Shortly. Bye. Good morning. This is Gillian. Welcome to the ING 1Q 2015 conference call. Before handing this conference call over to Ralph Hamers, Chief Executive Officer of ING Groep, let me first say that today's conference may include forward-looking statements such as statements regarding future developments in our business, expectations for our future financial performance, any statements 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 statements 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, our earnings press release as posted on our website today. Furthermore, nothing in today's comments constitutes an offer to sell or a solicitation of an offer to buy any securities.
Good morning, Ralph. Over to you.
Good morning. Welcome, everyone, to ING's first quarter 2015 results conference call. I'll walk you through today's presentation. With me are Patrick Flynn and Wilfred Nagel from the Executive Board to answer further questions as well. Turning to page two, ING posted a very strong set of results in the first quarter of 2015. The underlying net profit was €1.187 million, up 43% from the first quarter of 2014, and more than double that of the fourth quarter 2014. Income generation was robust, reflecting the positive momentum in our business. Bank capital generation remained strong at 40 basis points, offset by 33 basis points upstream to Groep. The fully loaded Core Tier 1 ratio increased 110 basis points for the Groep to 11.6%. In the first quarter, we also continued to make progress on our Think Forward strategy.
Just to give you some highlights there, we turn to page three. In March 2014, we launched a strategy with one clear purpose: empowering people to stay a step ahead in life and in business. The core of that strategy, and I keep repeating that, is to create a differentiating customer experience, and that is all about our customers. That's why the Net Promoter Score, as you can see in this slide, is so important to us. In most countries, we're number one, but not in all. There is absolutely room for improvement. I'm also happy to say that we welcome more than 350,000 new customers also in the first quarter of 2015, and almost 100,000 new primary bank relationships.
As you know, that's real core to our strategy, with particular strong growth in the countries that we call challenges and growth countries, fully in line with our strategy. Our customer focus contributed to good commercial growth during the first quarter of this year, and that was reflected in strong deposit growth, but also strong lending growth. Over the last couple of quarters, I've mentioned to you examples on the retail banking side as to how we use technology and innovation to improve the customer experience. I'd like to talk about an innovation that we have tested with our commercial banking customers. We have made progress on the development of a commercial banking platform, a digital platform called Insight Business.
We have run a pilot over the last six months, this Insight Business will provide clients with a single point of access to all of their commercial banking products and services, such as payments and cash management, trade finance, lending. It provides real-time information. It gives customized reporting. It can be accessed 24/7 and from any mobile device. It gives multi-country, multi-product, and multi-device information. I think that's another prime example of how we are pioneering technologies that keep us at the forefront of modern banking and basically for us to set the bench in customer experience in a digital era. Turning to the first quarter results. Slide six. ING's first quarter results were very strong.
I said before, the underlying profit before tax was EUR 1.061 billion, up 41.2% from the first quarter of 2014, and more than double the pre-tax result in the fourth quarter of 2014. Strong results were supported by some volatile items, such as positive results from hedge ineffectiveness and capital gains. Even excluding these and other volatile items in previous quarters, and you can see that in this paragraph, the pre-tax result increased by 28.3% if you compare to the first quarter of last year and 11.9% if you compare to the fourth quarter of last year. That is clearly reflecting the positive momentum in our business that I was mentioning. Customer lending in our core lending franchises increased by EUR 6.9 billion or on an analyzed basis 5.3%, and the pre-tax results at Financial Markets were seasonally strong. Looking at the income side of the results.
Income growth was robust in the first quarter. What I think is particularly encouraging is the positive trend in net interest income. The net interest income, excluding Vysya, increased 7.2% from the first quarter 2014, and it was slightly down for the fourth quarter 2014, but that was due to lower interest results from Financial Markets. I will get back into more details on that one. Financial Markets performed very well in the first quarter, and this was mainly visible in other income, but not so much in net interest income. If we exclude Financial Markets, however, the net interest income increased 9% from the first quarter 2014, and 1% from the fourth quarter 2014. It's continuing its upward trend, driven by solid lending growth.
If we then turn to the lending growth on page eight, you see that the core lending businesses increased by EUR 6.9 billion, or, as indicated, 5.3% annualized, with healthy growth in most geographies in which we're present. Net production in Germany was only marginally up, as the positive growth in consumer lending and commercial banking loans were offset by a small reduction in mortgage loans, and that was caused by high prepayments in the German mortgage book. Turning to the net interest margin. The net interest margin decreased by six basis points from the fourth quarter. If you go deeper into this, you see that three basis points were attributable to the lower net interest result at Financial Markets. This is an item that we report on a quarterly basis, and you see that there is volatility in this quarter on quarter. You see that on this slide.
Two basis points decrease in net interest margin was due to an increase of the average balance sheet. That increase was driven by foreign exchange, Financial Markets, and bank treasury. If we then look at the underlying business, we see that the lending margins have increased from the last quarter in 2014. That is because of higher margins in retail in most of the countries and higher margins on the commercial banking lending as well. They partly offset the lower margins that we see on deposits in the first quarter. Turning to slide 10. Talking about the margins on deposits, we see that the margin has declined versus last quarter. That is because of the lower reinvestment yields. It's partly offset by the client savings rate that we have reduced in some of the countries in the first quarter.
Now, this may reverse in the second quarter of 2015, as we have further reduced our savings rate in the second quarter already in the countries where we have our largest deposit space, like the Netherlands and Belgium. Also our reduction in Germany, that you can see here in the first quarter, was more at the end of the first quarter, so the benefits of this further decrease will come through in the second quarter. As said, we will continue to review our client rate proposition given the unprecedented low interest rates that we see. If you take a good look at the slide, you also see that there is scope for further reduction going forward in order to manage that margin for the foreseeable quarters. If we turn from interest income to non-interest income, slide 11.
We see that the commission income rose 8.2% from the first quarter of 2014 and 9% from the fourth quarter in 2014. That is mainly due to higher industry lending fees at commercial banking, which is basically fees that we collect when we close new deals, as well as higher fees in Retail Benelux and Retail Germany. That's more on the sale of asset management products, which is also a kind of a seasonal phenomenon. People move into asset management products in the first quarter. Investment income was 7.6% higher than a year ago. You see that also in the slide at EUR 113 million. That includes EUR 75 million of gains on the sale of debt securities and EUR 36 million on the sale of an equity investment in a real estate runoff portfolio. Other income rose strongly in the first quarter of 2015, mainly because of three items.
First, bank treasury benefited from positive results from hedge ineffectiveness. That is in the mortgage hedge accounting and mainly related to the introduction of quantitative easing. Secondly, Financial Markets posted a seasonally strong quarter. Finally, we had a quarter without CVA/DVA. Basically, it was very low at EUR -1 versus EUR -66 million for the same quarter last year, so the first quarter last year. That's why you see the other income going up. These are the three reasons for that. Looking closer at Financial Markets. Financial Markets really posted a seasonally strong quarter. As you can see in the graph on the right-hand side, the quarter tends to be relatively strong. The first quarter always is seasonally strong, with the exception of the first quarter of 2014. You may remember that the volatility in the market at that moment was relatively low.
We now have seen a first quarter with higher volatility in the markets. While the Financial Markets performance in the first quarter of 2015 was relatively strong compared to last year, it was not exceptional if you compare it to the first quarter performance in 2011, 2012, and 2013. It's quite normal that the first quarter is strong, and given the volatility that we have seen in the markets, this is a good result. Going then from income to cost, slide 13. We see that in the first quarter of this year that the expenses have mainly been impacted by regulatory costs in Belgium, Poland, and Germany. If you adjust for these impacts, and you adjust also for Vysya and Ethniki, the expenses increased by 2.4% from the first quarter last year and 2.2% from the fourth quarter.
That reflects the earlier announced investments for future growth in the challengers and growth markets, where we have a disciplined program as to cost growth only allowed if the income growth is twice as high. This also has to do with the announcement of additional investments in retail Netherlands, moving to an omni-channel environment, investing heavily in IT, but with cost savings attached to it later on, as you can see also on this slide. The first quarter included, on the regulatory side, the German contribution to the Resolution Fund, the contribution from other countries, as well as the Dutch DGS, and other additional regulatory expenses are expected to be implemented later this year. In total, we expect regulatory costs to be up by EUR 200 million-EUR 250 million versus 2014. That will weigh heavily on our expense base this year.
If you go to the other component of cost, the risk cost. Risk costs were at EUR 432 million in the first quarter of this year, down EUR 36 million from the first quarter last year, but up EUR 32 million from the fourth quarter, mainly due to higher risk costs in commercial banking and retail Belgium. The NPL ratio remained stable at 3%. Retail banking showed improved results in most of the segments. If we now go to the segment analysis on slide 15, we see that most of the countries and segments, we see improved results apart from retail Belgium. The decrease in retail Belgium versus the first quarter last year is fully explained by the fact that we had gains on sale of bonds in the first quarter last year in Belgium. If we would exclude these capital gains, the pre-tax result actually rose 8.5%, also in Belgium.
The decrease in the first quarter in Belgium versus the fourth quarter in Belgium can be explained by the annual Belgium bank tax that we book fully in the first quarter. Last quarter, we took you through the case of Spain and how the strategy is working out in Spain. This quarter, we want to take you through the case of Germany and how the strategy is working out in Germany. Basically, you see that in Germany, we continue to be the number one in Net Promoter Score. For the ninth consecutive year, we have been called the most preferred consumer bank in the German market. That results in continuing growth in savings and a continuing growth in the loan book as well.
However, we have also decided, as part of the strategy, to grow our commercial banking business in Germany, and that's what you see here as well. We see strong volume growth in deposits and consumer loans, but you see also now the success of the commercial banking strategy coming into the German results. If we put it into numbers, we see consumer lending up 15% per annum in the period of 2011, 2014, and another 14% if you compare it first quarter this year versus first quarter last year. We see continuing growth in consumer lending there at the annual rate of 14%-15%. The commercial banking loans have grown 39% per annum in the same period, 2011, 2014.
If you do that on a year-on-year basis, so the first quarter of this year versus first quarter last year, we actually see an acceleration of that growth because it was at 66%. We expect that trend to continue. This is not only commercial banking exposure generated in the German market, this is also commercial banking exposure that is part of the global strategy of commercial banking. As you know, some of our centers of excellence and expertise are now in Germany, and we book international business also in Germany. That's the case Germany. If we turn to the commercial banking results for this quarter, we see that commercial banking delivered improved results in most segments. We see the industry lending results continuing to be strong. The Financial Markets results we have already discussed. We see the pre-tax results on general lending and transaction services.
They doubled from a year ago but declined from the fourth quarter. The volatility that you actually see in this picture is all caused by risk cost. Because the growth results is up quarter-on-quarter and year-on-year, and it's the risk cost that always make the difference in this one. If we turn to structured finance, slide 18. Structured finance, which is part of the industry lending segment within commercial banking, continued its strong performance. The underlying income grew by 42.1% from the first quarter last year and 8.5% from the fourth quarter in 2014. That was due to ongoing loan growth, and that was reflected again in higher interest income, higher commission income.
The net lending growth in structured finance, if you exclude the impact of foreign exchange, was EUR 2.2 billion in the first quarter of 2015, the lending margins actually have increased from, if you compare them to the first quarter of last year, and have remained stable if you compare them to the fourth quarter of last year. Hence, the return on equity is also stable around a very attractive level of 20%. That franchise is doing really good. All of that leads to a strong ING Bank profit, as said, we've also booked contributions from both NN Group and Voya this quarter, that takes the results of the bank, the EUR 1,187 billion up to EUR 1.769 billion for the group. You see the result on NN Group of EUR 276 and a result of Voya of EUR 323.
You see that the result of the group is even better because of the results on the insurance stakes. Regarding dividends, our intentions remain unchanged. We pay at least 40% of the annual profit each year, there's a willingness to return to shareholders the net proceeds of our insurance divestments by way of dividends over time, subject to developments on the regulatory front. Looking at the capital position at the bank and the group level. ING Bank capital generation remains strong at 40 basis points, that was offset by 30 basis points upstream to the group. We managed the surplus capital at the group level, we managed the Core Tier 1 at the bank level, around 11% level. Here again, you see that the bank Core Tier 1 ratio, even after the payment of the dividends, is stable at 11.4%.
It does cover the growth, it covers the dividend payment, still we have a very strong Core Tier 1 on bank level. On the group Core Tier 1 level, that increased by EUR 4.2 billion. That's supported by the sale of Voya. It's supported by the stake that we sold in NN Group, it was supported by the capital generated at the bank. It was also partly offset by the first quarter 2015 dividend deduction of EUR 700 million. That's basically the regulators want us to basically deduct for the dividend accrual at the rate at which we want to pay dividends. The group Core Tier 1 ratio increased 110 basis points to 11.6%. Following the sale of Voya last year our only remaining insurance asset is NN Group, we hold a 54.6% stake in that group.
Our base case scenario for the divestment of NN Group is a sell-down. A sell-down through a series of follow-on offerings over the next 12 to 18 months, that will result in a pro forma Core Tier 1 ratio of 13.5% of the group. If you take the good results of the bank you take the good results on group level the improvement of capital levels, both on the bank level the group level, you see you can conclude that we are on track to deliver our ambitions for 2017. That is page 21. If you look at this slide, we see that we have reached most of our goals, I think it's too early to be happy with this. The first quarter is always the best quarter of the year.
Furthermore, we have to absorb a significant amount of additional regulatory costs, as I mentioned already, that will be booked in the P&L later this year. In addition to that, we have to work in an environment with unprecedented low interest rates. There's also the ongoing regulatory uncertainty about required capital levels, risk weights, and leverage ratios. Despite these challenges, I'm very pleased on the progress we're making. I think that these results show both on the commercial side as well on the financial side, that the beginning of the execution of the Think Forward strategy is successful. It shows we're on the right track, we're doing the right things, and I'm confident that we will be able to continue to deliver on our ambition 2017. To wrap it up, good first quarter results for the bank, good first quarter result for the group.
Stronger capital position for the bank and the group overall, a real progress on the execution of our Think Forward strategy, focusing on the clients, going for digital interactions with our clients, getting more clients. Momentum on many sides. With that, I'd like to open the call for questions.
Thank you. In the interest of time, we kindly ask each analyst to limit yourself to two questions only. If you would like to ask a question today, please press the star or asterisk key followed by the digit 1 on your telephone. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. Again, please press star one to ask a question. We will pause for just a moment to allow everyone to signal. We will now take our first question from Martin Leitgeb from Goldman Sachs. Please go ahead.
Yes. Good morning. Just two quick questions, I think both related to interest margin, which obviously was down this quarter. I remember from the investor day the guidance of 150-155. I was just wondering if you could shed a little bit of light on how we think in terms of the transition from where we are now, 147, towards this 150-155. I'm particularly interested in how quickly, obviously, the deposit rate cuts feed through on the liability side, whilst probably the pressure on the asset side is coming through more gradually. All else equal, should we think that margin is likely to stay below 150 for the next couple of quarters before the asset mix shifts as you plan and then margin increases again? Or how should we think here in terms of progression?
The second question is specifically with regards to Dutch deposits. I know you're still paying around 1%, and I think if I'm not mistaken, one of your competitors there has cut its rate to below 1% now. Do you see the further opportunity to cut rates further? Is there the opportunity that you close or that you represent part of that funding in Netherlands with German deposits, which I think are roughly 40 basis points cheaper compared to Dutch deposits. Is that a further opportunity for you to stabilize margins? Thank you.
Okay. I'll take the questions, Patrick will fill in on the margin range and net income margin range going forward. You've seen that in this quarter, we've seen some volatility from the Financial Markets side on it as well as the balance sheet increase. The underlying business actually on the lending side, we see margins holding up. We see in the first quarter a bit of pressure on the savings rates. As I already said, we feel that we have sufficient room to maneuver on the savings rate in the countries in which we're active. Certainly also given this continuing inflow of savings in order to manage the margin around the 150 level in the foreseeable quarters. Turning to the Netherlands specifically, you see in this picture, you see the 1%, but we also have saving products which pay lower.
One of those larger savings products that we have is also paying 90 basis points. It's not like we're holding back on further reduction there. It's more how you move tactically in the market and how do you time your decreases. There's nothing holding us back from further decreases there. I'm looking at Patrick.
In terms of our target range, 150-155, I see no reason whatsoever to change that or challenge that. In fact, if you look at interest earnings in EUR terms and exclude Financial Markets, which we know is a volatile item, they increased, as Ralph mentioned in the slide. Up EUR 30 million or 1% quarter-on-quarter. What I think is particularly impressive in that is we have lending growth of EUR 6.9 billion. EUR 4 billion all of that is commercial banking. That growth is coming at stable and healthy margins. Excluding Financial Markets interest, we seek progressive increase in EUR earnings. Okay. The balance sheet was volatile. It's always volatile in the first quarter with inflow particularly accentuated with the FX and the moves in the interest rates from various quantitative easing.
That's just noise, right? The fundamental point is we're still on track. We're delivering growth in interest earnings and the EUR 150, EUR 155 stays as our target.
Many thanks.
We will now take our next question from David Lough from Deutsche Bank. Please go ahead.
Morning, everyone. My first question is on costs. I know you're flagging the additional regulatory costs this year. I just wondered how we should think about this being phased over the course of the year. Is there a particular lumpiness in the quarters with how that comes through? If there's anything you're expecting to offset through savings through the course of the year. I also just wanted to confirm, are you expecting any additional costs next year? Is this it in terms of regulatory costs, in terms of the Dutch and German DGS charges, or should we expect even more next year? My second one is on tax rate. I think it was 28% in the first quarter. Historically, this has been about 25%-26%, I think.
I just wondered what the guidance for this was going forward, and whether this is impacted by the regulatory costs that you've already mentioned. I don't know whether these are tax-deductible items, some of the ones that you flagged on the cost line. Thank you.
Yeah. Patrick? Our tax guidance remains the same. I think we were at 27%, was it? In the middle of the range. No change there. In terms of lumpiness of regulatory costs, yes, it is lumpy. What we've seen in Q1 is that in Belgium, it all came up front at around EUR 90 million, which is the same as last quarter, last year. The Dutch levy is back ended in the fourth quarter, as you remember. We will see an increase of somewhere between EUR 200 and EUR 250 from DGS schemes, coming in this year. Not totally clear when that will be reflected in legislation. It's only when it's reflected in legislation that we'll see it. Probably the earliest is in the third quarter, but that may come in the fourth quarter as well.
Okay.
As to whether our regulatory costs will further increase, who knows? We don't hope so. We see a steep increase this year because of the combination of bank taxes, DGS being introduced in some countries, but also the contribution to the Single Resolution Fund as a resolution mechanism. We see basically, different kind of levies is coming at us. Clearly, we hope that this is it because it's already at a high level. This year it's around EUR 640-EUR 650, in total, we expect. You never know. Hopefully this is where it stays.
I guess what I was hinting at is, if DGS comes in in the first half, the EUR 200-EUR 250, is that one half cost, or is it for the full year?
It's probably half.
We should assume that it is double the regulatory costs that you've flagged?
If it comes in half the year, it'll be half, and the full year will be higher in next year. Annualizing regulatory costs, like we said, we think is around EUR 650 total, going up by EUR 200-EUR 250 this year for regulatory costs. The annualization effect means in 2017 it will be higher again.
Thank you.
We will now take our next question from J.P. Lambert from KBW. Please go ahead.
Yes, good morning to you. First question is on your view on dividend going forward above the 40%. There are two issues. The first one is how much capital do you think should be earmarked for changing the risk weights potentially, and also the location where this capital could be earmarked. Apparently not at the bank because you upstreamed dividend this quarter. And also the spreading over time, at what pace you see the excess capital, generated by the insurance sales spread, in terms of a dividend distribution. The second question is on the leverage. There are discussions involving the Ministry of Finance, in the Netherlands, interested in 4%, but they're not the regulator. I'm not sure if the central bank will be neutral on this. What's the view of DNB? Is there a possibility of a local higher leverage? These are the two questions. Thank you.
Well, on leverage, the question seems to be whether it'll be at 4% in the Netherlands. We are at around that level, a little bit above it on an IFRS basis. I don't see that a 4% leverage ratio would be a constraint for us, going forward. In terms of dividends, you had a number of questions there. We have said before that we have a willingness to return the net proceeds of insurance divestments to shareholders over time. This will be part of our regular annual dividend discussion. As you recall, we said before that the minimum is 40%, but at the end of the year, we'll look to see the lay of the land in terms of profit, economic development, and also regulatory developments.
Assuming on the basis that they are benign, we have a willingness to pay more than the 40% and return the insurance surplus to shareholders over time. The timescale that we'll take, we're not going to be too prescriptive about. The payout ratio will be somewhere between 40% but not exceeding 100% of net profits, including the gains we currently see in the first quarter. Why not exceeding 100%? Because that's the point where you need to go to regulatory approval, and we prefer to
Not have to do that, although with 100%, that gives us quite a lot of firepower, as I mentioned already. This will take a number of years to return this surplus to shareholders. We believe that a prolonged, sustained, I should say, elevated dividend payout ratio is a better value proposition than potentially returning capital over a shorter time frame. Importantly, it does give us some protection in the event that the uncertain regulatory environment does change adversely. You asked about the RWA weightings, which frankly, we don't know exactly how that will keep on yet. It's still too much of a moving target to be prescriptive. We have a significant capital surplus the group. We, as I say, are supposed to return the insurance surplus over time, we want to keep an eye on how regulatory developments come.
Obviously, you don't want to end up returning capital to shareholders and finding there's a regulatory change that was adverse. We're going to be prudent in the return and keeping an eye on the regulatory capital developments.
Would you earmark some capital at the level of the bank going forward rather than streaming dividends to the group?
The group and the bank are one and the same now, virtually. Once we've exited Voya completely, once we exit NN, they're just two companies as part of our group. Our policy will be around trying to maintain excess capital at the holding company. We did that this quarter. There's a strong capital generation in the bank, which I think is very positive. Notwithstanding EUR 6 billion of lending growth, we increased our capital ratio by 40 basis points in the bank. We can support both growth and increase capital at the same time, is very strong. Our target is to keep the bank capital ratio at somewhere around 11% mark, as we said, our objective. As it was higher, we moved EUR 1 billion up to the holding company. We have total flexibility. We can put the capital back down the next day if needed.
It's just a policy and a discipline thing to keep capital at the holding company. It's available to ING, both for supporting dividends to shareholders, as I talked about earlier, and in the event it's needed for regulatory change, we can use it there as well.
Great. Thank you very much.
We will now take our next question from Tarik El Mejjad from Bank of America Merrill Lynch. Please go ahead.
Hi. Good morning, everyone. A couple of questions, please. First of all, on your quite good performance in structured finance lending growth, EUR 2.2 billion in the quarter is quite good compared to the last two quarters. I just want to understand what's the source of that by sector, and if you can also help by geography. Would that be that you are more comfortable about your oil and gas or Russia exposure, and then you opened the pipes again, or if you can clarify that? Secondly, on the asset quality, part of the deterioration came from Ukraine, but the rest is from faults in commercial lending. Can you please specify in which geographies? Thank you very much.
On your first question, in terms of the growth in structured finance, EUR 2.2 billion, that's basically across the board. It's globally, and it's also across the different sectors. In the areas of energy transfer and infrastructure, that's where we see a growth of 5%. In the area of international trade and export finance, we see growth of 1.3%. Some areas we see a bit of a decrease, which are more the specialized financing groups. If it comes to the sectors like oil and gas, metals and mining, infrastructure, all that, it's really across. It's not dependent on one particular sector. It's driven by our sector expertise. It's driven by our core relationships that we have in those businesses. Yeah, we're happy with that growth.
In terms of risk cost and how we see Russia and oil and gas exposure developing, I'd like to give the word to Wilfred.
On oil and gas, I think was an important part of your question. Are we more relaxed? Well, I wouldn't say more relaxed. We've seen what looks like a stabilization of the oil price and a bit of an uptick from the lows. That is good news. Frankly, the low oil price as such is good news for a big part of our portfolio. The focus on just wanting oil prices higher is a little bit too narrow. I think overall, we're benefiting from the fact that energy has become cheaper. Yes, it puts a bit more pressure on some of the book, but less on other parts. Having said that, we've always been open for business in the oil and gas sphere.
You see at the back of Ralph Hamers' presentation on page 34, a breakdown of the portfolio in terms of how sensitive these exposures are to the oil price movements. As you can see, not a lot of the book is directly linked in terms of performance to the oil prices. Indeed, we are doing business also in that sphere. You may notice, for example, compared to last quarter, that in reserve-based lending, there have been a few new deals, and that is simply because at the current oil prices and the buffers below them, that does look like a solid business, despite all the nervousness around this. Then on risk cost more in general, indeed, there was some related to Ukraine. Russia is actually quite stable in terms of NPL and provisioning. No new issues there.
The main uptick in commercial banking was simply in general lending, as always, a little bit lumpy, a few bigger files in Continental Europe.
Okay. Thank you.
We will now take our next question from Andrew Coombs from Citigroup. Please go ahead.
Good morning. Two questions, please. Firstly, just returning to the net interest margin. You talked about a reversal in the 2nd quarter following the deposit cuts in Germany in the end of March, and Belgium and Netherlands in April. Perhaps you could just quantify all else how it equal, what the boost in the interest margin would be from those deposit cuts. Or failing that, perhaps you could just provide the absolute amount of deposits that are impacted by those rate cuts in each of those three regions. The 2nd question would just be on the hedging effectiveness and the capital gains that you've booked during the quarter. Perhaps you could just elaborate on that, provide a bit more color, and also whether you expect those to repeat as the year progresses. Thank you.
In terms of the latter two, in terms of capital gains, EUR 70 million in bond gains. We've invested in building out our bank treasury, and they're looking far more closely at how we manage in a low rate environment. We were cautious about bond gains because there's a question about taking an upfront gain and then having a negative impact on future NII. What we found, a number of these bonds were swapped. You had asset swap structures, whereby unwinding the asset swap structure and releasing the cash, could actually lead to an accretive situation where the cash can be deployed at a better yield than in the asset swap. This was a net win-win effect.
I would've said, mainly two weeks ago, that we would continue to do this, we have to be very careful about where interest rates are now going, given it's quite volatile. It does go to show that we are actively managing our positions and looking to do the economically what the right thing is. If rates go back down again or if this volatility eases off, we may even see further such moves on the gains on the bond front. In terms of hedging effectiveness, this I think was a function arising from the volatility in market rates. You have seen losses, hedging effectiveness losses in previous quarters, things of about EUR 26 million last quarter.
There's quite a significant gain this quarter that we saw a flattening of the curve, which led to some ineffectiveness on the designation of floating rate swaps against the underlying hedged item. I won't go into too much detail on that. As I say, that partially covers a loss in the previous quarter. It is primarily accounting, not economics. To the extent that there's an economic element to it, we've looked to lock out that piece. We have actually locked out a piece of that, the smallish piece of that gain. This is more a function of volatility in markets, and it can give noise in the accounting, which you cannot rule out in future, and we've had it before. In terms of savings rates, yeah. I don't want to be too precise on which books are impacted.
In each of our markets, we will have a number of different deposit type propositions. They don't all get changed at the same time. This is not something I'll give a precise monetary answer. This is directly positive for interest margin on deposits in Q2.
Okay. Thank you.
We will now take our next question from Ashish Masand from JP Morgan. Please go ahead.
Hi. Thank you. Good morning, everyone. A couple of questions. First of all, can you give us some thoughts on around your 11% capital ratio? What are the recent debate you have with the ECB on the capital? Any color on that, and both on the group level and the bank level. Do you think that both will merge sooner or later? Any thought on that? Secondly, any thoughts on risk weight harmonization? What's going on? Because one of your German peer has come out and said that they expect this capital allocation towards more risk weight harmonization thing. What sort of risk you see from that? Yeah, that would be fine. Thank you.
In terms of capital ratio and discussion with the ECB, the short answer is none. The ECB has given us frameworks on dividends. They've given the market a framework around how you pay dividends. They are so far sticking to that framework. Obviously we informed them about the dividend upstream to the bank. There was no real discussion arising from that.
No.
Our dividend policy, 40% payout in the fourth quarter, likewise. It's not really a subject of much discussion.
Yeah. I wanted to check on this 11% target you have. Is it still a fixed target at the moment, or is it still an uncertain moving target, i.e., it could be 12, 13, 14 going forward? Any thought on that?
Well, the 11% is there because we have indicated before that we want to manage at a comfortable buffer above 10%. That's what we're doing, and that's where we are, 11.4. If we're a little bit higher, we upstream it. If we need it back in the bank, we'll downstream it. That's the way we manage it.
Okay.
If regulatory requirements change, then we'll have to take a view as to how we manage that. Then going to the second part of your question, as to whether there are changes foreseeable, not so much in the percentage, but at least in the risk weighting. For that, I would like to give the floor to Wilfred.
The discussion about the BIS consultation is one that we're following very closely. It could have significant impact, for sure. At this point it is very much work in progress. There's so many variations and combinations possible here. What is obvious is that the calibration of the floors, the exact drivers that are going to be used in the models at this point are going to really determine the outcome more than the concepts that are being discussed. The actual implementation will only make it possible to understand what the impact is. The general observation you can make is that portfolios that have advanced internal ratings-based modeling and very strong collateral are likely to be the most sensitive to these developments. Obviously, Dutch banks, including ING, do have these portfolios.
The relative position of ING among the Dutch peers is that our risk weights tend to be higher than the average, so we would be relatively less impacted. I think all in all, it's too early to comment on the actual impact. What I would say, though, is that the strong capital generation that Ralph talked about and the current comfortable position with regard to capital that Patrick mentioned gives a very good basis to deal with whatever comes.
Thanks, Wilfred. That's really very clear and very helpful. Just to follow up, would you try to run ahead of the final rules on these things, especially on the risk weight of mortgages? I remember a year or two back, you increased the risk weight on mortgages from 10, 12, or 13 to around 18, 19. Do you really want to move ahead of the final regulation in terms of moving towards a 25% or 30% risk weight on your mortgages? Thank you.
Not really. The increases that you refer to were all driven by our own modeling and the actual experience and the adjustment following from that. We believe in our models. If you look back, we've been certainly with the Dutch mortgage book through a pretty heavy real-life test. Through that test, it never consumed more than one-third of its operating profits in terms of risk cost. There is nothing in the recent history or indeed in the longer time history that suggests that our risk weights and our capital for this book is too low. I'd also note that the ECB still claims to be in favor of a risk-based approach and does not want to discard models, just wants to check them, make them more transparent, and refine them, we support that effort.
Yeah, that's very clear. Thanks a lot for that.
We will now take our next question from Anton Kryachok from UBS. Please go ahead.
Thank you. Good morning. I just have two follow-ups, please. Firstly, on capital. Now at the group level, you seem to have EUR 2.4 billion of excess cash sitting on the balance sheet. I was just wondering what prevents you from distributing those EUR 2.4 billion earlier than the end of this year or early 2016. It seems that now you're more likely to use the gradual sell-down of NN Group's stake as your main exit option rather than doing a spin-out. I was wondering what is the rationale behind the decision. The second question please, on Russia. It seems that the rate of the decline in the loan book has slowed in Q1. Have you reached a level at which you're happy with your overall exposure there, or shall we expect you to continue managing that down? Thank you.
Well, yes. You note in the slides we point out that the group now has a capital surplus. In the past, we used to talk about double leverage, but that's gone. We're in a surplus position, healthy surplus position. That's available for dividends. Our policy is for both an interim and a final. I'm not sure if you remember that. We will pay an interim dividend of a minimum of 40% out of the first half profits for rata, probably based on underlying results. At the year-end, as I mentioned earlier, we will pay a minimum of 40% of the group. We'll look to see, given, as I mentioned earlier, profit outlook, regulatory outlook, actual results, holistic view of where we're at. It's somewhere between 40% and 100% of net group results.
That EUR 2.4 billion plus future profits we make will be available to support the dividends, both interim and final.
Just maybe to add, I think what we are indicating is that there's a willingness to distribute the insurance divestments and the proceeds of that back to the shareholders over time. The reason why we're going for different divestments of NN than the spin itself
The spin is still there as a fallback option. Don't get me wrong. We have seen that the liquidity in NN share is not where it should be yet. We have promised the market an orderly sell-down. That's why we're following that route. We have good experience with that route as well on Voya. That's why we are spreading it out. The spin is still there as a fallback option. This is just the new base case scenario. Paying out the insurance surplus over the years, we basically see that we want to make sure that we manage a buffer on the group level for regulatory shocks that could come. Maybe they don't come. Hopefully, they don't come.
It would be regrettable if we were to pay the insurance surplus quickly and then find that because of changes in regulatory requirements, we end up with capital constraints and can't really build on the bank's strategy in order to generate a sustainable dividend going forward. It's basically those kind of dilemmas that we're weighing as to how we go about distributing the insurance surplus. The presumption is that the insurance surplus will go back to the shareholders. That's basically what you have seen already. Our fourth quarter dividend announcement for 2014 actually was an advance and is an advance against insurance surplus. That shows the intention and the willingness. I'll give the word to Wilfred, I think, on the second part of the question.
Yeah. On Russia, you're right. If you look at the numbers, the pace of the reduction of exposure dropped in Q1. I assume you've seen page 32 of the presentation, which describes that in a bit more detail and shows you that the actual drop in exposure in EUR terms was around EUR 260 million-EUR 270 million. However, in constant effects, it was more like EUR 760 million negative. In other words, a big impact came from the rise of the USD in Q1. That, of course, has since then partially reversed. That effect alone will give us a bit of a drop in Q2, but also we still continue to look at the exposures and bring them down where we can. Stepping back, looking at the big picture, we have consistently said that our strategy in Russia is to protect the franchise while reducing risk. Both remain unchanged.
In other words, we still intend to protect the franchise. We still intend to reduce our risk. In 2014, the main focus was on simply reducing overall exposure because that was the most effective way to deal with the reduction that we wanted. That meant both shedding exposures that were non-essential to our clients, as well as shedding clients that were non-essential to the franchise, frankly. That has happened. Where we are now is at the core of what we believe the franchise should be. We're now working on improving the risk profile of what we have with these clients. That ranges from doing more export credit agency business to more mitigated commercial transactions like trade and commodity finance, pre-export finance, and things like that.
On top of that, we continue also to move more exposure onshore, which is also locally funded at the moment pretty much for 100%, although that tends to be a bit volatile because a lot of it comes from a corporate deposit base. Nonetheless, it improves the quality. Therefore, it lowers the risk profile of what we have. That continues to be the strategy.
That's very clear. Thank you.
We will now take our next question from Farquhar Murray from Autonomous. Please go ahead.
Morning, gentlemen. Just one question from me, really coming back to the leverage ratio. Now, I appreciate that this is not really a near-term issue, and there's usually a lot of flex within the exposure figure. If we look at the Delegated Act number of 3.7, we say, well, that's not fully loaded in the sense that it includes grandfathered Tier 1, obviously we can offset that with AT1 over time. We still end up being slightly short of the 4% level that's being discussed in the Netherlands. I just wondered if you could give a sense of how you might ultimately intend to reach that 4% level over time. In particular, what options might be available to moderate the exposure number if you have to go down that route? Thanks.
We just issued a hybrid Tier 1. We hadn't been able to do that up till now. That was a highly successful transaction, 24 times oversubscribed. We're not going to do that every month. It's important that avenue is now open. We were comfortably able to move our manager balance sheet to get to the 4% on an IFRS basis. We have a number of levers we can apply in terms of managing how the Delegated Act is calculated. We're looking at doing that, but that's something we will sort of do first and talk about later. We're comfortable that, I'm comfortable that by the time the Delegated Act bites, that we'll be able to move us up close or to the required level.
Can you not give just some color on what those levers are? Presumably it's some kind of form of netting within the accounts or something.
That's one avenue, potentially, that we can look at. We just look more closely at the users of the balance sheet under the Delegated Act definition and optimize how we want to allocate that usage across our businesses. We have time to do so. Actually, we're doing it already. Like I said, prefer to talk about what we've done after we've done it. I'm not concerned about achieving this target.
Just more generally, the 4% number that's been discussed in the Netherlands, is that on the delegated bank's basis or the IFRS basis, or is frankly, it's still not really particularly clear?
It's not particularly clear.
Okay. Fine. Great. Thanks, guys.
We will now take our next question from Matthew Clark from Nomura. Please go ahead.
Hi, good morning. Couple of questions on your comments around the potential spin-off of NN Group. I guess firstly, I struggle a bit to reconcile you saying that it's still there as a fallback option, but that the reason you can't pursue it is because there's not enough liquidity in NN Group. If you've got obligations to ensure sufficient liquidity, presumably it isn't there as a fallback option, if the liquidity isn't there. Maybe if you could just clarify there, firstly, and secondly, on the 100% ceiling on payout ratio, is it your interpretation that that would include a spin-off as being within the payout ratio for the purposes of that ceiling, would regard a spin-off as being a dividend in kind, and treat it the same as a cash dividend? Thank you.
Yeah, thanks for the questions. What we've done over the last six months, in meetings with shareholders, we have asked them how they look at how we should go about monetizing the insurance shares going forward. Basically, we get a range of answers. We get answers saying, "Well, okay, I'd like a spin." Many of them don't like a spin because they are bank investors. Some argue, monetize it and invest it back in the business at these high return on equities that you are actually generating and other banks are only talking about. We get diverse answers on the preference of our shareholders as to how to go about it. That's input into our decision to make the base case, the one in which we sell down over time. In that base case, the spin is still a fallback. Why is it a fallback?
Because as we have promised an orderly exit and doing it in orderly markets, we also have to adhere to some deadlines that are still valid on the timing of the divestments. That's why in the end, it's still a fallback option.
You don't see liquidity as a constraint that would prevent a spin?
Sorry?
You don't see liquidity as being a constraint that would prevent a spin then?
Well, in the end, you can always spin.
You can't if you're going to get sued for not meeting the liquidity obligations.
Sorry?
If you've got an obligation to maintain liquidity from the IPO agreement, presumably you can't just spin if that would disrupt the market. Or have I missed?
We need all the ammunition, all the alternatives, and we have them to exit NN. We need to deconsolidate by the end of this year. Like we did with Voya, we got ahead of the game, this potential constraint on orderly market, we push away by being proactive. We said before, we will continue that the next step, which is deconsolidation, which is what we need to do by the end of this year, we'll aim to do by an orderly sell down for cash. The next deadline would be full exit by the end of 2016. That's 18 months away. If we had to, in extremis, and had to prioritize our constraints, the ultimate exit, we could potentially think about using spin if we had to in an extreme scenario.
I don't think we'll need to because we've been successful and are ahead of track in terms of orderly sell down. The spin is a fallback option that in extremis, unlikely event, we need to, we would use. That's why we asked for shareholder approval and obtained it. It's more in our back pocket from an exit scenario. In context of shareholder return, as a tool in shareholder return, we think it's a better proposition given what Ralph said about the diverse views and some of them very strongly held on both sides. We think on balance, listening to shareholders, it's on balance a better route take to return the surplus capital to shareholders by monetizing it initially and then a through-time return in cash dividends. We think that on balance is the better approach for capital return. There's two elements.
One is a tool for exit. Don't think we need it, but we'll keep it in the back pocket. Secondly, as a tool for returning capital to shareholders, we think that cash dividends through time are a better alternative. Also the other point that was made earlier, spin is an upfront, large chunk comes in one go, that's not consistent with our preference to keep our powder dry in case of regulatory change. It also would require a regulatory approval, the spin option. That would not be a foregone conclusion you get it.
There's multiple reasons, both in terms of the techniques we use to exit NN, and also the preferred option in terms of how we return capital. That's why we think spin is more of a back pocket tool rather than the primary tool.
Okay. In terms of whether a spin would be viewed as part of the payout by the ECB, albeit it seems somewhat academic given what you've just said.
Don't know, but don't ask them.
Okay. Thank you.
We will now take our next question from Keri Bijar from Barclays. Please go ahead.
Yes. Good morning, Thanks. A couple of questions. Firstly, on Germany, you've got an excellent cost performance there. The cost income ratio down to 43%. Of course, a lot of the competition in German retail are running with cost incomes in the 70% or 80% range. I guess my question is, at what point do you think you might need to or see an opportunity to maybe ramp up investments there, and make a bigger push for market share there? Am I thinking about your business plan in Germany in the wrong way there? Then turning more generally to the fee and commission performance. At group level looks pretty good, but a lot of that driven by the commercial bank. Actually in the retail bank, it's kind of okay.
I guess, the question is, are you happy with what you're seeing in terms of retail fee and commission, and what's your outlook for the rest of the year? Are you seeing your retail clients getting a little bit more active on the fee and commission side of things? Thanks.
Yeah. Thanks for the questions. In Germany, thanks for the compliment. It's good that you noted that. We're very proud, of course, of the performance of Germany. I can also tell you it's not unlike most of the other banks that we have in the challenger markets, where we see that our model is favored by clients and hence it grows very fast. Given the fact that we're working with a much lower efficiency curve, that we can outperform our peers in those markets in terms of cost income. Now in Germany, if you look at the strategic challenges there, it is really how can we continue the growth momentum. Which in terms of getting more clients is not necessarily the issue, because we still are getting between 700 and 1,000 new clients a day in Germany. We don't have to accelerate that.
We find that there's still a good momentum that we have there. The challenge in Germany is on the asset side, as we have indicated before. The savings keep coming in, the liquidity is there. Some of that we're allowed to use for group funding, but only to a certain limit. We're looking as to how can we basically grow on the asset side. What we've done so far is we are growing on the mortgage side. We're growing on the consumer lending side. We have started a commercial banking strategy for local German businesses, like the larger German corporates that we already have relationship with on the back of our global network. We now also do more and more business within Germany itself.
We have set up specific expertise centers, as part of our industry lending and structured finance franchise globally that work out of Germany. A lot of that work is performed in Frankfurt, and therefore we use that balance sheet in Germany. That basically gives us the diversification on the asset side. There's still room. The ramping up of the strategy from that perspective, if it is kind of assets or if it is teams that can generate assets, that's what we would be interested in looking at in terms of making sure that the success of Germany continues in a very balanced way going forward. Your next question on the retail commissions. The point about the retail commissions is basically that is part of the success of our model.
Our model is really the one in which we want to be very transparent to our clients and not so much charge commissions for charging commissions. You need to have a real reason to charge a commission or fee to your customer. It's basically why clients like us. That's why we get so many new clients. More than 350,000 just in this quarter, is because they like the transparency in our services and the transparency in the cost of our services. We charge commissions for what we feel we can charge commissions for, but we don't charge commissions for what we think we can charge commissions for. That is basically the difference between ING and any other bank out there.
Okay. Very clear. Thanks.
We will now take our next question from Anke Reingen from Royal Bank of Canada. Please go ahead.
Yeah. Good morning. Thank you. Just two questions, please. First, on net interest income in absolute terms, I just wanted to confirm that Q1 was basically you expect to be the lowest level for the year, and we should see an improvement from the current level? Secondly, just on net interest income in Financial Markets. Could you explain a bit why it was so weak, and is there any correlation with the strong trading results? Thank you.
In terms of the outlook for net interest margin, Ralph mentioned already that we had rate cuts in the beginning of this quarter, which will help offset the impact of low rate environment. When you look into the numbers, you'll see that the Netherlands retail margin dropped, and that was because there was no rate cuts in Q1. There are rate cuts in Q2, so I think that should help the stability of retail margins, deposit margins. The positive piece is that we are getting good margins on lending, both retail lending and also commercial banking. They're holding up well, and that's a positive. This is the same recipe we've been trying to apply for the past year or so, and it's behind why we think we will be able to stay in the 150, 155 is offsetting low rate cut effects from deposits, complemented with higher volume.
A change in mix or higher volume, good yielding commercial and retail assets generation. As I said, the positive thing in Q1 is that the commercial banking and the loan production in retail was at good margins. We're not seeing them eroding, and that's the healthy piece. That, I think, sustains us in terms of how we will continue to deliver on meeting the 150, 155. We'll have to look again at balance sheet utilization. Although, as I said already, that was somewhat extreme scenarios in Q1 with the huge USD moves and the volatility in rates. That may be a one-off piece, the huge balance sheet volatility, balance sheet expansion. In terms of Financial Markets, the results were very good overall, with a big increase in profitability, as you see in the slide. You really have to look at this in its totality.
We do not manage Financial Markets on the relative commission part of the results that come from dealing profits or from, sorry, trading or from net interest income. They manage on the total, and the element that turns out to be NII or dealing profits is second order effect. You really need to disregard the interest movements quarter on quarter for Financial Markets. As I said, the main point is the results were up. As it happened more it was in dealing profits this quarter than NII, and that's a second order outcome. If you exclude Financial Markets from overall NII, it was up 1% quarter on quarter. The EUR earnings from the managed NII part of our balance sheet increased 1%. There's continued NII improvement, notwithstanding a little bit weaker margins in retail.
Thank you. I wondered about net interest income in absolute sense. You think Q1 is a trough as well, and we should see growth going forward?
Excluding Financial Markets, it was not a drop. It increased. That's my key point.
Yeah.
Excluding Financial Markets, net interest income increased quarter on quarter.
Okay.
That's why there's still positive momentum in interest margin.
Okay.
We will now take our next question from Paul Fenner from Société Générale. Please go ahead. Hello, Paul, your line is open. Please go ahead.
Hi. Morning. Can you hear me?
Yes.
I guess you can. Thank you. On TLAC, can you just give us an update on thoughts domestically around whether or not the Dutch regulator, whether you are lobbying for something similar to the German solution in the sense of statutorily subordinating senior creditors in order to make senior unsecured out of a bank TLAC eligible? Allied to that whole TLAC issue, I wonder if you can just give us an update on what it is that you're intending to do around funding in terms of the group holdco versus bank, and whether you're going to pursue a U.K. style shift out of bank funding at the senior as well as the subordinated level into holdco now that you've given up getting rid of the holdco. Thanks.
On TLAC. Basically, if you go to slide 30 of the presentation, you'll see where we are as ING.
Yes.
Basically, you see where we expect the TLAC requirements to come out. You assume TLAC requirements, and then you see our situation, and what we would need to do. Clearly, what Germany is going through, the good thing about that is that you have the senior creditors' treatment on a statutory basis as part of the bail-in, so that you don't have to go to a more structured or more contractual way of attracting this debt. The good thing there is that it is also consistent with the way MREL applies in any European area. I think that's the good thing about the way the Germans go about it. Now, clearly, if we can, across Europe, come to a consistent solution, and this one is the solution, then it would be good for the Dutch government to follow that one. We would certainly support that.
We have different ways to go about TLAC solution, and that's also why we still have, as you have indicated, also the holdco.
We have that in the back pocket if it is necessary as a solution. As a preferred scenario, it is how do we get consistency across Europe and how do we get consistency between TLAC and MREL, and for that, the German solution is a good solution, and we would support that.
That's great. That's very clear. Thank you very much.
We will now take our next question from Cor Kluis from Rabobank. Please go ahead.
Good morning, Cor Kluis, Rabobank. I've got two questions. First of all, on the risk weighting of mortgages, can you indicate what the risk weighting of mortgages is at this moment for both the Netherlands as well as for Germany and Belgium? My second question is more strategic. You mentioned during the call that the presumption is that the excess capital will go back to the shareholders over time. Could this capital also be used for acquisitions? You've got EUR 2.4 billion cash in the holding, probably that will rise positively by around EUR 5 billion from the NN Group going forward. It's a big amount of money. Do you exclude acquisitions with that money, and could you give your idea about it? Thank you.
Wilfred first.
On the risk weights, Netherlands, we have at 18, Belgium at 15, Germany at 24, average of the three, just below 20.
Yeah. Cor, thanks for asking the question on the strategic side there as well. As you know, we're still separately doing an acquisition ban, until we deconsolidate NN or the November 18th of this year. As a consequence of that, our strategy, the way we have developed it, does not include acquisitions. The strategy is built on what we call a sustainable share framework. In that framework, we know which areas we can improve and in which areas we can accelerate, and we have organic growth programs for improvements for all of the activities that we have, whether from a business line perspective or a geographic perspective. In that sense, we are looking at opportunities as well. We had a very strong organic improvement plan for India.
Nevertheless, when the opportunity came by to merge with Kotak Mahindra, we basically followed an opportunity there that accelerated the value creation for shareholders by five years. It's good for our clients, it's good for our shareholders. Basically, clearly we jumped at that opportunity because it fitted the sustainable share framework and it fitted the strategic direction. I get asked the question on acquisitions more and more. What you can expect from us is that the acquisitions that we would consider would very much be within the light of the strategic framework, being more in terms of acquisitions of asset portfolios, teams, technology, which is very important for us as well. We will certainly monitor what's going on if it comes to in-country consolidation because that can specifically impact our own situation in specific countries as well.
We don't have any specific plans for acquisitions in new geographies or transformational ones. I think in the total, and now I come to basically answering your question, if you look at the way we want to go about this, we feel that the capital generation of the bank is sufficient to support any of these improvements that we would foresee as part of our strategy and getting to our plans that we have to improve the sustainable share positions that we have in the business lines and the countries in which we're active.
Okay. Thank you. Very clear.
We will now take our final question from Omar Fall from Jefferies. Please go ahead.
Hi. Two small questions, please. Just looking at the split of loan growth this quarter, it seems as if we're now seeing material signs of acceleration in non-mortgage loan growth in retail, so SME and consumer credit, which I guess is a key part of the strategy. It's still early days, but can you help us get a sense of timing in terms of when we can get some NIM benefit from this mix shift? Is it next year? Is it very much a multi-year period? Because I guess you can't really rely on savings deposit rate cuts to boost NIM forever. Secondly, from what I can see, risk-weighted assets were flat when excluding FX. You highlight in the report that there was some positive risk migration. Can you just give some more color on that, please? Thanks.
Yeah. Thanks for the question. Basically you're referring to the change in asset composition as a consequence of the success of the engines to generate SME and consumer finance, consumer lending. What we see, for example, in Germany is that the consumer lending business develops quite well. We see the same in Belgium and Poland and Turkey. We see growth there. We see growth in the SME business in Belgium, in Poland, in Turkey, and also in Spain, where we're also starting the SME business. Before that really starts to shift the needle on NIM, it's more back-ended in our strategy. Towards the end of 2016 and the beginning and then throughout 2017, you can expect some real influence on the NIM from the change in asset composition. I give the floor to Wilfred for the answer to the final question.
Indeed, there were quite some moving parts underneath that RWA number that you're seeing. On the risk migration, this is spread fairly broadly over the various book geographically. Some of it in the Netherlands, that's a good chunk, some in Germany, then the other challengers. About slightly less than half of it was in commercial banking, rest of the world. Generally, this simply reflects the gradual economic improvement and the reaction of our models to that.
Okay. Got it. Sorry, just a very quick follow-up. In the corporate center, you talk about a substantial positive one-off from the release of a legal provision. How much was that?
That's about EUR 40 million-EUR 50 million.
EUR 40 million-EUR 50 million. Thank you.
It's nothing to do with our capital ratings, obviously.
Absolutely.
Okay. We have to end this session. Thanks for your availability and patience to stay in this call. I really thank you for all the questions and the interest that you take in ING. I think that the first quarter proves, once again, that the Think Forward strategy that we have announced a year ago, that the success is really showing. It's showing in terms of what we do in the client relationships. It's showing in the number of clients that we get on board. It's showing in the growth on the lending side and the savings side, and it's showing in the performance of the results as well as the capital improvements. We're quite happy with the results this quarter. Thanks for your interest and I'll talk to you next time. Thank you. Bye.
That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.