Ing Groep Nv

Good morning. This is Brigina welcoming you to ING's Q1 2021 conference call. Before handing this conference call over to Steven van Rijswijk, Chief Executive Officer of ING Group, let me first say that today's comments may include forward-looking statements. Such as statements regarding future developments in our business, expectations for our future financial performance, and any statement not involving an historical fact. Actual results may differ materially from those projected in any forward-looking statement. A discussion of factors that may cause actual results to differ from those in any forward-looking statement is contained in our public filings, including our most recent annual report on Form 20-F filed with the United States Securities and Exchange Commission and our earnings press release as posted on our website today. Furthermore, nothing in today's comments constitutes an offer to sell or a solicitation of an offer to buy any securities. Good morning, Steven. Over to you.

Thank you. Good morning, and welcome to the first quarter results. I hope you're in good health, and I'm happy to take you through today's presentation. I'm joined by our CEO, Votanet Putrukul, and our CRO, Liliana Chortan. And at the end of the presentation, we'll take your questions. Already for over a year, we have been dealing with the pandemic, and I don't think that anybody expected we would find ourselves still on lockdown restrictions. However, with vaccination programs underway, we can also look forward to circumstances normalizing again. We continue to support our customers, employees, and society, focus on steering the company through challenging times, and we keep on building a sustainable company for the longer term. Two important building blocks for that are our continued drive to digitalize and further strengthening our ESG profile. Our performance today is also held by our diversified business model, and as we see signs of economic recovery and continue to focus on optimizing our business, I believe ING is well positioned to return to delivering our 10 to 12% RE ambition. As mentioned, the pandemic continued to impact our lives, though looking at the results, you wouldn't necessarily think that we're still in a crisis. I'm proud of the hard work put in by all the colleagues realizing growth in our loan book and again a solid increase in fee income while keeping expenses under control. After our loan book decrease in 2020 driven by the pandemic, in the first quarter of 2021 and especially in March, we have been able to return to growth. This enabled us to also fully realize the benefits of the TLTRO3 program. In deposits, we see the impact from reduced spending ongoing for now, and we continue to apply negative charging and other actions to stem this inflow. Risk costs were 223 million, or 15 basis points over average customer lending. Overall for 2021, we expect to move close to our through-the-cycle average of around 25 basis points. The Stage 3 ratio was lower at 1.6%, and as mentioned last quarter, our track record underscores that we are a low NPL bank and we remain confident about the quality of our loan book. The CET1 ratio was stable at 15.5%, with 50% of first quarter resilience and profit reserved for future distribution, bringing the total amount reserved for this outsider CET1 capital to 3.3 billion. Slide 3 focuses on digitalization. It shows the continuing trend of our customers' turn to our mobile solutions. supporting the direction of our digital and mobile first strategy. With digital and technology being in the core of our business, we have appointed a chief technology officer to our management board, separating this role from the operations function. An important enabler of our digital strategy is touchpoint, which I have mentioned before, but I believe it deserves more attention. When a country wants to introduce a new proposition, there is no need to start from scratch. With touchpoint, key components such as design, Authentication and connectivity through APIs can be taken off the shelf, making the development faster and easier. Once a proposition is developed, it can also be easily reused across ING, turning a local proposition into a globally scalable solution. And of course, this also applies to propositions which are developed for global use from the start. Again, faster and easier, as our countries don't have to reinvent the wheel. An example of a local proposition being reused is OneApp, and this was built using several components of the Touchpoint technology, after which local features were built on top in line with Touchpoint guidance. OneApp is now already used by our customers in the Netherlands, Belgium and Germany, and we intend to add other countries as well. Now, in some countries, we need to make some adjustments to unlock the full potential of Touchpoint, and this is progressing, but in the end, Touchpoint will help us to shorten the time to market and the time to volume, improving customer experience and results. Slide four covers another building block for a sustainable company, and that's ESG. And last quarter, I took you through the highlights of what we've done in ENG in 2020, and today I'd like to spend some time on how this translates into results. For some ESG topics, the link is clear. For example, growing demand for sustainable finance and managing downside risk from climate change. For other topics, the link may be less tangible. Either way, I believe the link is there, and I want to take you through how we believe ESG drives value, which comes down to a strong governance, a diverse and engaged workforce, and a focused approach towards environmental and social topics. The first one is governance, and that goes beyond our organizational chart. It includes our policies, processes, and culture. that keeps to help the bank save secure compliance, for example, by strengthening our management of compliance risks, by setting values and behaviors that underpin our way of working through the Orange Code, and by addressing high-risk behaviors through our behavioral risk assessments. This also includes reporting in line with ESG disclosure standards, an area that keeps evolving and actually could do with more standardization. Then on people. We want to create a workplace where people feel included with a diverse set of perspectives and backgrounds, having a workforce that reflects our diverse customer base and is better able to address their needs. And initiatives in this area include our 70% principle for mixed teams and being an ambassador of workplace pride, which strives for an inclusive workplace. We gain insight in employee engagement by the organisational health index survey and pulse checks, and that we did more frequently in the past year. And these insights also support actions to ensure that colleagues are helped with working from home. And then last but not least, and we've talked about it quite a lot, we focus on environmental and social transitions, which are driven by a growing sense of urgency to ensure human rights are respected and to counter climate change. Both are covered in our ESR policy, directing how and with whom we do business. We further contribute to climate alignment through our Terra approach, as well as our expertise and products in the area of sustainable finance. And these topics are important to me, and I truly believe this enables ING to be a sustainable and trusted company benefiting all of our stakeholders. And of course, I don't want to claim that today we are perfect in our ways. We still have work to do, and we will continue to strengthen our ESG profile. Now then, if you look at slide five, we highlight our business in Poland. That's one of the growth countries where we see that good performance on digitalization and ESG, which I was talking about, is also driving results. If you look at digitalization over the years, we have shared digital highlights with you in our quarterly presentations, with often included initiatives from Poland. Our strength in digitalization is reflected in app ratings with top scores in the sectors and the share of mobile-only customers almost quadrupling over the past four years. And you can see that on the left-hand side of your slide. To align with this shift in customer behavior, we have reduced our branch network with almost 25% during the same period. And also going forward, we will continue to gradually adjust our distribution network. On ESG, there is a high participation of women at ING in Poland across all levels. We score better than our peers in Poland on employee engagement with a stronger Organizational Health Index score, the OHI score, translating into a lower rate of employees who voluntarily leave ING. On sustainable finance, we're also active in Poland with 11 deals in 2020. And all of this led to a number one NPS positions measured against our main peers in the markets. We have a growing share of primary customers, reaching a high level of 45% of total customers. And also supporting strong financial results with operating efficiency clearly visible when comparing both income and customer balances to our operating expenses. And overall, I'm very happy to say that efforts to future-proof our business in Poland are really paying off. Then slide six, that's about ROE. And I reiterate that we look at ROE through the cycle. In 2020, ROE was impacted by several factors, such as some sizable incidental costs and COVID-related effects on income and provisioning. Already this quarter, with lower risk costs and less incidental items, RE improved to 5.4% on a four-quarter rolling average basis and to 7.8% for this quarter. Looking forward, RE will be further supported by the return of loan growth, charging for actual account costs and continued discipline on controllable expenses while we intend to reduce capital overtime. Getting back to our RE ambition level will take some time. And how much time will also depend on factors beyond our control, such as a recovery of economic activity and prevailing ECB recommendations on distributions. But we continue to take actions on things that we can control, such as optimizing our business. And in the first quarter, we announced that we are discontinuing our retail banking activities in the Czech Republic and Austria. And in the Netherlands, we are further aligning the organization to the accelerated use of digital solutions by our customers. I do often get the question how far along we are with the review or when it will be done. And my answer is that we will always be looking where we can best deploy our capital, people, and time. And in reviewing our business, we focus on market and business attractiveness, potential for scale, potential for profitability, and whether there is a broader benefit for the group. Now, let me take you through the first quarter results starting on slide eight. In the first quarter, total income was up year-on-year, with another strong quarter on fees. NII was slightly higher, which included the 233 million TLTRO3 benefit, as we met the eligible lending target as of March 31st. Other income was up as well, with the year-ago quarter also including some negative impacts from market volatility that we saw at the end of that quarter, driven by the pandemic. Also, sequentially, total income was higher, driven by both higher fees and NII, again, including the TL2 Euro benefit I just mentioned. And also, other income was up, with improved trading results, and partly, as last quarter, included the impact from an indemnity receivable in Australia. Slide 9 shows you NII, and in previous quarters we addressed some pressure on the net interest income from the current market conditions, which affected the levers that we generally use to counter the impact from the low rate environment. In this quarter that pressure is still visible, despite the fact that we are reporting strong loan growth and that SOP rates improved. And just to clarify, the majority of our loan growth was realized in the course of February and in March, so it's not fully visible in NII for the first quarter. On swap rates, yes, they improved, but they're still well below the five-year rolling average. And we reinvest in maturities, which can range from overnight to over 10 years. And for illustrative purposes, you could say that we invest approximately 20% of our replicating portfolio every year, so an improvement will come over time. And as we said before, we benefit most from a steepening yield curve in medium durations. NII excluding financial markets was up year on year. However, when we also exclude the TLT row three benefits, NII was a bit lower. This reflected continued pressure on liability margins, while deposit inflows have been substantial. Lending margins were stable, however, at lower average lending volumes. A year-on-year impact from foreign exchange was also visible, with lower interest results on foreign currency ratio hedging and a negative impact from the devaluation of some foreign currencies. Compared to the previous quarter, NRI excluding financial markets and the TLTRO 3 benefit, was impacted by the aforementioned pressure on liability margins and lower lending volumes. And also, we saw some impact on NII from mortgages driven by a higher level of repayment and refinancing in the previous quarters. Our net interest margin increased by five basis points this quarter to 146 basis points, and this was fully driven by TLTRO. compensating for a higher average balance sheet and continued pressure on the liability margin. Slide 10 shows net core lending. An overall strong growth this quarter, mainly reflecting also the TLTRO eligible lending. In retail, mortgage demand remained strong, especially in Germany, Poland, and Spain, driving growth in net core lending of 2.7 billion euro. In wholesale banking, growth was mainly visible in lending and financial markets, primarily driven by TLTRO. And as mentioned during last quarter's call in February, the loan pipeline then looked tight with also uncertain repayment levels. And we came from a point below the threshold, but with limited repayments that we then saw and a high loan pipeline conversion in the course of February and in March, I'm happy that we grew sufficiently to meet the target. And we managed this without changing our risk appetite with lending almost fully extended to investment grade companies. Net customer deposits, they increased with 8.1 billion, driven by 4.8 billion in retail and a 3.3 billion increase in wholesale banking. We said last quarter that the negative loan growth we saw in 2020 was a non-structural shift, and that we expect loan growth to return when uncertainty subsides. And a strong loan growth in March may include some pull-forward effects. And should the loan demand return more structurally as economies open up, then we're well positioned to capture growth and support our customers. Page 11 shows the fee story, and that is a good story. The year-on-year fee income grew by 9%, driven by retail fees, which were up 18%, and in investment products, fees were even 25% higher, reflecting increases in assets under management, new accounts, and a higher number of trades. Daily banking fees grew with 14%, as the increase in daily banking package fees absorbed the impact of a lower level of payment transactions, which remained subdued. In wholesale banking, fees decreased year on year, and it was mainly driven by less activity in syndicated lending, which activity was very strong during the first two months of 2020, but this was partially compensated by higher fees in trade and commodity finance and financial markets. Sequentially, retail grew by 11%, driven by the same factors as year on year growth, and wholesale banking was up 9%, mainly due to the financial markets activity. Page 12 shows you the expenses, and I particularly would like to highlight the orange bars. Expenses this quarter included 84 million of incidental costs included in volatile items reflecting provisions related to the measures that I just mentioned and that we announced earlier for retail in the Netherlands and the discontinuation of the retail banking activities in the Czech Republic. But if you exclude these incidentals and regulatory costs, operating expenses were under control, and just slightly higher year on year, but lower quarter on quarter, as we fully absorbed the CLA increases and higher IT expenses, while both comparable quarters also included significant VAT refunds. Regulatory costs are seasonally high in the first quarter, as it includes the full payment of Belgian bank taxes, as well as the annual contributions to the single resolution funds, the SRF, and the Belgian deposit guarantee scheme. Year on year, this contribution increased due to the strong growth of covered deposits that we have seen in 2020. And we will, of course, continue to monitor these developments, critically review our activities and expenses, and act when and where needed. Then on to asset quality on page 13. Risk costs were 223 million or 15 basis points of average customer lending, well below the elevated levels we have seen in 2020 and also below our through the cycle average of around 25 basis points. And this amount includes a 593 million management overlay, primarily in stages one and two, which compensated for a 537 million release driven by updated macroeconomic models and net-net that results in an impact of 56 million euro. And this mainly reflects an increase in retail Benelux, with additional collective provisioning for vulnerable sectors and clients affected by COVID-19 in Belgium, whereas in wholesale banking, there was a release. Aside from the allocation of the management overlay, in retail Benelux, risk costs mainly reflected some additions to individual files and clients moved to watch lists in mid-corporates. In retail challenges and growth markets, risk costs reflect collective provisioning, mainly in Poland, Spain, and Romania. And in wholesale banking, Stage 3 risk costs included some additions to new Stage 3 files, primarily in the Netherlands and Germany, but these were small. The low Stage 2 ratio reflects macroeconomic mole updates. The Stage 3 ratio of the group was slightly lower, coming from 1.7 to 1.6%, and continues to reflect the strength of our loan book. Slide 14 shows how our CET1 ratio developed, which was stable at 15.5%. And the CET1 capital was 800 million euro higher, which included half a billion, or 50% of net profit for a quarter, as the other 50% was reserved for future distribution in line with our policy. And the remaining increase was driven by the foreign exchange impact. The risk-weighted assets increased, mainly driven by the forementioned foreign exchange impact, and the higher credit risk-weighted assets, primarily reflecting higher lending volumes, partly offset by a better overall credit profile of the loan book. Market risk-weighted assets was down, mainly due to the lower exposures as markets normalized, while operational risk-weighted assets increased due to the technical updates to our AMA model. As you can see on slide 15, both the CET ratio and leverage ratio are ahead of our ambitions. On the return on equity, as mentioned earlier, it is below our ambition in the current environment, but we have already seen an improvement versus the previous quarter of 27.8%. And with the supporting factor that I mentioned, we maintain our ambition and very much intend to continue to provide an attractive total return. Our cost-to-income ratio was impacted by factors such as the negative rate environment, regulatory costs, and COVID-19 impact on lending growth. In the last four quarters, some sizable incidentals also affected this metric in both income and in cost. To reiterate, cost-to-income does remain an important input for our return on equity, and we continue to work on our ambition of 50% to 52%. As for dividends, in February we paid the delayed interim dividend over 2020 of 12 euro cents per share, which was declared final at our annual general meeting. We currently have an amount of 3.3 billion euro reserved outside of CET1 capital for distribution after 30 September 2021, subject to prevailing ECB recommendations. And more details can be found about that on slide 20 in the appendix of this presentation. And to wrap it up with the highlights of the quarter. While we focus on steering the company through the challenges posed by the pandemic, we keep our eye on building a sustainable company for the longer term with two important building blocks. And these are our continued drive to digitalize and further strengthening our ESG profile, which will support a future-proof ING reflected in a continued strong financial performance. And our performance today is also helped by our diversified business model. And as we see signs of economic recovery and continue to focus on optimizing our business, I believe ING is well positioned to return to delivering on a 10% to 12% ROE ambition. Our results remain really resilient in the midst of a crisis and this quarter we managed to grow our loan book fully realizing the TLTRO 3 benefit and continue solid growth on fee income while keeping expenses under control. While negative rates give continued pressure, we see our levers that support NRI strengthening and we also expect to continue to grow our fee income by 5 to 10% for the year and you saw good evidence of that already in the first quarter. The CET1 ratio was stable at 15.5%, with 50% of the first quarter resilient net profit reserved for future distribution, bringing the total amount reserved outside of CET1 capital to 3.3 billion euro. And with that, I open up for questions.

Thank you. Ladies and gentlemen, if you would like to ask a question, please press star 1 for question star 1. In the interest of time, we kindly ask each analyst to limit yourself to two questions only. First question is from Stefan Nidalcov from Citi. Go ahead, please.

Thank you very much. Good morning. It's Stefan from Citi. Steven, you mentioned that the NII drivers are strengthening into the remainder of 21. Can you give us some more colors on what is strengthening? And related to that, the TOTRO benefit that you managed to book in 1Q, you guys mentioned most of the lending happened in March. What does that mean for long-growth for the remainder of the year and in terms of meeting the next benchmark for the second edition of the TOTRO 3? Should we expect a slowdown from here, and what does that mean for meeting the second benchmark of the TOTRO? Related to NII as well, the 100K deposit threshold for the Netherlands that you're going to start charging negative rates on and 250 in Belgium, could you quantify the base of the deposit that you'll be charging negative rates on, and what benefit should we expect going forward? Thank you.

Thank you very much, Stefan. With regards to the NRI drivers that are strengthening, well, first of all, you've seen the TLTRO benefit in the first quarter, and the remainder of that will come of TLTRO 3 in the second quarter. But thereafter, we go into the next phase of TLTRO, and at this point, we're confident that we can then also benefit from TLTRO in the four quarters thereafter. So that means an approximate amount of 75 million per quarter for the next five quarters. So that is one. Two, if you look at the negative charging measures that we announced in 2020 and 2021, if you look at that on an annualized basis, assuming no change in customer behavior, that would give an increase based on the charging of 230 million per annum on an annualized basis. And the third lever is, of course, loan growth. We, of course, we already see increased activity in Asia and in the Americas, in wholesale banking. We also see continued mortgage growth in C&G countries. And, of course, when the economy picks up, That will also mean that in terms of the working capital uses in the wholesale banking, but also in the mid-corporate and SME space, that then will return as well. And maybe to complement my comment on negative charging, if you look at this year's impact on NRI, that is 200 million, because some of the measures were only announced earlier this year and will only have effect later this year. If you look at the loan growth in March, what does that mean for the rest of the year? Clearly, we see economic activity picking up, like I just mentioned. But of course, there was some pull forwards with the TLTRO eligible lending. So we will need to look at the recovery of economic activity, because in the end it's loan growth that is being held by economic activity that then will pick up, which we that will happen in the course of 2021. And like we said that 2020 was a non structural shift. The event part of loan growth that is probably going to be short term. Those were liquidity facilities that were used for TLT row 3. On the deposit base for net interest rate in Netherlands, I give the floor to Tenet.

As mentioned, we don't disclose the actual volume that is subject to this NII, but you could imagine that over 95% of our customer base are not affected by this. And as Stephen has mentioned, that of all the actions already taken in 2020 and 2021, We expect that if customer behavior goes as planned, we will benefit from approximately 200 million euros in benefit. And just to remind you, we also gave you a number for last year of 80. So the net impact this year of negative charging is approximately 120 million euros.

Great. Thank you so much. Very clear.

Next question, it's from Robin van den Broeck from Mediabanker. Go ahead, please.

Yes, good morning, gentlemen. Steve, just very quickly, you went pretty quickly in the last question, but the 230 million per annum you alluded to in Stefan's question, was that related to the NII that is still coming through from the corporate loan growth you've written back end of Q1? So that's more a follow-up. Second question is on cost of risk. In the last few quarters, you've been taking management overlays to basically offset the impact that models would suggest. I was just wondering, to what extent can you keep doing this, and to what extent should this start to affect your cost of risk guidance for the year? I appreciate that there might be a delay in seeing the visibility from the pandemic, more from 2021 towards 2022. And in relation to that, when it comes to capital return, I mean, for regulators, this might become an issue to open up the doors completely to allow capital return to reach the ambitious levels that that most banks are trying to sketch, to what extent do you think that that picture could be compromised by the lack of visibility basically later in the year? Those would be my questions. Thank you.

Thank you very much, Robin. I will take the first and the third question. And the second question I will give to Liliana. On the first question, no, the 230 million I was alluding to was the annualized impact of the negative charging of interest rates. So this year we say it's 200 million, but annualized, if you take all the measures, it will be 230 million. So that has nothing to do with loan growth. Okay. What is true, by the way, to come back to your point, is that because we realized most of the loan growth only in March, the NII benefits from that, we have not really seen as yet. That will come in the second quarter and thereafter.

Is it fair to assume a similar margin on that loan growth?

Sorry, Robin, can you speak up a little bit? You're a bit faint.

Sorry, can you hear me now? Yes, yes. Okay. Now, I was just wondering if you could allude a little bit to the margin we should expect on that pretty sizable loan growth in March for the remainder of the year.

I mean, we typically are able to reprice all our deals to our standard sanity checks, so they need to make the applicable returns. It's a variety of companies in different sectors. We keep the margins quite well stable in wholesale banking and that also goes for the loans that we see here. To the extent that capital return and ECB recommendation can be hampered, I mean, yeah, I don't want to speculate. I mean, until now, we have been made to understand that the ECB will come out in September with further guidance. Until now, it has been reconfirmed that we have no other indications that would contradict that whatsoever. So that's on that question. And then on risk costs, I mean, Liliana, it's your first quarter.

Good morning, everyone. Yes, the risk costs for the first quarter this year were approximately 15 bps of our average customer landing, which is far below our through the cycle average of 25 bps. And you will remember our guidance for 21, which is definitely below 20 risk costs, however, as well more towards the through the cycle average. At this point of time, we would not change our guidance. because we do, in first quarter, do further prudent provisioning based on the fact that there is still some certain uncertainty in the countries that we are present, and we do see all around the world a difficult pickup of economies. So probably second quarter will be a time we will reassess our policies and will eventually change the guidance.

Okay, thank you. So, Stéphane, maybe one follow-up on the... So on the loans you've written in March, there's no compromise whatsoever to basically meet the benchmark. That's what I get from your answer.

Well, first of all, there's no compromise in our risk standards, so we haven't changed our risk guidance. Clearly, many of those loans are investment grade, and 90% of those loans are investment grade. So in that sense, we do it with companies that we want to bank with, and in that sense, there's no compromise.

Okay, thank you, guys. Next question is from Thomas de Rosemus, Goldman Sachs. Go ahead, please.

Yes, thank you, and good morning. Thank you for the presentation. So my two questions are on NII and fees. On NII, so given you just confirmed that you've pretty much secured the bonus rate until the second quarter of 2022, that you are now giving a new guidance on negative rates for deposits, and that you're returning to volume growth. Is it fair to assume that the fourth quarter 2020 was sort of a local trough in NII perhaps until the end of 2022? And then on your earlier comment in your presentation on deposit margin and where the rate curve is and medium-term maturities, can we assume that perhaps 2023 should be the year where you're going to see the strongest impact given where the swap rates were? in 2018, but that this should improve after that point. And then my second question on fees relates to the news in Germany there. So I think you charge fees for new accounts only. Can you confirm that the recent ruling by the federal court on general terms and conditions for banking accounts should not affect you? Thank you.

Okay, I will take the question on fees. I will take part of the question on NRI in terms of the confidence level because you made a remark there. I will comment on that and then On the 23 question, I will let Tenet answer. First on fees, I mean, I think that you're alluding to the court ruling in Germany. For ING, I can confirm that we only charge fees on new accounts. you mentioned that you already have, I don't know how exactly to put it, but you already have the TLTRO second phase in the bank for the next five quarters. That's not what I said. I said on the first phase of TLTRO, we still have a quarter to go, and that we will book because we made the thresholds. And then you get into a second phase of TLTRO, and there we are confident at this point in time that we will book by the quarter, contrary to what we did with the first phase of TLTRO. And that would mean an additional $75 million per quarter for the next four quarters thereafter. So therefore, at this point, we anticipate to book approximately $75 million per quarter for the next five quarters. To Nate, swap rates in 23. Yes.

So... Thomas, I think if you look at our liability margin compression, there's really three kind of elements to consider. Clearly, the replication is negative, right, because of the curve, and our book has a duration of roughly five years, so that pressure is still there, and as we mentioned before, there can be some volatility from quarter to quarter depending on the replicated tranches that come due. Another Maybe a potential downside is really deposit growth, which is something we're trying to manage, something that we're encouraging our depositors to look at alternative savings products, right, like investment funds, because the more deposits that come in could pressure our net interest income over time. But then the third is that we do see the fact that the curve is moving up. that the three-, the five-, and the seven-year curve is getting better. I don't think it will have a material positive impact in 2021, but if the curve stays the way it is, that material improvement should start being seen visibly in our numbers starting in 22 and certainly in 23. Yeah. Thank you.

Thank you. Steven, I think we were saying the same thing, actually. I understood your comments perfectly. Can I follow up then on on the absolute level in euro billions for the loans. Is the threshold for the second bonus rate lower than it was for the first one, given the dynamics you have seen until last year on volume growth? Thank you.

Let me take that one. on the measurement. The measurement for the second tranche is from October of 2020 until the end of 2021. So the measurement point is different and I think if you look at where we were in October, we think we have a somewhat higher confidence of achieving the second tranche where on the first one we said it was tight until very late in the quarter. Thank you.

Next question is from Raul Sinha from JP Morgan. Go ahead, please.

Good morning, all. Maybe one follow-up on the whole debate around loan growth, please. The first one is basically around the March sort of growth that you've seen. And I guess the concern might be that, you know, there's a lot of one-off type loan growth in March here. What I'm trying to understand is how much of the loan growth in March actually reflected genuine pickup in demand. And I think in this context, I just wanted to flag HSBC, for example. One of the other banks did disclose a monthly sort of demand picked up to almost twice the level of a normal run rate from its global commercial clients. So that's something in line with what you have seen from your clients in March, i.e. trying to get a sense of how much of March was actually demand-driven versus you know, just the sort of push that you've had towards TLTRO.

Yeah, thanks, Raoul. I think that maybe two elements to that, to give you some pointers. I think the largest part of the loan growth in wholesale banking was linked to TLTRO. So that's a large part of that. amount in wholesale banking. What we also do see is some pickup in trade commodity finance and in lending across the globe. Trading commodity finance was also helped by more exports, and that's helped volume, but also by the dollar and by the oil price. With regards to other companies, there you see increased economic activity, mainly coming from Asia and also coming from the Americas, and gradually we see that picking up in Europe as well. And if you look at TLTRO, in the end, it's also companies that do require those loans. But part of it, and that's what I mentioned, can be seen as a sort of a pull forward that they are gradually ramping up their investments again. but they're now going back to the market earlier also because we were in touch with them to actually get those loans in now. And then I look at mortgage demands that remained strong with a 2.7 billion growth in the various markets across the globe.

Understood. I've got a second one, if I may, on Poland, actually, given you've very helpfully put the spotlight on that. Obviously, the business seems to perform really well, but I was wondering what your thoughts are on the structure of how Poland sits within the R&D group. Obviously, it's one of the markets that's separately listed. Is that something, you know, obviously traded a big premium to R&D? Is that something that you see is perhaps more relevant for some of your other growth markets or challenger markets, which might be peripheral to your footprint?

Sorry, Roel, what is more relevant for other growth markets?

The fact that Poland is separately listed. Is that something you also might be looking at in terms of some of your other challenger and growth markets?

Yeah, I got the question. Thank you. No, I mean, it was a legal requirement that there is a separate shareholding and that there is a separate listing for that group. That is a regulation in Poland. So it was not something that we did when we acquired the business many years ago. So it is part of being a bank in Poland. But Poland, as any other bank, is a complete part of our franchise and is also using all the building blocks, including the touchpoints, architecture, technology that I talked about in the slides that I presented. Okay. Thank you.

Next question is from Benjamin Roy from Deutsche Bank. Go ahead, please.

Yes, hi. Good morning. One question on costs. I guess the first quarter had a rather tough comparison. should be easier from Q2 onwards. Should we expect then operating expenses to be flattish to down, as in line with your comments over the last conference calls? And then secondly, you reiterated your financial ambitions. Just wondering, in this still negative interest rate environment, this 50% to 52% cost-income ratio, it's not easy for almost all banks in Europe. Conceptually, could it be that you come out higher, but the loan losses should be sustainably lower, leading to your RE ambition? Or is that something you wouldn't consider?

Let me start with the second question, because I'm spurred by your question. Well, conceptually, a lot is possible, but we... are looking in our return on equity through the cycle. We also look at our risk costs through the cycle, which we currently look at being 25 basis points, as we have experienced that over the past 12 years. And in that setting, we have set a target of 50% to 52%. So in that, I'm not projecting a lower across-the-cycle risk-cost level to compensate then for other cost levels, if that's what the question was. So that is not the case. And yes, I mean, we're currently not there, but we are working towards that. And if the question is, that was your first question, should we expect operating expenses to go down in the second quarter? The answer is yes.

Okay, thank you.

Next question is from Farquhar Murray from Autonomous. Go ahead, please.

Morning, all. Just two questions, if I may. My main question was actually on the German court decision, and you've answered the bulk of that. But just to complete it, can we conclude that there is essentially no silent consent discussion at INGD, but you're essentially clean on that? And then my second question is just some detail around the surge of lending in the first quarter. I fully understand the kind of rationale and incentives around that, but might you have the split of durations of that lending, just to get a sense of how much of it is short-term versus longer-term? And presumably the margin on that lending is lower than average. Is that fair?

Okay, thank you. So to be absolutely crystal clear on your first question, Fokker, there is no silent consent decision and discussion in Germany. Right? Then on the second one, If you look at the duration of lending in the first quarter, it's about 50-50, so 50% short-term and 50% long-term. And it's 50% that has to do with the financial markets or lending, so actually the liquidity facilities, if you will, the working capital facilities that companies draw. But the other lending is longer. Those are typically more term loan style loans.

Great. Thanks a lot.

Thank you.

Next question is from Omar Fall from Barclays.

Go ahead, please. Omar Fall Hi, there. Just a couple of questions for me. Sorry, could you give a bit more color on OPEX? In particular, are you ready now to give us some guidance on the potential scale of future restructuring costs? Or should we just assume something in the region of the levels of the score to going forward for a few more periods? Then on retail Netherlands, can you give a bit more explanation of the NII drop there specifically? It looks like kind of 60 million sequentially, which is quite a big acceleration from previous periods. So just some additional color there would be very useful. Thank you.

Okay. Thank you, Omar. I will take the first question, and Teneit will take the second one. As you have seen, and we've also made announcements again in the first quarter, I've made announcements in the fourth quarter on elements that we're looking at and what we're restructuring. So the first quarter, we made announcements on the Czech Republic and Austria. We made announcements on our branch network in the Netherlands. We made announcements on private banking in the Netherlands. And we will continue to review our businesses and we will continue to announce when there is something to announce. I want to do this prudently. I want to execute with certainty and rigor. And that's what I will continue to do. And what we have seen in the course of 2020 is that the nose of the plane was still up and gradually came down to flatten it. And now the nose of the coast plane is coming down And like I said, to answer the previous question, the nose of the cost plane will continue to go down from here on.

On the results on NII for the Netherlands, I think there's probably three things that is there. The replication impact has a degree of lumpiness from quarter to quarter, and that you see that in Q1 for the Netherlands. The second one that we are seeing more of is the fact that given the low rates environment that we have a number of customers who are refinancing their mortgages and that has lowered to a degree the net interest margin that we generate in in the Netherlands. And then the third, which is a positive evolution, is that we have seen that the new mortgage margin that we generate is actually increasing over the quarter. So we now have a new production market share of somewhere around 11%, almost 12%. So that's a positive evolution for the future.

Understood. Just a quick follow-up on the first question. Could you help us with our modeling just to give us a sense of the NII revenues or costs, anything contribution of the perimeter of announced disposals slash restructured businesses. Obviously, Austrian check, we can get that data to a certain extent, but for some of the others as well, that would be helpful.

So, on NII, as we mentioned, look, the impact of negative interest rate and the inflow of deposits, it's there. But you see the management action that we have taken, whether taking advantage and making sure we achieve the TLTR role of benefit, negative rates charging, behavior and other fees increases that we have, and hopefully we benefit from the improving U-curve environment. So these are things that are, you know, actions that we are taking to make sure that our net interest income is remaining resilient, okay? And in terms of the OPEX, as Stephen mentioned before, we don't want to give you an overarching transformation plan, but we want to announce plans as things become execution certain, and that's what you've seen in the first quarter as well. So we will give you transparency on actions taken on a quarter-by-quarter basis.

Thank you.

We have next question from Julia Miyoto from Morgan Stanley. Go ahead, please.

Yes, hi. Good morning. Two questions from me as well. I want to go back to the fee, the fee growth, in particular on the investment products, which has been very strong. Could you give us more details in terms of what you are changing and how sustainable that fee growth is versus how much comes from trading, which could be maybe shorter term? So that is my first question on the fee side. And then I have a question on ESG, even that you highlighted it. at the beginning. ING has clearly been very forward-looking on this theme, but in the recent announcement around the net zero, ING wasn't among the banks that have committed to this target. So I was wondering why. Just your thoughts on that.

Thank you. Thank you, Giulia. And let me start with ESG. And Indeed, we haven't been signed a net zero accord for 2050. And the reason is that a number of the... glide paths or energy paths as they would need to be developed by the European Energy Agency have not been developed. So we would need to look at what that would mean for these energy paths and therefore the change in the energy mix in the world to be able to see what that then would do also to our portfolios. And like we have done with Terra already a couple of years ago, we want to see what those energy glide paths are, what those scenarios are. And when these scenarios are there, and I believe they will come in May, then we will look at that to then see how we can act on that within the setting that was just outlined. So I do not want to give you a marketing story. I want to be very clear on how we can really transition. And for those, we need the Energy Pass. On fee growth, yeah, I mean, we have very good fee growth in investment products. I'll just give you a figure. I mean, in 2020 in total, we had around 700,000 new investment product accounts opened. In the first quarter alone, it was already 256,000. And increasingly, you see that people who want to build up a buffer, they do that partially in savings, and they do partially do that in investment products. And we come from an environment whereby we had very little interaction or limited interaction with our clients on investment products. And a year ago, we stood at around 120 billion or so in asset management. Currently, we stand at 170 billion, but it's still actually quite small compared to a number of our peers. So with better apps that we have with more interaction on our clients, but also a broader proposition that's currently execution only, but we're also going to start with advice. We will start to develop more of our investment business, but that's not the only part. We have also started to introduce higher payment packages. That is also something that you see in the figures coming through. But we still do that in a subdued payment environment. And it also means that credit card usage, amongst others, as a result of less traveling, is not there yet. So if traveling resumes and if spending by credit card resumes as well, that should have a positive impact on our daily package fees as well. And then when you look at lending, especially wholesale banking lending, their syndicated loan fees are low because the syndicated loan market has not returned to normal levels compared to the first quarter, or actually the first two months of the previous year and 2009-10 and before that, 2009-10 and before that date. So, also there, we would expect these fees to move up when economic activity returns to more normal levels.

Thank you. Next question is from Anke Rijngens from LBC. Go ahead, please.

Yeah, good morning. Thank you for taking my question. The first is just to follow up questions first. On NII, did I understand you correctly? X the TLTO benefit in Q1 should NII basically go up in the next quarters. And then on the cost, are you able to give us the full year regulatory cost, what we should expect given the Q1 step-up, if this is a guidance for potentially the increase for the full year? And then just putting up on the question on the RE part, so 7.8% in Q1 to the black reporter with 15 basis points of loan loss charges. I mean, if we think about the building blocks, I mean, the cost-income ratio seems, yeah, it's obviously a bit hard. Is it all revenue goals? And then, obviously, how important is bringing returning capital to your shareholders in order to deliver the ROE target? Thank you very much.

I will take the questions on ROE and on NII. and tonight we'll take the question on guidance on regulatory costs. First on RRE. I think that we have a number of levers to pull to actually get back to the 10 to 12 percent. The first lever is revenue, the second lever is costs, and the third lever is our capital. And our capital currently stands at 15.5% of common equity tier one. We have given guidance of around 12.5%, which by the way is still 2% above the MDA trigger level. We have strong capital and we have also strong loan books. And what we would intend is over the next couple of years to bring back our capital to that level. And, yeah, that is, of course, also one of the levers that we require to get back to the 10 to 12 percent. With regards to NII, excluding TLTRO, like I said, I mean, on the one hand, we are pressured by incoming deposits that is still continuing. And for the first quarter, that was about 8 billion. We are charging negative interest rates and have increasingly been doing so with an annual impact this year of 200 million and an annualized impact of around 230 million. And, of course, we are continuing on our loan growth, and we do anticipate that if the economy is rebounding, then also loan growth will increase again, and that should help our NII. And those are the levers that we will be looking at to support the NII going forward.

And I think, Anca, your question on regulatory expenses, there are really three buckets there. Deposit guarantee schemes in various markets, bank taxes, predominantly in the Netherlands, and then the SRF contribution for resolution. And what you saw in Q1 is really the increase in the resolution fund because of the increasing levels of deposit, and that will also feed through into DGS expenses as well as level of the system deposit rises. On bank taxes, I think in the Netherlands we have, the government has announced a one-time 50% increase in bank taxes for 2021, so we also expect somewhat higher bank taxes there as well. the level of regulatory expenses for 21 will be somewhat elevated compared to 2020. Okay.

Thank you very much.

Ladies and gentlemen, if there are any additional questions, please press star 1 for question star 1. We have a question from Tarek El-Majad from Bank of America.

Go ahead, please. Hi. Good morning, everyone. Just one question on costs and restructuring. Can you just help us understand what's your logic and the strategic, actually, arguments that push you to exit one or the other country in the retail side? So, you announced the Austrian Sugar Public. What was the trigger? Was it the size, the profitability, the prospects? I guess it's a bit of all of this, but I'm just trying to understand what could come next of the smaller other European, Western European countries in there, without naming anyone. Thank you.

Thank you, Tariq. Yeah, so indeed, and it's also partly mentioned by you as well, we look first of all, is the market attractive and is there an attractive business to be made in such a market given a competitive umfeld, if you will. Then secondly, we look at can we reach sufficient scale, and especially also in retail, scale, local scale is still important. And can we realize a sufficient profitability over time? And the last one is, is there something that what we do in such a market, is it also benefiting other parts of the group? Or is the group bringing certain benefits to that particular market? And those are the lenses that we look through our businesses. And for these two markets, it meant that on most of them, it did not meet the hurdle through the cycle and therefore we decided to exit those markets from a retail point of view.

But for the Western European countries or series, so you don't look anymore into like this model strategy where you have your basically you materialize the costs and we're basically being only 2% market share in France or wherever. It's not relevant because you look at it from the perspective of adding together all the small countries. So you still look at it from this lens or the local market share is actually more relevant now?

So we look at both. So if you ask, did you stop Model Bank or Maggie, then the answer is yes. That we announced in November that the reason for that was is that integrating the sales and service journeys or core banks between different markets has proven to be too difficult and too uncertain with continuing high investments for a longer period of time. What we do do, and that's what I highlight also with the touchpoint architecture, is to use this, I would say, IT platform to enable multiple countries to reuse apps that have been built or authentication that has been built or APIs that have been built. And because we can reuse all of those elements, that realizes also scalability in costs, but when it comes to the back-end offices or the back-end structures, that has proven to be too difficult. And therefore, we have stopped MAGI, and it also means that local scale is an element and remains of some importance. That is correct.

Thank you.

Next question is for Kiri Vijayaraja. on HSBC. Go ahead, please. Good morning, everyone.

Firstly, can I just come back to the financial markets lending growth? Are you implying that lever's ready to be deployed again for TLTRO purposes and hence your confidence there? Or is it more a case that the volume momentum outside of financial markets is going to be sufficient to meet your TLTR threshold? So, in fact, you don't need to sort of pull that financial market lever again. So, just trying to understand how the dynamics there. And then in terms of the new business and client demand that came in at the back end of the quarter in the wholesale bank, outside of financial markets in the wholesale bank, and the extra revenues that should eventually generate, could you just give us a feel for how that splits between net interest income and fees? It sounded like from the discussion earlier that it was mainly an NII thing, but just wanted to clarify if there were kind of ancillary fees we should be kind of penciling in from some of that new business. Thank you.

Thanks, Zachary. I think that if you look at the lending growth and the confidence on the TLTRO, I think that there it was a mix between longer-term loans and shorter-term loans, and therefore also in the lending part and the financial markets part. And that can also be the case for the second part of TLTRO 3. That depends on the need of the clients. With regards to the lending growth and the NII story, it will also bring in fees. You could see either syndication fees or you could see other type of underwriting fees that you could get from that. Part of that has not yet been booked. Like our outline, I think that's what I would like to point at. If you look at the level of fees of wholesale banking in 2019, under normal circumstances, that's when syndicated levels were still there. When they return, and we hope, we believe that they will return in the second half of this year, they would also see our syndicated fee levels return to normal levels, which we've given up. Thank you.

Next question is from John Peace from Credit Truth. Go ahead, please.

Yeah, thank you. Just wondered if you could tell us what is the cumulative management overlay you've now taken over the last three quarters? And if the economy recovers, could we consider all of that potentially being released in the second half of the year? And would provision releases form part of your stable net profits for the purposes of dividend calculation? Thank you.

Okay. Sorry, John, can you repeat the second question, please?

So the second question was, would provision releases form part of the stable net profit, as you see it, for the purposes of the 50% dividend accrual? Thanks.

I think the answer on the second question will be given by Tanej. You go first, and then we go back to Liliana for the first question.

So we do expect to basically accrue 50% of our profits, and that means that if risk costs are lower, that will clearly benefit the overall numbers. So we don't anticipate any adjustment for that basis.

And on the first one, on the management overlay, as it was already said, we have taken 593 million of total overlay in the first quarter. reflecting uncertainties and exit of the crisis in the diverse geographies.

Thank you. I wondered what was the cumulative number, please, over a few quarters. Do you have that figure?

Yeah, we don't disclose that, John. Okay, thank you. Thank you.

Ladies and gentlemen, if there are any additional questions, please press star one. For questions, star one, go ahead, please. There are no more questions. Please continue, sir.

Okay. Thank you very much for your attention, and I'm sure we'll be speaking again in the second quarter. Thank you.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect your line, and have a very nice day.