Ing Groep Nv

The conference is now being recorded.

The share buyback program that started in October last year, and overall yield in 21 was 9.4%, and the share buyback will improve earnings per share, dividend per share, and return on equity. And with a CET1 ratio of 15.9%, we have significant excess capital, and we are in constructive dialogue with the ECB about our distribution plans. We will announce next steps if and when we have received the necessary approvals. As you can see on slide 12, CD1 ratio is well ahead of our ambition. On RRE, it has improved significantly, and with continued growth, as well as focus on cost and capital, we maintain our ambition and very much intend to continue to provide an attractive total return. To reiterate, cost-income ratio remains an important input for RRE. We continue to work on 50% to 52% ambition in that regard, and as for distribution, as I mentioned, we propose a full-year dividend of 62 cents, subject to shareholder approval for the final dividend. Now let me take you through our fourth quarter results starting on slide 14, which we will try to go through a bit faster. Year-on-year, NII excluding TL3 roll was lower, slightly lower, primarily due to pressure on liability income and a minus 23 million reclassification from our income to NII. And this was partly absorbed by increased negative interest rate charging in the retail Benelux as compared to a year ago, thresholds in the Netherlands having gradually lowered, while in Belgium, charging was introduced as the beginning of 21. NII from lending was up, reflecting mainly higher average volumes and when looking at exclusionary reclassification, NII went slightly up quarter-on-quarter, as higher lending NII and increasing interest rates, negative interest rate charging, more than offset this quarter's pressure on liability income. Our net interest margin declined quarter-on-quarter by one basis point, totaling 37 basis points, driven by the aforementioned reclassification, as increased negative interest rate charging absorbed most of this quarter's pressure. Slide 15 shows net core lending growth. Overall strong growth continued in retail, while in the fourth quarter, wholesale banking also has strong contribution, resulting in a net core lending growth of 13.4 billion. In retail, mortgages were the primary driver of lending growth, with some growth also visible in consumer and business lending. Mortgage demand was strong in Germany, but also in Spain, Australia, and Poland. In wholesale banking, loan growth returned, with partly reflected TLTRO-eligible deals, so the number for the fourth quarter should not be extrapolated. However, when we look at the pipeline, we see signs that demand remains strong, and we are positive on loan growth in wholesale banking going forward. Net customer deposit growth was minus 2.1 billion, and retail savings were up by 2.7 billion, with inflows in the Netherlands and non-Eurozone countries, while we saw an outflow in Germany and France. This was mainly the result of the introduction of negative rate charging in November. Also, banking records an outflow of 4.9 billion, mainly in PCM. And turning to fees, off slide 16. Year-on-year fee income grew by 20% with both growth in retail and wholesale. Retail fees were up 70% with an impressive 27% increase in daily banking. This reflects growth in primary customers, the increase in payment package fees and a further recovery in the level of domestic payment transactions, which was basically back at pre-COVID levels. And international payment levels actually remain subdued in transactions. In investment accounts products, fees were 12% higher, reflecting growth in accounts, asset management and trades. In wholesale banking, fees were 26% higher, with growth across all product groups, and sequentially retail fees were 3% higher, driven by investment points and daily banking. In wholesale banking, fees were up 9%, mainly reflecting higher fees in financial markets and corporate finance. Slide 17 shows expenses, which this quarter included $166 million of incidental items, mainly reflecting $141 million of provisions and impairments, related to the announced closure of the French retail banking activities. Excluding regulatory costs on these incidentals, operating expenses remained under control. Year-over-year, these costs were slightly higher, mainly reflecting a lower VAT refund and higher staff expenses related to CLA increases and performance-related expenses, which were reduced to lower levels in the fourth quarter last year, so that's 2020. Quarter and quarter was also largely driven by the staff-related cost increases while also marking our tier expenses were higher. Regulatory costs were up, including the Dutch bank tax, which was 60% higher in 2021, and in 2022 this level should normalize again. Overall, I'm pleased with how operating costs are developing. Also, as we already see some effects of measures taken so far, we will always keep focusing on optimizing where we invest our capital, and further measures can always materialize. But at the same time, we also need to look forward, and we will invest in areas where we can get the best returns. And we go to risk costs. That's page 18. There were 346 million or 22 basis points over average customer lending. The increased level compared to previous core reflected our prudent approach in certain environments. We took hold of 30 million to reflect uncertainty in recovery scenarios and valuation in certain asset classes, mainly in wholesale banking, and in addition We took $124 million related to residential mortgages where increasing inflation and interest rates could affect customers' ability to pay, which could impact house prices. This was partly offset by $124 million releases of management overlays taken in previous quarters, mainly related to payment holidays and sector-based overlays, predominantly as a result of reductions on watch lists. Aside from these releases, in retail Benelux, risk costs mainly reflected a mobile update in Belgium and some individual Stage 3 releases. In regional challenges and growth markets, risk costs further reflected collective provisioning, mainly in Spain and Poland, and in wholesale banking, Stage 3 risk costs further included limited additions to mainly existing files. Finally, the Stage 2 ratio was slightly lower, and the Stage 3 ratio was stable. Slide 19 shows that our CET1 ratio increased to 15.9%. CET1 capital was 600 million higher, mainly due to the inclusion of 50% of net profit for the quarter. And with net profit being equal to resilient net profit, the other 50% was reserved for future distribution in line with our policy. RWA's increased, mainly due to the higher market and operational RWA, Credit RWA were done mainly reflecting overall improved profile of the loan book and regulatory RWA inflation known at this moment ahead of the 2025 Basel IV implementation has been almost fully incorporated. We still expect RWA impact from the postponed implementation of risk flow waiting for mortgage in the Netherlands, which we currently estimate at around 7.5 billion, but we expect this flow to be temporary as it is front-loading the output floor under Basel IV. And besides that, we will continue to see releases or additions to RWA from regular model updates. To wrap up with the highlights of the quarter on page 21, our customers continue to recognize our strengths, resulting in further growth of our primary customer base, as well as the number of sustainability deals. Our digital-only mobile first focus continued to pay off with mobile becoming the main channel through which customers interact with ing in 2021 and these factors support our efforts to diversify income with full year loan growth returning and fees increasing by almost half a billion or 17 and this offsets the continued pressure on liability income caused by the negative rate environment on costs We managed to keep full-year costs flat. Full-year risk costs were 560 million, or eight basis points over average customer lending, well below our through-the-cycle average, and this included some prudent adjustments to stage 3 provisioning on existing files. The CD1 ratio improved to 15.9%, with 50% of the fourth quarter resilient net profit reserved for future distribution. We propose a $0.41 final cash dividend, bringing the full-year cash dividend to $0.62, subject to AGM approval in April. That concludes the presentation, and I will now open the floor for Q&A.

Thank you, sir. We are starting the question-and-answer session now. If you have a question or remark, please press star 1 now on your telephone. In the interest of time, we kindly ask each analyst to limit yourself to two questions only. So, start one for questions and remarks. Go ahead, please. Our first question is from Mr. Benjamin Goy of Deutsche Bank. Go ahead, sir. Your line is open.

Yes. Hi. Good morning. Two questions, please, from my side. First, on cost, maybe just to double check. In the absence of restructuring cost or any incidental, should we expect then that the underlying cost base is stable? And can you also absorb investments then and the likes in 2022? And then secondly, you're obviously guiding towards payouts above 100% going forward. I was just wondering how the discussion with regulators has evolved over the last month. I mean, we saw a large appeal of you announcing effectively that plan. Do you think the likelihood of that has also become more or has increased for ING? Thank you.

Thank you very much, Ben. And I will answer the first question, and then Nate will answer the question on payout. Yeah, I mean, so the cost base is stable. Please note that the fourth quarter was impacted also by CLA and by performance-related salaries. And, of course, by a slightly increased marketing and IT expenses on the back of growth, because we want to continue to grow our business as well. Now, gradually we see some of the impacts that we made as a result of the announcements that we made on some of our retail markets and some of our other activities kicking in, that is gradually kicking in over 2021, but will continue to kick in over 2022. And that means that despite what we currently see in inflation and CLA pressure, that we intend to keep our costs at least flat over the year 2022. Tenet?

Hi, Benjamin. So I think just on capital returns, I think our discussion with the regulators are constructive. You know, look at what we announced so far, 41 cents in dividend payments, 1.7 billion share buyback, which is coming to its conclusion. and rising levels of core tier one. So that capital strength means that our conversation with the regulator has been constructive, as we say. And, you know, these discussions are ongoing, but we expect that we would conclude our discussion before we announce our first quarter results.

Thank you.

Next questions are from Mr. Wano Petrarch of Tector Chivreau. Go ahead, please. Your line is open.

Yes, good morning, guys. So the first one will be on NI. So the rate curve is moving quite fast now. I just wanted to discuss basically this gradual positive effect into the replicating portfolio. Especially at which point, when do you expect the kind of loan growth at a 3-4% level to upset the pressure on liability income? And are we getting closer at current levels to that point? I was wondering if that could be something we will start to see in 2022. And also, let's be a bit hopeful on the rate increase. What is your sensitivity, again, to, say, a 50 pips hike of ECB rates on NI? That would be very useful, please. And then the second question will be on the fees. Just how do you see fees, you know, going in 2022? I mean, you are coming from a very strong year at almost 20% year-on-year. do you still expect some of this uplift? Do you think it includes some structural and market-related effects, or do you see this growth into 2022, basically? That would be very useful. Thank you.

Thank you very much, Benoit, and I will answer the question on fees, and then Nate will talk about NII. If you look at fees, I mean, most of the elements that we currently see in our fee build up are structural. We have increased the number of people that have investment product accounts with us. For example, if you look at Germany in 2020, we grew the number of accounts for investments with 326,000. This year it was 390,000. So in total, More than 2 million clients in Germany are currently investing through us. We increased the number of payment packages in some countries, as a result of which our fees went up as well. And we also do more insurance with a number of our clients in the different countries. But please note that we also continue to grow our primary customers. And if we grow our primary customers, that means that we have clients that do more with us. And like we always have said, clients who do more with us are more sustainable from both sides, from the client side, but also from our side in doing business together. And you see that on one of the pages in terms of mobile sales that also increased quite dramatically in this year compared to the year before. So all those elements play a role. So higher number of primary clients, increasing payment packages, more clients that do investments with us, more clients that do insurance with us, And I think that the reason why I am confident is that if you look at the lending fees in wholesale banking, that is not quite yet back at the level that we saw pre-COVID. If you also look at the international payment volume, that's completely not back where it was before the COVID crisis. Yeah, we saw domestic payments coming back, but not the international payments coming back. And that is a significant part also of that income. So in that sense, I'm confident positive, I'm confident, and therefore we continue to guide a growth in fee income of 5% to 10% per annum also for the years going forward.

Benoit, just on NII, maybe I give you a bit of color in terms of what is some headwinds and what is some tailwinds. Clearly, outgoing in assumptions for 2022 is that the TLTRO program will end. And with that ending of the TLTRO program, it means that we will be missing somewhere around $300 million in NII compared to 2021. Having said that, if you look at the other components, we were fairly confident given what we see in Q4 that the 3% to 4% loan growth is there, and we think it will be there across the board, whether retail or wholesale banking. We also believe that we see a strong pickup in high margin business in our central European business, which I think will also be contributing to that NII uplift. The other couple of things to point out is that negative charging for liability is continuing, not about the future, but the current actions already taken. And that for the full year 2021, we have a positive impact from that negative rate charging of approximately 220 million. And that would raise to about 300 million for 2022. These are kind of also some positive tailwind that you could see. And to address your question on the curve movements, we do expect that the negative rates compression that we will see in 2022 will be significantly less than what we saw in 2021. But I think it's not so easy to just say what would a 50 basis point uplift would mean. It's a much more dynamic calculation that we would have to make. But I would say that these rates movement that we see now is really helpful in terms of mitigating some of the compression we saw in 2021.

Yeah, this is very useful. On the 50 bps, I was just mentioning the short end of the cost of the financing rate, let's say, from DCB. If DCB will kind of hike by 50 bps, any guidance on that?

Well, I think we do our replication in a barbell, and we see really good evolutions in the long end. So, indeed, if the short end would move, it would be very, very helpful.

Okay, great. Thanks.

Our next question is from Mr. Stefan . Go ahead. Your line is open.

Yeah. Hi, guys. Good morning. I wanted to ask a couple of questions here. The counter-cyclical buffer has gone up by around 20 bps at the group level. I'm assuming that the buffer increase in the buffer. So we're now at 10.7% , which means that the buffer to the management target has shrunk by 20 bits. Is this something that you're, so to say, going to absorb within the management buffer, or are you thinking that maybe as regulators tighten the counter-cyclical buffers across Europe, the 12.5 might move higher, maybe closer to worth 13% or so? So that's one question. And the second one is on costs. It's encouraging to see that you're aiming to absorb inflation for 2022. That will presumably come via restructuring in the business, as you have been doing over the past couple of years. Is it fair to assume that the flat guidance or at most flat guidance is exclusive of any restructuring costs that we may be seeing? from the various businesses. Thank you.

Yeah, thanks very much, Stéphane. I will do the question on costs, and then Teneit will do the question on the counter-cyclical buffers. We took quite some... I mean, first of all, you're right. So, yes, what I guide on is the cost excluding these restructuring amounts if they would come. We've done quite a bit of restructurings in 2021 with Czech Republic, Austria, France, Jolt, PayVision, some of the branch networks in the Benelux. Not all of those benefits have yet though materialized. So the announcement that we made earlier in the year still means that it takes us quite a lot of time to actually run off those businesses. Let me take the Czech Republic and Austria. That has taken until the end of this year to roll off. So that takes time. So benefits of some of these announcements that we made in 2021 and end 2020, by the way, will also materialize in 2022, and that will help us. But indeed, it is excluding new restructurings if these would take place.

So just addressing the question on counter-cyclical buffer. So we clearly have issued a press release on our new MDA target. And in calculating our 12.5% capital targets, we already take a certain assumption about rising levels of counter-cyclical buffer. So far, I think about six or seven countries of material size have increased their buffer, which is contained in our numbers. But we stick with our 12.5% courtier one guidance.

Great. Thank you.

Next question is from Mr. Omar Saul of Barclays. Go ahead, please. Your line is open.

Hi there. You mentioned the very helpful impact from higher policy rates. So just to clarify, is there an expectation then that if and when actual policy rates increase, you'd be able to maintain the negative rate charging you're currently doing and the 300 million benefits and that you'd have some positive beta there for some periods? Then the second question would just be, to help us with our modeling, could you give us the cost base of France, retail, Austria, and Czech Republic, or just some slightly better clarification of the component of OPEX that you'd expect to see removed in 2022? That would be very helpful.

Yeah. Look, thanks Omar for your question. So on policy rates, yeah, I mean, and clearly you also mentioned what is the beta there, and that is a good word, because it depends on the beta tracking that we then will do. Clearly, as long as the rates are negative, the beta will probably be higher, and if the rates are positive, then the beta tracking will probably be a bit lower. But it also depends on what competition is doing and how the rates not only move in the short term but also in the long term. So it's not a one-sided answer that you can give. What will of course help is that now we already see that the market rates on the long end are increasing. We see that mortgage rates are more linked to the long end of the spectrum. And the ECB is more focused on the shorter end of the spectrum. But yeah, we will need to wait and watch what the ECB are all going to announce as of today, but also in the next quarter. So we will need to remain seen. But if you look at it overall, a gradually increasing interest yield curve, upper sloping will be helpful for us, both on the short term and on the long term of the yield curve. Then on the cost base of France, Czech Republic and Austria, we do not disclose individual cost bases. But Nate will give you some flavor.

I think we, as Steven mentioned, we don't disclose the absolute cost number, but we did disclose the number of employees affected by these closures. And for Czech, for Austria, we have announced numbers of around 560 staff. And for France, as we announced recently, it will affect 460 FTEs. Thank you.

Next questions are from Miss Yulia Miyoto of Moran Stanley. Go ahead, your line is open. Yes, hi, good morning. Can you hear me?

Yes, very well.

Perfect. Okay, thank you. So two questions on my side. I want to go back to the NII sensitivity question. So it is the perception of investors that perhaps ING might be less effective sensitive with respect to peripheral European banks because the mortgage book is mostly fixed. And if I look at what you disclosed in the annual report, I think there is a 16 million impact for 100 basis points move in one year, which is basically a negligible impact. But what we have seen through the years is clearly a much higher impact. So it would be very helpful if you could give us any sort of sensitivity for either a parallel or a front-end move. So that's my first question. And then my second question on fees. So I totally understand the structural discussion around the retail fees, but my question is on wholesale banking fees, actually. So $322 million in the quarter is pretty high also by pre-COVID standards. Is that sustainable? What is driving that? Any color that you can give us on wholesale banking fees. Thank you.

Thanks very much, Julia. You're correct. The wholesale banking fees were good this quarter, and that was a result of more event-type driven fees also in financial markets and corporate finance. So in that sense, that was good. But if you look at the lending fees within that, because most of the fees that we make in wholesale banking are still from, let's say, the syndicated loans and the underwriting activity that we do, and that market is not completely back. It's typically still a take-and-hold market on a number of these elements. It will be held by M&A, of course. If there's more M&A, there's also more underwriting. But that is still to come. So, yes, we benefited this quarter from some one-offs or positive one-offs in terms of event-driven fees, but we have not yet benefited from the syndicated loan market coming completely back. That's on wholesale banking.

And, Julian, I think your question is, as you know, in most of our markets, we do fixed-rate mortgage loans, but it does not mean that we keep that long-dated interest rate positions, right, from a hedging perspective. As long as we originate the loans, we start swapping the position down to the level of interest rate risk that we are comfortable with. So I think if you want to see the sensitivity, you should look at the three, the five, the seven-year piece of the curve. And also, as we mentioned before, if the short end of the curve, kind of the six months was to start moving materially, that really will be quite positive on IMG's results, net interest income results.

Thank you. And maybe just to follow up to this last point, in terms of your replicating portfolio, can we assume that about two-thirds of the deposit in terms of size or any more color on that?

We don't give that information, but of our 600 billion of liability, a fairly significant part are Eurozone-based indeed.

Thank you.

Next question is from Mr. Kiri Vijay Arya of HSBC. Go ahead, please. Your line is open.

Yes, good morning, everyone. A couple of questions. So firstly, on the wholesale bank and the rapid lending growth you're seeing there, You know, if you go back, you have been doing some de-risking there when you first became the CEO. So my question is really, you know, how do we get comfortable you haven't simply kind of backtracked on your kind of risk appetite in the wholesale bank and give us comfort you haven't just gone back and restarted some of the old lending in wholesale banking? And then the second question more on the retail side and the extra revisioning you're taking there, you've had higher inflation, higher interest rates. risk of falling property values. And I just wondered what early warning signs you're seeing that was the trigger there. You know, what are you seeing that maybe some of your peers aren't seeing yet? And just quickly, really between the lines, is it fair to say Turkey was a fairly minor element there? I mean, you do mention it in the slides, but you didn't really mention it in your verbal commentary. So just curious as to where Turkey fits in to the extra provisioning you've taken on the retail side this quarter. Thank you.

Sorry, the last part was we couldn't quite get that turkey. And what else you said?

When you flag the extra provisioning triggered by debt servicing, higher inflation, higher interest rates, and also falling property values for the extra provisioning. And yeah, I mean, a lot of your peers haven't really been flagging that yet, and maybe you're ahead of the curve, but I just wondered what early warning signs has been the trigger for you to actually take those extra provisions?

Right, okay, clear. So Liliana will answer the questions on the provisioning and the early warning signs or signals that we see. take the question on lending and wholesale banking and also respond to Turkey because I believe you asked on Turkey as well, but it was in the slides but not in the verbal comments. If you look at the lending and wholesale banking, I mean, yeah, I mean, I used to work in wholesale banking and then I was a CRO and then I became the CEO, but I have not become yet schizophrenic, I hope. in the sense that we did change or tighten some of the policies over 2017 that had mainly to do with the more cyclical sectors in real estate finance and leveraged finance, because we saw that then, at least in leveraged finance, some of the structures not being conducive to what we would like to do, which means the final takes or the underwriting standards in terms of the covenants And the same was going for, let's say, some of the indicator levels, such as loan-to-value in terms of our real estate finance book. And that's what we then titled. We never changed that since. So if you look at what the growth in wholesale banking currency is, which is fully in line with the policy that we have had since then, which is largely investment grade, in this quarter also a bit of a pull forward due to TLTRO. Short-term facilities also in trade, also supported by higher oil prices or higher commodity prices. That's what it is. So there has not been a change of tact in what we do in wholesale banking. I will leave the risk costs to Liliana.

Hi, Kerry. Yes, the early warning signs that you mentioned, let me please clarify that these are not related to the asset quality that we see in the fourth quarter. On contrary, we do see the signs in all of the metrics of further strong and improving asset quality. The early warning signs that we talk about is more related to the forward-looking macro indicators that have been, I would say, accelerated in the fourth quarter, specifically with the outlook on inflation Is it going to stay high for longer? And definitely its impact and eventually amplification effect on other macro variables. And just let me give you a few of the numbers that have made us think of what could happen going forward, clearly depending on the monetary response, is the fact that in December, as we know, the eurozone inflation has peaked to the highest since the euro introduction. Not just that, but also fourth quarter inflation year on year has almost doubled in some of our core markets compared to the third quarter, driven by the strong energy increase of the prices, which actually horizon of the end is not yet there. And let us not forget that in the last few years during pandemic, we have seen a double digit growth in our core markets with respect to the property valuations. And we have seen quite benign, I would say, outlook and position of the household incomes. So all of these coming together with what we see on the longer end of the curve, which is increasing interest rates, and looking forward to today's announcement as well of ECB and how they look into it, we are taking this prudent stance. Let me just add that most of these provisions have been taken on the, I would say, more vulnerable part of our portfolio, which is primarily stage 3. having in mind that we expect eventual impact first to material on this weaker part of portfolio, so they are not taken systematically for the whole book.

Very clear. Thank you.

Our next question is from Mr. Farquhar Murray, autonomous. Go ahead, please. Your line is open.

Morning, all. Just two questions, if I may. Firstly, on cost. you mentioned the impact of a risk profile reduction on regulatory costs in the quarter. Could I just ask if you could elaborate on the mechanics of that, and in particular, has that only really just kicked in for this final quarter, or did it support the whole of the year? And then secondly, just coming back to the counter-cyclical buffer, are you willing to elaborate on the assumptions you build into the target for that? And then just more generally, maybe even philosophically, We can all mechanically just increase the counter-cyclical buffer and it narrows the headroom to MDA. But is the target exercise really so bottom-up mechanical? And can we just take everything else as a given within that? And I'm asking that because obviously if we do move to a landscape with much larger counter-cyclical buffers, does the domestic buffer of 2.5% really make sense in that case? Because it looks like it was built for a different environment. Thanks. Thanks.

Okay, so you have to guide me a little bit how you execute me with your question, but I think that the first question related to the higher bank taxes that we saw in the fourth quarter in terms of DGS or lower. Can you just repeat what that question exactly was?

No, sorry, that's my fault. It's actually the other component. Obviously, there's the higher incidental component, which I understand. But actually below that, you seem to essentially have had a slight reduction on the rest of the regulatory costs. And you seem to be attributing that to a risk profile reduction, which I think related to leverage. And I'm really just trying to understand what's the timing and mechanics of that. And sorry if it wasn't clear to start with.

So just on the calculation of DGS, DGS calculates based on any banks given matrices of different dimensions. And one of the drivers of the contribution of DGS is the level of leverage ratio that you have. And given the improvement in the leverage ratio for ING, our contribution to DGS came down.

And did all of that just kick in in the fourth quarter?

Principally, yes.

And then on counter-cyclical buffer, is it really a bottom-up exercise? Well, in the end, yes. So basically what it comes down to is that these countries can include these counter-cyclical buffers or not. What we have done when we came to our levels of 12.5% or around 12.5% because the changes, for example, the Netherlands made in the local SRB buffer that was here for ING for a long time, they decreased that. But in return, there was an opportunity for the central bank to start levying a countercyclical buffer. In our buffers, we take into account the possibility that some of these counter-cycle buffers will materialize at some point. And that's when we include that. So based on what we currently know, based on what has been introduced, we have currently no intent to change our guidance on our CT1 ratio.

Okay. Thanks a lot.

Thank you.

Our next questions are from Mr. Tarek El-Majad of Bank of America. Go ahead. Your line is open.

Hi, good morning. Just come back, please, on the question on the cyclical buffer. I mean, I understand that you're seeing a compensation of the higher potential buffer in the Netherlands through the lower domestic system buffer that you had in March 2020. But the question is really the 2.5%, how valid still it is in a context where LTVs are lower since the last 10 years, EDIs in place, the Singularization Fund almost filled, you have much higher RWAs on mortgages. So what's really your discussion with the DNB about this 2.5%? Because clearly we are in a different context and in a European context, it sounds very elevated. And when you think about... still their ambition to take the CCYB to 2% in the next two years. Are we not in a spirit where the DNB will be in a loop of stacking up capital for the Dutch banks? So the second question is on costs. So in your 10% to 12% ROTE, you mentioned in a brief point that you are counting on termination or the filling up of the single version fund. So what's your expectations about that from 2024? Do you think it will fully stop the contribution or it's only the contribution regarding the increase of the size of the fund? So what's your view in there?

Thank you. Okay, thank you very much. When it comes to the 2.5% systemic risk buffer that we have here in the Netherlands, that is... high compared to systemic risk buffers that other national competent authorities are levying. I have been advocating against that for quite a long time already. This is based on the premise that banks who are systemic are systemic for the country. And the intent of, let's say, the banking union with the three pirouettes, which is having an SSM, having one resolution agency, and having also one deposit guarantee system, that there was not so much dependency anymore on one country, but there would be dependency on Europe. And in my view, currently we're actually doubling this. So I understand and appreciate the prudency, but I think that this is not justified anymore in terms of where we're going. And I'm continuously, I don't think what was good is that the percentage was changed in March 2020, as you rightly mentioned. But I still think from a European context, this is not what it should be. And it also goes against level playing field. So that's my first remark. And by the way, this is not a secret to the Dutch Central Bank. We have quite open discussions about that. And that comes back then to the second element, which is, yeah, the banking union should help with that. And one of the pillars is that European DGS fund The contribution to that continues at the current level into 2024, and then it will be tapering off. We do not think as yet it will go to zero completely, but it will go down as from that time onwards. Does that answer your questions?

Yes, just following up very quickly on the first one, but don't you think the DNB is in the mindset of really locking up capital within the Dutch banks, because I'm sure they understand all the arguments you're putting forward and still they take any opportunity to keep buffer. So it was clearly for them to decrypt the systemic buffer and then compensate. So they haven't done that. So do you think, and does it make you more cautious when it comes to capital return and rain down the excess capital over time or not?

Oh, is that a question? No, the answer is no. Look, I cannot... a comment on the future views of D&B. That's for the D&B, but I don't have particular concerns in that regard, and it's for sure not an element that we currently discuss around the table when we talk about a distribution plan. So the answer on that question is no.

Thank you very much.

Thank you.

The next question is from Mr. John Peace of Credit Suisse. Go ahead. Your line is open.

Thank you. So my first question, just following on from Tarek's point, I think it would be quite helpful to manage our expectations if you could give us a rough idea of how quickly you plan to get to your 12.5% target. I know you've mentioned maybe a couple of times last year the phrase a couple of years. I mean, could you just maybe clarify, are you still thinking two to three years rather than four to five years to return to a 12.5% target? And then my second question, please, is on the cost of risk. How much do you see that normalising in 2022, given you still have some overlays, given the underlying run rate is still pretty good? Should we still expect it to be below or even well below the through-the-cycle rate? And is Q4 a good proxy for the potential cost of risk next year, or would that be a little conservative, given you took some extra provisioning? Thanks.

So Liliana will do the question on the cost of risk and regarding, I would say, how quickly we will get to 12.5%. Look, we have been saying that we will do this in the next couple of years. I'm not going to speculate what the exact number of years will be, but it's clear that if you look at our current levels of 15.9% we have compared to 12.5%, we have 10 billion of excess capital. We started last year with a share buyback based on the capital we already had reserved. We've told you that we will, before the first quarter figures, will come with a conclusion of our current discussion with the ECB on paying further excess capital. And we will then work step by step towards our 12.5% common equity tier one in the next couple of years. Liliana, is the fourth quarter any predictor of what it will be in 22?

Well, I would not take it as a proxy for 22 extra provisioning. As we explained, we have taken a specific management overlay this quarter and they are very specific to a certain macro indicator that will in the end realize or not in 22. What I believe is important to look at the overall cost of risk for the year, which are at eight bps well below the through the cycle. And actually, we remain with our guidance going forward as well in line through the cycle. So, in short, the answer is no, we do not expect this to continue in the same trend, and we were prudent for the reasons that we have mentioned before.

Thank you.

The next questions are from Mr. John Lewis, Goldman Sachs. Go ahead, please. Your line is open.

Hi there. I have two questions, please. One is for the net interest income, the pricing component. So you noticed in one of your slides that there were strong volumes in Q4, and you noted that some of them were due to the ramp up towards TLTRO, I guess, for the cutoff date. I know it's early in the year, but are you noticing changes now that the threshold has been passed in time in competitive behavior when it comes to front book pricing, in particular for non-financial corporates in the various markets where you operate? I'd expect that the comment you made on the 300 million TLTRO is all else equal for the loss of income. But I also think that the TLTRO over time has had its desired effect from a monetary perspective, which was to bring down cost of lending for companies. So I'm just trying to understand whether that can reverse or partially reverse. And my second question is on the cost line. I wanted to understand when you say that the cost would be roughly flat or at least flat in 2022, whether you could give us some example of what you're doing to achieve this and to counter inflation, which is picking up and essentially to try to understand how more there is to go in the years that continue or whether those are actions which are point in time as opposed to structural actions.

Thank you very much. In terms of loan volumes, there was some pull forward of the loans in wholesale banking due to TLTRO. In the end, we still see that there's a lot of liquidity in the market, and that is, of course, then determining the price levels in that particular loan book. What we have seen, and like I said also in the presentation, We do see a good pipeline, and again, I particularly pointed out that the pipeline that we currently see, so that's also encouraging for our loan growth in 2022, which I said you should not extrapolate the fourth quarter in 21, but we're still aiming typically for a 3% to 4% loan growth, which we're doing as well. And when there is more normalization in the economies, you see the economies that continue to grow also for the coming years. The outlook in that sense is good, despite the uncertainties that we all know. And of course, we have the whole transition ahead of us. And it also means that we have to, that in Europe, companies need to make massive investments and elsewhere, by the way, to go through that transition. And also that will be a positive stimulus for demand. So in that sense that we're optimistic, but not a particular impact currently on pricing. On costs, first of all, in the end, we focus on growing our customer experience. If we are increasing and improving our customer experience, we will get more primary clients, we will get more traffic, and we will then also do more transactions and business with those clients. That's what we believe in, and that's what we are very successful in. In that, if you then can do it in a better way, digitalized way that will both improve the customer experience, it will improve the colleague experience, but it will also impact our cost to serve. And therefore, in building that more personalized, smart, and instant customer experience, digital is the key. And you see a way that over 50% of our retail customers are mobile only, and over 90% of our contacts are digital. So basically, we will pull also the digital lever to and improve the customer experience by end-to-end digitalization and use scalable technology and operations to further improve our cost-income levels as part of the overall equation. So that's what we do structurally. And then what we also do, and we have been doing that over the past one and a half years, and I think one of your fellow colleagues was asking about that, We are now and again reviewing our businesses. We will continue to review businesses always to see if they long-term at sufficient scale, talking about retail in certain markets, or at sufficient individual deliverables also for other markets so we can make an applicable return in that regard and the return targets are clear. And if that through the cycle is not the case, then we take our conclusions to deploy that capital elsewhere, where we do have sufficient client business and skill in such particular markets. Now, I will never run ahead of myself in announcing these things or what I will announce, but the first lever we pull is digitalization that is structural, and the second one, which is business reviews, that is more, I would say, one-off, depending on where we operate and how successful we are.

Okay, so just to clarify in another word, you're not combating inflation by freezing investments or delaying things that you would otherwise have done that we could then have to kind of see a payback further than the years, right?

No, not at all. Because in the end, you always need to focus on continuously improving your client experience. That's the only way that you can compete long term. Okay. Good. Thank you. Thank you.

Next question is from Mr. Guillaume, TiberClean. Your line is open. Go ahead.

Thank you. Good morning. I've got two questions and, sorry, two clarifications. So the two questions are, could you provide us the fees that you generated from international payment in 19 and in 21, because you highlight that as a source of growth. So I wanted to see what the base was and what it is now. And secondly, could you give us a flavor about how your commercial real estate portfolio is developing in a changing world with people working less from the office and going less to shops? clarification are number one on the Belgian 23 million NII transfer to other income, does that represent a new normal, a new run rate for NII, or is it just a one-off movement and we go back to previous level? And the second clarification is about the cost of risk. The question earlier was, is 22 basis points a good reflection of what you would expect for 2022? And I think the answer was, no, it's not, because we had some provisions that were one-off in nature. But your usual guidance is 25. So actually, the Q4 number is very close to that. So is the Q4 number actually a number we could annualize for 22? Thank you.

Right. Thank you. I will answer a couple of questions. And Liliana is deliberating on the real estate portfolio. So if you look at the level of fees from international payments in 2019 and 2020, we don't disclose it as such. And if you look at our payment fees, they consist of two parts. The first part is the monthly package fees that people pay. And secondly, depending on the type of package that you get, you also pay for transactions. Now on the second part, and it depends per package and it depends per country, the international payments of that second part is the lion's share of the second element of daily banking fees. So not of the monthly packages as such, but on the transaction payments, then international banking and international payments are very important, especially in the Netherlands and Belgium, which are largely debit card-driven markets. And that's what I want to say on the first one. If you look at the minus 23 million, so that came from other income to interest income and therefore was minus 23, that was a one-off. So you can ignore that going forward for BILUX. Then on cost of risk, if you look at the guidance and if you look at the real estate portfolio, I will give the floor to Liliana.

Thank you, Stephen. Thank you, William. Thank you. As we said, 25 BIPs are through the cycle average, not necessarily for the year. So we do believe that what we've done in the fourth quarter was once off through the management overlay. However, 25 BIPs should be looked at as a longer-term average and through the cycle. We remain confident on the quality of our book and the level of provisioning. And when it comes to the commercial real estate portfolio, I think it's important to say that already for years we have kept the growth in that area in order to, I would say, manage the concentration risk. And specifically with COVID coming in place, we have revised as well some strategies in the office and retail space. However, in terms of the overall outstanding, they're very stable. They're approximately at 49 billion. Quite low and even decreasing, clearly, LTVs of approximately 48%. Also, with respect to the asset quality in that area, we are at a very low and lower than average MP ratio of 1.2%. So we do remain cautious, but we do remain as well monitoring our portfolio. And so far, no, even amber flags, I would say, in that area.

Thank you very much.

Our next question is from Anke Reingen of RBC. Go ahead, your line is open.

Yeah, thank you very much for taking my question. The first one is on cost of risk as well. I just want to understand the 124 million management overlay related to residential mortgages. Yeah, and the standard stage two and stage three. But I mean, it's time to understand how 124 million doesn't seem a large number if you're really concerned about customers' ability to pay and changing property valuations. So how much of a risk is that that number keeps on going up in the next quarter? And then just on the capital return, I mean, I guess that could have been an expectation. You announced a special dividend and a new buyback program today. Is that basically because it's not happening because the discussions are still ongoing? I mean, I understand that I saw that the buyback program significantly slowed down, so it's not completed, but At some point, it looked as if you were done today. So this is really just because the discussions are still ongoing. And then just the special dividend, is that just a full-year event, or would you potentially consider also a special dividend with a half-year or interim dividend? Thank you very much.

Okay. First, we go to the 124 million overlay. Eliana?

Hi, Anke. And yes, as correctly you mentioned, it does not seem large. It's also, as I said, because we haven't taken the overlay on the overall portfolio. We have, with combination of deteriorating some of the macro indicators, taken that overlay predominantly on the significantly increased credit risks in the portfolio, meaning it's stage three and somewhat stage two. That's why the amount is as well as not big as if it would be if we would be really looking at the overall mortgage portfolio. I hope this answers your question.

Yeah, but does that then provide comfort? I mean, I guess if you review that over the overall portfolio and at the potential risk from higher rates and inflation, should we then not expect more to come?

Well, we do not see that risk for the whole portfolio, as you said, because our underwriting principles and our originating LTVs are very low. So I would say the worry is not on the overall level. It's more on the combination of the credit repayment capabilities of the more, I would say, worrying part of the portfolio or lower income part of the portfolio and combination of development on inflation and housing prices.

Okay, thank you.

Okay, Antone, some dividends?

Thank you. So we have three touch points with respect to capital returns, right? The first, clearly, we have a policy of having an interim dividend payment, so that happens at the end of the Q2 results. We now have, of course, the final year dividend that we just announced. And in terms of the further capital returns, we have done the share buyback. We're still doing the share buyback to finish it. And that we have indicated to you that the discussion with the ECB is constructive. And we will give you some messages on that by the end of the Q1 results.

But the potential special dividend or extra dividend, that would be a full year consideration?

No. So we have announced a cash dividend for the full year. Any further capital returns, if it's approved, it may come in the form of cash. It may come in the form of share buyback. That's something to be decided later.

Okay. Thank you very much.

Next question is from Ms. Flora Bocahut of Jefferies. Go ahead, your line is open.

Yes, thank you. Good morning. I have two questions I wanted to ask you more specifically on your Belgian business. You know, first of all, on the NII, even if we adjust for the 23 million reclassification this quarter in Belgian NII, we still have the NII down a high single digit versus Q3. And that's despite loans that were roughly flat. So that implies actually that there has been quite a deterioration in the mean in Belgium this quarter. I just wanted to understand maybe what happened there and if you could elaborate on this. And then on Belgium, but this time on the cost side. If I look at the cost ex-regulatory cost, they were actually down 2% year-on-year in Q4, and that's despite inflation obviously reaching very high levels in a country where core inflation gets passed directly to wage inflation. So that's a strong performance. I just wanted to understand to what extent this is because you've managed to offset the wage inflation with savings elsewhere, or is it just that there's a delay and we should expect actually the wage inflation to kick off... more likely in Q1. Thank you.

Okay. If you look at... Thank you very much, Farah. If you look at the NRI down in Belgium, if you look at what's the... That's what's the 23 million. If you look at the production in Belgium, then you see actually a positive lending margin in our new prediction compared to what we saw in the previous quarter. So in that sense, we, and that is largely due to also a lower cost of funds, but also the price to the street has been going up. So the biggest impact that we currently see on our portfolio in Belgium has to do with the 20 million reclassification. not with the pricing that we currently lever to the street. And then we talk about the Belgian costs are okay, but there is of course wage inflation.

We have plans in Belgium with respect to what we call our Route 24, which is the digitization and the efficiencies program in Belgium. That program is on track, and we expect that despite the inflation that we see in terms of wages, we expect that through branch rationalization, reductions in staff over the coming period, that we're able to offset that wage inflation in Belgium. But, of course, the situation becomes somewhat more challenging with the expected wage bill in Belgium to be somewhat higher than what we planned in our budgetary process.

Okay, thank you. Next question is from Mr. Robin van den Broek of Mediabanker. Go ahead, please. Your line is open.

Yes, good morning. First of all, on the buyback, it was my understanding that you've outsourced that. So can I think, I don't know if you know the answer to this question, but how come the pace of the buyback has slowed down materially since mid to end December? And I was also wondering to what extent does that, what kind of liquidity do you think your shares offer to do buybacks in general? You mentioned 10 billion of excess capital. but how much can your liquidity absorb in a one-year window? That's the first question. And the second one is a bit more about the Netherlands. I mean, the timing of the CLA was quite fortunate before the inflation pickup started to happen. But do you think there's any risk of a catch-up when this CLA ends, that you basically have to catch up on the inflation you've seen in the intermediate period? Thank you.

Great. Thank you very much. I mean, for your questions, I mean, in terms of the slowdown of the buyback, I mean, yeah, we did outsource it. And there is, of course, market abuse regulations. So that's not for us to interfere with. But it is not helpful, let me put it this way. Then the related question was on that 10 billion excess capital and how much liquidity We can absorb. I'm not sure I understand your question. If you look about overall liquidity, of course, we have very strong liquidity, but I don't think that that is your question. Maybe it has to do with liquidity in shares. But there we have not really taken any decision as to the future, how we would distribute excess capital to or for shareholders. So in that sense, we still need to wait for the further announcement that we would intend to make either at or before the first quarter figures. But if you then would look at, if you then really say, I would do 10 billion all in shares, I mean, that is a very theoretical example, and you would not want to move the share price. then it would take us approximately up to two years to do that. But let me put it this way, it's quite unlikely that we would do 10 billion in share buyback. So let me put it this way. So the way that we distribute capital can be different. And we said previously it will be largely in cash and maybe depending on the share price, partially by means of capital distribution. Then is there a risk of cash-to-bit inflation when the CLA in the Netherlands ends? Well, since the 1980s of the last century, many European countries decoupled inflation growth with CLA growth. By the way, that's not completely the case in Belgium that the previous question asked or that was stipulating. So in Belgium, that is different. What you do see is a bit increasing pressure given the high level of inflation end of the last year or this year to couple that a bit more. So there is inflationary risk in that regard, not only in the Netherlands, but also in countries outside of the eurozone where the inflation rates are a lot higher. But it also comes with higher growth and also increasingly comes with higher interest rates. So you need to look at it in conjunction. But from what we see now for 2022, we should be able to absorb CLA and inflation levels in our costs and keep them flat or lower. Thank you.

Thank you.

Next question is from Mr. Raoul Cena of AP Morgan. Go ahead. Your line is open.

Hi. Good morning. Thanks very much for taking my question. I've got two, please. The first one is just on the RWA efficiency of new lending. I think 2021 was quite a good year for you. Loans were up almost 5 percent, and RWA is only up 3 percent. And I think that was also the case in Q4, where your RWA actually went down on the credit side. Should we expect some of this to reverse next year as you kind of do 3 to 4 percent loan growth? Or do you think you can still maintain this gap between loan growth and RWA growth? I guess mix will probably play an effect. And then the second question I've got is on just the structure of ING. Steven, since you've obviously taken over, there's been quite a few market exits. You've obviously taken a few decisions around, you know, what used to be the Maggie program. You talked about the nose of the cost plane, you know, heading downwards. So I guess my question is, are you done with market exits or do you think there's still more to go in terms of reshaping the sort of profile of ING? And, you know, I see you got into sort of broadly flat cost for 22 and inflation is obviously different. Are you sort of, no longer thinking about getting the nose of the plane down more medium term in terms of costs. Thank you.

Thank you very much. And thank you also for referring to the nose of the plane. Well, talking first about RWA efficiency in lending. I mean, if you look at the long growth versus RWA in 21, you are correct that from an RWA perspective, that was quite efficient long growth which also had to do with that most of the loan growth was in mortgages and in investment-grade, shorter-term corporate facilities or trade facilities in wholesale banking. And typically, for those sectors or segments, the RWA density is low. Now, that may not necessarily continue. We do see, of course, that the markets are improving. We see that the economic growth is growing and we see that if the supply chains are getting less and less disrupted, there will also be growth in things like project finance or sustainable finance, especially for which many companies need to make many investments as well. And that then could then also increase the risk rates on certain of these financings, because those are in different segments. What you should not forget is that regardless in which sectors it takes place, we will continue to price the deal against the return, and the return is partially dependent on the revenues, the cost, but also the risk rates and the capital that we have to put against it. And so that we will always take in the mix. And then clearly we continue to work on the efficiency of our capital. You've seen us also, despite the regulatory increases on our models under Basel IV, we have been able to keep it quite well under control. So we're working on our capital efficiency as much as we can. And the third lever that we pull, of course, is capital velocity. Can we also underwrite and then sell things to the market so we can optimally use our capital? So that's maybe one. Then if you look at the access of the market. And again, I would like to reiterate, we're not just exiting for the sake of exiting. In retail, the belief that has not changed is that we want to create a differentiating customer experience by having a superior digital offering. And we're good at it. And we will keep to work on it. And as part of it, a part of the benefit of being so digital is that you can also scale that more and that you can also be able to influence your cost income with that. So we focus on cost income. The second element that we have set, what we believe in, is that we need to have local scale in retail, not necessarily in wholesale, but in retail. And if the retail, if the scale is sufficient, and you can see it in some of the markets, you make through the cycle adequate returns, you continue to invest to grow and broaden the customer franchise and broaden also the offering that we make with your customer franchise. And in some markets, but again, it's not a goal It's an input to the goal that has not been the case, and then you choose to redirect your capital and your investments to markets where you do make the applicable return. Now, in that total mix, like I said to one of the previous colleagues, decisions or footprint decisions are more aberratic and more one-off, but we will continue to work on improving our customer experience by end-to-end digitalization and by our scalable technology and operations platforms. And that is going to help us to keep the cost under control. And what I said for 22 is that we at least want to keep the nose of the plane flat, despite all the CLA and inflationary pressures.

Thank you.

Next question is from Mr. Stefan Adarko of Citi. Go ahead, your line is open.

Yeah. Hi, guys. It's me again. I just had a couple of quick follow-ups. Sorry for coming back. Number one, could you please tell us a little bit on your ECB discussions as much as you can, obviously. As far as I know, there's no official limit on the buybacks. or any capital distribution, really, in terms of payout ratio. So you could theoretically return 100%. But in reality, you're discussing your capital return levels with the ECB. Is there a soft ceiling that you are noticing in your discussions with the ECB? Or is there much more of a push by the regulator to limit overall distribution, ordinary special dividends and buybacks at 100%. So hard versus soft or none at all. Those would be my three options here. The second question is on fees. One thing I don't fully understand, in your wholesale lending business, So new production was really strong, around $6 billion, which was close to half of your overall net production. So really, really good. But when I look at fees, they were actually down sequentially and quite a bit below where I would have expected them to be. I'm assuming most fees within wholesale lending are lending-related fees. New lending volumes are up significantly. Why are fees not? tracking that. Thank you so much.

Thank you, Stefan. I will answer the question on fees and wholesale banking, and then Nate will give you his views on the ECB discussions. Then when we talk about fees and lending, it's a good observation that you make, because indeed you would expect if we make good lending growth, and we did good make lending growth, that you would also see the fees going up. That did not take place because many of these landings were focused on short-term financial markets, short-term investment grade, short-term trade, and the number of the TLTRO facilities. So these are not the typical big underwritings, big loans that you then syndicate out to the market. And that's where you make the fees. These are more one-to-one relationships that we have with our clients, and we benefit from these good relationships. That's also... a benefit of having these long-term relationships that you can call on each other to help each other. But it also means that when the market is now increasing on short-term trade that we can greatly see, or short-term working capital that these companies greatly want, that these are not so much syndicated facilities, but much more one-on-one facilities, and therefore there's no syndication fees. I do however expect If the economies return the growth path that we currently see, that also the syndication market will then return and that can then have a benefit on our fees and lending.

Just to give you a bit of color on capital returns and capital management, I think if we go back, you know, it seems a long time ago. When we were looking at November, December, we really didn't know how the whole Omicron situation would pan out. Things have turned out well, but things could have turned out quite differently as well. So that's part of our capital management prudency. But having said that, our discussion with ECB, as we mentioned, is constructive. They do recognize that. that for us to converge on 12.5%, that would mean more than 100% capital return per annum to make that number. So that is well informed by us to the ECB. And as we mentioned, these discussions are ongoing, and we will give you an answer before the end of Q1 this year, results time.

That's very clear. Thank you, guys.

Fair enough for the questions, sir. Please continue.

Thank you very much, and thank you very much for your time, and I'm sure that we'll speak again in three months' time. Have a great day.

Ladies and gentlemen, this concludes the ING fourth quarter 2021 analyst call. Thank you for your attention. You may now disconnect your line.

The conference is no longer being recorded.

Thank you, Mr. Ramos.