Earnings Call: Q1 2016

May 10, 2016

Good morning. This is Maureen welcoming you to ING's First Quarter 2016 Conference Call. Before handing this conference call over to Ralf Harmers, 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 future financial performance and any statement not involving a historical fact. Actual results may differ materially from those projected in any forward looking statement. A discussion of factors that may cause actual results to differ from those in any forward looking statement is contained in our public filings, including our most recent annual report on Form 20 F filed with the United States Securities and Exchange Commission, and our earnings press release is posted on our website today. Furthermore, nothing in today's comments constitutes an offer to sell or a solicitation of any offer to buy any securities. Good morning, Ralf. Over to you. Well, thank you. Welcome, everyone, to ING's first quarter well, thank you. Welcome, everyone, to ING's Q1 2016 results conference call. I will talk you through today's presentation. And then Wilfred Nagel and Patrick Flynn from the Executive Board are here also to answer questions thereafter. Let's turn to Page 2. If you look at the quarter, I think I can be pleased with the achievements in the Q1 as we continue to deliver consistently on our think forward strategy. ING posted a Q1 2016 underlying net result of 842, which performed very well, but the net result was impacted by a dramatic increase in regulatory expenses this quarter. Our net interest result increased on volume growth and margin improvements, while the commission income remained stable. The quality of the loan book continues to improve as well as risk costs and the NPLs fall. Our capital position continued to strengthen. The group fully loaded corexity Tier 1 was up to 12.9% or 13.2% pro form a for the full divestment of NN. Now if we turn to the strategy, in March 2014, we launched our Think Forward strategy, and we continue to make progress on many fronts. So I wanted to start today's presentation with a quick review of some of the highlights of our strategic development before we talk about our commercial development and before we talk about the final financial results. And this quarter, we're paying a little bit attention to both the Netherlands as well as innovations in Fintech. So if you turn in tax. So if you turn to Page 4, you see technology, digital banking, as you know, are changing the way that our customers want to do their banking. And this requires us to be flexible, requires us to be agile. In the Netherlands, we have introduced the omnichannel approach, which means that the information is captured only once, so the customer can seamlessly switch between channels without information being lost. So basically, we put the customer at the heart of the process and organize our channels around him or her. Now the second key change we have made to our organization in the Netherlands is the agile way of working, which we have now introduced. This means that we work with multidisciplinary teams, and they enable us to react faster and more effectively to the changing customer needs. And to our knowledge, we're the only bank to have tried this approach, and we are now looking at launching this way of working in other countries as well. On the innovation side, over the last couple of quarters, we have informed you about new introductions of innovations that we developed ourselves and the way we deal with our clients, new products, new apps. And what we do with those is that each of them we are testing in a specific market. And once successful, we copy them quickly and roll them out into new countries. If we then move to Slide 6. To the extent we don't have the innovation internally, we clearly also have to look externally at some of the developments that are happening there. And I think it is important that sometimes you cut through the noise of the fintechs. Everybody talks about fintechs. There's a lot of fintechs, but the question is fintechs. And I think that's where we are very clear. We have a strategy. That strategy is aimed at differentiating the client experience. That strategy calls for a new approach on asset capabilities. So we very much look at fintech initiatives in the areas that can improve our customer experience and as well can deliver asset generating skills, as you have learned over the last two quarters when we talked about Kabbage WeLab. Now what is so attractive in working with Fintechs is that they have an entrepreneurial spirit. They're agile. They have technology available, the newest technology available. And what they find attractive to work with RNG is the fact that we are agile, that we are what we call a fintech of all the letter with our RNG direct approach and our process. We have a strong brand and marketing capabilities. We have capital and we have access to the customers that they can use in order to try their initiatives on. So working together, we feel that we bring new and better service to our customers at a much faster pace than we could do only looking at our own innovation. So it's a combination of the 2, but very much aligned and consistent with our strategy. We don't go after the next best idea if it doesn't fit the strategic direction nor our culture. So as well, all of this, Page 7. So if you really focus on the customer, you see that the Net Promoter Score improves, and we are now ranked number 1 in 7 out of the 13 countries. And this recognition underscores that ING is delivering on the customer promise, and that's at the heart of our strategy. We're growing customer numbers. Also this quarter, again, 250,000 new customers coming in, 100,000 new primary relationships coming in, and we're growing on the back of that our savings and lending franchise. So and that is then also reflected in the way our balance sheets develop. For example, also in this slide, you see that we have made steady progress on building more sustainable balance sheets in our Challengers and Growth markets, which has been part of our strategy. And you've seen that there is less dependence on mortgages and there is an increase of wholesale lending as well as retail banking non mortgages in the balance sheets of the Challenger and Growth Markets. So it's a more diversified lending book and that supports the NIM as well. Then we move to the results. Slide 9. So we posted a solid set of 1st quarter results despite significantly higher regulatory costs. Now the regulatory costs increased by over €300,000,000 from the Q1 last year. And we've also had much lower volatile items this quarter, and that's what you see in the middle of this slide. But if you adjust for those items, the regulatory cost and the volatile items, then and you look at the underlying trends, you can see that on Slide 9 that the pretax result was roughly stable from the Q1 of 2015 and slightly up from the Q4. And that reflects the positive momentum in the business notwithstanding the difficult quarter for Financial Markets. Our net interest result was strong again, and this increase was driven by good volume growth and slightly higher margins, reflecting reductions in our client savings rates. In the Q1 of 2016, we reduced savings rates in several countries to align with the record low interest rates. And these rate cuts together with a slightly higher margin on lending activities were the main driver behind the increase in NIM this quarter. Though it was also supported by some one offs in bank treasury and the corporate line. If we then look at the core lending development, a slide that we use every quarter to show you the commercial progress as well. On Slide 11, you see that we have continued to deliver on lending growth also this quarter. Our core lending business increased by £7,100,000,000 from the Q4 2015, and that's driven by healthy growth in both Wholesale Banking and Retail Banking outside of the Netherlands. And therefore, we remain comfortable with our lending growth target of 3% post target of 3% to 4% per annum. Then on the commission income. Commission income has also remained relatively stable for us this quarter compared with the Q4 2015. And as you may remember, that included a positive onetime impact on the consumer loan origination in Germany. So if you compare, the underlying commission income was up due to higher fee income in Belgium on investment products and better revenue current accounts in the Netherlands. Volatile items, which actually were quite significant in the 1st 2 quarters of last year and lower income from financial markets reflecting the challenging market conditions. Turning now to expenses. Our expense base is more and more impacted by regulatory costs. And you can see on Slide 13 the difference it makes to our costincome ratio this quarter. You see on this slide how the costincome has developed ex regulatory costs, and that is really into the range that we had indicated earlier. But at the increase in regulatory costs is taking us off that path. And it's important for you to see that influence of the regulatory cost on the cost income. Our latest estimate for regulatory costs for 2016 is €960,000,000 which is an increase of €340,000,000 from 2015. There is another reason why it is so high in the Q1. Ifreak 'twenty one requires us to book a large portion of these costs in the Q1 of the year. So it is disproportionately high in the Q1 as well. So all of the annual increase nearly all of the annual increase will be incurred in the first quarter with the booking of €496,000,000 So this makes the year on year comparison a little bit difficult. But what you can also see in this slide is that excluding regulatory and redundancy costs, that expenses have remained relatively flat on previous quarters. So the actual underlying cost, the cost that we manage in our organization has been stable despite growing the franchise. So that's a real good result. So it shows that some of the restructuring programs that we launched that they actually deliver the room to grow in other areas and keep costs stable at the same time. Now moving to the quality of our loan book and the risk costs. The quality of the loan book continues to improve. As you can see, total risk costs were 33 basis points over average risk weighted assets this quarter and again below our through the cycle average. The NPL ratio decreased to 2.3% and that's an improvement for an improvement for the 4th consecutive quarter. And that's both in Retail Banking and Wholesale Banking. Dutch Retail, you see also in the orange part of the stacked bars has also continued to improve also this quarter. But we have taken some risk out in our oil and gas portfolio this quarter and the NPLs for oil and gas have edged up 2%. Overall, the oil and gas portfolio continues to perform rather well. And that reflects that on the higher risk segments of the lending, we are invariably a senior secured lending. So we rank ahead of the bondholders and the equity in a downturn or default situation. And we want to make that clear and we can have a discussion later on it. And that is the explanation of why risk costs are okay in the oil and gas portfolio. On the Retail Banking results then, we turn to Slide 15. Here you see how the regulatory costs have impacted the pretax results of the retail businesses in the different regions. As you can see, excluding the regulatory costs, the underlying performance has been and that's again on the back of better net interest income and commissions across. Turning to the Wholesale Bank then. You see that the impact of regulatory costs in the Wholesale Bank was less significant than in the retail bank, but still a drag on the results for the quarter. While our financial businesses suffered from the challenging market conditions, On one side, our lending business actually performed very well and they continue to perform very well. You see that in both industry lending as well as general lending and transaction services. Moving to our capital position then, Slide 17. Group core equity Tier 1 capital increased to 12.9%. That primarily reflects the positive impact from the reduction of our stake in NN Group. The pro form a group core equity Tier 1 ratio at the full divestment of NN April 13 it's 13.2% in the Q1 of 2016. But I think it's also important to mention that similar to last year, ING has decided not to include the 1st quarter net result of CHF 1,300,000,000 in the group core equity Tier 1 capital. So the net result of CHF 1,300,000,000 is not included in the group core equity Tier 1 capital. And net profit that we don't include includes 2 components. The first one is the net gain of €400,000,000 on the sales of NN Group in January April, and that's equivalent to 14 basis points. That brings the pro form a level more or less in line with the 13.4% then that we disclosed earlier this year in the previous quarter. And the second component is the excluding the gain on the sales of NN, which is €800,000,000 and that's equivalent to another 24 basis points. That's what you see in Slide 17. Slide 18. If you look at the ambition 2017 targets that basically we are delivering on almost all of the ambitions that we set out 2.5, 3 years ago when we launched our strategy. The cost income ratio and the return on equity, however, are impacted by the dramatic increase in regulatory costs for this quarter. But if you would equally distribute the regulatory costs over the 4 quarters of 2016, the Q1 2016 return on equity would actually have been 10%. And then Slide 19, it's just a slide, an overview slide to show you how we have gone through restructuring and the separation of bank and insurance. And that restructuring is now fully done with the final divestment of the stake in NN Group. We're obviously delighted that we have completed the final divestment with the sale of 14% in NN Group in April. It's been a long journey since we started this process in 2,009. We've done over 50 transactions, raising more than €40,000,000,000 in proceeds, often in raw circumstances. But it has helped us through the crisis and it has made us an even stronger bank going forward. If you look at ING at this moment, we have a strong portfolio of leading banking businesses. Our strategy is clear and we are well placed to empower our customers and deliver sustainable results to our shareholders. To wrap up and transfer to the Q and A. The quarter summarizes well on the volume growth, on the NIM improvements, on the stable commission income. So net interest income, good. Commission income, good. Financial Markets, the weakish in the 1st 2 months of the year. And that's what you've seen on the results on the income side. On the cost side, the regulatory costs that are much higher in the Q1 specifically, but if you look through all of this, it's solid development and a good result. The underlying performance is strong, and that's important. So I'd like to open the call to questions now. Thank We will now take our first question from David Lock, Deutsche Bank. Good morning, everyone. First one for me, please, on the credit quality. I just want to ask if you could give any comment on or color around the shipping book. We've seen a couple of other banks that have taken additional charges here. Just wondered if you could update us on the size of that business for you. And the second question is on regulatory costs. I think we've seen over the last couple of years an ever increasing regulatory cost bill. I guess how confident you are that this really is the kind of total that we will have for regulatory costs now? Or do you think there is potential for further rises in regulatory costs going forward? And I guess if you could update us on how you're trying or how the how you're trying to offset some of that inflation elsewhere in the group. I know you've got flat costs despite loan balances up. But if you could just update us on the kind of initiatives and how those are going, that would be great. Thank you. I'll give the first question to Wilfred, and Patrick and I will share the second one. Good morning, David. Yes, on shipping, we have a book that consists of both the pure shipping, I. E. Shipping, I. E. Shipping companies, major lines as well as container leasing, shipbuilding, ports and other services. The total amount is around €12,000,000,000 And I'll give you a bit of a breakdown of that. And the large shipping companies lines of which you would recognize pretty much all the names I'm sure. That's slightly over €7,000,000,000 with NPLs of 1.5%. Then there is the inland shipping and coastal shipping book of 1.3%. That is more problematic. I'll come back to that in a minute. And then there is a container lease business of about €2,000,000,000 with 0% NPLs shipbuilding and repair €1,000,000,000 with 0.8 percent NPLs ports €500,000,000 with 1.4% NPLs and shipping related services of €500,000,000 with 1.6 percent NPL. So as you see, the vast majority of this book is relatively unproblematic with NPLs well below the global average for ING's book. So turning back to inland coastal shipping and that has NPLs in the 20s, which I think shouldn't be a surprise because a large part of this sits actually in the business lending books in the Netherlands that we have been showing pretty poor performance on for a number. It's now improving. So a lot of the pain that we have taken on inland and coastal shipping has been taken and has been taken through that business lending book in the Netherlands. I think it's important to make sure everybody understands the overlap there. The provisions that we took on this whole book in Q1 were not material. They were well below 10% of our total provisions. And maybe a general comment, I mean, there is a lot of talk in the market about shipping at the moment. What we see in terms of problems in that market tends to be related to non recourse financings to partnerships. These have been heavily used in Germany also here in the Netherlands as investment vehicles for private individuals helped by accelerated depreciation schemes that were made it quite an interesting tax shelter. The issue working out these loans is obviously that you're dealing with a number of investors there. Investors there that are not interested really in injecting more capital or taking an active management role. And therefore, you simply end up typically liquidating the collateral. As I said, in our case that part of the book is relatively small and most of the issues have gone through the P and L over the past few years in business lending in the Netherlands. Okay. Patrick, on regulatory costs. On regulatory costs, I mean, there are 3 key buckets for regulatory costs, I think, all of which are now in situ, which should mean that we should not see significant at this level of increase year on year. In the three bookings are deposit guarantee schemes. And there, the Dutch introduced 1, which come into effect in 2016, we didn't have before, which is €130 odd,000,000 which is the reason for the bulk of the increase. We can get growth in that, but that would come from growing our franchise, but that should be roughly modest, but in line with growth of our client franchise and growth of deposits. Then bank levies, bank taxes, there's been an increase there, primarily due to the Poles introducing a significant bank tax, these bank taxes from the Dutch, the Belgians, the Poles. To our knowledge, there are no other major countries where we're in there introducing new bank taxes. And then the single or the resolution funds, euro resolution funds are in situ as well. So the structural part is in place. Any further growth, as I say, should really come from growing the franchise or unless some other country we're not aware of introduces a new bank tax. But as I say, I don't expect this quantum of increase to recur again. Maybe on the accounting, why some of this is fully taken in the Q1? Yes. I mean, I'm talking about full year impact. And there is a timing impact, which requires you to upfront some of this into Q1. But the numbers I was talking about, they're year on year increases. If you want me to go through the why it's Q1 versus later on, I can do that as well. And then how are we looking at offsetting dose? Clearly, this is such a big amount that you can't absorb dose in a quarter, not even in a year. Generally, we talk about different kinds of headwinds in low growth, low interest rate as well as high regulatory cost environment. But we do see also there to be tailwinds, at least for a franchise like ING. And I think the whole digitalization is a tailwind for ING. If any bank understands how to use digitalization in order to improve customer experience and with that make a make the company even more efficient, it is ING. So clearly, the offset in the end should come from how can we use digitalization for improving the efficiency of and that customer behavior is only changing faster. So we can also improve and accelerate some of our strategy and that's what we're looking at right now. Thanks very much. We will now take our next question from Andrew Coombs, Citi. First a question on NII and then one on financial markets income. On NII, there's obviously a number of moving parts within the NIM calculation in particular. You talked about lower client savings rates, growth in higher margin lending, a bit on the client savings rates, growth in higher margin lending, a bit on the treasury and corporate line, which sounds like it's more one off in nature. And then you just talked about the offset and lower reinvestment yields. Would it be possible just to break down between those factors 1 to Q on Q? Second question on Financial Markets. If we look at the income ex CVADVA, down 33% year on year, You draw out lower income in rates and equity in particular. But I'm slightly surprised that your result is weaker than peers, particularly given your macro bias. So perhaps you could explain what's causing the sharp year on year decline there and why you've underperformed broader industry? On interest margin, as you see, the aggregate increase is 4 basis points, which comes from a combination of factors. Some of them are interrelated. So it's not always that easy to pull them apart, but I'll try and help. So there are 3 things we've been doing. And again, these are the 3 levers we've been talking about consistently over the last year. Trying and so improving the asset mix in our balance sheet, moving away from pure mortgage growth to higher margin assets. And we see success particularly in challenger and growth markets with increasing non mortgage SME and also commercial banking, wholesale banking assets in those markets, which was a nice driver of NIM increase in that segment. Optimizing the balance sheet as well, which again means as we grow our client franchise, bring in more deposits, we deploy those increasingly into own originated assets and less so in bonds. That's another lever that's been working well. And then we cut deposit rates, trim deposit rates, which gives a benefit in the as you do it, but it's against the backdrop of a persistent low rate environment. So that's something you have to keep up to offset that negative headwind. And there were a couple of things in bank treasury corporate line, as you rightly point out, are likely not structural like day count benefits you get in the Q1, which we're 151 for now. What we think to or we're trying to achieve, again, we're trying to keep our commercial margin stable ish, done previously. And how will that translate? Probably in the high 140s where we would try to be throughout the course of this year. Maybe 1 or 2 of the increases is 1 off related. Then on your financial side, I can't compare 2 peers. I think it's for you to do. I can only talk about ING. So if you look at our Financial Markets franchise, then in the area of the foreign exchange business, the Global Security Finance Business as well as the Money Markets business, those results have held up. In the Global Capital Markets business, results were even further up. And it's the some of the interest rate for us in this quarter. If I could just come back from the interest margin, if savings rates were to be unchanged in the quarter hypothetically, What would be the drag from the lower reinvestment, lower reinvestment yields in the current account? I know you want more granularity in numbers, but forecast the future, which we're referencing to do. The best I can give you is that what we've done so far and we can continue to do for the rest of this year at least is that we can manage deposit margins such that we can defer or defray the impact of low rates by managing deposit rates. We still have the ability to do that. And hence, with improving the balance sheet, optimizing the mix, the commercial margin in aggregate, we think we can hold stable for the rest of the year. Okay. Thank you. We will now take our next question from Anton Krijak from UBS. Good morning and thank you for taking my questions. Two questions, please. Firstly, continuing on the theme of margins, I've noticed that you've been actively re pricing your deposit base in the Netherlands and Belgium, but the savings rates in Germany have been sticky for the last couple of quarters at around 50 basis points. Does it mean that you think we've reached a trough in deposit pricing in Germany? Or do you think there is more to be done there? And the second question, please, on capital and on capital and dividends. You've set aside 100% of this quarter's profits for dividends that is, I think, roughly equivalent to half of all the annual dividends you've paid last year. So if you continue at the current pace, you'll quickly provide more than the last year's worth of dividends. So how shall we think about capital accretion going forward? Are you planning to set aside 100% of next quarter's profits as well until you reach a certain point? And then on dividend accretion would be very helpful. Okay. Well, thanks, Anton, for the questions. On margins, yes, we did move the rates in Germany in December. And clearly, the way we move rates on the savings side, it really depends on a little bit the market, the customer behavior, the funding that we need to fund also the lending side in general. So it's a combination of factors that makes us move rates on the savings side. And the only thing I can say is that over the only thing I can say is that over the next couple of quarters, as Patrick was already saying, and whether we're talking Germany or the Netherlands or wherever, that generally, it's a management of your savings rates on one side, winning book away from mortgages towards higher yielding assets. That will kind of create a mix of keeping an overall NIM that is high 140s. Yes. And so sometimes, we can change and we can decrease and we can decrease our savings rates. And we feel we can, together with keeping the interest of our clients into account as well, we will certainly do so and there is room then. On the capital and dividend front, yes, so last year already, we showed you that we wanted to have a practice in place if we don't have to reserve our profit and put it into capital. We want to keep it separate in order to build a reserve so that we have flexibility to determine our dividend going forward, to determine the dividend both interim as well as final. But you can't read anything into this as to whether we're going to pay this out in full or not and what our payout ratio will be. It's just that we look at 2 factors. 1 is how can we make sure that we have a reserve to pay out a dividend on one side and how do we make sure that we will stay into category 1 as determined by the ECB or that we will stay into Category 1 as determined by the ECB, I. E, how do we make sure that we comply with a fully loaded core equity or Tier 1 of 12.5% for us, so that we are at liberty to pay a dividend without approval, that we have the flexibility to pay dividends. Now honestly, I think the whole thing is a good problem to have. So yes, it's and on the dividend side itself, as you said, we have indicated when we launched our dividend policy that, that will be a dividend that will grow over time progressively, but also this year, given the fact that we do see some regulatory changes in coming to a final conclusion on it. Thank you. That's very clear. We will now take our next question from Pavel Diptik from Goldman Sachs. Two questions Two questions from my side. The first one is follow-up on the regulatory cost. You mentioned that you would not expect you mentioned that you would not expect similar volatility in regulatory costs going forward. But can you when you look at your regulatory charge for this year, €960,000,000 you booked €1,000,000,000 you booked right now around 50% or slightly over 50% of that. Can you confirm that you have full clarity of the charge? In other words, are there any assumptions that you still have to take over the scope of the regulatory charges in the remaining 9 months of the year? And then I have a follow-up on asset quality. You mentioned that NPLs and impairments slightly increased in your oil related portfolio. But could you comment if the deterioration is above or below expectations? And how should we think about losses on related to reserve based lending, given the oil prices are now above 30% level that you indicated in the past. Would you still expect those charges to increase in the second half of the year? Thank you. Yes. On regulatory costs, yes, we do have a reasonably good view based on the correspondence we've seen for regulators and interpreting the rules that have, in some cases, just recently being published on how these regulatory costs are computed. And Ralph has referred to his homework on IFRS and understanding of IFRIC, which I'm very impressed about. It puts me embarrasses me by his technical knowledge. So, we do have a reasonably good insight on that. And I think we tried to put it in the slide on Page 13 that an IFRSIC proof distribution of regulatory costs is laid out for you there. Yes. On oil and gas, you have 34, percent both our usual disclosure as well as a little bit more detail. So I recommend you have a look at that. And regarding your question on how do we see the deterioration given current oil prices, well, obviously, a higher oil price helps. We should keep in mind though that what protected us partly in the times that oil prices were even lower was hedging. The times that oil prices were even lower was hedging. That of course works the other way around now a little bit because we won't see the full benefit of the oil price increase on some of these credits because of the hedging either. Having said that, the book is behaving pretty much as expected. Talking about reserve based lending in particular, anecdotally, we've seen over the past 4, 5, 6, odd bankruptcies in the reserve based lending business in the U. S. 3 of those were ING clients. 1 ended with no loss and has been finalized. 1 where we started with just interesting anecdote, I think, started with about €110,000,000 of exposure. We're now down to €10,000,000 and we expect to come out of that also with no loss. And the third one had a small single digit loss on several tens of 1,000,000 of initial exposure. So this underlines, although it is anecdotal, but it underlines Ralf's point about these loans being senior secured and not at all comparable to high yield bonds or 2nd lien or imagine in tranches. It really depends on where you are in the capital structure what the impact is. Having said that, yes, we will continue to see some pressure on the oil and gas related book, reserve based lending where do expect to have some losses. But certainly at this point, we don't expect any dramatic deterioration compared to what we have been saying earlier. There is also the offshore drilling and services part of the business. That depends on one hand on the continuation of a number of big producing wells. That's in the areas where we the business which we've mentioned before is very high CapEx, but relatively low OpEx or lower marginal lifting cost than the current prices. So most of these fields simply continue to produce and therefore continue to consume services. However, what we are seeing of course is slowly growing impact of the cutback on investments in new projects. And that over the next few years will obviously bring some more pressure on the Offshore Drilling and Services book. On the whole, I don't think we need to make any changes to our guidance. We gave you the results of our internal stress test last quarter and we said that $30 for a long period we would see the risk cost between $14 $15 And if it were to stay at $20 for a long time, we would expect to go back to the 'fourteen levels for 2016. I think at the levels where we are currently, we're still looking at risk cost guidance around last year for the total of 2016. That's very clear. Thank you very much. We will now take our next question from Bruce Hamilton, Morgan Stanley. Thank you. Good morning, guys. If I could just come back on costs. I realize you've given us good color on the regulatory degree of confidence that hopefully the €960,000,000 is the right number. On the underlying cost, I mean, if I look versus Q1 last year, cost growth grew about 3.5%. Obviously, you're much more stable on the subsequent quarters. How should we think about the underlying cost base for this year? I mean for this year, I mean should I mean is it better to look at it at least a small single digit percentage growth? Or does the move in towards digital and what you're doing with your business mean that you think you can get things much nearer to flat? And then secondly, just on the RWAs. RWAs in the group, obviously, they drifted low by a couple of percent in the quarter. So just to understand how you were able to manage that down, whether that was largely FX driven or other drivers in terms of the IWA modest decline. Yes. On the cost side, basically, the underlying cost, we expect going forward the next quarters to be flattish. It's a mixed bag really. We see that the restructuring programs that we program Belgium and the Commercial Bank and the Wholesale Bank, basically those are delivering. And so we see costs going down in some areas of the bank. But then again, we don't mind cost increases if it leads to further income increases. So over the last couple of quarters, you have seen that cost in the industry lending business, the franchise, we have hired people there. In Germany, we have shown that last quarter as well that we didn't mind costs going up in Germany because income was going up even more rapidly. So what we do generally is that where we save money, we can actually so what we do generally is that where we save money, we can actually invest in franchises where we do expect growth and for the foreseeable quarters is exactly what we want to do. So flattish cost hovering around this level is what you can expect on the Yes. So the main components of the changes in risk weighted assets on one hand lending volume, which created an increase of about €4,500,000,000 partly mitigated by FX changes, which created a drop by about €3,000,000,000 Then there was credit migration for about minus €1,000,000,000 The biggest drop in risk weighted assets came from the operational risk side where we had a model update that both data both reflected industry data which led to a slight uptick. Our own internal scenario analysis and projections which led to a slight decrease and some incremental diversification benefit as well. And then market risk was up slightly, but that hovers around €10,000,000,000 for a long period already. So those are the main changes. Very helpful. Thank you. We will now take our next question from Kiri Vijayarajah from Barclays. Yes. Good morning, guys. Going back to financial markets, it does seem to get allocated with a lot of the regulatory costs in the wholesale bank. And given I know you front loaded some of the regulatory costs into 1Q, but is your expectation that moves back above breakeven for the rest of the year? And then more generally, given regulatory costs aren't going to disappear anytime soon, do you think you might need to do more shrinkage or rationalization within Financial Markets because on the basis of what we're seeing at the moment, the ROEs in the Commercial Bank? Thanks. Yes. I mean, the €50,000,000 of the regulatory cost goes to Financial Markets at 12,000,000 the same quarter of last year. So those are the regulatory cost numbers. That's not the real driver. It's the revenue fall is more to do with the pretty in January and fair beyond clients simply weren't active. That is not likely to stay forever. I think March was a little better, and we'll see how sentiment improves. So it's more about dealing with client flow. And as that picks up, we would hope to see improvements. All of the revenue lines within Financial Markets were positive. So it's not about of the revenue lines within Financial Markets were positive. It's not about losing money and taking positions. It's more the volume of client activity was very low, which is a common phenomenon, I think, across the market. Yes, of course, we always look to optimize and improve our business and respond business and respond to whatever structural changes are we may foresee coming in all of our business lines. Okay. Thank you. We will now take our next question from Ashik Hosseini, JPMorgan. Yes. Hi. Good morning, everyone. So just one question on your loan book growth. I mean, you achieved a loan book co lending growth of around $7,100,000,000 in sales coming from the wholesale banking. So can we get a bit more color about what is it? Is it what book is it? Because it mentioned industry lending and general lending, etcetera. And just related to that is what sort of margins margin uplift are you getting because of this shift away from retail into wholesale banking? Any color again on the margins you're getting on this new book? So in the Wholesale Bank, it's a mix between industry lending as well as general lending, as you saw. So basically, in the industry lending side, it's a bit across the different franchises that we have. There's no particular franchise that grows faster than the others. And you see here the growth in euro. It's a dollar business. So in dollars, it has been so in the euros, it has been stable. In dollars, it has been growing. So and on the general lending side, we see quite some growth coming through there as well, which is related to normal client franchises and as well as the transaction services business that we are growing in. So it's truly across the board. It's across the whole franchise. And that's basically the healthy aspect of this. Yes. Go ahead. On the margins, obviously, Wholesale Banking margins are higher than mortgage margins because they're priced that way and not because you've much lower loan losses expectation on mortgages retail than you have Wholesale Banking. So they are higher. And that's the pay for the inherent risk that we run-in them. Yes. I mean That we run-in them. Yes. I mean, one thing I wanted to check is, is there any sign of margin compression in the retail banking as well? Because one thing I was struggling is if I look at your pre tax results in Germany, it's more or less flat for 5, 6 quarters, whereas I presume your book has grown book has still grown in that business. So what is driving that? Is it margin pressure you're seeing on that business on the asset side, 35, 55? I think that's a big success that we can grow, bring in new clients, bring in new deposits, which we have to pay 60 bps on and keep the margin slowly increasing. This goes to the whole point around the strategy on optimizing the balance sheet and mix is that we can grow that franchise, bring in new clients and put that money to work. And again, if we can continue to do that and hold the margin stable, we're more than happy. Growing a franchise is in my humble opinion. Okay. That's wonderful. Thank you. We will now take our next question from Sarkuha Murray from Autonomous. Please go ahead. Good morning, gentlemen. Just two questions, if I may. Just starting with the Financial Markets business, this did come in weaker than expected. I think you hinted towards this in the last question. But could you just give a sense of how activity in 2Q is panning out as compared to the experience in 1Q, namely particularly how April compares to earlier in the year, particularly on the Rates and Equity Derivatives businesses? And then just on the Retail Netherlands, expenses excluding regulatory costs came in at €601,000,000 for the quarter. Could you just identify how much restructuring provisions are actually in that figure? You seem to reference some in the text, but I just don't I wouldn't mind a sense of the magnitude. Markets side. Well, what you've seen in the Financial Markets side is that given the fact that our financial markets business is increasingly so a real client business that in the 1st 2 months of this year that clients are really waiting for developments to stabilize, the markets to stabilize before they would take out their hatches that they would normally do in the 1st 2 months. And some of that business we've seen coming back in March, and we also see it coming back in April. So March April look much better than January February on that side. Now the restructuring expenses in the Netherlands? Yes. I mean, the big ones we tell you about and some of the more regular, because we're constantly trying to optimize and improve. Ralph talked about earlier about what we're trying to do to improve efficiency and effectiveness. So there are nearly every quarter some degree of restructuring provisions we take. We don't give a number on them every quarter, but sort of low mid teens is in the order of magnitude. Okay. Thanks. We will now take our next question from JP Lambert, KBW. Yes, good morning. Two areas of question, if possible. The first one is the latest proposals on the Basel III, Basel IV area, the switch to standardized approach for large corporates and project financing. I was wondering if you have some views on the likelihood of these being implemented and the process of developing that area. The second point is the outlook for volume growth going forward. You benefited from Wholesale Banking growth this quarter and over the previous ones. But going forward, you've always indicated that you expect a growth coming from other areas such as SME lending and consumer finance. However, you're still at the pilot base and I was wondering if the quantum development required will help you to sustain the growth rate you have in mind? Thank you. So, yes, on the regulatory costs, what we see when you hear is that the eminent individuals within the ECB environment and I think also the UK for that matter are saying that the quantum of capital in the system is adequate and they believe in advanced models. But what we see coming out of the valve committee is not consistent with that. It hasn't been for some time. The positive thing is that there's increasing regulatory recognition that these things are not these things. And we as an industry are working together with our colleagues in the banks to keep updating the QISs for the 3 different BAL 34, whatever you want to call it, iterations and present the impacts back to the regulator. So we're working very hard in the regulatory lobbying fund to make sure that there is a very clear awareness, lobbying fund to make sure that there is a very clear awareness within the powers that be of what Bal is saying and that it's not consistent with the expressed wish of the leaders of the ECB. Now on loan growth, I think you're right in terms of when we see the quantum. We see high growth rates actually, but they start from a low base, if not a base that is not even there, right? So in some of the countries in which we are piloting, But in the more growth markets, we do. What is important to us is that we see the growth and that we see the growth happening at high percentage levels. But from a quantum perspective, it will never it will not be as visible yet as you see some of the success that we have in the Wholesale Bank. In the end, what is important is and that is what you see in Slide 7 of the deck is that you do see the asset mix changing over time. And that in the SME and consumer finance area, which is the gray part of this tech part. We've seen it growing from 27% to 34%. So it has the higher growth rate, higher than mortgages. It's not as high as the commercial bank in those markets, but it is growing with 11.5% over a 2 just over a 2 year period. So it's not bad. I mean, you see it there and it's happening. These are important engines for us. It's also important that we show our commitment to the economies in which we get our savings there as well. So it's the momentum is there. But before you see it back in 1,000,000,000 and 1,000,000,000 and 1,000,000,000, yes, you see it takes a little bit longer, but it's happening. And it's happening at double digit growth. Thank you very much. Our next question comes from Paul Feiner from Societe Generale. Please go ahead. Hi, morning. Thanks I've got a couple of questions. The first is, in terms of your resolution strategy, given that you've now sold down NN, have you decided what strategy you're going to use in terms of holding company, operating bank? And can you just give us a bit of color as to what the issues are and what it is that you're waiting for? And the second question is in terms of bond issuance, you've done 1 Tier 2 issue this year, but you haven't done any AT1 for over a year now. I just want to get a sense of what your near term plans for subordinated debt issuance were. Okay. So we have to find out from the Dutch authorities what the resolution entity will be that was promised, Clarity, but it seems to be slipping back probably towards the end of the year. I mean, we're in a strong position. We have a holding company. We can use that. We have the operating company as well. And it's really up to them to decide which one they want us to use. Until we know that, it's difficult to change your issuance strategy. What we were Do you know what it is that they're waiting for? We're waiting for the regulator to see in case of us what our which entity should be a resolution entity. And once you understand that, that is the entity from which you would want to do your issuance. That's either a holding company or an up company. The point is we have both. So we have optionality on that. And what we did optionality on that. And what we did the first two quarters were horrible for the markets, particularly for Tier 1 issuance, pretty widespread out there. Given our strong capital position, we didn't have to move there, so we didn't. But what we did do is a bit of an innovative Tier 2 issuance where we issued it out of the bank with an option that within 2 years, we can move it up to the group. So we price that optionality into the structure. Term plans over the next couple of quarters? Yes. We don't comment in advance. We have a strong capital position. We have a lot of flexibility given the long dated grandfathering of our hybrid. So hybrid, so we'll take our time and take our moments. Our next question comes from Alex Kone from Natixis. Please go ahead. Yes. Hi, there. Just one or two follow-up questions from my side. The first one is on the NIM guidance. I think that you are guiding for a kind of stable net interest income in 2016 compared to 2015. Is that something that you can consume today given the good Q1 and also the low margin and the low interest rate environment? I mean, just trying to understand what is your view of this income. And then on commission, I was just wondering whether you expect your commission to grow in 2016 compared to 2017 2015. Thank you. So, NIM guidance, Alex, yes, you're right. I think also what you see this quarter that the NIM is actually up a little bit. We can actually confirm that we can manage the 2016 NIM stable versus 20 15. As said, it's a mix of things we use. It's the funding side, the savings. It's the lending side and moving towards high yielding assets as well. So it's a mix of the 3. But for 2016, we're quite comfortable that we'll on managing it at the higher 140s level. So that's stable versus 2015. On the commission side, yes, so clearly, on the commission side, if you look at our interest if you look at our income picture, you see that we're, in comparison to others, a little bit lower on commission, but our commission income has been stable. We actually feel that there is opportunity on the commission side in our model. And that's so we do expect and even more so going forward. And that's basically the core of our strategy, not so much the commissions, but the core of our strategy is the primary relationship in a digital market through which you understand your client much better and through which the client really looks at you as their main bank, then you do get the cross buy and linked to that cross buy will be higher commission income. So that's the whole strategy. Thank you. And we will now take our next question from Annke Rheinigen from Royal Bank of Canada. Yes, good morning. I just wanted to follow-up on net interest income. Firstly, on your guidance of or your commentary about the net interest margin. I thought earlier on you said you can hold it at the Q1 level around stable for the rest of the year. And I guess that would refer to the 151 minuteus, let's say, the 2 basis points. So it would be more like 100 points, that would be more like EUR 149,000,000 while you were just saying you expect it to be stable versus 2015, which would be the 146,000,000. So if you can maybe just clarify what the net interest margin was very strong in the wholesale bank in Q1. I just wondered, do you see the level as sustainable given the investments you made? Or is it part of the nature of the business that's quite lumpy on the quarters as well? Thank you very much. So on the NIM, yes, we can just reiterate what I've said and what Patrick has said is that we so that we think we can manage it at the higher $140,000,000 s level. So it could be 146,000,000, could be 149,000,000 in a given quarter, depending on how financial markets quarter, depending on how Financial Markets turns out. It could be a bit higher. It could be a bit lower, but the high 140s. And therefore, stable versus 2015 is where we see it, being able to manage it going forward. On the volume growth, yes, we do think that the growth is sustainable, whether it's front loaded in the year or not. I mean, what we have indicated, it is that and we always indicated that we expect a 3% to 4% lending growth per annum. Now sometimes, it's more in the Q1 in one part of the business and sometimes, it's more in another quarter in the other part of the business. But it's the 3% to 4% lending growth that we feel comfortable with over the year. So if it is a little bit lumpy over the quarters, it is it could be. It's a franchise. It is a global franchise. It's an industry lending franchise on the lending side and the general lending franchise. We're not necessarily dependent on how the developments are in the U. S. O. It's truly global in different industries. So yes, we feel quite comfortable that we can continue the growth, as indicated, 3% to 4% over the year. Thanks. Thank you very much. We will now take our next question from Robin van der Broek, Fund Mediobanca. Please go ahead. Yes, good morning. Thank you for taking my questions. Coming back to NIM, looking forward a bit further to 2017, if I understand you correctly, you're basically saying high 140s for 'sixteen. Probably you will need to use some of your deposit rate cuts to keep it at that level. How should we look at 2017 given that we're at an interest rate is clearly lower for longer? Do you still feel comfortable with the €150,000,000 to €155,000,000 target you've put in place? Or should we hope that we can keep it in the high 140s? Second question relates to the DSIFI. I think on previous Q4 earnings call, you indicated that if there's more regulatory clarity, you would see a chance that the regulator might reduce the DCF. However, in a recent financial stability report of the Dutch Central Bank, they seem to make a connection of the DCP with the relatively sizable banking landscape in the Netherlands to GDP and the fact that, yes, that the DGS is not funded yet, that will lead that will take up until 2024. So it seems that, that financial stability report could the report could imply that the DSIFI is going to stay at that level for at least a lot longer than the end of this decade. Happy to hear your thoughts on that. Yes. Thanks, Robin. Yes, in 2017, what's difficult on us, I think it's too soon to say Things are developing so quickly these days. Things are changing. It's really difficult. In terms of the guidance, the ambition that we have indicated when we launched the strategy, the €150,000,000 €155,000,000 that was a mix of improvement of margins, moving to higher yielding assets as well. And that's exactly what you've seen us doing. But clearly, when we launched the strategy, we hadn't foreseen a lower interest rate environment, at least not to this level. So depending on where we are, I think it's too soon to tell on that one. Then on the DC fee, it's there and we'll have to manage with it. It's on one side. And whatever the reason is why we have it, I don't think that's important to well, it's not so important to us. What we always basically use as arguments is that we do believe in the European Banking Union. And therefore, we do believe one of the larger European banks, if not the most Eurozone bank on the savings side. And therefore, we do plea for a level playing field. And in that case, the DCFE is not helping us. So that's certainly our play. Okay. As a result of the new field. Okay. Yes. Thanks. Okay. We will now take our final question from Alicia Chung, Exane. Please go ahead. Hi, there. Just one final question for me really. Provisions clearly came in below even your base case if you annualize that quarter for the full year. Can you give a little bit more guidance from here? Would you expect that this would improve your base case outlook now? Well, you need to keep in mind that quarter on quarter, in particular, the wholesale provisions can be quite lumpy. And you see in 1 quarter sometimes a big release, another quarter is a bigger fall coming in with new provisions. So really helpful to look at it that way. We have indicated that we believe the overall 2016 number is going to be around 2015 under the current macro circumstances and that guidance remains. Okay. Thank you. I'm sorry, just one last question. I know we talked a little bit about where the net interest margin might land over in 'sixteen and then further out. Could you give a bit of a view of where you expect deposit rates might floor just because obviously that's one of the key levers that you will pull from here and we're already at relatively low levels, but perhaps there's further to go? Well, yes, well, if I had a crystal ball, I wouldn't probably be doing this job actually because then I would know everything for certain. So where would the deposit rates floor? We're looking at a situation in Belgium where the floor is actually set by the legal environment. So we have an 11 basis points floor there. It's legally that's the floor legally. It's different per country. I think what's important is that we feel that the coming quarters, we have enough room to manage between lending margins, the composition of the asset base and also savings to make sure that overall, we have a growing franchise and that we serve our clients very well and where deposits rates may actually floor, I can't really indicate. The direction is down, but it's as much as I can see because this is you see the interest rates going down. And therefore there will be more pressure on deposits rates going forward. Okay. Thank you. Thank you. Thank you all. I'd like to wrap up this call. If you look at the quarter, the underlying development, the business development has been really good, 250,000 new clients, 100,000 new primary relationships, €9,000,000,000 of new savings, core lending ups. And with that, the net interest result up, the commission results stable. The other income, specifically in the financial market side, we've seen a weaker quarter, and we have explained that as well. On the cost side, stable costs, lower risk costs, lower risk costs, but the higher regulatory costs, but that's disproportionate for the quarter. Overall, we feel quite well with the performance, but we do see challenges ahead. So exactly the right strategy going forward in a world where customer experience is what counts and how you can grow. So thanks very much and talk to you later. Bye. This concludes the conference call. Thank you for participating.