Ladies and gentlemen, thank you for holding. This is Yvonne, welcoming you to ING's Q1 2014 conference call. Before handing this conference over to Ralph Hamers, Chief Executive Officer of ING Groep, let me first say that today's comments may include forward-looking statements, such as statements regarding future developments in our businesses, expectations for our future financial performance, and any statement not involving a historical fact. Actual results may differ materially from those projected in any forward-looking statement. A discussion of factors that may cause actual results to differ from those in any forward-looking statement is contained in our public filing, including our most recent annual report on Form 20-F filed with the United States Securities and Exchange Commission, and our earnings press release as posted on our website today. 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.
Thanks very much. Good morning, all. Welcome to ING's first quarter 2014 conference call. As you are used to, I'll walk you through today's presentation. Patrick Flynn and Wilfred Nagel are here from the executive board, and Delfin Rueda and Dirk Coldewey, CFO and CRO of NN Group, are here with us as well to answer specific questions on NN Group as well. Let's go through the presentation. I think it's about a month ago, March 31st, that we hosted our investor day on the bank side, where we basically laid out our bank strategy as well as the financial ambitions 2015. The foundation for improving the client experience and achieving our target is clearly there. We have to deliver. I've traveled around both talking to you and investors as well as internally, and specifically talking to many of the people in the organization in the past few weeks.
I'm confident that we will be delivering. In the meantime, we've made a lot of progress on the group restructuring to become a pure bank. Furthermore, the underlying businesses, both on the insurance and the bank side, have a good set of quarter results. The summary is ING Groep posted an underlying net profit of EUR 988 million, driven by good results both on the bank side as well as the insurance side. Turning to slide three, the update on the group restructuring. Many things that you have known already, but we've made a lot of progress in the first quarter, and that's important in getting into the end phase of restructuring. We made the penalty with payment to the Dutch state. Voya has been deconsolidated, and NN Group is now fully on track in its preparations for the intended IPO in 2014.
NN Group has finalized its capital structure. As of today, we have secured an investment of EUR 1.275 billion in NN Group by three cornerstone investors, which can clearly be seen as a confidence in the prospects of NN Group as an independent company going forward. Let me go through some of these developments in more detail. Turning to page four. Last week, we announced this transaction with the three investors that are going to invest ahead of the IPO. We will issue EUR 1.125 billion of subordinated notes to these investors, these will be mandatorily exchangeable into NN Group shares in three tranches through 2016. We will also sell shares in NN Group to each investor at the intended IPO, totaling another amount of EUR 150 million. Today, we announced that ING Groep will inject a further EUR 850 million of capital into NN Group prior to its IPO.
We have agreed with the Dutch Central Bank that we can proceed with the base case IPO, although formal approval will only be given upon pricing. NN Group will use these proceeds for reducing its leverage by EUR 200 million, increasing the cash position by another EUR 200 million, and improving the NN Life solvency by another EUR 450 million, I will come back to that further on in the presentation. We then go to the group situation and the double leverage. What's the impact of all these announcements on the double leverage? Starting point, the fourth quarter 2013, the double leverage was at EUR 4.9 billion.
The sale of the 14% in Voya decreased that by another EUR 0.9 billion, the sale of 11% in SulAmérica brought it down by another EUR 200 million, decreasing with that the double leverage to EUR 3.8 billion at the end of the first quarter. Following the capital injection of EUR 850 million in NN Group, the core debt would increase this would be more than offset by the investors coming in. The remaining piece of leverage is then comfortably covered by the value of Voya, 43%, the value of SulAmérica, that we still hold, and the remaining piece of NN Group. As a consequence of all of this, we expect that the attendant IPO will comprise only of secondary NN Group shares being sold by ING Groep.
We then look at the capital position of NN Group, the IGD ratio of NN Group decreased slightly in the first quarter, will be positively impacted by the successful issue of the external hybrid, the EUR 1 billion that we did in April, and a capital injection of EUR 850 million. You see the 9% increase of the hybrid issues. That is the net improvement of EUR 400 million because of the repayment of senior debt by the hybrids. Then you see the 19% improvement, which represents the EUR 850 million. With that, the IGD comes to 277%. As I said, EUR 450 out of the EUR 850 will be used for NN Life. With the first quarter, we have already seen the NN Life solvency ratio improving from 223% to 235%.
That will then increase further ahead of the IPO because of the EUR 450 million coming in, representing a 16% improvement and therefore the pro forma Solvency I ratio, NN Life, will then be at 251%. We then take a look at the leverage side for NN Group and the cash capital. NN Group issued in April this EUR 1 billion subordinated bond. EUR 600 million were used to repay subordinated debt of the group, and EUR 400 million were used to repay senior debt to NN Group. The first quarter pro forma gross debt will decrease ahead of the IPO. Also because of the use of EUR 200 million of the EUR 850 million in order to decrease the leverage to EUR 3.7 billion.
On the cash capital side, at the end of the first quarter, that was standing at EUR 600 million, that will improve by the proceeds of the sale of Bank of Beijing Life and ING Investment Management Taiwan, also by using another EUR 200 million as part of the capital injection from ING Groep to be kept as cash and therefore the cash capital will increase in total from EUR 0.6 billion to EUR 0.9 billion pro forma end of first quarter. Let's take a look at the capital situation on the bank side. On slide eight. The fully loaded CET1 ratio remains strong at 10.1%, the waterfall is shown on the phased Core Tier 1 effect.
Here you see that the CET1 phase-in effect remains strong at 10%, that is despite the implementation of CET1, it's despite a dividend upstream to the group in order to repay the state. It is offset by solid profitability and risk-weighted asset reductions. Therefore you see it going down from 11.7% to 10% on a phased-in basis, on a fully loaded basis, it is 10.1%. Last week, De Nederlandsche Bank announced that it intends to impose an additional capital buffer, the systemic risk buffer will be 3% of risk-weighted assets for ING Bank, that results in a minimum Core Tier 1 requirement of 10% by the end of 2019.
On the Investor Day, we already indicated that it's our ambition to be beyond 10%, actually growing to 11% over time. At this moment, we're already meeting these new increased requirements because the fully loaded Core Tier 1 is already at 10.1%. On the leverage side, we see the leverage ratio at 3.7%, that's also brought in line with our ambition. Also on this one, we are waiting for final regulations. If we then turn to page 10, we see that the strength of the bank on the savings side continues with a net funds entrusted growing by another EUR 8.3 billion in the first quarter, that leads to a further improvement of the funding profile of the bank. We're also happy to see that on the loan growth side, we see a net loan growth of EUR 5.1 billion in the first quarter.
This is a nice improvement, but it's too soon to say that this is a sustainable development. I'll come back with more details on the development on the loan side later on in the presentation with a little bit more details. After all of this and the impact on capital structures, let's take a look at the first quarter results. Turning to page 12 now. For the first quarter of 2014, ING Groep posted an underlying net result of EUR 988 million. The net result, however, was minus EUR 1.9 billion, and that was due to the negative impact of the deconsolidation of Voya, as we have announced earlier already, of almost EUR 2 billion. The pension agreement, also earlier announced, total effect of EUR 1.1 billion. The SNS levy, as we call it, EUR 100 million rounded.
All of this is a bit offset by the deconsolidation of Vysya, which has a positive effect of EUR 200 million. The Vysya deconsolidation, we can go into later, but this is basically a step to further align with prevailing regulations. We have brought the number of directors down in line with the ownership percentage, and as a consequence of that, we needed to deconsolidate. On the bank side, turning to page 13, we see an underlying result before tax of EUR 1,176 million in the first quarter. That's roughly flat from the first quarter 2013. It's up 30% from the fourth quarter 2013. Basically, if you exclude the swing on the CVA/DVA side of EUR 114 million versus the first quarter last year, the growth result was up as we had a higher result in retail banking.
A little bit lower results in commercial banking, mainly due because of financial markets. Partially, the CVA/DVA impact, but also some lower fixed income business volumes. Risk costs on the bank side were down from both the first quarter of 2013 and the fourth quarter, as we see that economic conditions are improving across. The net interest margin. The net interest result increased versus both the first quarter of 2013 and the fourth quarter of 2013. The latter certainly driven also by financial markets. Net interest margin actually is increasing from 145 basis points in the fourth quarter to 150 basis points in the first quarter. That's driven by financial markets and a lower average balance sheet.
We see the savings margins and the impact of the reduction in client rates being offset by lower reinvestment yields as the higher yielding assets in the replicating portfolios are running off. On the savings margin itself, we see a flat development. The improvement is really as a consequence of financial markets. However, as a result of that, we expect that the interest margin will edge down in the coming quarters from the current level because we know that the contribution to the net interest margin from the financial markets business is more volatile and seasonally high in the first quarter, as is also depicted on slide 14 for your information.
If we then take a step and we look at the lending growth, the lending assets were slightly up, and that's despite the deconsolidation of Vysya, the transfers of some of the mortgage business to NN Group, and negative currency impacts. The waterfall, I think, speaks for itself. Net lending in retail banking increased by EUR 2.6 billion because of higher net lending in retail Belgium. That's both on the mortgages side as well as on the business lending side. Higher net lending in retail Germany and retail rest of the world, and a bit lower net lending in the Netherlands. The net lending in the commercial bank increased by EUR 2.4 billion, and that's driven by higher net lending in structured finance and general lending. Specifically on the latter two, some of the lending increase is short-term related. The first quarter cannot fully be seen as a new trend.
We're happy that we see the growth, and we have to work on seeing whether this is sustainable. If we go from the balance sheet and the income development to the cost development on the operating expenses, I'm now on slide 16. Reported expenses were down fourth quarter, but up from the first quarter of 2013, and that's particularly because of the Belgian bank taxes that we took fully in the first quarter, whereas these taxes have been largely spread over the fourth quarters in 2013. If you look at the real expenses, you see them going down from the first quarter 2013 to the first quarter of 2014, and also going down from the fourth quarter 2013 to the first quarter 2014.
That is basically as a consequence of the successful implementation of the restructuring programs that we have announced in the past, and that we basically ensure that that implementation will continue. Cost down 0.7% against the first quarter 2013, 1.6% down versus the fourth quarter 2013. Restructuring plans are on track, and we expect them to deliver EUR 880 million of savings by 2015, and EUR 955 million of savings by 2017. Fully on track, so we continue to focus on those. We move to the risk cost. Risk cost is down both versus 2013 first quarter as well as the fourth quarter of 2013. In total, the risk cost decreased to EUR 468 million, and they were basically down in all product segments except for general lending. The risk cost and general lending were impacted by a few specific files. We'll come back to that later.
On the NPL ratio, slide 18, we see that the NPL ratio has remained stable at 2.8% in the first quarter. The amount of NPLs increased by EUR 300 million, and that's mainly due to higher NPLs in retail banking. That's more specifically even in Dutch mortgages. If we then look at the risk cost in the Netherlands, slide 19, you see that the risk cost in retail banking in the Netherlands have declined, both 2013 first quarter and the fourth quarter, but they remain at an elevated level, reflecting the relatively weak economic environment in the Netherlands still, so lower than 2013, but still at an elevated level. For the same reason, we see that the NPL ratio for both the business lending part as well as the mortgages in the Netherlands are still increasing.
Although we do see signs of improvement in the economy in the Netherlands and the Dutch housing market, we expect risk costs to remain at an elevated level, although slightly lower than last year. That's the Dutch situation. We then go to the risk costs in commercial banking, we see that the risk costs in the commercial banking have continued on their downward trend. That's driven by lower risk costs in real estate finance. The downward trend, as you can see on this slide, can be lumpy. Quarter on quarter, you see real estate finance going down. Quarter on quarter, you see a bit of a lumpy development, for example, in structured finance, the orange bars, and general lending, the light blue bars. Trend is going down, but with a bit of shocks in that downward trend.
If we take a look at the specific retail banking results, we see strong results from both the first quarter 2013 as well as the fourth quarter 2013. Underlying pre-tax result was strong at EUR 771 million, that's driven by higher income and lower risk costs. Underlying income rose 7.4% year-on-year, that's driven by improved savings margins and lending, mainly in the Benelux and Germany. As you know that in the strategy that basically we focus on the further improvement of client experience, and that we really want to deliver a differentiating client experience, then you realize that an important indicator for us to track and follow improvements is the ranking in terms of Net Promoter Score, and you see on the same slide where we are on that one.
We remain number 1 or number 2 in Net Promoter Score across the countries in which we operate. I certainly see room for improvement, because I think we should be number 1. The fact that we are everywhere where we operate, either number 1 or number 2, is a very solid sign that we're doing it well and that we have the right client experience, and that is the starting point for improving our business and increasing our business, and thus for better financial results. If we go to commercial banking, and now on slide 22. Underlying result of commercial bank was EUR 471 million in the first quarter. That was down from the first quarter in 2013. That, as I've already indicated, was specifically as a consequence of lower results in financial markets, partly driven by negative CVA/DVA impacts.
It was also as a result of lower results in general lending and transaction services, that was more because of higher risk costs in the general lending area. Compared with the fourth quarter 2013, the underlying result was up as the negative CVA/DVA effects then were offset by higher results in financial markets and bank treasury. Much for the banking results. Let's now turn to the insurance results. I think it's very strong results on the NN Group side. We see the operating result for the ongoing business improved significantly to EUR 274 million. This is up 61% from the first quarter of 2013 and up 28% from the fourth quarter of 2013.
The year-on-year improvement was driven mainly by higher disability and excellent results in NN Long Life, a higher investment margin in the Netherlands Life business, and lower administrative expenses, which is kind of a key sign for the successful implementation of the transformation program on the insurance side. I will come back to that later. The result before tax, however, was a negative one, minus EUR 372 million, but that is basically reflecting the one-time impact of EUR 470 million, making ING's defined benefit pension plan in the Netherlands financially independent. Further good news on the insurance side is that the new sales, the annualized premium equivalent, the APE, rose 20.6% versus the fourth quarter 2013, and that was mainly driven by higher sales in ING Life Japan, ING Insurance Europe and Netherlands Life. Versus the fourth quarter, sales rose actually 53% at constant foreign exchange.
That's also driven by then seasonally higher sales in Japan and pension renewals in the Netherlands. If we then turn to page 25, where we take a closer look at the different segments that we have started to report on. On the insurance side, we see that in all of our segments, that almost all of our segments have improved operating results versus the first quarter of 2013. That basically shows that the improvement plans that we have developed and are implementing for all of these areas, that they are working across these segments. Good news there as well. If we again go one step deeper and we take a look at the administrative expenses. The administrative expenses for the ongoing business were EUR 437 million in the first quarter.
That's down 5% a year ago, and that's despite higher NN Bank expenses as a result of the partial transfer of Rason Utrecht to NN Bank. If you would exclude this, then you see the real impact of the transformation program that the insurance management is implementing. You see that the administrative expenses actually fell 7% from the first quarter of 2013. That shows that the transformation program is really successful, and the strong cost control that is adhered to in all business lines on the insurance side. Good results here. Restructuring program that is also delivering these cost savings in the Netherlands specifically is on track with amount of EUR 163 million of savings achieved by the end of the first quarter. We expect by the end of this year to deliver EUR 200 million of savings, and this is specifically the restructuring program in the Netherlands.
Both in financial results as well, and specifically cost and sales results, good performance on the insurance side. A very strong commercial and financial quarter there. If we then wrap up and we go to the final slide on page 28. I think on the strategic side, on the financial side, and on the commercial side, we are making a lot of progress. The first quarter shows that we're working on all of these elements and showing progress on all of these elements as expected. We're happy with the underlying results, and we are working on the final steps of our restructuring plan. Good first quarter on all accounts. With that, I'd like to open the call for questions.
Thank you, sir. In the interest of time, can we ask that each analyst limit themselves to two questions only? If you would like to ask a question, please press the star followed by the one on your telephone. If you wish to withdraw your question, please press the star followed by the two. Once again, if you would limit your questions to two only. Farquhar Murray from Autonomous, please go ahead.
Morning, gentlemen. Two questions, if I may. Firstly, on the surprisingly strong Basel III ratio. The EUR 8 billion reduction in RWA coming from the change in calculation methods seems to be driving around by 30% or 30 basis points of that. I wondered whether you might give some more detail around what changed there, specifically which lending books were involved, and was there a particular change in the risk weight there? Secondly, on NN Group, should we regard the 277% IGD ratio for the group as the kind of capital target for the future? What specifically drove the change there versus what we were talking about at 4Q? Can we regard this as a level from which dividends can be paid in the future? Thanks.
Farquhar, the first question will be answered by Wilfred Nagel, the second one will be answered by Patrick.
Yeah. On the reduction in risk-weighted assets, the 30 basis points you're referring to, that is mainly comprised of two things. One is the next step in developing our master scale, which links PDs ultimately to risk weights, where we have extensively disclosed, actually, on page 395 of the annual report, what we were planning to do there, and that is what we have executed on. This is replacing essentially external data with our own internal data as per the Basel ambition. That is about 12 basis points of the 30 that you're talking about. There's another 10 basis points linked to part of the law that puts CRD IV into implementation in Europe, which provides specific risk weight reductions for SME exposures. There are some smaller things.
Okay. Thanks.
On the capital for NN, the EUR 850 that we've injected, that does boost the IGD ratio as well, but it also is primarily aimed at improving the NN Life solvency ratio up to 251, as you see on slide six, and also increasing the cash buffer and reducing debt. With this capital injection, we do obtain regulatory approval, the regulatory green light to go forward with the IPO. We have approval for the capital structure, which is very significant. That means now that we're into the end phase of preparation for the IPO. The remaining pieces are within our control. Obviously, we need to continue to have a receptive IPO market. Dividends, I can't really talk about in too much detail about dividends, or the lawyers will put me in jail.
We are in the process of, as I say, preparing for the IPO. I think it's fair to say that dividends will feature prominently in the IPO and equity story. You'll hear more about that soon. In conclusion, yes, we have regulatory approval of the capital structure to go forward with the IPO.
Okay. Thanks very much indeed.
Thank you. The next question is from David Lock from Deutsche Bank. Please go ahead.
Morning, everyone. Two quick questions from me. First one is on your EM exposures. I know in the back of the presentation books, you've given some helpful disclosure on Ukraine, Russia. I just wondered if you could give any color on what you're seeing there at the moment. Obviously, it is a difficult time when we look at the news, but what are you really seeing in the exposures that you have there? Is there anything that really concerns you from your exposures? If you could also just update us on the goodwill balance in the Turkish business. My second question is on net lending reduction in the Netherlands. Clearly, when you have the slide in the fourth quarter, the net lending reduction is slowing. Just wondering when you expect that change to really trough.
Is it going to be in the next couple of quarters or could it be longer? Thank you.
David, let's first answer the last question, because I will take that one, on the net lending reduction in the Netherlands. On the mortgage side, we see a net reduction coming in on the mortgage side of EUR one billion, but we see a decrease of the portfolio of EUR 1.3 billion. We see that basically the engine is working, new mortgages coming in. We see a transfer of mortgages from the Dutch banking book on the bank side to the NN Bank side. You see a transfer from the bank to the insurance company there. Net-net, you see a decrease, but you see that basically the engine is running. The mortgage business is doing okay.
If you look at the business lending side in the Dutch market, you basically see that on the smaller SME businesses, that you see that the repayments are still a little bit higher than the new production. Although we see new production, we see higher demand. That's off by EUR 300 million for the first quarter, so a bit of a decrease. If we then look at the larger companies in the Netherlands, we actually see a growth in net lending. I think that most of these are now positive signals that demand is coming in, and in the end, that should increase the loan books. Although on the mortgage side, we will continue with a transfer of some of the businesses at reset moments from the bank to the insurance company.
How much remains of that to be transferred? Sorry to interrupt. How much remains to be transferred to an NN Group ?
That's EUR 7 billion. EUR 7 billion.
Thank you.
Yeah. Now we go to the emerging markets exposure. I'll transfer to Wilfred for that.
Yeah. Obviously, Russia, Ukraine is a bit of a developing story. Maybe to dwell briefly on what our business is there, it is a pure commercial banking business. We don't do retail or SME. The focus is really on the top local names, mainly exporters of energy and essential metals for the world economy. We've been in both of these countries for over 20 years. We've got a long history with a number of our clients there. If you look at what at the moment is going on in terms of exposure, then the lending exposure, the breakdown indeed is at the back of the presentation, but is hovering between EUR 7 billion and EUR 7.5 billion. We're obviously in daily contact with our clients there to keep track of what's happening and discuss their next steps and our next steps with them.
We try to continue to support our clients to the extent reasonably possible. Obviously, this is a balancing act between managing risk on one side and supporting the franchise and these longstanding relationships on the other side. We have pruned our exposures where we can, both in coordination with our clients, as well as by reducing the number of counterparties on the financial institution side that we deal with. We do feel that our clients are taking, generally, a very prudent approach. They're hoarding cash, not our cash, but the cash that comes back because of a reduced business volume, and they're using that opportunity to strengthen their balance sheets. At this point, if you look at the quality of the book in Russia, it is very good. We've got a 0.1% NPL ratio and virtually no provisioning there. Ukraine is a little bit weaker.
There's a bit of detail on that in the presentation as well. There also, we've got a long history. It's mainly exporters that we're dealing with. It is reasonable to expect some more provisioning at some point there, I believe. At this point, there's not a lot of detail to give you.
Yeah. The goodwill number, of which we are very comfortable in Turkey, is EUR 600 million, unchanged.
Thank you.
Thank you. The next question is from Omar Fall from Jefferies. Please go ahead.
Hi, good morning. Two questions, please. Firstly, on the NIM. Just on your comment around high yielding assets maturing and that impacting the reinvestment income. I thought that most of that process was largely behind us in terms of the mix shift in the reinvestment portfolio, particularly on peripheral debt. Given that financial markets boosted the NIM materially, I guess this mix shift had a pretty substantial effect. Could you give us an indication of how much more of this yield shift there is to come, please? Secondly, I know it's just one quarter, but the capital position seems to be ahead of most people's expectations. Yes, you've benefited from model updates, but are you tied to the guidance you gave at the investor day around the pace of dividends on ordinary shares?
If the capital position is ahead, as it seems to be tracking, you can revisit that pace of dividends. Thanks a lot.
Hey, Patrick will answer the NIM, and I will take the one on dividends.
In respect to the NIM, I think there's a couple of questions there. I'll try and answer them. The NIM was up to 150 basis points in the quarter, which is primarily due to financial markets, which can be somewhat volatile. Also with Vysya coming out, which is two basis points, I think it's more likely to ease back towards the year-end position of 145 basis points. Interest margin on funding was increased marginally on the back of the modest base rate cuts we had in Q1, but was offset a bit by the lower rate environment to which you refer to. The lower rate environment, it's influenced by the duration of our reinvestment of deposits, which is around the three-year piece, but it's a little bit more complex than that, and I'll try not to get into too much complexity, but there's other factors at play.
We also have our capital investments, which are longer dated, seven to 10 years, which is a drag effect. Actually, the mechanics of how this works, which is the piece I don't want to dwell on too much, is that we actually use internal transfer rates to reflect the yield on deposits, and they don't exactly link with the timing of the lower yield on reinvestments. A bit of a complex answer, but it comes to the point we think that maybe 10 basis points could be a drag in the Netherlands and maybe 20 basis points in Belgium over the course of this year from lower rate environments. However, there is still scope on deposit rate reductions. Our guidance on this is that, yes, it could drop back from the 150 to the 145 level about because of the volatility in FM.
Longer term, we still maintain our ambition to get to the 150, 155, which we announced only a month ago, and that's going to be on executing on what Ralph referred to, higher yielding asset deployment, SME, consumer finance, industry lending. This is an ambitious target. It's going to take time, so it will be gradual.
Sorry, just a very quick follow-up to that. Have you cut any savings rates this quarter to date?
No.
Thank you.
We did cut in Belgium for Record Bank, but it's only in April, I think we did. Only in April, so it's not in the first quarter results. On the acceleration of the dividend payments. Clearly that hinges first foremost on the repayment of the Dutch state, as we have indicated at the Investor Day. If this year, we have a successful IPO of NN and we see the results of AQR and stress test, as I've indicated in the past, clearly we will consider acceleration of the repayment of the state. If we can accelerate that one, then we can accelerate also dividend payments. We'll see it when we get there. Let's first focus on the IPO of NN and then we'll take another look at that.
Thank you. The next question is from Kirishanthan Vijayarajah from Barclays. Please go ahead.
Yes, good morning, guys. I'm just trying to reconcile slide 14 and 15 in terms of the balance sheet and loan book, because your loan book looks largely static, you've added EUR 17 billion to the balance sheet. Is it fair to say that it's financial markets that's driving the growth this quarter? Related to that, is it fair to say that your risk-weighted ratios are potentially more of a constraint for you shorter term than your leverage ratio, looking at where both those ratios are at the moment?
Kiri, I give the question to Wilfred. Could you repeat the second part of your question?
Yeah, in terms of, I guess, linked to earlier questions about earlier accelerating repayment, is it fair to say that the 10%/11% risk-weighted requirement is more of a constraint for you than your leverage ratio, which, when I compare it to a lot of your peers, when I look at other French banks, you're in the high threes. Is it fair to say the leverage ratio is pretty secondary in terms of how you think about capital and your constraints?
Okay. Well, I'll come back to that after Wilfred has given the answer on the first one.
I think the question on the loan book and the fact that the two don't immediately seem to reconcile, although they do in the end, is mainly related to two things. One is the deconsolidation of Vysya Bank, and the other one is the loan transfers that Ralph already mentioned that we're doing from the mortgage book in the Netherlands in ING Bank to NN Bank.
On the leverage ratio versus the CET1, both are important, clearly. On the CET1, you basically see that the capture generating capability of the bank actually can support a further growing CET1 ratio to 11% and have growth and have dividend payment as we have shown to you and told you on the Investor Day. On the leverage ratio itself, on one side, you can come to the conclusion that since we are far ahead on the 3% itself, certainly that's currently a European requirement that we are managing on. There's also debates in the Netherlands as to wanting to increase that to 4% over time. Which one is more restrictive than the other, we don't know yet. The CET1 for the moment, we are able to make. We're able to grow it as well in line with our own ambition.
A leverage ratio for the moment is not a point, we have indicated already also on the Investor Day that we want to manage at around 4% anyway.
Understood. That is very clear. Thanks.
Thank you. The next question is from Matthias De Wit from KBC Securities. Please go ahead.
Yes, good morning. Two questions, please. Just to come back on the leverage ratio of the bank. Just wondered whether you see a possibility to reach the 4% target by issuing AT1 capital now that the tax deductibility of coupons for these instruments has been confirmed in the Netherlands. Second question on insurance, on NN Life. Investment margins are increasing despite a low yield backdrop. It seems that you are re-risking the portfolio, but just wondered whether you see an ability to continue that re-risking process and whether or not we could expect any further increase in investment margins going forward in the quarters ahead. Thanks.
Leverage ratio, Patrick, the second one I will take.
On the leverage ratio, yes, AT1 does play a role in the leverage ratio, and it is positive that the government has announced its intention to address the tax deductibility piece. They haven't done it yet. We want to see that actually implemented first. Yes, we do see AT1 as a key piece in the leverage ratio computation, and we'll be looking to avail of the tax deductibility once it is confirmed in legislation.
Yes. On the second one, the investment margin. Yeah. Basically you see the increase now because of de-risking. Specifically in this one, you see the income from the mortgage transfers now on the insurance side. Therefore, you see that book building up, so you can expect that to grow further. The further de-risking beyond that depends on the capital buildup. Clearly when capital is being released and produced, we can further de-risk on the insurance side.
What's currently the binding capital constraint for NN Life? Is it Solvency I or is it 1.5 or Solvency II or any other economic capital metric you're using?
Yeah, indeed. As Ralph has mentioned, the explanation for the increase of investment mortgages is related to particularly the increase in mortgages that were performed during the last quarter of last year, also due to increased volumes. Also related to the capital increase in NN Group that was performed at the end of the year, approximately at EUR 1 billion. In terms of the capital constraints, as Patrick has mentioned before, with today's announcement of the additional EUR 150 million of capital injection, also with the use of part of those proceeds in order to further capitalize NN Life, we don't believe that there is any significant constraint in terms of capital in order to proceed with our planned reinsurance.
As a matter of fact, all the three metrics at the moment for the capital position of the group based on leverage, based on the cash buffer, but also the capitalization of our regulated entities, all of them give us a comfortable position to look forward to our IPO.
That's very helpful. Thanks.
Thank you once again. If there are any further questions, please press the star followed by the one on your telephone. The next question is from Anke Reingen from Royal Bank of Canada. Please go ahead.
Yeah. It's Anke Reingen from RBC. I just had one follow-up question on the net interest margin. If you say that the reinvestment portfolio drag could be about 30 basis points for this year, I just wondered if you, not probably in terms of numbers, but just directionally, of how much of a benefit you expect from an improvement of the savings rate as well as on the lending rate. Thank you.
Well, it's not 30, it's the average of the two. It's 10 in the Netherlands, 20 in Belgium. It's not additive. Yeah, it is a bit of a drag. As I said, we have potential in the savings rate. There's headroom there, as I said before. As we have reduced rates, this is something we look at very carefully, any further steps that we might take, and we have to be aware of competition and obviously customers. This is a potential that we have, but we will be careful in how we execute it. Certainly, the pace of reduction, which we've seen in the past, will be slower in the future.
On the lending rate?
Again, core to our strategy is to deploy customer deposits in higher yielding assets, as I mentioned earlier. Margins on lending have remained stable-ish, although there is plenty of competition out there for the growth. As Ralph said, we're pleased that we're able to achieve some growth. Yes, we'd like to see margin improvement, but I think it's more about deploying customer deposits, which we have an excellent capability of generating. Another EUR 8.5 billion this quarter in higher yielding assets is where the boost will come from.
Thank you. Just to clarify, the drag from the reinvestment portfolio, the 10 and the 20 basis points, that's not at the group reinvestment portfolio, that's on the local level. I.e., the impact on the group net interest margin would not be the 10 and the 20 basis points. It would be much lower if I compare this with the group investment portfolio.
I think that's right.
Okay, thanks.
I think that's right.
Okay, thanks.
Thank you. We have a follow-up question from Omar Fall from Jefferies. Please go ahead.
Hi. Just quick. You mentioned the AQR and stress test. Given where we are in that process, could you highlight any areas of concern that what remains an early stage piece, particularly with regards to the Dutch mortgage portfolio? Thank you.
Omar, Wilfred will answer the question.
There's not a lot to say at this point for two reasons. One is the stage of the process that we're in is we're still delivering data. We're working with DNB and ECB on putting together what we need to do in terms of executing the stress test. It's a lot of work. The progress is good. We've been able to deliver on time and completely what we needed to do, so we're pleased with that. It's much too early to speculate on any outcomes. Because, yes, we have seen, of course, what the inputs for the stress tests are going to look like. One very important input nobody knows yet, and that is the output of the AQR, which determines the starting position for each individual banks. There's not a lot to say.
We also have clearly an agreement with both the other banks as well as ECB to not communicate about anything until we are there, which means until we have concrete results. What we can say is that, you asked specifically about Dutch mortgages. I think if you look at our quarterly numbers, and this quarter is not an exception, they behave as predicted. We said before, it is a large book, but it's behaving fairly well. We're not overly concerned about it. I think we've been able to also get that across to DNB. DNB, by the way, has shown confidence in general about the ability of the Dutch banks to come through this whole process with a positive outcome, and I'd like to leave it at that.
Very clear. Thank you.
Thank you, gentlemen. There are no further questions.
Okay. If there's no further questions, I'd like to close this call. Thanks for attending this morning. Thanks for sharing with us your questions and your queries. It's always appreciated to show the keen interest. We have a good quarter. Good quarter on the strategic front, on the restructuring front, on the financial performance, and the commercial performance. Thanks for your attention, and have a good day. Bye.
Thank you, sir. Thank you, ladies and gentlemen. This does conclude today's presentation. Thank you for participating.