very strong quarter, as you can see from the income graph. On the right hand side bottom, that's where you see the income increase. Australia is a business that we built from scratch in 1999. Now service is 1,700,000 customers. And to start with, it was a narrowly defined savings and mortgage business, but we've successfully been expanding the product range. This quarter, we launched Android and Apple Pay. We also started selling home and contents insurance. We've enhanced our offering of regulated savings products as well. And this in turn means that we convert more and more customers into primary, and we attract more and more primary customers. And in fact, over 40% of new customers directly joining us as primary now. And also here, you see evidence that a digital bank can become your main bank. It shows the attractiveness of our franchise also there in Australia and you see that this model is completely in line with our strategy. And as a testament to the success that we deliver superior customer experience in Australia, we have a number one Nepper Motors score in the country, and we've had it for many years. And it's not just having a number one Net Promoter Score, it's also that the next best competitor is training us by as much as 27 points. So that's a real big difference, and that's why you see so many customers joining ING as primary relationship. Turning to the capital position, Slide 16. The group CET1 went up 30 basis points over the year end 2016, and that's mostly due to a reduction in risk weighted assets as well as the inclusion of part of the Q1 profit in capital. In order to be consistent with our progressive dividend policy and to allow for smoother development of our capital position, we've decided to reserve an amount equal to onethree of the 2016 total dividend in each of the first three quarters. So that's what you see here. And that makes that we can also reserve part of the dividend as part of our capital going forward part of the profit as part of the capital going forward. And it's different from the past years where we set aside all of the profits to decide at the end of the year how much of that profit could be released back to capital. Now the CET1 remains well above regulatory requirements, requiring a TLAC. We made significant progress in the quarter by issuing over EUR 5,000,000,000 of group senior paper. And I think it's worth mentioning that we already exceed our 2019 TLAC requirement of 21.5% now. In summary, Slide 17. We continue to perform well against the stated 2020 financial targets with both CET1 and leverage ratio well ahead of regulatory requirements, as you can see. I'm also happy with the progress that we make on the cost income side, and we will be doing more in order to reach our target range there. Obviously, the transformation programs that have been set in motion will help us in that regard. And finally, the 4th quarter rolling average return on equity for the group has improved further to 10.8%. Now as I mentioned at the start, Wholesale Banking had an excellent quarter. So I'd like to spend some time on how their Wholesale Banking franchise has performed this quarter. Turning to Slide 19 for that. We booked an underlying result before tax of EUR 813,000,000 in the Wholesale Bank, which is a 55% improvement versus the Q1 of 2016. Industry lending remains the largest contributor to this result, but other product groups also delivered improved results. And as you can see from the graph bottom right, the lending book is very well diversified with the portfolio actually being skewed towards challenges and growth, the U. S. And Asia now. So very well diversified and really into other markets and just the Benelux. That diversification, as you know, is part of what we want to deliver as part of the Wholesale Banking strategy, but it also enables us to deliver a return on equity that is comfortably over 10%. And that's what you can see in the slide as well. While net interest results still account for the majority of the revenues in the Wholesale Bank, the contribution of fees is also growing as we focus on becoming the primary bank for our corporate clients. We operate the Wholesale segment at a costincome ratio of 45%, which I think in terms of efficiency puts us probably in the top quartile of the corporate banks. So it kind of shows how efficient our network is in 40 countries, supporting our offering to our international clients. While the lending growth has been impressive, we've not compromised on risk standards and expressed in basis points of risk average risk weighted assets. This quarter, the risk costs were only 9 basis points. Now turning to Slide 21. I'm very proud that your Wholesale Bank is also leading in the way in terms of innovation, in terms of sustainable lending. And here you see again a couple of examples of deals and transactions we've done in the Q1. Together with the quality trading firm Mercuria, for example, and a major French bank, we successfully completed the first test of a large oil trade using blockchain technology actually. And I want to point out that this idea, the Easy Trading Connect, was actually the winner of the 2016 ING Innovation Boot Camp out of some 800 submissions within ING. And so we're very excited about the potential of this technology blockchain in order to make these processes faster, safer and much more efficient. Turning to a deal that we did for 1 of our clients, Royal Philips. For them, we acted as a sustainability coordinator for a new innovative loan, where the pricing of the loan is actually linked to the client's sustainability ratings as well. Furthermore, we continue to contribute to more sustainable to a more sustainable world by participating in sustainable loan, for example, for Green Highlands. That's a project in Scotland as well as being the lead manager for the 1st corporate green hybrid bond for Tenet, which is the Dutch Electricity Grid Company. To wrap it up, Slide 23. We I think we can safely conclude that we continue to have strong business momentum in both retail and wholesale. I'm happy to see that we continue to make progress in our digital transformation and that we keep improving the customer experience. And then before I open the call for questions, I'd like to take the opportunity to thank Patrick Flynn for his professionalism and his dedication over the last 8 years as our bank's CFO. He's done a wonderful job for us over difficult times, and I want to also from this audience wish him very well for the future. Now let me open the call for questions. Ladies and gentlemen, we will start the question and answer session The first questions come from Mr. Benoit Petrarque of Kepler. Go ahead please. Yes, good morning everybody. First question will be on NII sensitivity. I know we are still in the low interest rate environment, but we might try to think a bit forward in terms of what ECB could do in the coming months. What will be the sensitivity to kind of 100 bps increase in interest rates on NII. I think you've disclosed the year 1 effect, which is not really relevant. I think most of the positive will take place in your 2, 3 and even 4. So could you provide a bit of sensitivity here? And then second one will be on the cost. I think clearly very good achievement in this quarter, flat cost year on year despite the growing income. So how should we think about cost growth in 2017 considering the clearly the ongoing cost cutting actions you have taken? Can we hope for flat cost on a clean basis as regulatory cost? Thank you very much for that. I'll take the second question and then Koos Timmermans will take the first question. So Koos? Yes. Benoit, on the interest rate sensitivity, as you know that we gave the number at the annual report, which says like a 1% shock up gives us EUR 224,000,000 in a year. What that does is it takes all assumptions into consideration like longer term financing for mortgages, but also it takes an assumption on how much do you track with your savings. And particularly, this tracking is very important because what we use is sort of the average tracking experience of what we had in the past. And therefore, it's already difficult to give a sensitivity because it's heavily based on the tracking assumption. But if you then want to go further in year 23, then you really have to sort of think ahead on how you have to respond on your client side. This is the reason why we are a bit careful in giving more numbers on this because really client interaction is the most important one. So we rather stick with the number we give you right now. The other thing I can say is, if gradually interest rates move up by 1%, it's for sure better than a shock because then in that case, you don't need to readjust your funding for mortgages so quickly. Okay. On the cost side, Benoit, yes. So we had a very good Q1 on the cost side. And as you know, we keep very, very, very much focused on the cost element of our franchise. But as I have indicated in the presentation, we have a specific menu where basically we expect costs over time to go down in the market leaders environment, costs in the challenges in growth environment to go up, but we also expect income to go up faster over time in that part. For the Wholesale Bank, it's a bit the same. It's some of the transformation programs in Wholesale Bank will make sure that the costs go down. At the same time, for the growth, we also add people in some other areas. So over time, we expect flattish to a bit of an increase. Now one thing I wanted to indicate here is that in the Q1, if we come to the transformation program and the investments that we announced for the transformation program, that in the Q1, the pickup of basically of that part of the budget in order to invest has just started. So you should expect for our 1st year investment that over the next quarters, the investments will go up that will have an effect on our cost base as well. Thank you very much. Next question comes from Ms. Alicia Chung of Exane. Go ahead please. Good morning everyone. Just a couple of questions from me. First of all, would you be able to give us an update on where you now are on TRIM? So what you understand about the process so far, because obviously, it's been a little bit of a black box. How far you are along this process? And also, where do you expect the main areas of debate to be, particularly for ING? Then secondly, just on the restructuring in Belgium. You gave a little bit of an update in the middle of the quarter where you talked about what the agreement that you came to. What was the final number of compulsory investigations into the inspect tank, that would be great. Thank you. Okay. I'll give the first question to Wilfred. Yes. On TRIM, this is obviously a multiyear process and that has only just kicked off. The beginning of the real deep dives into the models for ING will be after the summer in September. The initial focus is going to be mainly on retail, specifically Belgian and Dutch mortgages as well as SME. At the later stage, obviously, also the market risk side of things will be looked at and that will start with the incremental risk charges model as well as the VAR models. But that's more likely going to be late this year or early next year. I will take a question on Belgium and then Koos will follow on your final question. Yes, so in Belgium, so we're actually we've had long discussions with our trade union partners there. These were not easy discussions as you can imagine. The announcement in October was a bit was a shock. It's a good performing franchise, but a franchise that we want to invest in and prepare for the digital world. The consequence of that, 3,500 jobs are basically impacted in Belgium. And the first estimate at that moment in terms of compulsory layoffs were €1700,000,000 Now together with our partners of the trade unions, we have looked at alternatives and have been very constructive in this, and we're very grateful for that. We've come to arrangements through which there is also a possibility for people to take a voluntary to take a package voluntary. And as a consequence of that, we hope to be able to decrease the number of compulsory layoffs. And we expect that to increase to the range of anywhere between 4 100,900 FT feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet Es. Thank you. Alicia, maybe on the litigation part, not a lot of update to be given. As you know that we are subject to a criminal investigation by the Dutch authorities regarding the various requirements related to the onboarding of the clients, the money laundering and the corruption practices. And we also got requests from the U. S. Authorities. Now we are fully cooperating on these investigations and on the request. And in that process, it is very difficult to determine anything in terms of the timing, in terms of the scope or the amount of any fines. So therefore, it's difficult to comment on it at this moment or to give you any more update than what we have given till so far. Thank you very much. Next question comes from Mr. Kerry Ficharajah of Barclays. Go ahead please. Good morning. It's Kiri Vijaraju here from Barclays. Just a couple of questions on SME and Retail. So on Dutch SME loan demand, I wonder if you talk about what you're seeing in terms of loan applications. And I know it was towards the end of the quarter, but was there any kind of pickup in activity after the outcome of the Dutch elections? And then on retail fees and commissions, I wonder if you could talk specifically about which products were driving the strong growth there. And have you been changing any of your pricing and fee structures there? Or is all about increase purely volume driven? Yes. So on the Dutch SME business. So basically, what we see is that at the also in the Dutch SME business, the environment for the Dutch SME business is improving. We haven't seen any particular change because of the outcome of the elections, to be quite honest. What we see is that, yes, there is production, there is loan demand and the approval rate has been very stable over many years already. But that the repayments as well as some of the write offs that we still have in this book, that they are nearly as high as the new production. So that's why from a total book basis, you see it flattening. So basically, demand is there. The approval rate is as normal, but there's still repayments coming into the book and write offs as well. So what we see is that the initial kind of growth that these companies are going through, a lot of that is financed through equity, which in itself is a good thing because we also know that part of the market was a bit over leveraged. So I think that it's basically it's a good sign from that perspective, there is growth. There is loan demand, but the initial growth is generally financed now through equity. That's the Dutch side. Now on the retail fee income that we have reported this quarter across all the retail franchises that ING has, there's a couple of things. So the first element is that in some of the countries, this is more seasonal. The Q1 is a quarter in which our clients decide to move parts of their savings into investment products, into assets under management, and that's what you've seen. Now related to that, you see the fees in assets under management going up. You see that in countries like Belgium, for example. On top of that, we see that the franchise is growing and that our focus on primary clients and the introduction of more products and to improve the cross buy in our digital franchises is actually producing more commission income. And this is why we set out the strategy in the past, 3, 4 years ago. And you actually see it now coming in through numbers that are noticeable. So yes, it is kind of a confirmation of the strategy. It's not necessarily a change in fee pricing structures. Great. Thank you. Next question, Benjamin Joy from Deutsche Bank. Go ahead please. Yes. Good morning. Two questions, please. The first one on the margin. You highlighted you see some pressure in wholesale, but at the end of the quarter, you cut deposit rates in Germany and the Netherlands. Is that good enough to keep the margin more or less stable? Or should we see more pressure throughout the year? And the second one is, well, risk costs remain very low. But do you see going forward any large cases you're aware of as of today or so far so benign in the quarter as well? What was the first? Yes, if you look at margins, Benjamin, that overall, you're right that maybe new loan production margins are slightly lower. And it's countered by 2 things. 1 is we are lowering savings rates. And on the other hand, what you see is a more efficient use of your balance sheet. You know, a slightly cheaper wholesale loan replacing a muni is still a good thing for your balance sheet overall. And so what you see is efficiency and lower deposit rate helps. And that is why we actually see that over 2017, we are thinking we're keeping margins stable. On risk costs, Wilfred? Yes. On risk costs, generally, what we're seeing is both in retail as well as in wholesale is a stable situation, slightly up in wholesale, slightly down in retail, but nothing that indicates a trend. And clearly, if we were aware of large problems, then we would be taking provisions for them. There is no reason at this point in my mind to assume that something big is around the corner. If you look at what was driving the provisions on the wholesale side, it was mainly coming from a couple of segments that we have highlighted to you for quite a few quarters as pockets of remaining concern, but fortunately, relatively small pockets in total size, and that is offshore drilling and the inland and coastal shipping side of the shipping book. Great. Thank you. Next question, Antonio Doherty of JPMorgan. Go ahead please. Hi, it's actually Daniel DoToy of JPMorgan. Can I just actually follow-up on those two points? The first one was on the NIM results. You mentioned that you expect it to be fairly stable. Is that against 152 basis points that you delivered over the last 2 quarters? Or is it the 150 that you've previously talked about? And also, I guess, what I'm trying to understand a little bit is, is there any kind of unsustainable or one off items within net interest income in Q1, which we should be aware of from looking at, for example, the treasury or the corporate banking line? And then secondly, on provisions as well. I think Patrick guided last time for provisions to be sort of flattish to slightly up in 20 16 against the $1,000,000,000 that you reported in 2016. Is that still a guidance that you feel comfortable with given the strong result in Q1? Okay. Thanks, Anja. On the NIM, the guidance is as we have had them in the past. Clearly, we comment that exactly at the rate that you want or that we would want. There are so many different levers and elements that play a role here, but we feel comfortable continuing our guidance that it will for the next couple of quarters in the high 140s and the low 150s, and that's where we expect it to go. There were no real one offs there. On risk cost guidance, Wilfred? Yes. In short, we don't see reason to really change our guidance here. Obviously, Q1 was good, but there are two reasons why I think it would not be wise to change the guidance now. And that is, first of all, 1 quarter is only just that 1 quarter. And we've always indicated that provisioning can be lumpy, and it has traditionally been lumpy now and then. So it's a bit early to cry victory here. And secondly, you have to keep in mind that the net number that you see is ultimately a combination of new provisions as well as releases. And new provisions, of course, had to do with our best assessment of the quality of the book today. But the releases have a lot to do with things that happened in the past restructurings with older files, updates of models, etcetera. Over a longer period, the net number is meaningful, but on quarter to quarter basis, it really is less so and therefore, not a reason to change your guidance at this point. Okay. Can I just follow-up on the first point on the guidance of high 140s to low 150s? I guess, given that there is still more room to reprice on the deposit side to offset the lending margin pressure that you're seeing on the front book and given the things that you mentioned around balance sheet efficiency and funding costs, how come there isn't more confidence around being able to maintain the sort of 150 basis points? Is there anything between the opposite direction? Well, overall, I think it is still hard work to make sure that we preserve the NIM. I mean, we are still working in a very low rate environment. So the reinvestment of our savings is always at lower rates. And each, we are entering that by lowering our savings rate towards the company and we're making sure that we keep the decent spreads of our loans. But to be a turbulent internal Next question is from Goldman Sachs. Go ahead please. Good morning and service presentation. Two questions from me. The first is on the fee income. You showed us a good 3 year slide in your presentation for a run rate for 4 quarters last year, and this was in the low 600,000,000 per quarter. Now you've there was a noticeable step up in fees in Q1. And many of the remarks that you made on the call seem to suggest that this is a sustainable improvement. It's true you mentioned that maybe financial markets were benefiting from better conditions, but you also talk about the retail and the wholesale. You mentioned that this is your strategy at work. So the question would be really should we look at this high 600 as a new run rate? Would you like the fee income to be going forward? And the second question is a question on Basel IV. If you can give us any update there, if you see any chance for getting more clarity in the coming months. There were news recently that Basel Committee might get closer to a compromise with the output floor at around 75% level. Would that, from your perspective, be an acceptable level? And would the benefits of more clarity essentially put the bank in a better position even if output flows will be calibrated at 75%. Thank you. Well, thank you, Pavel. Well, this quarter's fee income, you can't see as a run rate. And that's for a couple of reasons. The first one is that the Belgium part of it is seasonal. So it's more a Q1 effect of savings moving into assets under management. Wholesale, as you already mentioned yourself in some elements, whether it's financial markets or fees related to deal structuring is more volatile. But what is important to pick up here on this fee income is that the part of CNG, Challengers and Growth Markets, that is a trend. And so that's something I can give you. So it's not a new run rate, but some of these elements are a show and a confirmation of the strategy, and therefore, you can see them as trend. That's one element. And they're up 40 percent year on year in CNG, right? Now if you then go to Basel IV, yes, we hear some we hear what you hear, which is around could there be a compromise around 75% outflow? I just want to remind you that not only regulators in Europe, but also European commissioners have indicated that they would not allow for Basel IV to have an impact on banks capital that is more than significant up. And we all know that the 75% open floor will actually lead to a more than significant uptick in banks capital. And that is not related to a couple of outliers, that is related to many of the banks in the eurozone. So we take comfort from the fact that regulators and politicians keep making that statement that they would not allow for Basel IV to lead to a more than significant impact on capital in the banks in the eurozone. That's very clear. Thank you. Next question, Jean Pierre Lambert from KBW. Go ahead please. Yes, good morning and thanks for the presentation. Two questions. The first one is, how should we see the allocation of the transformation costs related to the bridge between the Netherlands and Belgium? I mean, is it fifty-fifty? Or what kind of range? And also, if you can give some idea of the timing profile in terms of quarter, we had limited investment this quarter. Is this going to accelerate steadily, lean early or if you could give some indications? The second question is again on fees and commissions, this time on run rate. So if you exclude, if you clean up for the higher wholesale fees related to these, then you have a run rate growth of 5%. I suspect if you say that this solid growth in Challenger and Growth Markets to continue, I mean, 5% is going to expand to higher level of running growth. Is that your view as well? Thank you. Yes. Maybe Jean Pierre, if you look at the cost of the transformation, what we have between the Netherlands and Belgium, we don't try to have a specific allocation that everything lands in Belgium or the Netherlands. We really take it where cost incur. And what you will find is making the platform ready in terms of IT for accepting more Belgium product is a cost which will typically more be incurred in the Netherlands. At the same time, the cost right now in changing the way of working is what you take in Belgium. And that is why you find that overall in the project scheme. This quarter, more costs have been taken in Belgium. But we will guide when this comes a bit more significant in terms of the cost over the next quarters. Again, if you take the run rate right now, it is relatively low in the Q1, and it will increase a little bit. But with that increase, we will also share with you the allocation more. But this quarter is more Belgium. Thank you. Next question? On the digital solution, sorry. Yes, there's still a question outstanding that we need to answer. On the digital investments in the Q1 versus the future quarters, The transformation program is actually planning to have an investment of around DKK 210,000,000 for 2017. And out of the €210,000,000 €25,000,000 has been kind of invested in the Q1. So that's where we are. Now on your fee growth. So last quarter already, we have indicated that we expect fee income to grow faster than the NII income going forward. And that is because on one side, the NII income has a couple of components. One of the component is to grow the lending book and the lending book that we have guided to grow between 3% to 4% every year. Some quarters we come out above that annual growth rate, some quarters are touching it, but we feel comfortable also this year that the 3% to 4% guidance that we've given you on loan growth, that is still something to that you can safely assume. And fee growth will then be higher than that because on top of the loan growth, which comes with fee income by the way as well, we are introducing new products that generate fees in many countries and specifically in the digital banks. We're increasingly, we are looking for products for payments accounts that bring in fees for insurance products, for robo advice, for consumer lending that takes commission income along as well. So yes, while we are changing the model from a savings and mortgage bank to a full fledged digital bank, you may expect fee income in Challengers and Growth Markets to grow faster. In all the other markets, you can expect it to grow a little bit faster than NII. Thank you very much. Next question, Marshall Huben from Credit Suisse. Go ahead please. Yes, good morning. Thank you for taking my questions. I have 2 as well. 1st on the weaker deposit pricing in Germany, you have quite a bit cut at 15 bps. Do you still feel confident about your growth ambitions there? Do you and is there any more room to cut even further? The second question is on the mortgage in the Netherlands. It seems that you had some loss of market share of new production in the last couple of years. Are you willing to become a little bit more competitive, also taking account your asset mix strategy, but also you have the customer preference heading towards more than 10 years fixed? Thank you. So I'll take the first question and Koos will take the second one. In retail deposits growth in Germany, we've seen a continuous of inflow in the Q1. In the way we price our deposits, we always take into account that it needs to be a balance between in the replicating return that we can make on it, how the clients behave, where demand is and how we can continue to grow the franchise. So it's always a balance between these kind of elements. And clearly, in order to safeguard margin going forward, the question is also how far can you go? Clearly, we just moved it down towards the end of the Q1. So we expect some of the income effect of that decrease to be more visible in the second quarter. While we do expect that the commercial growth in terms of number of customers will just continue. Okay. Thank you. Yes. And Marcel, maybe on the mortgages part. Overall, what you find is we have always been quite competitive in the market up to 10 years. What we hadn't done or where we were a bit reluctant is to price in the 20 year mortgages. But right now, also with the whole issues around prepayments more resolved, we feel more comfortable for that market. So that means we will also participate in the 20 year market. And that means right now, we are more in the phase of pricing that better, then you will get some more offers. So expect some more pipeline to flow through over the next month. Very clear. Thank you. Next question, Bart Hossen from Kempen and Go. Go ahead please. Yes. Good morning. Thanks for taking my questions. A follow-up on Germany, the development of your deposits, they grew by €2,700,000,000 in Q1, while your loan book grew by €900,000,000 Is that a trend you expect to continue? And what does it say about the loan growth you expect in Germany and the impact on your interest margin? And secondly, for Belgium, this is more or less the same question relating to volume growth, where both in mortgages and customer other customer lending, you've been able to grow your book. And my other question relates to Paycomic. Could you elaborate? Because it seems that the impact is spreading and you're also collaborating with other banks. What does it mean actually for ING on its payments business? And what does it mean for your business model in that area? Thank you. Thank you, Bart. Well, in Germany, you should realize that in Germany, the way we grow our lending book, it has a couple of elements. The first part of growing the lending book in Germany is what we do in Germany. So this is about the increase in our Cousins Consumer loan portfolio, our mortgages in Germany and our business, our Wholesale Banking business going that we do with German clients. Then there was a piece of business that we manage out of Germany as well, which are some of the centers of expertise that we have in Wholesale Banking like everything that has to do with export credit agency business. So whether we do a Cofas deal or a Japan Action deal or whatsoever, if we originate those deals somewhere in the network, our specialists are in Germany and you will see that coming onto the German balance sheet. Then the third element is that we have a program of internal transfers, asset transfers onto the German balance sheet. Now those assets also get repaid. So it's a continuous effort to transfer assets onto it, but there is also a repayment profile there. So to kind of tell you how the German balance sheet exactly develops is more something that we manage internally and has to do with what Koos just mentioned, balance sheet optimization on one side and on the other side with how the market grows globally as well as in Germany. That's in Germany. And in Belgium, yes, we see a continued growth Business Lending and also in Mortgage Lending. And to a certain extent, savings, but you see that at a certain moment, the savings rates are so low that clients keep more of their money on the current accounts. So you see some of the savings growing. Then in the Q1, we saw a lot of savings being used to go into assets under management in Belgium, which you see a continuous inflow on the current accounts and people basically keeping their money on the current accounts. So that's a trend that we expect in more countries when savings rates go further down. On Piconic, yes, so Piconic is an app that we developed out of Belgium. It's a very easy way of paying in if you go shopping, basically it takes out the card out of the whole payment scheme. It takes out the guarantee that you need as part of the cards that works in that system, because it's a direct bank to bank payment. Now because it is a direct bank to bank payment and it is across banks, you either need to wait for PSD2 to be enacted or you sign up with other banks that they will then allow consumers of that other bank to download Paycomic and connect their bank account. And that's what we have done in Belgium with KBC in Belfius. And that's what we have also announced that we will do in the Netherlands with 5 larger Dutch banks. So and we hope that Paycomic will with that become one of the, if not the mobile payment system and standard for the Benelux. And again, we're signing up with other banks because we don't want to wait for PSD2 in these countries because more actors can actually get into this market when PSD2 is Okay. Thank you very much. Next question, Mr. Alex Gaje from Natixis. Go ahead please. Yes. Hi, everybody. One follow-up question from you on provision. I do understand you understand that for the time being, asset quality is very sound and you don't really see any asset deterioration going forward. So the question is more on the side of provisional write backs. How do you see your activity going forward? Do you still have room to make some write backs? Because I guess at the end of the day, if you have more write backs, then you can assume that the EUR 1,000,000,000 provision guidance could be a little bit too high still. The other question is more related to the way you calculate your ROE in the Wholesale Banking. You calculate the ROE based on the common equity ratio allocation of 12%. I'm just wondering if this is a level that you think you will work it at the group level, meaning that we should assume the same level for the retail banking and therefore this is kind of the let's say management guidance for the long term? Thank you. So to start with the question on provisions and the guidance, This is about the balance between new provisions and write backs, and you have to keep in mind that, that is a cyclical thing. At the beginning of a downturn, what you see is a lot of new provisioning and not yet a lot of releases and also relatively modest stock of provisions. During the downturn, that stock goes up. And at some point towards the end and when the recovery comes, you get into a situation where the new provisioning becomes a lower number and the releases become bigger and gradually the stock starts declining. Now that is the phase that we're in. But in our guidance, when we talk about the SEK 1,000,000,000, we do talk about a net number that takes into account our best expectation of both the new provisions that are going to be added as well as the releases that we might see. So the fact that we're in that stage of the cycle is reflected in the guidance, and therefore, I don't think there's a reason to change it. Very clear. Thank you. And Alex, if you look at the ROEs, indeed, we are basing it currently on the 12% RWA, what you've seen on the wholesale side, but we do the same on the retail part. Okay. But the question is, should I assume that the first percent is the level on which you feel comfortable for your business? Yes. I think overall, we feel comfortable with using this level at this moment. And it's a bit what I see with European averages everywhere else. So it's the best guess as what we can use for the coming period of time. Okay. Thank you. Next question, Stefan Mediakoff from Citigroup. Go ahead please. Hi, guys. Good morning. It's Stefan from Citi. A couple of hopefully quick questions. On the net interest margin, could you please give us a bit more color on any sort of non banking effect in the quarter on the treasury side, TLTRO benefits, any sort of hedging benefit? Also from the MREL issuance, how much did that impact margins? I know it was for a relatively short period of time in the quarter. The second question on Belgian costs. When should we start expecting benefits from your union negotiations? Obviously, in 1Q, there was almost none. Is that more of a 2Q or 3Q type of event? And lastly, just much more of a theoretical question. How should we think about the fungibility of excess savings across borders within the group? How easy is it to move savings from country X to country Y? Post will take the first question. Basically, on Belgium cost, Actually, we've seen some of the benefits coming through already as we basically, we were not hiring over the last couple of last two quarters really in Belgium in absence of a deal, a negotiated deal with the unions. So some of the benefits if it comes to the fact that we work with less people and with that with less cost and lower cost, are coming through in the cost base. Now as we restructure further, you will see that the actual benefits for Orange Bridge as a whole, so which is the total transformation of Belgium and the Netherlands and the integration of it, most of the benefits will be more skewed towards the end of the program as we have indicated on the Investor Day. So that's more coming in over time, gradually coming in, but then you will also see the investments. But then the net effect of that, you should see coming through in 2020 2021. In terms of fungibility of the savings across the group, yes, where we have branches, there is full fungibility, where we have subsidiaries, as you know, there is no full fungibility yet. And therefore, we are moving and optimizing more from an asset perspective than from a liquidity from a savings transfer perspective because that we do use that, but we use it to up to the maximum allowed by local regulators. And for NIM, I'll give it to Koos. Yes. If you look at the NIM part overall, there's always some volatile components in there. But if I go to your part on TLTRO, that is more a second quarter issue. That will start to have an impact there because we borrowed some extra through the TLTRO in order of SEK 7,000,000,000. If you look at the MREL, yes, we have done significant issuance over the Q1, but please note that you also have maturing senior debt, for instance, from 5 years ago, and you find out that the credit spread we paid at that time is in some cases on senior operating companies higher than the MREL paid right now. So we in that sense, these kind of things, they tend to neutralize out. Okay. Just to follow-up on the NIM question. Was there any beneficial impact within the within treasury or hedging on the 1Q NIM, please? Thank you. No, there is always some, but then you're talking in a basis point or something. We, this quarter, for instance, had hedge asymmetry. The thing there is and whether that is on doing FX swaps, it's a recognition of income over time, which sort of balances itself out over the lifetime of the transaction. So in that sense, it is small, but we don't report it because it's a sort of an asystemic returning thing. Okay. Thank you, guys. Next question, Ankur Ryanshan from Royal Bank of Canada. Go ahead, please. Just two follow-up questions. Firstly, on the dividend, the onethree accrual in the Q1, can you just confirm that you shouldn't really see this as a potential run rate for the year 2017? And then I was wondering if you can talk a bit more about your multiplier effect from the total customer acquisition and primary customers. So where are the total customers coming from? Which divisions and which products take the primary customers up to move to primary customers? And how you see this developing in the remainder of the year? Clearly, it seems to have helped Q1 and lock in some earnings. I just wonder how this momentum is going to unfold in the rest of the year. Thank you very much. Okay. Thank you, Anke. 1 on dividend reserving. What we have indicated is that our policy up to now was that we were reserving the full quarterly profit until the year end when we would kind of decide on our dividend. Then we would separate what we would keep for dividend and we would basically put the remainder of the profit back into capital. What we decided is that going forward, every quarter, we will reserve for dividend 1 third of the level of dividend of the previous quarter previous year. So with that, in the first three quarters of that year, we should have reserved a full dividend, which would be equal to previous year dividend. And in the final quarter, we will then establish how much we want to progress on our dividend. So how we can basically put the progressive element into the dividend. What this does is that per quarter, we can actually now also allocate some of the remaining profit of that quarter back to capital and actually use it to support our business. Whereas previously, we were keeping it completely separate for dividend and it would not be part of our CET1. And therefore, we were not able to use it and make also a return on it. That's the change in dividend reserving. So yes, this will be the quarterly run rate for the next three quarters. But in the Q4, it remains to be seen as to how we want to manage the progressiveness. The multiplier effect from customer growth. So the main customer acquisition product across the different franchises, digital franchises, which is basically 2 or 3. So it's still savings. It's still an attractive acquisition product. Mortgages and mortgages that come also through brokers is also an attractive acquisition product. And payments accounts, so payments accounts is also a driver for customer growth. Now in order to explain you what the difference is between a customer and a primary customer, the definition for us in terms of primary customer is that you need to have a payments account with recurring income and activity on it plus one more product. And that one more product and the chances and the probability of that one more product is increasing because we are is introducing new product categories. So not necessarily new products per category because we want to continue to be a simple and efficient bank. So you should not have too much choices per product category, but we're introducing new product categories. So like consumer lending in some of these markets, SME lending in some of these markets, insurance in some of these markets, assets under management and investment management in some of these markets. So that's why we do expect that both the growth in customers as well as the growth in primary customers, and that's even more important, the growth in primary customers, because they will generate a true value for the franchise that, that will continue. And hence, in the end also, you will see that in the financial results. Okay. Thank you. Next question, Martina Matusova from Jefferies. Go ahead please. Hello. I just wanted to follow-up on Anke's questions on the primary customers. You have 150 new primary customers. Can you give us breakdown from which markets they come from, especially between their growth and challenges? And then a second question, can you elaborate it to be on a model bank and development of the transformation program? In terms of the primary customers, the 150,000 new ones, all of them come from challenges in growth. And in that, Germany is the biggest. On the development of the Model Bank, so just to explain the Model Bank. So in the Model Bank, what we're setting up is a basically, we're building a platform bank that can be active across different countries. And in achieving that, we are setting up a central team in Madrid, supported also with resources on the IT side from Poland and Romania, but it's going to be delivered from Spain and also using some of the technology, successful technology that we already have in Spain. And we're building the platform out of Madrid and the first country to onboard on to that platform is and will be the Czech Republic. Following that, we will see when France comes on or Austria comes on or Italy comes on and also Spain itself will actually also go on to that platform. The interesting part of this development is that at the moment, we'll have a platform both on the front end in our on the part through which we interact with our clients as well as on the back end, the core bank. We will have a full standardized offering, a full scalable offering that will not only make it much more efficient to build in the countries in which we're active, They will not only basically speed up the time to market for new products from one country to the other country, but it will also enable us to open up shop in some of the countries that we're not even opening at this moment in time because we will then have a standard back end and a standard front end interaction with our clients. And the only thing that you would then need to develop is a project a product module for that country to enter because some of the products are still driven more by local laws and regulation and tax environment than European. Okay. That's very helpful. Thank you. Next question, Ruben van den Broek from Mediobanca. Go ahead please. Yes. Good morning, gentlemen. A few questions from my side. I was just thinking conceptually when it seems like you're moving up the risk curve, yet you're 40 to 45 bps through the cycle guidance on cost of risk remains there. Is there any potential change to that guidance longer term when you're at a different part of it, but through the cycle basically? I understand where you're currently in the cycle, but just conceptually speaking. And in the Netherlands with I think there's an insurance company that actually increased deposit rates natural bottom there also given are at or close to the natural bottom there also given the fact that you have a loan to deposit rate in the Netherlands overall for the country still, I think, above 1%. And lastly, one of your Benelux competitors has a bit more bearish feud on Basel IV, basically saying that if the regulators don't get their way via Basel IV, they will get it via TRIM. Is that something you can comment on, please? Yes. I'll take the deposit rate question in the Netherlands. We can't give guidance as to where savings rates are going, as you know, and we shouldn't do it either. But just check market rates. And therefore, we can't rule out deposit rates will go lower, and there's a chance that, that will actually hit 0 at a certain moment in time. If this interest rate environment persists, then I think that's where things could go. Then again, as I said before, it all depends on the ratio that you have with your clients, the behavior of your clients because in the end, savings are important for us not only as a funding technically, but also as a product through which we build relationships. So we can't rule out that it can go to 0. On the risk cost, we'll turn to Wolf Blatt. Yes. And you said that we're moving up the risk curve. In practice, if you look at the loan production at the moment, the quality of the production is pretty much the same to slightly better than that of the stock currently. If in future, because of the desire to change the composition of the book somewhat, we would go more into slightly higher risk sides of the business that would translate into higher risk weighted assets. And therefore, it wouldn't necessarily change our guidance, which is expressed as 40 to 45 basis points of those risk weighted assets. Yes. You do have some pros and consiglity probably on density, but I can hear what you're saying. I'll trim. I think there's 2 different worlds here that we're discussing, and that is the point. So creating a level playing field by standardizing everything across the world is like trying to make the American football game play American football with the same rules as the soccer game. It doesn't make sense. The ball doesn't even look the same. And that's what's European Markets and the role that banks play there. And we have European Markets and the role that banks play there. It's a completely different role that banks play. That's number 1. Secondly, in the European markets, the legal environment and with that, the certainty about being able to manage your lending and to have collateral and to exercise some of these rights are completely different and leading to completely different experiences in one country from the other country. And also there, therefore, moving to specific floors basically erodes all of that and doesn't take any of that into account. That's why we and also the ECB have always propagated the use of internal models because we feel that you can actually build models per sector, per category, per country that really reflects the underlying risk. And if a TRIM exercise will lead to a strong review of all these internal models. And as because of that, capital goes up or goes down, I think it's merited because at least we're then looking at the asset category and the experience in that asset category in that country and how you basically reserve capital in order to do your business there in a country or in a sector or in a specific asset category. I think everybody can live with that because basically it is a fundamental analysis and it's a risk adjusted approach And that's what we propagate, a risk adjusted approach. Anything that has to do with specific floors, you can just as well put leverage ratios in. It's a non risk weighted approach. And we feel that systemically even that may lead to wrong behavior in the market. That's very clear. Thank you. Final question comes from Mr. Bruce Hamilton from Morgan Stanley. Go ahead please. Thanks. Good morning guys. Two quick ones. Just on the reg cost, I mean obviously cost generally you did a very job. On the reg costs, it's lower than last year. Do you still expect that for the full year you'll be up because it wasn't clear to me that should be the case? And then secondly, just looking at the Easy Trading Connect, can you help us think about how you see the rollout from here? And when I think about the efficiency that drives for the clients, that seems pretty obvious. But in terms of financial impacts for ING, how does the pricing of a trade change? Do you need to is it more that you're going to grow market share or attract new clients? Or does it drive more of a cost benefit for you internally? I'm just trying to think through the benefits of your financials looking longer term on that. Thank you. Yes. Thank you, Bruce. Well, on regulatory costs, we are guiding regulatory costs to increase with the increase of our business basically, with the increase of our balance sheet because that's where most of the schemes are looking at for calculation of regulatory costs. So we don't expect new ones to come in specifically. Clearly, the better we know how they are calculated, the better we can manage them as well. For example, last year, we could also replace some of the direct regulatory costs with a payment guarantee going forward. So that basically you save on cost, but you do accrue a liability. So you can manage it through that as well. But from where we are currently and absent any new schemes being put in place, we expect regulatory costs to increase with our business, with our balance sheet basically. Now Easy Trading Connect, basically what we're doing there is we take a 400 year old paper based process And we replaced that by something that is fully digital and based on blockchain. It is faster, it is safer and it's cheaper. Specifically on the last one, I think that's where you can see some of the effects coming through not only for ING, but also for all of the other banks. Because let's be honest, for a scheme like this to work in international trade, you need other banks to accept that as a standard. And once other banks accept it as a standard, we can truly support our clients in it. But if other banks accept that as a standard, they will also be able to manage their cost base. Helpful. Thank you. Okay. Thanks. I think there are no further questions. So let's just wrap up for the call. Thanks for again attending the call, for preparing your questions. We truly appreciate the fact that you take your time, analyze the results and have these discussions with us every quarter. It's good to have this exchange of thoughts and ideas as well as suggestions. That is truly helpful for us to manage our business. Just to sum it up, we've had another successful quarter in customer growth, 300,000 new customers, 150,000 primary customers in lending growth, €5,700,000,000 of additional loans, net core lending, as we call it, EUR 6,700,000,000 of extra savings coming in, a net quarter result of €1,100,000,000 CET1 up to 14.5% and the return on equity of 10.8%. I think that shows that the strategy that we put in place 3, 4 years ago is showing the results and we're pretty happy with it. Thanks a lot. Ladies and gentlemen, this concludes the ING event call. You may now disconnect your line. Thank you.