Earnings Call: Q2 2016

Aug 3, 2016

This is Jillian. Welcome you to the ING's Second Quarter 2016 Conference Call. Before handing this conference call over to Ralph Hammers, Chief Executive Officer of ING Group, let me first say that today's comments may include forward looking statements, such as statements regarding future developments in our business, expectations for our future financial performance and any statements not involving historical facts. 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, Ralf. Over to you. Hi, good morning. Welcome everyone to ING's Q2 2016 results conference call. I will take you through today's presentation. As usual, Patrick Flynn and Wilfred Nagel are here with me from the Executive Board also to answer specific questions. Let's turn to the key points. IG posted a very strong set of results this quarter. The underlying net profit came in at EUR 1,400,000,000. The underlying business continues to perform very well with consistent net interest income growth in all segments and solid quarter results for Financial Markets as well. Regulatory costs were seasonally lower as we expected and risk costs remain low. Our capital position is also making further progress. We reported a fully loaded Common Equity Tier 1 ratio for the group of 13.1 percent and that allows us to pay an interim dividend of €0.24 in line with last year. Turning to Slide 3. As also shown by our financial results, our Think Forward strategy continues to drive commercial performance. And that's because we continue to focus on superior customer experience. In the first half of the year, we've added roughly 650,000 new retail customers, of which 350,000 see us as their primary bank. So we're well underway to reach our target of 10,000,000 primary customers for the bank as a whole by 2017. Net Promoter Score, as you know, it's a very important compass for us in order to ensure that continuously we improve our customer services. The Net Promoter Score in the 2nd quarter came out as number 1 in 7 of the 13 countries in which we have retail activities. Turning to innovations on Slide 4. Just to give you a bit of a heads up as to what we've introduced and done this quarter. You see some examples of new services and innovations that we have launched. All the senior applications improved the customer experience as we continue to see an acceleration in the digital adoption and the process of doing more banking through mobile channels. As an example, the new look forward feature that we have in the Dutch mobile banking app allows customers to see their predicted or planned payments over the next 35 days. And there has been a very positive reaction on this with 500,000 customers opting in for this service in the 1st month and with glowing reviews appearing on social media. Clearly, we're using the customer feedback to continuously develop our service and to improve it, and this is one of those things that is very welcomed by our clients. Also turning to Slide 5, we believe that the financial sector has an important role to play in creating a healthy and sustainable world and also to reduce our own direct footprint. And one of the steps that ING has made is to join the Anne MacArthur Foundation, which is a leading circular economy platform. Our leading position in sustainability was also recognized by Newsweek. In its latest ranking, we are number 1 out of 500 largest listed companies. And also our green bond received important industry awards all over. So we continue to make good progress on the sustainable lending side within ING as well, being involved in a number of qualifying financing transactions and network value now growing to €27,800,000,000 Now let's look at the half year results on Slide 6. Our NOI net result for the bank was nearly SEK 2,300,000,000 in the 1st 6 months, which was flat on the year. However, there was, of course, a CHF 300,000,000 increase in regulatory cost in the first half versus 2015. So it's a real improvement year on year of the underlying performance. And even though the bank Common Equity Tier 1 ratio has increased to over 12%, we managed to achieve a return on equity of 10.8% for the first half, which is well within our ambition 2017 target range. On the next slide, you can see some of these key drivers of our underlying results. What I would like to highlight is the net interest income. That shows a 4.4% increase versus last year as we continue to see solid commercial growth, supported by relatively stable margins. Also the low risk costs support the underlying results, and they came in at 36 basis points over average risk weighted assets. And our guidance for risk costs for the year remains unchanged for now, with risk costs expected to be flat to 2015 levels. Well, let's turn to the Q2 results. We're going to Slide 9 now. So we posted a very strong set of 2nd quarter results with a €2,000,000,000 underlying pretax profit, which confirms the good business momentum that we have. The result was supported by income growth in all the different income line items, as is shown by the graph on the left hand side that you see there. We also had a onetime gain on the sale of Visa of EUR 200,000,000. Excluding Visa, the underlying pretax result was up 13% over the Q2 last year and 53% over the Q1 of 2016. There were a number of 1 offs and volatile items in the quarter, but the net effect of these items was negligible. And we have a slide on that later on. It's really been a very good quarter on the real underlying businesses. Turning to Slide 10. Our net interest result was strong again this quarter, firmly from both the Q2 last year as well as the Q1 of this year. This increase was driven by steady volume growth and stable net interest margins. And I don't think there are many banks showing this positive trend in their net interest income. When looking at the 4th quarter rolling average for the NIM, You can also see, and it's on the right hand side of the slide, you can see how we have been able to counter the effects of low rate environment through a combination of rate cuts, asset mix and balance sheet efficiency. If we go and take a closer look at our core lending, Slide 11, we continue to deliver our lending growth. ANGI's core lending recorded a net growth of SEK 14,800,000,000 with about twothree of this amount in the Wholesale Bank and the remainder coming from all our retail operations outside the Netherlands and almost equally split in the retail operation between mortgage and other retail lending, as you can see. That brings me to Slide 12, where you see that basically on the left hand side, you see the equal split between mortgages and non mortgage on the retail side. If you look at the quality lending growth, this is the highest quality lending growth we have seen in the past 3 years. So that's why we wanted to present you this. This granular breakdown gives you an idea how it is split between retail and Wholesale Banking. All of our business lines contributing to the growth, as you can see. For instance, the EUR 2.3 billion in additional high yield non mortgage lending in the retail bank is clear there as well. Would also like to highlight that the single biggest component of growth was our Trade and Commodity Finance business, which is simply a reflection of higher commodity prices translating into balance sheet growth. Another way to look at our commercial growth is to compare customer lending and customer deposits. One of our levers to offset low rate pressure, we have been working on making our country balance sheets more efficient by originating and lending to partly replace illiquid investments, and that's what you see on Slide 13. And you know that changing the asset mix on the balance sheet of the Challengers and Growth Markets away from investments to client related business has been part of our Think Forward strategy from the start. What you also see in this slide is that in the Challengers and Growth Markets that we had customer lending outpacing customer deposit growth in the post five in the past 5 quarters, which shows you further optimization of the balance sheet. And this has led overall to a 6 percentage drop in the investment portfolio if you look at the balance sheet for the region as a whole. Replacing these investments with lending creates a better use of the balance sheet and is very helpful in protecting the NIM. Turning to the next slide. On the commission income side, we see that commission income has also grown by almost 5% over the past year. There was a higher fee income in Corporate Lending and Financial Markets, partly offset by a slight decrease in the Retail and Investment Products this quarter. Another area I would like to highlight this quarter is the Financial Markets business. After the weak Q1, I'm pleased to report a rebound in client activity in the 2nd quarter. And the first remarks income is actually quite nicely distributed by product. As you can see on the right hand side of the slide, with higher income in Rates and Equity Products and Securities Finance. So rebound in the Financial Markets business, you guys really did a good job there. Now moving to Slide 15. As you know, our expense base is more and more impacted by regulatory cost, but most of these costs are, in fact, Q2 is the 1st and the 4th quarter. So on a quarter on quarter basis, excluding regulatory cost, our expenses are broadly flat. And although we had a one off adjustment to our cost base this quarter, A number of those, in aggregate, they net off against each other. The cost to income ratio, although still impacted by higher regulatory costs, is 56.2% for the first half year. But if you exclude the regulatory cost, we're below 50% for the first half of the year. Clearly, we're working hard to find ways to compensate for the higher regulatory costs over time as well. But the conclusion now is from this slide is that flat if you combine flat cost with real franchise growth across Retail Banking and Wholesale Banking that you see increasing efficiency, and that's what we're doing. Keep your costs flat, grow your activities and your costincome ratio will improve, and it's for the first half year below 50%, quite an accomplishment. Then turning to the risk costs on the next slide, Slide 16. The underlying quality of our loan book continues to improve. The NPL ratio for the bank as a whole was broadly stable at 2.3%, and we recorded €307,000,000 of risk costs for the quarter. Dutch retail has continued to improve, both in mortgages and SME lending. We've taken some modest extra costs in our oil and gas book again, but the overall oil and gas portfolio continues to perform rather well. And that's a reflection of the senior secured nature of our lending, which basically is different from some of the other parties in the market. Our exposure is generally senior and secured. In the Ukraine, which remains a difficult book, we have seen provisioning a tail off this quarter. Slide 17. I don't think I need to spend much time here, but it's a further testament to our strong quarterly performance at both Retail Banking and Wholesale Banking. I think the strength of our business model is the combination of the 2, both focusing on client experience, delivering on a couple of things that we know how to do: digitalization of services, sector knowledge and a true client focus. Profit here before tax was up strongly from the previous quarter with nearly all the segments contributing, as you can see. Slide 18, I'd like just to take some time here to focus on one of our important growth engines, the Industry Lending business. As most of you know, we have a long standing track record in this largely secured lending business. Pre tax profit for industry lending was €462,000,000 in the 2nd quarter, up strongly over both comparable quarters. This is supported by core loan growth of around SEK 6,000,000,000 stable asset margins and a very attractive costincome ratio. And the return for this unit is consistently high in the high teens as we have shown you in earlier presentations. The asset growth of 2016 has been very strong, but the pie chart show that this was very well diversified across sectors and geographies. The knowledge of sectors combined with the global footprint of our wholesale bank makes us less dependent on particular regions to grow, and that's strength of our franchise here. And also on this side, I think the teams did a good job. Another great example of our think forward strategy at work is on Slide 19, and that's how we organically grow organically grow the business in Romania. It's one of our smaller countries, and we don't talk about it much. But the numbers on the slide pretty much speak for themselves how the strategy is working out there. We have a number one net promoter score in the country, and the number of primary customers is growing very fast. And even though we have a good network of branches there, the business model has clearly evolved to digital first. Higher economic growth supporting the business, and we're growing much faster than the market while maintaining cost and risk discipline. The returns of this one in this market are very attractive. Now lastly, Slide 20, I would like to take a moment to discuss our strong capital position. Following the full completion of the sale of NN Group in April, our group CET1 ratio has made further progress. It's now at 13.1% fully loaded, well ahead of the current 12.5% fully loaded regulatory requirement. On top of this, we have set aside a full first half interim profit of EUR 2,600,000,000 which provides good cover for our 2016 dividend policy. And also in line with 2015, we have decided to pay an unchanged interim cash dividend of $0.24 per share, which will be paid later this month. If we then look at where we are in delivering on our ambition 2017, we actually made most reached most of our ambition 2017 targets. The exception is the costincome ratio, which is still a little above our target range. But as you know, the dramatic increase in regulatory costs is an important explanation here. And if we correct for that, we're actually just below 50% now. But to offset these regulatory costs, we remain committed to strong cost control across all of our businesses, as you have seen over the last 4, 5 quarters as well, flat cost. Now to wrap up, I consider we're proud to present our best set of quarterly results in many years. We've managed to record strong commercial growth in both the Retail and Wholesale Banking businesses. However, we're like many of us conscious that there are still many challenges ahead and customer behavior is changing faster than ever. We are constantly working on plans to address these challenges. And because we have a good story to tell, as you can see this quarter, but also going forward, we've decided to hold an Investor Day on the 3rd October, during which we will update you further on our think forward strategy. And so we hope you we hope to welcome you then to Amsterdam. But for now, I'd like to open the line for any potential questions that you may have. Thank you. In the interest of time, we kindly ask each analyst to limit yourself to 2 questions only. We will now take our first question from Anton Kreyok from UBS. Please go ahead. Good morning and congratulations on good set of numbers. Just a couple of questions, please. Firstly, on the margin outlook. Margin has hold up better, I think, than your previous guidance of high 140s. And this quarter, financial market contribution to NII was rather small. So I would argue that underlying margin picture is even better. So in this context, I was wondering what is the outlook on margins for the rest of the year? And can you maybe talk about the 1st few quarters of 2017 as well, please? And the second question on the dividend guidance. So the amount of profits that you've set aside already roughly covers consensus full year dividends payouts for this year. I understand you don't want to raise expectations too high, but how shall we think about capital build in the second half of the year and also the amount of dividend distribution that you're looking to achieve at the year end? Thank you. Okay. I'll take the first one. Patrick will take the second one, although Patrick can do both as well. But just to share the work a little bit here. So on the margin outlook, while we have guided high 140s, low 150s, I think we're exactly where it is this quarter. It's been a good quarter. If you then look going forward, how can we manage margins going forward? If you look at Slide let me see where the interest rate where the savings Slide 28, you basically see what we're currently paying on savings rates in the different geographies. So we have still some room to kind of manage the margin pressure here. Then as you know that a part of the margin is also influenced by the change of asset mix because we're moving our balance sheet percentage wise more into higher yielding assets in retail as well as Wholesale Banking. So that helps as well. So our guidance for the next couple of quarters is that we can manage the margins around these levels of the high 140s touching 150. Thank you. And just on the supply and savings rate, can you remind us when exactly in the quarter have you cut selling straight in Germany and the Netherlands? Have we seen the full impact of those cuts already in Q2? Perfect. Yes. I'll just maybe follow on, on that one. A couple of things. You mentioned FM. We had a good rebound in the results in FM. Although most of that was in trading income, actually the contribution to NIM fell 2 bps. That was offset by a couple of nonrecurring one offs, one being a corporate line improvement from repayment of unsecured debt. But also, there's been a bit of a pickup in refinancing of mortgages, which contributes $20,000,000 in prepayment fees, which is not core and will go out in due course. So I just wanted to make sure you're aware of those 2 things. And that they offset. So the $150,000,000 is still underlying is still good, but there's a couple of moving parts that offset underneath that. In terms of rate, deposit rate cuts, Netherlands 23rd June Belgium mid April Germany 15th June. So the bulk of the benefit of that will be seen in the following quarter. Now in respect to dividend, I'm afraid I'm going to be a scratch record here. I expect this scratch record will play every quarter till the year end. We won't really decide on the full year dividend until the full year is over, and that's likely to be in February. It's great that we've got the profit cut away. The full dividend was reserved in the first half. We are joking that we can go out and play golf for the rest of the year because we don't need to do anything for that to support the dividend, it's there. But we're not going to decide. Why is that? I mean, there are still some uncertainties out there in terms of regulation. We need to know what morale and TLAC are going to ultimately get married and how that pans out. And obviously, we will be won't be playing that much golf. We're going to be working hard to keep these results going in the second half, and we need to see how this evolves. So the thinking on the full year dividend and what progressive means is something that we'll only really decide on after the full year results in February. Okay. That's very clear. Thank you so much. We will now take our next question from Kiri Vazaj from Barclays. Please go ahead. Yes, good morning guys. Just a couple of questions on the risk costs. So you got the step up in NPLs in the oil and gas book up to 2.8%. When do you think you'd see it would likely to see a peak in NPL formation in the oil and gas book? Is maybe 3Q, 4Q this year too soon? And could you also give us the coverage ratio, please, on the oil and gas NPLs? And just quickly on Belgium, is there anything we saw the uptick in risk costs in Belgium. Is there anything specific to worry about there? Or is that just coming off just a very benign phase in Belgium? Thanks. I'll turn to Wofe. Yes. So oil and gas, indeed, the NPLs are ticking up a bit. A lot of that is related to the same previous quarter, which is the reserve based lending business. Just to give you a bit of color on that, over the past 18 months, we've now seen about 77 bankruptcies in that industry, 7 of which ING is involved with. We already talked previous quarter about 3 of them. And the other 4, we're seeing a very similar pattern where we expect to come out with either no losses or single digit per name. So the trend there is very similar to what it has been. And your question on when do we see the peak of NPL formation, well, that is obviously a bit of a crystal ball. It really depends on what happens with the oil price and how quickly. And we do think that given the current circumstances, we are going to see some more NPL formation in the coming quarters. We don't really see a dramatic uptick in risk cost, which is what we ultimately, of course, focus on most. As for coverage ratio on that portfolio right now, that's about 23%. And then on Belgium, lumpiness. I don't think we see a real trend there. There's a bit up here. There's a bit down there on average. The view on risk cost is still that we expect stable to slightly improving levels there. And the original guidance for 20 16 being around the 15 level is still valid. Okay, great. Thanks. We will now take our next question from Paul Zedrick from Goldman Sachs. Please go ahead. Hi, good morning and thank you for the presentation. Two questions from my side. The first one is on your lending growth. So in the Q2, your core lending increased by $14,800,000,000 that comes after $7,000,000,000 in the first quarter. So that's clearly a very good result. And you made several references in your opening remarks that it was well diversified across products as well as geographies. So if we look at EUR 22,000,000,000 growth already in the first half of the year, that puts you closer to the top end of your 3% to 4% annual growth guidance. Can you perhaps comment on that? Where would you see loan growth this and perhaps next year? And also, do you see any risks that your industry lending with global footprint can experience any headwinds post UK referendum? Is there any sensitivity to that or whether you think it has no implications? And then I have a second slightly different questions. During the quarter, there were a number of high profile politicians and policymaker, including European Union Finance Minister and ECB members calling for careful calibration of Basel IV. Now it's obviously political statements, but in your dialogue with your national supervisors, do you see perhaps any indication that the Basel IV could be calibrated without meaningful implication for ING? Thank you. Pavel, thanks very much. So on the lending growth, yes, so we saw SEK 7,000,000,000 in 1st quarter and the SEK 15,000,000,000 now in the 2nd quarter. Well, the growth itself is not a target. We've indicated that through the strategy we feel and through these specific activities and sector expertise, we feel that we can actually grow. We have a global footprint. And so it certainly depends on how the economy global economy will continue to grow on one side. On the other side, as I've indicated as well, part of the growth this quarter is also the increase in TCF on the back of increased commodity prices. Now I don't know where commodity prices are going. If they go even further up, you will see that continue to increase because this is short term lending and is directly related to the commodity price and the dollar as well, by the way. So that could go either way. But the underlying trend, the way we see that the teams are working and how they work with our clients and the deals that are coming through. It's a continuing trend, but it is it can be built in per quarter. So you can't just take the first half year even and say, well, let's just do it times 2. We'll see. We still feel comfortable with the 3% to 4% guidance that we basically have. Now on Brexit, I don't think there's like an immediate kind of risk on this franchise. But the Brexit second order risk is a lower to negative economic growth in the United Kingdom. And with that, an effect on Eurozone economy and also global economies. So you will see a bit of an impact there, but there is no direct effect to be expected. I'll turn to Patrick for the Basel IV question. Yes. We have extensive dialogue with both national regulators and by the CFO working groups, the major CFOs of the sorry, CFOs of the major banks with the ECB, AVA, FSA. What we're increasingly hearing is there's no significant impact statement is being gaining resonance that, that is increasingly held as the party line. This cannot have a significant impact. And then of course, the next question is what does significant impact mean? Well, we're beginning to hear numbers put against that. I mean, I don't think that's been firm yet, but the numbers that we're hearing are some people trying to claim 5%, others saying maybe 10%. But the no significant impact is, I think it's fairly firmly held across the board that this is if power force to come in, it cannot have a significant impact. And that includes credit risk, op risk. I think the trading book one is more or less encouraged as a given, but the others are still have to fit within the no significant impact category. That's very helpful. Thank you very much. We will now take our next question from J. P. Lambo from KBW. Please go ahead. Yes, good morning to you. My two questions relate to cost. Perhaps if you could expand the cost saving in Belgium, the one off, if we can expect more of those in other areas or it was really a one off for Belgium? And secondly, what kind of major options you see for further cost reduction? This is the area you highlighted where there's some more effort to do. Thank you very much. Yes. Well, go back in several quarters in the past, we've had negative one offs and we have to take those in the chin. And be held accountable. We've talked about being extremely rigorous in costs. We've talked about procurement as being a source. We work hard to get these things and we managed to deliver one saving here in Belgium. It's big, probably not something that would be recurring in Belgium, something we will look to see can we do it elsewhere. And there are other ideas we're working on as well to see if we can deliver cost savings. Individually, probably not recurring to the same extent in the same place, but we obviously work very hard to see what we can do to take out cost either on a long term recurring basis or one off in this case. And we'll take the one offs when we get them. Thank you. We will now take our next question from Tanik Elmajad from Bank of America. Please go ahead. Hi, good morning, everybody. Just a couple of questions for me. First of all, on the Investor Day, you are planning to hold on the 3rd October. I mean, I have the same questions to your competitors in Netherlands. I mean, by the 3rd October, clearly, you wouldn't have no more visibility than now in terms of regulation and so on. So what should be really the focus on? I mean costs, volume growth, what are the areas you'd be focusing on? Is it expected to be like really new targets or just like sort of an update? Because your plan is not expiring this year, it's in 2017. So you still have you don't have any rush to update that. And secondly, on Belgium, we've hearing there is some repricing of assets spreads in Belgium. And are you part of that? And what could be the positive impacts of that on your revenues? Thank you. Thank you, Tarek. And yes, on the Investor Day, I think what we why we want to call it the Investor Day is just that we're 2.5, 3 years into the Think Forward strategy. We are delivering on our ambitions and you're right, our 2017 ambitions. But we're generally already there. We feel that we're doing very well. And the strategy is clearly working. But we also see changes on the technology side, on the customer behavior side, the low interest rate environment. And I think we have a good story to tell, and we want to update you on how we will take the strategy to the next level in customer focus, in cross buy, in digitalization, in balance sheet management, all of those areas. And just to see just to show you and have a discussion with you as to how we take it to the next level. That's why we think it's good to have a session together with you. Now on specifically on Belgium. Clearly, we can't comment on whether it's active or not, but what you will see is that where pressure is on the funding side with many of the banks, given where savings rates are going, one way or the other and also in terms of in view of risk rates. You will have to look at whether assets are rightly priced. So there will be some uptick on asset prices as well, and that could offset some of the margin pressures. We see the bid happening in Belgium, see the bid happening in auto markets as well. Either margins stay firm or there's a bit of an uptick. But we see also pressure in auto markets. And we enter an investment grade corporate book just because of the actions of the ECB, we see actually pressure on margins. So it's a little bit all over the place. Thank you. Very helpful. We'll take our next question from Benoit Tarak from Kepler Cheuvreux. Please go ahead. Yes, good morning everybody. Two questions on my side. The first one will be on the corporate line. It seems that the corporate line is running at a much better level than in the past. I think you've been guiding for around €114,000,000 negative pretax in the past. So what could be the kind of new guidance for 'seventeen on the corporate line? And I was trying to understand strong improvement in net interest income in this corporate line year on year. You move from negative to positive. Is that simply basically coming from lower funding cost? And could you give us a bit of an indication of how much senior unsecured let's say, expensive senior unsecured are not going to be renewed in the coming quarters? Because assume that this is positive for you and I in the coming quarters. And then second question, just maybe on the Turkish exposure. Could you update us on cost of risk, what you see locally, given all the kind of programs we have there? And how do you think about the growth strategy in this country? Thank you. Patrick will answer on the corporate line and the NIM improvement there. And then Wilfred will follow-up on Turkey. And the improvement in the corporate line is not so much about senior debt, which as you know is included in there. That doesn't really start to improve till the back end of the decade more in 'nineteen, 'twenty before we see that starting to run off. The improvement is we call some hybrids in April. They are expensive. You see a little bit of benefit from that. Some internal, what we call lines or internal securitizations, redemption which improved the negative cost that was included there that's gone. And our bank treasury, which we set up a couple of years ago, is working very hard to match interest exposure, basis risk exposure, very granular measurement of the same review to making sure we've no mismatches and where we do. And when we implemented this, we did find small pockets of risk that we didn't fully understand. And that is now much better managed. And then once you know what it is, you can manage it out. And that also, eliminating some of those basis exposures that perhaps we hadn't nailed down so 40 2 or 3 years ago is also more active management by buying treasuries delivering benefits there as well. So it's a combination of a number of things. On Turkey, well, first of all, looking at Q2, we would note that actually Turkey had a very good quarter, and it was one of the best we've seen since we've been active in Turkey in this form. The risk cost in Q2 was down compared to quarter 1 despite the NPLs coming up slightly. And the levels of NPLs are actually not very far above the global average for ING. It's at 2.8% now compared to 2.3%, 2.4% for ING globally. So it's not a bad book by any standard. And the corporate book in particular has been performing very well with only 0.9% NPLs and negligible risk cost. On the SME side, we've seen a bit more pressure as has been for a couple of quarters. But even there, the NPLs are at 3.3%, which is by no standard a very bad level. So that was the Q2 situation is quite satisfactory on the whole. Obviously, recent events, we're watching closely what's happening in the market. We're making sure that we manage our risk whilst protecting the interests also of our clients. What we have noticed is that the liquidity in the banking system is definitely sufficient. We've got no issues there. Colateral calls from counterparties are met with no problems. And so we're watching closely, but no immediate big problems. And just maybe on the corporate line, do you have a new guidance for your kind of pretax profit for the coming years? I'm reluctant to talk about new guys for corporate line because it can be volatile and it's not a core part of what we do. So I think we sit around before more or less, but that's right. Great. Thanks. We will now take our next question from Alicia Cho from Exane. Please go ahead. Good morning, everyone. Just a couple of quick questions. Firstly, just to circle back on cost. You mentioned that, obviously, that was one area that was slightly off target. Given the high level of regulatory costs that were unlikely to go away, how do you expect to meet the cost income ratio target going forward? Is that predominantly through income growth and just very flat cost management? Where can we expect potentially further cost savings? What do you see as kind of potential opportunities there? And then just secondly, saw in the press that one of your peers has started changing its terms and conditions to enable it to charge negative rate. I'm just wondering if you expect to do the same in the Netherlands and what your kind of outlook there is in terms of deposit for pricing? Well, thanks very much. Yes, on the cost income, yes, clearly, these regulatory costs come quickly and you need time to absorb them and kind of offset them with additional measures. I think there's certainly a couple of headwinds that we have as banks and regulatory costs are one of those headwinds, but we also have tailwinds. At least for us, digitalization is a tailwind. We know that very well. We know how to deal with that very well. We know how to deliver to our customers very well. Now in that story, you will find that on one side, you can generate a superior service to your client by digitalization for which investments are needed, which will deliver growth on one side, but it will also deliver cost savings going forward. So the core element of digitalization and the way we have been working on that and all of the kind of investing in IT on one side and decreasing your running cost on the other side while growing the franchise. So it's a combination of those and how we think the cost income can further improve. And this is one of the reasons why it's why we wanted to have the October Investor Day with you to show you how we do that and where we see that going and where costs can be taken out while improving customer service. On the charging active rates, we are in the corporate arena and the more professional arena, we are charging negative rates. And so our terms and conditions have already been adjusted for that. That's all. Thank you. We will now take our next question from Bruce Hamilton from Morgan Stanley. Please go ahead. Good morning, guys. Thanks for taking my questions. Just a follow-up on the Belgium result, which looks very strong. Just understanding in terms of the kind of sustainability of the NII results, clearly, you've talked about the reduction in savings rates, some potential repricing. But is the improvement in NII in Q2 something that you would see being sustained through further repricing? And then secondly, just thinking through the levers to manage NIM, obviously, you got rate cuts, asset mix, balance sheet efficiency you talked about earlier. How much more scope is there around for the balance sheet efficiency? Should we think about it in terms of a sort of target loan to deposit rates? Or what further scope is there to improve NIM through that lever? Yes. I mean, I deliberately flagged the whole thing because I wanted to be aware that whilst the numbers headline numbers do look good, there are some one offs in there that do boost the reported results. Obviously, the cost savings that was questioned earlier is in there, both the bottom line. The NIM is supported by the something that is not helpful and obviously long term, which is the refinancings on mortgages. And also in the slide on Page 25, we show a breakdown of nonrecurring items, one of them was bank treasury volatile items. That's where we had a gain on TLTR-one exit into TLTR-two that was swapped and that swap was canceled, which give you a big gain. It's a big part of that number on Page 25, bank treasury of auto items. Part of that was in Belgium as well. So yes, the Belgium result is good this quarter, but some of it isn't recurring. And in terms of NIM going forward, yes, there's a number of levers we've pulled already, and we continue to pull balance sheet. Mix improvement is 1. Clearly, this we did well in terms of lending growth and stripping deposit growth in Q1. As Natalia already said, 3% to 4% is what we want to try and achieve for the full year. This will be lumpy. Q3 is also not the highest core for lending growth. So it will move around that number. But the improving the balance sheet mix is core to offsetting low rates and we'll continue to do so. We also have talked about before about wanting to do more of SME and consumer finance that we haven't succeeded there yet. We're not where we would want to be, so there's still more room there. It's another lever. And ultimately, economic theory would dictate that if deposit margins go down, at some point, the lending margins need to go up. We're not seeing it. It's not much of that in our numbers so far, but that's something that should happen as well. Some of the drivers, so there is more room on balance sheet optimization. Thanks very much. We will now take our next question from Alex Koyn from Zixis. Please go ahead. Yes. Hi, everybody. A couple of questions from my side. The first one is on commission. I mean, regulators are calling banks more and more to develop a kind of business to compensate the impact of the low rates on net interest income. I was just wondering whether you can give a guidance in terms of commission growth going forward. And in your view, what should be the absolute contribution of commission to the revenues of ING looking at a yearly basis, not just for this year, but let's say for the optimal business model of ING? 2nd point, I'm just coming back on the common equity ratio. Obviously, you're already ahead of your guidance of your target of 12.5%. I was just wondering whether you can give us any kind of or share your thoughts on the kind of management buffer that you have to take into consideration? And one last question, if I may. I'm very surprised by the very good level of margin and stable margin in your Structured Finance business. This is Slide 8, nothing. Can you just give us kind of explanation of the reason behind this very good performances of margin? And why are they so stable through the crisis? Okay. Thanks, Alex. Thanks for the questions. I'll take the first and the third one, and I will leave the core Tier 1 ratio to Patrick. So on the commission side, now if you look at our Think Forward strategy, it is very much focused on what we call the prime relationships. And why is it so focused on the prime relationships? Because if you focus on those and if those clients start to see their primary bank, they will do more business with you on one side. On the other side, in the digital world, having primary relationships, doing more business with you gets you to know them much better. That in itself will lead to an improved cross buy. And that cross buy is the trigger and the driver for further commission income growth. Now if you compare our franchise with some of our colleagues, you see that the composition of our income is a bit lower than commission income. And actually, we see that there was quite some upside there. But this is one of the subjects that we wanted to discuss with you in the Investor Day in October. Now on the stable margin in structured finance. Well, it has always been a market where there's only a couple of players that really know what they're doing. And so now and then you see some new players coming in and they think, well, this is an attractive industry, this is an attractive area, and let's do some more business here. And then the first time they have to kind of sit down with the client to look at a change of covenants and all of that, they don't feel comfortable anymore. So it really takes industry knowledge, second knowledge, client knowledge that you build up over the many years in order to be a strong player there. And that's why you see a stable kind of stable margins there. On the other side, we also have seen that some of our colleagues are withdrawing from some of these markets, which gives us some more room to grow. And that in itself also helps to preserve the market there. So it's a combination of real knowledge, what is this really and some competitors leading the markets. And it is a it's also a business that is global and it's a dollar business and not necessarily European based. Sure. Patrick? Yes. In terms of capital, I think the first thing to say is, given we've 13% we're probably not a core Q1 of the group and that excludes 80 bps, which is in profit set aside for dividends, we're very, very strong in terms of capital position. So we don't have to set aspirational targets because we're already there. There are a number of moving pieces that we need to understand that are before we want to be definitive about management buffers. In terms of phase, one of which is the 3% D SIFI buffer from the Netherlands or incremental to as compared to the 1% G SIFI. Mean, that phases in over 3 years. Question whether that can sustain given the ECB looking for a level playing field in capital. So that's something we would love to see ironed out in the coming years. Also, we're now seeing following the stress test, the ECB talking about breaking up Pillar 2 into Pillar 2A and to Pillar 2B. Therefore, the buffer that's needed for NDA for would be of a lower number, MDA buffer versus equity buffer is something we need to work through as well. So there are several moving pieces here that we want to understand better before we would pin our colors to the math in terms of what the buffer would need to be. But as I said, the key point is we already have the capital, very strong 13%. So we're going to wait and see how some of these uncertainties stand out before we talk about the management of what the notion buffer needs to be. Very clear. Thank you so much. Bye bye. We will now take our next question from Anke Wengem from RBC. Please go ahead. Yes, good morning. I just have 2 follow-up questions. Firstly, on the costs where you show on Slide 15, quite impressively how the underlying remained stable over the last quarters. And is this something which we should sort of like think forward as well around the level of 2,140, 50? Or is there anything else which we should consider as having more like all the investments you might be talking about? Or is always they still the one item something we should consider going forward? And then secondly, on the deposit rates, do you think on some of these retail customer deposits you have reached a floor? Or do you think there's potentially for you to cut them further? Thank you very much. In terms of cost, what we are trying to do is obviously manage the costincome ratio. We're not an absolute target in terms of cost. That said, Pete, we're very disciplined on costs. We have several cost saving programs, all of which you've seen the benefit flow through yet. Hopefully, to the extent we want to invest than we do to particularly in our digital capability to support growth in places like Germany, where we've been extremely successful. But that can be funded by cost savings ideally. We work very hard for things like procurement savings we talked about earlier. The outcome of all that is being flat. That's good, but it's not necessarily the target. The target is the fundamental target is ROE basically. And a lever for that is cost income around the 50% level, 53%. And to the extent we can keep costs flat, that's good, but it isn't itself a target. Then on the deposit rates, yes, so basically, you've seen where we are on deposit rates. You see that in the eurozone, there's different rates across different countries. So sure, there's going to be conversions versus many banks that play in different markets. So you will see the convergence there. Given the continuing low interest rate environment to the even the negative interest rate environment. Yes, there may be some pressure. It's very difficult for us to give any guidance on it. But you see also some markets like in Belgium where there is a legal floor. So it's 11 basis points there, so there is no further scope there. Thank you. As there are no further questions in the queue, that will conclude today's question and answer session. I would now like to the call back to your host for any additional or closing remarks. Okay. Well, thanks very much for joining us on this call. I know it's a busy day for you because there's some other colleagues coming out with numbers as well. I very much appreciate that you have been here on this call. So we showed you a very good set of numbers, both in customer growth, 650,000 new clients in the first half year, of a 350,000 primary lending growth continuing as well leading to very strong financial results. As said, we're happy to update you on how we want to continue how we want to take the Think Forward strategy that is clearly successful to the next level. And we hope to see you in October. Thanks very much. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.