ING Groep N.V. (AMS:INGA)

Investor Day 2014

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Mar 31, 2014

Good morning. Good morning. It's great to see you all here today. I hope you enjoyed your boat ride over here. And good morning also to those of you following on the webcast. My name is Malcolm Brown, Head of Investor Relations, and it is my great pleasure to welcome you all to the ING Investor Day 2014 here at the Krumhardt Hall in Amsterdam. Now in keeping with the theme of the event, Think Forward, we've gone paper free this year. So, I hope you've all got your tablets with the Investor Day app ready and that's where you'll find all the presentations and your personalized agenda for the day. Of course, for those of you following on the webcast, all the presentations are on the ING website. So we've got a great program for you lined up today. I think you're going to find it very interesting. We start this morning with a presentation from our CEO, Ralph Harness, on the strategy of the bank and that will be followed by Patrick Flynn, our CFO talking about Financial Ambition 2017. We then have plenty of time for questions before we take a break for coffee and that's also the moment we say goodbye to our webcast. After the break, we're going to break it up into 2 groups. Half of you will come back in here. Half of you will go down the corridor behind me to the next room to start the next session and it's all on your Investor app. But for now, let's make a start. So, ladies and gentlemen, the Chief Executive of ING, Ralph Harmers. Thank you, Malcolm. Well, good morning to you all. Thanks for coming to Amsterdam. And thanks for traveling from different parts of the world and also from close by just to get an update on the ING strategy. I'm sure we're going to make it worth your while. We're going to have an exciting day. And I'll kick off with this presentation to give you an update. So what are we going to discuss? 1st, I'm going to tell you that we are on track to become a pure bank. Then I'm going to show you that we have strong financials, a unique business model to take this forward and a very attractive portfolio with a lot of opportunities to go from. The conclusion there is that we are well positioned to take advantage of the transformation in the banking landscape whether it's coming from regulatory environment, whether it's coming from the technology side or whether it's coming from the customer behavioral side. And that makes us take action now in order to position ourselves as a European banking leader going forward. And we'll end up with confirming on the targets and give you a peek at the financial outcomes of all of this. First an update on the restructuring. Since our last call, because up to now I've been meeting you in telephone calls at the on the back of the Q3 and the Q4 results. Since the last call, we made a further progress on restructuring. We sold another 14% of our insurance corporation in the U. S. We've now deconsolidated and the remaining stake is 43%. We've also sold another 11% of Stell America. All of that brought down the double leverage of the group for $5,000,000,000 to $3,900,000,000 and that $3,900,000,000 is very well covered by the value of the remaining stakes in Voya, in South America and in the European Insurance Company. We have one step to go in order to finish that part of restructuring, which is the IPO of NN Group. On the other side, today, this morning, we made our penultimate payment of €1,200,000,000 as part of the Core Tier 1 support that we received from the Dutch government. We only have one more payment to go in the amount of €1,000,000,000 which we will do according to program in May 2015. So the restructuring is moving ahead. We're progressing well and therefore it's time to take a look closer at where we go as a bank. If you look at our franchise today, this positions us very well to become a European banking leader. That is the core conclusion. We have a strong deposit gathering capability across Europe. We have a leading direct first franchise in many of the European countries. We have a client focused franchise in the commercial bank supported by a leading global franchise and industry lending. Over the last couple of years, we have shown to have discipline in execution, whether it was on restructuring the group, whether it was on restructuring some of our activities in the bank, whether it was in getting the balance sheet in shape and whether it was on capital generation. We've proven on all of those. And we have significant upside potential going forward. We have a mix of mature and growth businesses. We have increasingly strong positions in countries that we now call challengers as of today and we're very well placed to benefit from the European Banking Union. Now if you look at the portfolio of our current activities, we basically and I will get back to that later in the presentation, we'll basically see 3 categories: the market leaders, the challengers and the growth markets. And the commercial bank is across all of these activities, supporting our clients with specialty products in more than 40 countries across the globe. Taking a closer look, we have the benefit of the activities in the market leaders as well as the challengers to feed each other in the development towards the digital age, because we're moving towards the same model in all of the activities that we have. And it's paying off. In mature markets where we are market leader, we actually see an increase in number of clients as well because of leading in this model. We'll show you. And we now have almost 11,000,000 customers in the Benelux. On the challenges side, we see client growth even faster will come back and we're now at 14.4 1,000,000 individual customers and leading Net Promoter Scores. We have merged the retail banks and the commercial banks there in order to have the balance sheet optimization. And in the growth markets, these are markets that grow by themselves. We can pull off growth whether it is in the mature markets, whether it is in the challenges markets or whether it's in the growth markets, but only through relentless customer focus combined with a strong cost discipline. Our model is quite simple actually. We have a very strong deposit gathering capability on one side and we have a consistently strong performing commercial bank on the other side. Even during the crisis, we saw customer deposits coming in increasing by 60,000,000,000 in the challenges markets from individual customers over 3 years. And that's not because customers are depositing only more with us. That's also because we are getting in more and more customers. They like us. On the Commercial Banking side and you've been able to follow these performances over the last couple of years, During the crisis, we have been able to keep up a very solid performance of around €2,000,000,000 to €2,200,000,000 of underlying profit before tax, leading to a return on equity anywhere between 10% to 13% on the Commercial Bank through the crisis. Now if we then go deeper into our balance sheet, you see that our balance sheet is supporting our client business more and more, both on the asset side where we see the percentage of client business growing from 56% to 63% as well as on the liability side where we see the client business growing from 49% to 60%. That is done through growth with clients. It's also done because of creating domestic banks and merging retail banks commercial banks in the countries where we have the funding and where we have the assets in other places, integrating the balance sheet. And Koos Timmermans will take you through more of the tactics and also the strategic opportunities that we see from a balance sheet perspective later today. On the other side, the capital generation from ING Bank has been very solid. Over the last 3 years, we have been paying a total dividend of $8,100,000,000 to the group In 3 years' time, the bank generates a lot of capital. Now this doesn't happen by itself. This happens because of a solid financial performance on one side where we see the gross results increasing for €5,500,000,000 to €6,600,000,000 with some increased risk costs over the last couple of years. However, the decrease of risk costs in 2014 will directly flow into an improvement of the bottom line, leading to a solid result across the last 3 years and a better result to come with decreased risk cost in 2014. And that performance was supported by a strong focus on cost. Through our restructuring programs, we were able to compensate increased cost from regulatory side, from inflation and CLAs, pension costs And we have been able over the last 3 years, while we were growing and while we were restructuring, we have been able to keep costs flat. And for the coming years, we want to keep it flat as well. Patrick will go into that later as well. All of this is leading to a further improvement on the cost income side from 70% in 2,009 to 57% now and decreasing in the years ahead. Let me take a look at the future. If we look at the future, we have to take into account many different trends. Let's start with the customer. The customer is more demanding than ever before. The customer is willing to change institutions like this. If they don't like it, they go somewhere else. The customer is more mobile and that's because of the technology that we apply. And that technology, another trend, makes us interact with our customers in a completely different way. And I'll take you through that. That technology also enables non banks to come into our turf. The technology also helps us to improve our operational efficiency. On the society side, we see that we still have to work hard to further restore trust. And we're confident that we can do so by a continuous focus on the client. And on the regulatory side, regulations have become more and more onerous, leading to more cost, restricting our business and therefore we have to rethink the business models, so that we are sustainable in the future. Take a look at this one. The change in customer behavior in terms of the channels they use in banking. 2,005 still 42% of all interactions with customers were through a branch. Now we see in 10 years' time we see that decrease from 42% to 5%. That's not an evolution. That's a revolution. The good thing is that we see that the channels of preference are the digital channels and the mobile channels increasing from 27% to 68%. And that is exactly into direction where we are good. We are good. We have been working on making banking digital and mobile and online for the last 15 years. We have been deploying direct banks and growing them from scratch for the last 15 years. We know where this is going and we know how to address it. On the other side, the good thing about digital banking is that clients interact with us more frequently than ever before. They come to the bank, although it is virtual, more often than ever before, which gets us to a better knowledge of our customers and therefore gets us to understand our needs much better. So on one side, we lose the physical contact, but in the other side, we have the digital contact. And that digital contact makes us makes it possible for us to really understand them also in the future. Now, if you look at where we are and if you look at where the client behavior is going, we see an increasing trend of self directed customers across Europe. In every country where we are active, we see the share of self directed customers growing very fast. With their word is happening. And it's not only that, it is also that the ones who onboard Digital Banking and Online Banking before anyone are the more educated clients and they interact with us continuously. In some cases, it actually advises how we can further improve the services because we are in constant dialogue with our clients. So on one side, we see this trend of self directed clients. On the other side, we see that if you are very good at this model that you can actually build scale with lower volumes. And see the scale lines here in non direct banks and direct banks and between ING non direct and ING direct. And both on the non direct side as well as on the direct side, you see that ING is more efficient and has a lower efficiency slope. And that's because we know how to combine moving from a branch bank to direct as well as on the direct side. Clearly some of this advantage we give to our clients, it makes it attractive for clients to onboard. But they also like our services very well. Across the countries in which we are active, whether in retail banking or commercial banking, we are the number 1 or number 2 in Net Promoter Score. And since clients are changing institutions more easily than ever before, if they change institutions, what institution will they go for? The one that is promoted. That's why it's important to be leading in their promoter score. And you've seen it through the crisis, through the last years, we have been able to continue to grow the number of clients, 8% across the total franchise, 13% across the countries in which we could now call challenger countries, 13% in 3 years. And the beauty of all of this is, as already said in our portfolio is that we have the leading market positions where we have branches often and we have the challenger positions and the growth positions. And all of these models are converging. We've shown it. So in the leading market positions, you can expect that we are growing them more and more into direct first banks. Direct when possible advice when needed. That's the way we go about this. But in those areas, we have to focus on cost and operational efficiency. And with that, further develop the clients from a relationship perspective. I will come back to that. In the challenger side, we have to grow into omni channel experiences with our clients, expanding the product range in order to build even more sustainable franchises and be more successful in also developing the primary accounts. I'll go back to that. Two proof points and we have many more. Today you will get presentations from Hans van den Oorda on the Benelux and Roland Buchert on Germany and they will they can give you more details on this. But I'll give you two examples. In Belgium, ING was the 1st bank to really move to 1st direct to direct first. At first, clients needed to get used to it. And we may have lost 1 or 2 clients there. But overall since 2007, we have been able to customer base in Belgium a mature market by 25%, 25%, more clients, a more efficient model leading to better revenues, leading to a lower cost income and an improvement of return on equity. On the other side, Germany over the last couple of years, efficient already from a cost income perspective, but broadening its product base, growing on the client side, improving its results. Throughout the crisis in Germany, we received 1,600,000 of new clients. It's about 1,000 clients a day. 1,000 new clients a day in Germany alone, leading to improved efficiency a better return on equity. Again, you can get all the details in the sessions that we have later today that we have later today. With this as our starting point and knowing the trends, what will we do going forward? We have interviewed more than 1,000 clients over the last 6 months, both commercial banking and retail banking clients. And we have asked them their opinion on banking and on ING. One thing came out on ING that wherever we are active in whichever country and whichever business line, we enable our clients to realize their projects, their plans, their future. So if you take that as a purpose that we've already proven in the past and we focus on this even more so going forward that whatever we do in ING, we empower people to stay a step ahead in life and in business. Now if you're so customer focused, then you have to truly understand what clients want and deliver what they want. And that's why we have the customer promise. And this customer promise goes for all of our activities. And the customer promise is around being clear and easy, enabling banking anytime, anywhere, empower our clients to take the decisions. And one important promise as well that every day, if you work for ING, you work in order to improve the service to our clients every day. This just this doesn't change and happen overnight clearly, so we have to make some changes as well in ING. We have to further streamline our organization. We have to continue on the path of operational excellence, have to further develop our performance culture and we have to broaden our lending capabilities. I will go in each of those during the presentation. But before I go there to the enablers as we call them, about this customer promise. If we're talking clear and easy, it is about using language that everybody understands. It is about simple processes. And we're relentless. We review all processes. I'll give you some examples later. If we promise anytime anywhere, you go for mobile first basically. And clients should have the same experience throughout whichever channel they use. And if you talk about empowerment, it is about giving either clients the tool, so that they get a good sense for what is important to them, to get a good sense for what decision they need to take to improve their position or you give them the right advice at the right moment, rightly priced, tailored offers. Now all of that leads to one strategic direction, which is a differentiating of our customer experience through 4 priorities. If we're good at this, we will earn the primary relationship. We have to earn it. If you have the primary relationship and you really want to build on it, you have to invest in analytics in order to understand your customers better. If you're true about improving the customer experience going forward, You have to step up the pace in innovation and apply technologies as soon as possible if you think that will improve the client experience going forward. And with all these non banks coming into our turf, trying to disrupt our markets, we have to think beyond banking, beyond traditional banking to develop new services and business models going forward. Today you will have sessions to make you understand what we mean on many of these aspects. Now, if I talk about the primary relationship, generally on the retail side, this is determined by having the salary account, the payment account. And if you have the primary relationship, you see that the cross buy goes up. I'm talking about cross buy. You have to earn the primary relationship and it's about the client to decide whether they want to do things. It is about cross buy, not cross sell. And we have enormous upside potential of the 32,000,000, almost 33,000,000 clients that we have only 7,000,000 we call primary relationships. And we want to grow that to $10,000,000 in the next couple of years. Enormous upside on this one. If we go to the commercial bank, the primary relationship is generally determined by having the anchor products of lending and payments. And why is that? Because if you truly want to send your client, you have to be at the heart of the company's finances, where the supply chain is working from suppliers into the company to off takers, the payment stream and the working capital facilities around it in order to optimize it. Only if you're there, you really understand your customer. Only if you're there, you can make relevant solutions for your customer. That's what makes us the leading eCommercial Bank in the Benelux. That's why we're going to export a lot of this into the rest of Europe in selected client areas. And Bill Connolly in the commercial banking session later today will take you through that. But it makes us invest in payments business. It makes us invest in working capital solutions as a product going forward. Now that's on primary relationship. Then on developing analytics and analytical skills. In the digital age, in order to be successful and truly on the central line, you have to work with the data that you have. And you do that in order to improve the customer experience through an operational accent perspective, through adjusting the channels to their liking automatically because of analyzing their behavior. You can counter fraud and cybercrime. If a client makes a payment in a location where it is almost impossible for him to be from where he did his last payment, we will approach him and say, well, is this you? You can do that. But it also helps on the risk management side. If you go deeper into the data, you understand your client better and you can have better underwriting, an offer at the right moment, rightly structured, rightly priced. And with that, you create commercial banking opportunities, both on retail and commercial banking side. Now if we talk about innovation and how we interact with our clients, you will also have a session today to show you where we are in different countries. So we have examples from Turkey and Spain and different countries to take you through as to how we think innovation helps us delivering a better service going forward. Let's go to the enablers. All of this will not just happen like this. We have to do stuff at ING. One thing that is not going away, one thing that you know that is important for ING is the focus on operational excellence. We have already informed you earlier that we have this long term IT program to further reduce the number of applications in general and to further improve the percentages, the share of applications that we either share or replicate across the different countries. Now this shows you the progress that we're making. And there's more to come. On the other side, if you then look at the effectiveness of IT, then you see that in the Challengers countries, basically the direct countries, we're best in class in terms of effectiveness of IT, efficiency effectiveness. We know how to do it. We have it in house. And the current programs, the Commercial Banking Transformation program that we're going through will get us from average to best in class on the Commercial Bank as you can see. And the programs that we have in the market leaders area, basically the Benelux, the current programs, the Dutch case for change and the Belgian transformation program will get us to the next stage there, but will not get us yet to best in class. So there is more to come. There's upside here. But since these are long term programs, we want to be sure that we finish a program and get the savings and the effectiveness improved before that we deploy another program. But you can be assured that we will go to best in class there as well. Just to give you an example how this works and what this does, because this is the beauty of truly focusing on operational excellence. You can both decrease cost and improve service. Take the example here on the international credit transfer side. From a total number of 140 types, we're moving to 6. And this is a lot of work. We go through 700 client processes. We move from 1,000 more than 1,000 different systems to 100. It's a lot of work. But it will lead to lower cost, a better client experience and better client insight because we will have all the information multi country, multi product, multi device ready for our commercial banking clients. And Conley will take you through that. Now the other opportunity that we have for which we have to develop further is that we have to develop our asset generating capabilities in order to match our funding rich franchises. Over the last couple of years, we have been focusing on a balance sheet optimization, which was driven by asset transfers as well as by legal integration in those countries where we had assets on the commercial banking side and funding on the retail banking side. And we've been very successful at that. We have been integrating the balance sheet up to an amount of $48,000,000,000 Cos Timmermans will give you an update there, but he will also take you forward on this one. But at least still an open opportunity, a big opportunity. Because you see from this picture that we still have a funding surplus of around 48 in countries like Germany, Spain and Italy and Belgium And we still have a funding shortage in the NV in what we call the Netherlands. Now there's 2 things we do. We're not going to wait for the European Banking Union to happen. But if it happens, it gives real upside. But meanwhile, we're going to develop our industry lending to match with these activities and we're going to develop capabilities in SME and consumer finance, not losing the upside of the European Banking Union to come, because if one institution is well placed to benefit from it, it is ING. So what will we do? On the asset side, we will focus on some growth on the corporate side, because as I said the successful commercial banking model that we have in the Benelux and across, we will further deploy in the countries where we are challenger. We will really grow further on the industry lending side. We'll have growth in the SME side and the consumer lending side. That will get us to a different asset mix, a diversified asset mix. So we'll get more diversification and it will be NIM accretive. So the NIM will go up. That's where we expect the NIM increase to come from. So better risk diversified and better NIM. And we can do it, because we know how industry lending works. We have a track record. Just like we built the ING Direct franchise from scratch organically with ING people recruited in all the countries where we were active, painting them orange, we have done so on the industry lending side as well. This is not a franchise that we just kind of have. This is built over a 20 year period across the globe with a beautiful track record specializing in oil and gas, metals and mining, power and infra, transportation, commodities, telecom and media, coupled with strong risk management and you can see that, it generates high return on equity across the cycle, higher than 18% anywhere between 18% 20 3%, with risk cost over the cycling cycle right where our appetite is 40 to 45 basis points. It fits us very well. Already we are building competent centers and expertise centers in, for example, Germany and Belgium. But we will do more in order to get assets to where the funding richness is. It's a real strong franchise. How will we go about further developing our consumer lending business and SME lending business? On the consumer lending business, we have particular expertise in Belgium, in Turkey and in Germany. And you can see that here. And Roland will continue with you on that one. We know how to do it in a challenging country. We have this expertise and we are going to develop a model that really works also in the mobile area. On SME, we have the expertise in Poland, in the Netherlands and Belgium, if it comes to how do you do scoring for SMEs. But we also now have the expertise in Spain how you move from individual banking to what we call retail plus and start banking small companies and giving them loans in a direct way. That's where data analytics comes in as well. Do we know the client well and can we underwrite? So we have the background, we have the experience and we'll take it step by step. Now the story I'm telling you is going to yield a benefit strategically on a longer term horizon. So what you can expect from us is a mix of activities and actions in the Think Forward, Act Now program that will both yield improvements on the short term as well as making us ready for the future and have the growth there as well. For example, you can expect this to be concentrated on finalizing the restructuring of ING. You can expect us to be concentrated and give emphasis on finishing the restructuring programs in the Netherlands, Belgium and the Commercial Bank. But at the same time, we will continue with a relentless customer focus supported by our purpose and the Orange Promise. We will invest in expanding our lending capabilities later on, reduce bureaucracy. And for to support the operational excellence, we will appoint a Chief Operating Officer. In order to support innovation, we will appoint a Chief Innovation Officer. And then in the 3rd phase 2016 and onwards, some of the longer term actions will then yield benefit and we can leverage our European franchise if the European Banking Union is in place. So across these phases, you can expect our cost income ratio to go down and our return equity to go up. Now I've told you about why we are so passionate about in ING about the customer, which is the purpose. I've told you what it is that we want to do. We want to continue to create a differentiating client experience for clients to want to work with us. I've taken you how we want to do it by focusing on operational excellence and broadening our lending capabilities. And then I know in your minds the question mark is where are you going to play. So for that, in order to know where we should put our emphasis and how we should put our priorities, we have developed a strategic framework, which is what you see here. And all of our activities, whether in the country or whether in the business line, we are continuously taking through the strategic framework. So we check them on market attractiveness, on strategic fit as well as connectivity into the rest of the business. Then we have developed a concept of sustainable share because we don't think that economies of scale is the only way to survive. We think that the combination of operational efficiency, which we have proven to be able to reach at a smaller scale, combined with agility and flexibility are the ones that will make you survive. And therefore, the concept of sustainable share is introduced as one where we combine factors that show us how relevant we are to the customer, how relevant we are to the market, How sustainable our balance sheet is and whether the activity makes the financial hurdle. And that through that we have different action plans for different activities. So don't expect today announcements on disposals or what have you, but expect going forward that the combination of the strategic priorities as indicated a differentiating client experience, the improvement levers combined with the strategic framework will make us change the business plans and the action plans all the time in order to ensure that all of our activities are constantly matching and adding value to ING as a total. Now if you take this and the strategic priorities, you come automatically to the 3 categories that I've shown you in the beginning of the presentation: the market leaders category, the challenges category and the growth market category, with the commercial bank across all these categories and doing more with their specific capabilities. All of that, the combination of strategic priorities and these categories lead to a recipe for improvement, which is different per category. For example, in the areas where we are market leader, the emphasis will be on continuing to differentiate in client experience by improving our operational excellence, by improving and streamlining our organization even further, but we don't need to develop our lending capabilities. However, if we then go to the category of challengers, we already have a differentiating client experience. So we'll have to continue in it, but with less emphasis than for example in our areas where we are market leader, but we have to focus on generate on developing our asset capabilities. So there will be much more emphasis there. And in the growth markets, there is an emphasis across all the different dimensions. That's why there's a different recipe per category of activities. And this is how it works out financially. It basically means that in the areas where we are market leaders, we expect revenue to increase, but cost to decrease. You can expect from us the same attitude towards cost that we have shown in the past. The recipe here will lead to an improvement of cost income and an improvement of return on equity. These activities will basically generate a dividend to on one side distribute and on the other side invest some in the areas of challengers and growth markets. In the category of challenges, we expect revenue to increase rapidly. But only if revenue is increasing rapidly, we will allow for cost growth. And also there, we expect cost income to go down and return on equity then to come up. And the same goes for the growth markets. We expect revenues to grow rapidly and only EBITDA is there, we will allow for cost to go up, improvement of cost income, improvement of return on equity. This basically is supported by having the balance sheet grow or through this we think we can grow the balance sheet by about 4% well, the lending assets by 4% and the balance sheet by 3%. But all of the activities, each and everyone will have to contribute to an improvement of cost income and return on equity. How do we see the return on equity improving? If you take the whole story, you see that the diversification of the asset mix will lead to a better NIM. We expect the risk cost to go down because we think we have topped it and we expect through this plan for operational efficiencies to further improve, either through real cost decrease, as I said, in the mature markets or through improving and continuing on the efficiency curve that I've shown you. These three elements will ensure that our return on equity will increase. And that brings me to the ambition slide. We will manage core Tier 1 above 10%, an increasing and comfortable cushion over the years in order to support potential volatility on the risk weighted asset side from model updates or regulatory updates, but also a cushion in order to ensure that we have consistent dividend payment going forward. The leverage we will manage around 4%. The cost income is expected to go down into the range of 50% to 53% and clearly further in the future close to the 50%. The return on equity 10% to 13% return on IFRS EU equity by the way this is and we expect to pay dividend after the Dutch state has been repaid over the financial year 2015. To sum it up and before I give the floor to Patrick to go even deeper into the financials, we're on track to become a pure bank. We have strong financials, a strong track record to deliver what we promise and an attractive portfolio and a unique business model ready to face and benefit from the trends in customer behavior and regulatory changes. We're well positioned to take advantage of these transformations and we are now taking the actions in order to position ourselves as a European Banking leader. Thank you. And Patrick, you can take it from here. Thank you, Ralf. Good morning, everybody. I hope you found that inspiring. I did and it's not the first time I've heard it. So what I want to do is I want to build on this strategic plan and articulate a little further in terms of what it means as a financial ambition. But before we go forward, I want to take a step back. Clicker working? No. There we go. It's in gear. If you remember, many of you I see a lot of familiar faces here as I say. If you go back 5 years, ING has gone through a period of significant period of change, significant period of altering our profile from an insurance banking insurance conglomerate to a standalone pure play bank. That process has required a significant degree of managerial focus and execution. I think it's fair to say that we have demonstrated managerial focus and execution in delivering that. We are on the verge now of being a pure play standalone bank. And in that process, we've also got the bank ready for a ball trade and we've changed the capital profile to be ready for the future. We're now closer to the end And with the upcoming IPO of insurance and the final state repayment, we will be there. We can then direct 100 percent of our energy and our focus on delivering on this plan for the bank. Many of you have been with us throughout this process. You've been through some of the more difficult times earlier on. I see familiar faces here. I see Jeff. I see Nick. People have come from the West Coast, Justin, to be here. I am very pleased to be able to articulate a financial plan just for you. So one of the key messages here. We're going to grow our income through asset growth and NIM expansion. Cost discipline will be maintained. I think Ralph has articulated that several times. We will use this as a defining advantage and we will get the cost income ratio to the 50% to 53% range. Loan loss provisions are likely to decline from here. And the combination of a strong capital base and a strong capital generation capability means we can resume dividend payments, 1st dividend over 2015 and growing thereafter into 40% plus dividend payout ratio. As I said, we've transitioned the bank to be compliant with CRD4, Fully loaded costincome ratio is at 10%. We meet today regulatory requirements in terms of capital. We are in line with 10% fully loaded with our listed European peers. And leverage, loan deposit ratio, LCR ratio are all comfortable. That creates potential for significant dividend upstream and you see we've done that up to now. This bank is capital generative. So how have we done that? Well, we did it in the context of a balance sheet that reduced nearly 20%, but we increased income by focusing on NIM improvement, repricing assets, reducing costs and deposits and we kept costs flat. So as you can see, NIM is up 4 basis points and the costincome to net ratio down 4%. Track record as I mentioned strong track record of profit generation and a strong track record of dividend and capital creation. Now thinking forward, what do we do from here? Well, we need to grow. So we need to get the ROE above cost of capital, so we can pay a proper dividend to shareholders and we will execute on that. Growth, what does it mean? Balance sheet, growth around 3% with lending growing 4%. And this is lending from existing franchises probably in their Challenger markets and NIM accretive. This growth will be funded by customer deposits. Ralf has articulated the power we have in terms of generating customer deposits. Koos will in one of the breakout sessions take you through our funding strategy beyond this. So the lending mix will change somewhat with a lower proportion of mortgages and a higher preponderance of higher margin products such as consumer finance. As I said, it will be funded by customer deposits. This growth will predominantly be outside the Benelux more than likely in countries where we have, surfaces and funding places like Germany, Spain, Poland. And again in the breakout sessions, you'll get further insight on where that and how that growth can be made happen. What this means is that our net interest margin will increase to the 150 basis point, 150 basis point range. So already funding from customer deposits, we have the potential to grow and we also have the potential to improve margin here as well. In fact, we reduced margin in the Benelux 10 basis points this quarter. Costs. We have via our efficiency programs absorbed significant cost pressure over the previous years be that from pensions, from regulatory changes, from inflation. We've kept costs flat up to 2013 and we will keep costs flat for a further 2 years to 15 dollars at $8,700,000,000 Our cost efficiency programs are on track. You've seen them announced in previous results updates. We are on track to deliver €500,000,000 of additional cost savings. That will happen. In fact, we're going to raise the target of aggregate cost savings to $955 from $880 with as you can see on the slide $75 coming after 2015. But there are further cost pressures coming. We know we're going to have the Dutch DGS scheme. We know that the single regulation resolution mechanism is going to cost money. There will be further regulatory costs. So we will focus on efficiency. IT is an area where we have more opportunity. There will be more cost efficiency programs coming down the track. We do need to grow. We need to invest to grow our franchises. We need to invest to leverage and exploit the opportunities we have. But again, as Ralf said it, I don't need to reemphasize it. It will be done in a disciplined way, in a way where we invest to be accretive to a costincome ratio target of 50% to 53%. And indeed, it's likely and I hope to see that towards the end of our period, the 4 years, we will gravitate towards the lower end of this range. However, given the lower balance sheet, the lower starting point I mentioned earlier, it may well be that we don't get into this $50,000,000 to $50,000,000 to $2016,000,000 to $2016,000,000 So summarizing that, what does it mean? It means through lending growth and NIM expansion the top line will increase. We will keep costs under control. So pre provision profits should improve. Looking at our profile, we have a very well diversified asset geographically diversified asset book as you can see in the middle. Because of the collateral nature of much of our lending, our loan loss provisions have been lower than our peer group. And we're beginning to see improvement in customer confidence, economic confidence signs of GDP growth. What does that mean? I think it means that it looks like 2013 was the peak for loan loss provisions and we should see them declining from here. You saw last quarter that Commercial Banking was showing visible signs of improvement. We expect that to continue. The improvement in the Benelux may take a little further time as a little slower emerging from the economic downturn. So loan loss provisions to reduce from here. Finally, to the key topics dividend and ROE. But let me just take a little bit of step on capital. As I mentioned, we're well capitalized. We meet regulatory requirements today regulatory requirements today. But we do see the potential for an increasing capital requirement through the introduction of a systemic or domestic buffer, which means that we think the 10%, which is our target will become a minimum over time. And we intend as Ralph said to run with a buffer above that, a buffer to ensure assure we have capacity for dividends, ensure that we can absorb the occasions like we saw in Q4 where we may have some model RWA model volatility. So we'll run with a buffer above 10, comfortable buffer. So when you put all that together, what does it mean in terms of ROE? Well, I think it should be pretty clear that we can get into the 10% to 13% range. We start at 9% with the business growth, the NIM improvement and the normalization of risk costs should be more than sufficient to cover the additional capital buffer we'll need on top of Core Tier 1 and that will get us comfortably into the 10% to 13% range. So in summary, we have a business model that's capital generative. We will have some business growth, may require some additional capital. We're going to grow a buffer on Core Tier 1. We'll require a little bit of capital, but it leaves significant room for dividends. And we aim to pay our 1st dividend in respect to the financial year 2015 and thereafter grow as rapidly as possible to a 40% plus dividend payout ratio. Rounding it off and Ralph has shown you this already, but just summarizing again, our key financial ambitions and targets are core Tier 1 ratio with a buffer above 10 leverage around 4 cost income 50% to 53% and ROE of 10% to 13% and a dividend payout ratio of 40% plus. I think this makes a compelling financial case for ING and I hope you do too. Thank you. Now I'll ask my colleagues, Ralf and Wilfred to join me on stage and we are happy to take your questions. Okay. Question time. We have a lot of time. We have time this morning. We have time during the day. So let me just see. I'll start up front and then I'll just work through the room. Go ahead. Good morning. Jean Pierre Lambert from KBW. I had two questions. The first one is on the capital buffer. If you could explain a little bit what kind of amount you are thinking about or percentage and what would drive this up or down to give you confidence on not to keep a large or smaller buffer? The second question is about the customer experience. How do you rank yourself compared to other digital banks? I'm thinking about HSBC. I'm thinking about the Nordic banks. How do you see yourself? And where do you see the gap you have to catch up? Thank you. Okay. You take the buffer? Yes. In terms of the buffer, I think what the buffer will mean is that 10% will become a minimum rather than the target. So the buffer will make that the minimum. That's coming from the regulatory changes we think are going to happen. And then the discretionary piece on top of that is what we choose to put. So to ensure that we don't breach that and we maintain a comfortable cushion above there to ensure we can pay dividends and absorb any volatility that may arise. What does that mean? We've got a 4 year trajectory here. And I think what it means is that between now and the end, you'll probably see us going closer towards 11,000,000 towards the end of 2017. But there will be a gradual path. Okay. So on the customer experience, I can be clear. We clearly look at the countries where we play. And that's where you have to be differentiating. And that's why we measure the net promoter score all the time to get a sense for whether we are ahead of the competition. And clearly, if you have a true differentiating experience, the difference between you and the competition should grow in that promoter score. And that's what we are moving towards. On the other side, if you looked at the ambition to step up in pace in innovation and then basically some comparison to competitors come in as well. We think we can step up and we will step up and that's why we are appointing a Chief Innovation Officer. However, we continuously check the rating of our clients on, for example, the apps that we have, the banking apps. And in all the countries, we have the apps with the most with the best rating. So we continuously look at competition as well. But in the end, it is not so much the means through which you reach your customer. It is the experience that the customers has through that mean. And if you really go down into the core elements of the success of ING in a direct way, it is about the experience behind the online banking and it's not so much that we have deployed online banking. But it's truly easy. It's very clear. It is the way clients can actually understand it. And that is difficult honestly. Some of the banking products are rather not how you differentiate yourself. It is the experience behind the online and the mobile, the easiness, whether it's a corporation or whether it is a consumer client, that makes a difference. And that's, I think, what we're good at. Yes. Go ahead. Good morning. Thank you very much for the presentation. I'm Anton Kretchak from UBS. I have two questions please on the bank P and L. One is on net interest income. I was just wondering in your net interest margin guidance of 150 basis points to 155 basis points, do you give yourself any benefit from lower funding costs, wholesale funding costs? I remember during Q4, we talked about potential 5 basis points coming from expensive funding winding down from 2015 onwards. And the second question please on costs. You've mentioned that you're looking for broadly flat costs in the next couple of years. I was wondering whether in your outlook you capture all the new regulatory costs that might come in especially from the single supervisor in Europe? Thank you. Okay. Patrick? Yes. In terms of the interest cost, we are isolating, as we mentioned in the last call, part of the cost that helped us create our strong liquidity profile into our corporate line. That's about 5 bps. It will run off slowly, but it's the real decrease will only be 2020. So it's back ended. And yes, in terms of costs, we intend to keep costs flat. Ralf mentioned, we will see absolute cost reduction in the Benelux We'll be selective in where we invest. And we have factored in that the that there will be costs coming in respect to the DGS scheme and the European as best we can guesstimate the European single rate solution mechanism. So they're factored in. But these are indeed guesstimates, right? So this is what we think will come. But if that surprises us on the high side, then we'll have to see how we can cover it. Yeah? Go ahead. It's Martin Leitritz here from Goldman Sachs. I have two questions, please. The first one is in relation to Slide 28 of Ralf. And here, you speak about the funding surplus and the funding shortfall of roughly EUR 47,000,000,000, EUR 48,000,000,000. And I was just trying to understand what the potential earnings impact might be if you would be able to match those 2, so if you might be able to close the funding shortfall in Netherlands with the surplus you have mainly in Germany, how much would that impact earnings? And how quickly could you close that? Would that be almost immediate if the new supervisor would allow you to ship the money? Or would that take maybe 6, 12 months until you close the wholesale funding? And the second question also with regards to that topic is, I understand that this is not part of your current guidance, so the 10% to 13% return on equity and also the growth in loans of about 4%, they do not include the assumption that a single supervisor would lead to free fungibility of deposits. So would it be right to assume, if free fungibility were to come, that you would grow your German deposit rates German deposit base more and you would basically have actually a higher growth than as a consequence. Okay. So I think you all can make the math because you have your models as well. So if you take SEK 48,000,000,000 either surplus or GAAP and you can match them, you correct for a liquidity buffer that you will always have depending on whatever the legal structure is and whatever a local regulator may want you to keep in the country from a liquidity perspective. But take 15% there, so you reduce the 48% by 15% and then you take the margin 1%, you get an indication. Now how quickly we will get there? We don't know. Clearly, the discussions the way they're happening right now is that most likely we will get there gradually and not necessarily rapidly. And that's why we have a strategy that basically also uses those funding surplus and being able to grow in those countries with different assets. And so we're not waiting for it to happen. But if it happens, it will give the upside. Your second question as to whether if all this happens, whether we can grow faster, I think we can turn it the other way around. Currently, our ambition to grow and support the economies in which we're active because that's basically what this truly is, we see that it's rather reasonable to assume across the whole portfolio a growth of 3% in balance sheet and 4% in lending. Now depending on how capital requirements at a certain moment look And if then lending and the lending opportunity would be much bigger and we could grow faster and support the economies, we can also put some more pace in the savings machine. And clearly at this moment in time, we are trying to balance the savings machine with the asset machine. But if the asset machine would kind of generate and be a little bit more successful, we think that we've proven over the past that we can also then accelerate the savings machine. So we will grow it at that moment provided there is the capital and provided the capital kind of requirements that we are currently assuming will stay. Yes, go ahead. I'll come to that part of the room as well. Don't worry. Benoit Petrarque from Kepler Cheuvreux. Now the first question is on growth on loan growth to be more precise. Could you give us the figure, the 4% split add on per region? I think you have identified 3 big regions. We'll be interested to get the details there. And will that growth be backloaded or It's challenging for me. Will that growth be backloaded or are you expecting 4% growth as of 2014? And then on M and A ambition, where are you there? Is that too early? Do you prefer to be first at 11% core Tier one ratio before thinking about anything? And if any M and A, where are you kind of thinking to go? And then just on cost, any just to sorry to come back on regulatory costs. Sorry. How much additional regulatory costs are you expecting from DGS and a resolution fund in euros? Please? Wilfred takes the first question. I take the second one and Patrick takes the third one. I think that's a very democratic kind of balance here. Okay. On loan growth, as Ralf was saying in his presentation and Patrick also alluded to that, the big opportunity for us clearly in those countries where we already have the funding base and are still catching up on the origination side of loans. So clearly the Challenger countries and to a slightly lesser extent the Growth countries as we have identified them in the presentations are the one where you can expect to see most of the loan growth. On M and A, I can be very clear. We still have an acquisition ban, a merger ban until we have repaid the state in full as well as the moment at which we have deconsolidated the insurance company. So only then the ban is lifted. So any area of where we see acquisitions coming into our plan, it's rather speculative because our plan doesn't foresee those acquisitions. What you can expect is that the strategy that we have just kind of presented including the strategic framework that if and when we would get into an area of acquisitions, it would be completely consistent with that. But for the moment, we're not thinking about it. The band is there and the plan that we presented is organic growth. Yes. On the costs, Dutch GGS probably starts not this year probably next. We've got the S and S levy this year of $300,000,000 which is $100 a quarter. Somewhere around €150,000,000 is an estimate, not fully clear. And the single resolution mechanism is even less clear what that will be, but we've sort of penciled in around CHF 100,000,000 for that. And that is, as it Ralph said, a bit of an estimate at this stage. Okay. Go ahead. Good morning. It's David Lock from Deutsche Bank. Just two questions, please. First one is on non interest income. It hasn't been mentioned very much today. I just wondered if you could give us your thoughts on how that's going to grow going forward given all the analytics that you talked about. Is there any potential for further commissions or kind of improvement in that line out to 2017? And then secondly, on impairments, I know your guidance hasn't changed from 2012 and yet your asset mix is changing. So I was wondering if you could give us a kind of feel for why that confidence around impairments is coming through despite the emphasis on consumer lending? Thank you. Okay. Now on the non interest income, our model indeed is a model that works on the interest income more than on the fee income. And that comes with a model. That's why it is successful. If we have a promise to our clients that we are transparent and our products and processes are clear and simple, then I think that in itself, it is a consequence of that model that there was no kind of fees that you can't really explain. It doesn't mean that we don't see an upside on the fee side And we will develop products and services that are more fee generative. But going forward, our model will still be much more dependent on interest income than on fee income, both on the commercial banking side we see that as well as on the consumer banking side. And that's and we have a rather stable interest income there as well. So that's the model. But it comes with a promise to the client that you have lower fees basically. Sorry, what's the final? The impairment with consumer finance. Yes. So those of you who've been with us for a longer time will remember that this guidance of 40 to 45 basis points through the cycle on risk weighted assets has been there for a long time. Now if you look back 4 or 5 years and you compare the portfolio then with now on the existing book, we have significantly derisked it, better diversification, generally a lower risk profile. So we've built in a bit of a buffer, if you like, there for incremental risk that would come in from the consumer lending business. The second observation is, of course, this guidance is on risk weighted assets. And don't forget that consumer lending brings significant increases in risk weighted assets if it ramps up. So not necessarily does it change in fact the percentage that we're looking at. Taking these two factors, I'm quite comfortable that that guidance is correct, if not conservative at this point. Okay. We'll go to the well, one of the 2 gentlemen there. And then if you could pass the mic after, yes, behind to the person behind you. Will do. It's Andrew Coombs from Citigroup. If I could just ask a couple of questions on the dividends, just points of clarity, a follow-up to the previous question and one on strategy as well. And just first into the dividends, just to clarify a couple of points. When you talk about a 40% dividend payout ratio in 2015, is that on group or bank earnings? Or are you hoping there'd be the same thing by that point? Also, if I look at your previous dividend payment going back some time now, but you used to do a fifty-fifty split between accrual in the first and second half. So should we assume something paid out in August of 2015? Or are we waiting until early 2016? And then a follow-up to the previous question. You just talked about RWA growth obviously being a bit higher given the focus on SME and consumer lending. So if you're talking about 4% loan growth, what should we be penciling in, in terms of RWA growth? And then my final question on strategy. Slide 17 of Mr. Haynes' presentation. You looked at the basically the relationship between cross buy and between the direct network, there does seem to be a bit of an inverse relationship and that the advantage of having a branch platform is cross sell, cross buy is that much higher. So how do you go about rectifying that on the direct platform? Okay, good. I think we start with Patrick, we go to Wilfred and I'll take the strategic one. Dividend, just to be clear, it is likely probable it's possible that the first full 40% dividend payout will only come in respect to 2016. And that can be interim and final as you suggested. We haven't decided on the exact split of percentage, but interim and final in cash. 2015, before we pay any dividend, we have to repay the state. And the final state repayment is scheduled for May 15. That is €1,000,000,000 That will take a chunk out of the dividend capacity for €15,000,000 Second half of 2015,000,000 a potential for a dividend payment from the second half, although payments of that may not be till in terms of cash received till the following year. So it may be that second half of twenty fifteen dividend paid in twenty sixteen and then the full year 40% plus dividend payout ratio for 2016 interim and final in cash Part 16, Part final the following year. And then the policy going forward interim versus final? Yes. In terms of yes, interim versus finalize, yes, we will try and replicate what we've done in the past with an interim and a final cash. Bank versus group, yes, ideally, we want to fast forward as quickly as we can the end state of insurance. You've seen us doing it with Voya. We will sell that down as well when markets and lockup period ends. We need to get the insurance business IPO ed. And then after, we will follow a strategy of selling that down as we are obliged to. Will that be all completed by 2015? Maybe not. But in terms of dividend, we're talking about dividend payout. We're looking at the bank profits as the percentage to determine the dividend on and that will flow through the group straight through to shareholders. Okay. That's it. On the risk weights, generally if you dig into the numbers what you'll see is that we expect them to rise in line more or less with the balance sheet projections that Ralf has given you. And why is that? For a couple of reasons. One is keep in mind that we're almost exclusively on advanced internal ratings based models, which means the models and the risk weights really reflect what's happening out there on the macroeconomic level and also with the risk profile of our own portfolio. And as we're going into recovery, we do expect a lot of these risk weights to gradually come down somewhat giving us a bit of room to build up some higher risk or at least higher risk weighted assets. Secondly, if you look what we're specifically managing actively down both in terms of risk profile, in terms of volume, one good example of that is commercial real estate lending, which obviously is still dropping in total portfolio. Certainly, the more risky parts are coming down, which gives us disproportionate drops in risk weighted assets. And another example would be the business lending portfolio in the Netherlands that we're working very hard on to get the risk profile down and that will reflect also through our models in the risk weights. So that whole combination gives you the outcome that you pointed at and that we're comfortable with. Then on the strategy of cross buy, just to finalize with your to finish with your 3rd question here. The question is whether there's a relationship. There's certainly a correlation between cross buy and having a branch network. The question is there is a causality. There is one as well. But it is not because you have a branch network. It is because you have a primary relationship. And that's why the next step for our direct model is to build on primary relationships. So we will increase the number of clients for which we do salary payments or have a payment account that they frequently use. And based on those and based on that improve our knowledge of these customers and then also develop some more products. So if you truly compare to the areas where we have a full bank, where clearly we have a full product offering already by having the product offering, you have a higher chance of cross buying. The full banks have more primary relationship. So given the fact that you have the primary relationship, the client considers you more as their lead bank and therefore are considering you to buy different products for different needs. So it's really that angle. Having said that, you see that, for example, in Spain where we are ahead of the a little bit ahead in the next stage in terms of developing primary relationships that we do have branches. But we don't want to go to 1,000 branches. We have branches in the big cities and I think we can do so because we really want to concentrate the branches to focus on value added services rather than on transaction oriented services. And that is basically how we can complement the branch knowledge on one side with a direct experience and keep on the efficiency curve where you get more quickly into scale benefits than with a full branch network where most of our competitors are. The beauty is we don't have to close branches. So also from that perspective, clients are not unhappy with us because we will open some maybe rather than close them. So we don't have a legacy there. But again, on the cross buy, the first step is primary relationships and broadening the product base there. And I think that will already get us up in cross buy before we get into needing a lot of branches. Yes. Yes. Thank you. Ashik Musaddi from JPMorgan. A couple of questions. First on dividend. Now your target looks a bit broad based, greater than 40%. I'm just trying to assess like can it go to 60% or 65%. Now if my math is right, you're targeting 11% core Tier 1 for example, let's say. So that's a 10% increase or €3,000,000,000 over next 4 years. At the same point you're targeting 3% growth so say 12% over next 4 years 12%, 13%, again €4,000,000,000 So that means you're targeting €7,000,000,000 of capital increase, average it out €1,700,000,000 kind of a capital increase you're looking at on an annual basis. Now if you meet the targets basically, you can make bank earnings of north of $4,000,000,000 That means you can practically pay out $2,300,000,000 of dividend in the long term. That's 60%. So where what am I missing on this one based on your targets? That's the first thing. In terms second thing on risk cost, there's a slide that shows that you have had a risk cost of 3 basis points in the past. What can drive that? What are the areas at the moment which can release so much of provisioning? 1 you have mentioned is industry lending. What are the other areas? Is it SME or some color on that? Thank you. Okay. Dividend capacity? Yes. In terms of dividends, we will need some capital for the higher capital buffer as I mentioned. We also will need some capital to invest in growth. And some of this will be higher risk weighting such as SME and consumer finance. And I think the combination of those plus the profit means that 40% is a good number. I think 60% is too toppy. Okay. Thank you. Okay. On the risk cost, if you followed us for a while, you will have noticed that we tend to be relatively conservative on provisioning. Typically, the provision levels run 20% to 30% ahead of the actual write offs. Now the longer the cycle of the asset that you're providing for, the more difficult it is to compare these annual numbers point in time because of course provisions basically are looking forward and you're right, looking backwards. But still if you do this over a longer period, you will see the same thing, which also leads after every crisis to releases of provisions. It's a bit difficult to say where that would happen, but if you were to think about which are the areas where we have quite heavily provisions and really not seen the big write offs, one would be the Dutch mortgages, for example. There is, I think, potential for releases also in commercial real estate. That may sound a real estate. That may sound a bit controversial, but we're actually seeing it in some cases as we speak. And generally, I think also in the industry lending books, there are definitely going to be releases at some point. So this is going to be fairly broad based, consistent with the fact that we tend to conservatively provision. And I think the AQR that DNB did here in the Netherlands on the commercial real estate portfolio, by the way, that included some international books as well, did show indeed that we are conservative in an asset class that people had worried about quite a bit. Okay. You're passing the mic automatically. That's good. Let's do it. It's Sofie. Bettasen from JPMorgan. In terms of the leverage ratio, you're targeting a 4% leverage ratio. EU is more talking about a 3% leverage ratio. How confident are you that Netherlands will push for a 4% that in case EU goes for a 3% leverage ratio, could we potentially see a leverage target from you? Thank you. Yes. So this has been quite a discussion newspapers and in the Dutch market for a while now. Clearly, I think that ministers and regulators are all kind of looking at ways how we can ensure that going forward a crisis like in the past will not happen again. And there's different ways to get there. And also they want to have simple ways to make sure that a crisis doesn't happen again. And therefore, they look at simple ways to determine what buffer should be. And the leverage ratio helps you if it comes to having a simple way to look at a clear and a simple way to look at where you are in terms of your buffers. So that's why it is certainly a ratio that a lot of people like. Now I can't kind of I can't look into the future, but it is for us, we as a European bank we clearly continuously focus our efforts in our discussions that whatever changes they want to make in terms of changing buffers or changing buffers or increasing buffers from that perspective, whether it is leverage or any other buffer that we want those to be aligned on a European level so that we continue to have a European level playing field since we're a European bank. Having said that, since we are close to the 4% and it doesn't really at this moment limit us to do the business that we think we should do from here on. It's also okay for us to manage around the 4% whether it will become an obligation or not. So and that's why it's up there at 4%. It fits our business model from that perspective anyway. Clearly, any requirements and mandatory ratios, we'd rather have them on a European level since we're a European bank. These are the factors that we work with. Yes. Okay. Yes, go ahead. I think you have it here. Okay. Yes, you have the mic. Then we'll follow the mic. We have plenty of time. Don't worry. Go ahead. We're going to the ladies now. Yes. Lauren, you're welcome. On the capital point, I take the point that actually you're happy keep a little buffer above 10%, given other banks have a higher capital here, given it's still not entirely clarity. If the requirement were to be 12%, do you think you have enough room in these numbers to be there? Or would you consider, for example, feeling that additional buffer with AT1? How would you look at that? One clarification on your 15 earnings, but surely the Dutch state repayment in May 15 can be done with the earnings the bank has accumulated in 2014. And therefore, you should be have to have more than one half of the year in 2015. I can see Patrick already laughing on that. I was going to push in it. And also strategically, how are you looking at your lending capacity, especially when looking at SME? Germany is a very tight market. Can you expand a little bit more on how you're looking at pushing lending there? Italy and Spain, I know it's cyclical, but a market where SME are really suffering right now, a lot of local banks feel the risk is too high. Do you even get there? I know you're looking at 2017, but how confident you are that actually your risk management will allow you to take not too much risk, etcetera? Yes. Good point. Patrick? Yes, dividend. Well, just look at where we are at the moment. We paid a dividend today, 40% of last year's profits. Last quarter, we paid 1,000,000,000 dollars dividend. So we've been quite significant dividends. My capital ratio at the end of the year was 10% fully loaded and as I indicated, we need to grow that. So there's a balance here. So there's a balance between wanting to grow buffers to assure we have dividend payment capacity. When we start, we want to start on a robust way and no false starts. So we're going to do this in a prudent way, Build the buffer, ensure then the state is repaid, so that when we start, we start on a solid basis. That's base case. In terms of capital, you mentioned AT1. That more accounts for Tier 1. That's helpful potentially for leverage. We're not using it at the moment because we need a change in the tax ruling that allows it to be tax deductible which we think is coming. So AT1 helpful for total capital structure and leverage. 12%, if there was a move towards a 12% capital ratio, I mean, it's more it's really about timing there. We are sort of trending up towards the 11 mark. So provided if this were to happen, this is purely speculative obviously, if it were to happen, what more matters is the timing and speed, because we're growing our potential to be capable of absorbing that if that happens. Okay. Wilfred? Right. Since you were so worried about what risk management would think of SME lending Ralph asked me to answer that one. Thanks for the question. So a couple of things about that. One is it is a segment that we know as a bank very, very well. I mean those of you who know ING really well know that one of our original predecessor banks was called NMB and that is translated to Dutch Bank for SMB Companies. So that's our roots, if you like. We know the segment well. We do it in a number of countries, not just the whole markets, but also a few others. And what we've learned from that is a few things. One is, you don't start it too aggressively. You really use the early origination to hone your models, hone your underwriting standards, really understand what you're doing, get comfortable and then begin to press the accelerator. That applies to consumer lending. It challenger. Of being able to go into a relatively bad market as a challenger which is important because you start then typically with a relatively small market share and even to create a relatively large growth, you don't need to steal the bad stuff from the others. You can afford to cherry pick. We have a history of that, for example, with mortgages in Spain, arguably not a category of loans that a lot of people would be excited about. We have one of our best mortgage books in the whole of ING sitting in Spain and our NPL levels there are not even a 5th of what the market does. So we have demonstrated we're able to do this sort of thing. And even as a risk manager, I'm very comfortable with what we're putting on the table here. Thank you. Okay. Yes, the gentleman in the back. Hi, there. Omar Fall from Jefferies. Three questions, please. Firstly, looking at the bank P and L targets, including the strong NIM and costincome ratios, I really struggle not to get to more like at least 13% in terms of ROE. So can you just help us square the circle by looking at by highlighting what movements in capital you've got within that, whether it's dividend upstreams or anything else? Secondly, on Mr. Flynn's presentation, slide 17, if you could elaborate on the use of the term modestly for 2014 decline in risk costs. Because if I look at bankruptcies across Holland, they're very much under control. I know the mortgage book will take time, but at the very least on the SME side, we should be seeing some meaningful improvements, particularly given the year on year basis is pretty helpful. And then finally, just a broader follow-up question to the last person's. You could argue ING took state aid due to funding rich ING Direct investing in countries and asset classes where it had no expertise and no franchise. So given how much of the growth and NIM uplift is biased to consumer credit and SMEs, which really are quite new to you in the areas you're targeting, Why should we be comfortable that the mistakes of the past won't be repeated? Thanks. Okay. In terms of the ROE, as Ralf mentioned, some of the things we're doing, we're investing now for the future. So some of the development will take time to come through, but we need to invest now for that to happen. So the that starts to happen. So the that starts to kick in maybe towards the back end of the some of that towards the back end of the period. We want to hit this range firmly hit the range. And I'm not going to commit as to exactly where in that range it will be, but clearly it's a range. So, yes, be great to get to the top end of it, but let's work through and see how far we get. Okay. And what was the next question? The next one is on the modest improvement of risk cost as expected in 2014. So Yeah. So on that, it's a bit of a mix. On one hand, we do see an improvement already happening even in 2013 over 2012 when it comes to the international commercial banking activities. Specific examples within that portfolio are for example acquisition finance, which did still create some risk costs in 2012, but no longer in 2013 or at least not significant. Also commercial real estate internationally, we think is clearly turning the corner now and has peaked. So there are indeed a number of portfolios where we do expect significant improvements. At the same time, the home markets and in particular the Netherlands see a very sluggish recovery macro and we also see that back in our own NPL and provisioning levels. Business lending in the Netherlands, but also the mortgage book will continue to create significant risk cost I expect in 2014. So, if you mix the 2, we do indeed expect an improvement, but one that is as was mentioned in the presentation modest. I'd add to that predicting risk costs particularly quarter by quarter is a very tricky business because it is a lumpy activity. 1 or 2 big files could create both big releases as well as relatively big new provisions. And I find it difficult and maybe also not wise to try and predict this quarter by quarter. I think the statement made in the presentation is correct. A modest decrease in 2014 is our best guidance here. And maybe on the last question and Wilfred can fill me in on this one as well, which is basically are we going to make the same mistake that we made in the past in doing things in the direct environment, which apparently we don't have experience in now. I think there's a real difference here between in some cases what we did in the past and what we're planning to do here. So first is that we are integrating these units legally and operationally into full banks. That's one through which we do a lot of balance sheet optimization already towards assets that we already had and that we know very well to generate like industry lending. We have a real track record there. The second thing there is that the difference between what we did in the past and what we are going to increasingly continue to do in the future is that these will be own originated assets rather than buying them from competitors who have originated them in packages. So that's a big difference as well. And the third one there, why you can feel comfortable apart from already what Wilfred said that we do have the experience in house is that we will clearly do this in small steps. We will continuously test the underwriting standards with the experience and then we will not just go in big time. So and then specifically for the countries like Spain and Germany, we'll have some sessions later today as well. So you can also discuss with Boonen and Berkevich and Roland Bookout if you want to get some more information on that. Yes. Maybe to add one remark to that, what we did in the past also led to some fairly large concentrations on our books. And that in itself is always an issue even if the underlying quality and that is what we saw in the old day book in the U. S, in the end doesn't turn out all that bad and it didn't. Still, if the market believes you have a problem and the number is big, you have a problem. And the difference is also that what we're talking about here is launching a number of initiatives, a number of asset classes across a number of countries, each individually not being very large and the correlations between them also being quite limited due to our overall diversification in geographies and currency zones. So also from that perspective, I think this is a much safer proposal. Okay. Good. Yes, go ahead. Yes. Thank you. It's Annke Hagen from RBC. I have some follow-up questions first please. First on revenue growth on total income. So should we be looking at about like 6% growth per annum? Or what have you been building? And how quickly is this coming in? Because I mean 2014 is unlikely to see a quite sharp increase in revenues. When you talk about the cost of risk across the cycle of 40 to 45 basis points, is that already reasonable for 20 16? Or is this more like the 2017 run rate? And then more generally, I thought your argument about moving more customers from become a primary customer is quite convincing. I just wonder how do you achieve this? Is this a question of price leadership? Or is it product offering? Or what are the key levers? Thank you. Okay. Good revenue growth. Patrick? Yes. We see the potential to grow assets 4% per annum through the cycle and through our investment horizon. And that will and that's to be in products that are NIM accretive. So that should help grow revenue. We are seeing some improvement in consumer confidence. We are seeing some improvements in GDP. So that will help fuel this. But it will take a period of time to build up. Okay. And also on risk cost as we said just now, I mean predicting risk cost is more art than science. If you look at the macro developments, as I just said, I'm still a bit concerned about the slow growth in the whole markets. It is picking up, but I wouldn't really be able to precisely pin the 45 basis points in either 2016 or 2017. My best guess is we may reach it somewhere in the second half of twenty sixteen. So you will only see it as overall average for 2017, but this is really crystal ball gazing. And then on your last question, the strategy of primary relationships, And this is specifically for the retail bank because in the commercial bank we're doing this and that works. On the retail bank and certainly in the Challenger countries, we're doing it as well already. We're doing it in Germany. We're doing it in Spain. And in Germany, we're doing it in Spain. And how do we do it? Just like any other product, we really want to be the bank to go to for the experience. And I think the secret there is can you make products, banking products, can you really make it transparent and easy? So that's certainly the first element of success on how we're doing it and will be doing it. And then clearly, it will also be a matter of pricing. So it's a good experience and a good price because as we've shown, the fact that we have a model that has an efficiency curve which is a lot lower than the normal branch banking model, we clearly do give some of that benefit to our clients. So it's a combination of a true different experience and a better value for money. So it's the 2 and that's how we will continue to go about it. Justin Bandy from Artisan Partners. Two questions. First, you guys are so close to repaying all the state aid. And I was just wondering what the appetite is for repaying that before the deadline next year? Under what scenario could we imagine you paying that earlier? And then the second question is around the stakes you have in the businesses in Asia. Why did these businesses survive? What was a pretty brutal restructuring that you guys did? And how do they fit with the rest of the group? Perhaps I don't know them well enough. They just seem a little non core. That's probably it. No. So state aid and early repayment of state aid. For us, it's very important to stick to a plan. And that helps also to guide our units as to what is expected from them and what's not. Up to now, we have been able to work on this plan also in terms of when do we have sufficient capital to repay the state. That's on one side. Now if you then at this moment look at when the next payment is May 2015 and whether we could or we would want to accelerate, we would always want to accelerate in itself. However, there's a couple of uncertainties that we want to manage through as well. And as I said, there was a final step in the restructuring to go, which is the base case IPO of our insurance company. That's one uncertainty. And the other uncertainty is that clearly we're going on the bank side through an AQR process with the European Central Bank. So we want to be cautious from the respect of these two uncertainties as to accelerating. Clearly, if we're going through this and a couple things clear up, we could be in a position to accelerate. But the base case is we pay in 2015. Then your second question on the Asian stakes, what is strategic then from that perspective? I think in Asia we have a couple of stakes. I'm not going to go into them each individually, but if you look at our activities in Australia, we own 100%. It's a very attractive market. We do a very good job. It fits very well in terms of the ING culture. There's a lot of connectivity. We take a lot of IT experience from there. So it is the strategic fit is as big as the German business. It is a bit on the other side of the world. But the strategic fit is clearly there. Also the other assets that we have, if they continue to provide added value to the total, we will do so. But as I said, the strategic framework that we have developed from a strategic fit and connectivity perspective or from a sustainable share perspective, if units or activities within that framework don't generate what it is that we want them to do, we will come to the conclusions. And we have done this before. So we do dare to take tough decisions as we have done with selling ING direct in Canada and in the U. K. As well with running off some of our lease businesses as well on the banking side. So it's not that we don't dare to take decisions. It is just that if we feel they are strategic and if they do fit and make the returns and add value, we find them strategic. 1 minute? We have 1 minute. Okay. So this is the final question before we go to the break. Hi. It's Steven Hoegh from HSBC. Just on the Dutch regulator, it's been very influential in terms of financial companies paying dividends. If you could tell us how influential Dutch Regulator was in your 40% payout ratio target and whether you've had any sort of discussions with them with regards to this payout ratio target, please? Okay. Clearly the Deutsche Regulator is influential. We are incorporated here. They are our lead supervisor and they have to give approvals for also repaying state out of the capital that we generate. So and I think they take a prudent approach there and have supported the ING restructuring all the way through. And that's what they will do in the future as well. Clearly, they the way they look at things is that as a regulator, they have they want to be very prudent as we do as well. And honestly, we have discussed the plan with them in terms of how do we go about allocating the capital generation of the bank in the future. I think the story is clear from our perspective and it is in the end, we have to serve from that perspective, from the capital generating perspective, we want to serve 3 stakeholders here. We want to serve the taxpayer that never ever wants to bail out any bank anymore. And therefore, we feel that we have to manage our core Tier 1 above 10% with a growing and comfortable cushion. That's the first stakeholder. The second stakeholder is that the economies in which we're active. Once they take off and show sign of recovery, we should be able to support them. So the capital that we generate should also be allocated to an improvement or an increase of capital in order to be able to increase lending as the 2nd stakeholder. And then the 3rd stakeholder, and this is not kind of in kind of order of priority, but these are just the 3 stakeholders. And the 3rd stakeholder for us is clearly the shareholder who has stood by ING through the whole crisis, lost money on ING during the crisis depending on when you stepped in. But if you were there at the beginning of the crisis, you still haven't recovered your value. We want to recover that as much as possible. And we have not been able to pay a dividend for quite some while. I think by the moment we start paying a dividend if we get there in 2015 or on the back of 2015, it will have been 6 years. And I think we have to also contribute our thanks to the shareholder who has stood by us. This is a story that we took the regulators through and they support us a balanced story. Now we can't look into the future as to whether new requirements coming at us will kind of influence this balanced way of going about it, but this is the way we have developed our story. Yes. Thank you. Since this was the final question for now and there is plenty of time to ask more questions during the break, during some of the other sessions. We'll have speed dating as well. So don't worry. Let's first go and grab some coffee and be back for the next sessions in, I think, half an hour, if I'm correct. Yes? Okay. Thank you very much.

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