ING Groep N.V.
Q1 2021 Earnings Call Transcript

Published: 6 May 2021

[Operator:]

Good morning. This is Brasina 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 a historical fact. Actual results may differ materially from those projected in any forward-looking statement. A discussion of factors that may cause actual results to differ from those in any forward-looking statements is contained in our public filings including our most recent annual report on Form 20-F filed with the United States Securities and Exchange Commission. 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.

[Steven Van Rijswijk:]

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, Tanate Phutrakul; and our CRO, Ljiljana Cortan. 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 in lockdown restrictions. However, with vaccination programs under way, we can also look forward to circumstances normalizing again. We continue to support our customers, employees and society, focused 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% ROE 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 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 decreased 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 TLTRO III program. In deposits, we see the impact from reduced spending ongoing for now, and we continued 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 closer at 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 resilient net profit reserved for future distribution, bringing the total amount reserved for this outside of CET1 capital to €3.3 billion. Slide 3 focuses on digitalization. It shows the continuing trend of our customers turning to our mobile solutions, supporting the direction of our digital and mobile-first strategy.

[Operator:]

First question is from Stefan Nedialkov from Citi. Go ahead, please.

[Stefan Nedialkov:]

Thank you very much. Good morning. It’s Stefan from Citi. Steven, you mentioned that the NII drivers are strengthening into the remainder of 2021. But can you give us some more colors on what is strengthening? And related to that, the TLTRO benefit that you managed to book in 1Q. You guys mentioned most of the lending happened in March. What does that mean for loan growth for the remainder of the year and in terms of meeting the next benchmark for the second edition of the TLTRO III? Should we expect a slowdown from here? And what does that mean for meeting the second benchmark of the TLTRO? Related to NII as well. The 100,000 deposit threshold for the Netherlands that you’re going to start charging negative rates on and 250,000 in Belgium, could you quantify the base of the deposits that you’ll be charging negative rates on and what benefit should we expect going forward? Thank you.

[Steven Van Rijswijk:]

Thank you very much, Stefan. With regards to the NII 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 III 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-corporates 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 impacts on NII, 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 were 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 hope that will happen in the course of 2021. And like we said, that 2020 was a non-structural shift. The then part of loan growth that is probably going to be short term, those were liquidity facilities that were used for TLTRO III. On the deposit base for net interest rate in Netherlands, I give the floor to Tanate.

[Tanate Phutrakul:]

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 Steven 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 in benefit. And just to remind you, we also gave you a number for last year of €80 million. So the net impact this year of negative charging is approximately €120 million.

[Stefan Nedialkov:]

Great. Thank you so much. Very clear.

[Operator:]

Next question is from Robin van den Broek from Mediobanca. Go ahead, please.

[Robin van den Broek:]

Yes. Good morning, gentlemen. Steven, just very quickly, you went very quickly on 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? Appreciate that there might be a delay in seeing the visibility from the pandemic more from 2021 toward 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 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.

[Steven Van Rijswijk:]

Thank you very much, Robin. I will take the first and the third question. And the second question, I will give to Ljiljana. 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 the loan growth. 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 benefit from that, we have not really seen as yet. That will come in the second quarter and thereafter.

[Robin van den Broek:]

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

[Steven Van Rijswijk:]

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

[Robin van den Broek:]

Sorry. Can you hear me now?

[Steven Van Rijswijk:]

Yes, yes.

[Robin van den Broek:]

Okay. No. 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.

[Steven Van Rijswijk:]

I mean, we typically we are able to reprice all our deals to our standard checks. So we – 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 is ECB recognition can be hampered, I mean, yes, 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, that has been reconfirmed and we have no other indications that would contradict that whatsoever. So that’s on that question. And then on risk costs, I mean Ljiljana, it’s your first quarter.

[Ljiljana Cortan:]

Yes. The risk costs for the first quarter this year were approximately 15 bps of our average customer lending which is far below our through-the-cycle average of 25 bps. And you will remember our guidance for 2021 which is definitely below 2020 risk costs however as well more toward 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 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.

[Robin van den Broek:]

Okay, thank you. Steven, 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 got from your answer. Is that correct?

[Steven Van Rijswijk:]

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.

[Robin van den Broek:]

Okay, thank you guys.

[Operator:]

Next question is from Thomas Dewasmes, Goldman Sachs. Go ahead, please.

[Thomas Dewasmes:]

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 comments in your presentation on deposit margin and – where the rate curve is in medium-term maturities, can we assume that perhaps 2023 should be the year where you’re going to see have the strongest impact given where the swap rates were in 2018, but that this should improve as at 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 would not affect you.

[Steven Van Rijswijk:]

Okay. I will take the question on fees. I will take part of the question on NII in terms of the confidence level because you made a remark there, I will comment on that. And then on the 2023 question, I will let Tanate 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 to exactly 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 met the threshold. 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. Tanate, swap rates in 2023.

[Tanate Phutrakul:]

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 on 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 2022 and certainly in 2023, yes. Thank you.

[Thomas Dewasmes:]

Thank you. Steven, I think we were saying the same thing actually. I understood your comments perfectly. Can I follow up then 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.

[Tanate Phutrakul:]

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 we – 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.

[Thomas Dewasmes:]

Thank you.

[Operator:]

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

[Raul Sinha:]

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 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 the monthly sort of demand picked up to almost twice the level of a normal run rate from its global commercial clients. So is that something in line with what you have seen from your clients in March? Are you trying to get a sense of how much of March was actually demand driven versus just sort of push that you’ve had toward TLTRO?

[Steven Van Rijswijk:]

Yes. Thanks, Raul. I think that’s – 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 and commodity finance and in lending across the globe. trade and commodity finance was also helped by more exports and that helped volume, but also the – by the dollar and by the oil price. With regards to other companies that 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, yes, 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 have – we were in touch with them to actually get those loans in now. And then I look at mortgage demand, that remained strong with a €2.7 billion growth in the various markets across the globe.

[Raul Sinha:]

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 be performing really well. But I was wondering what your thoughts are on the structure of how Poland sits within the ING group. Obviously, it’s one of the markets that’s separately listed. Is that something – obviously, it trades at a big premium to ING. Is that something that you see is perhaps more relevant for some of your other growth markets or challenger markets which might be – adds well to your footprint?

[Steven Van Rijswijk:]

Sorry, Raul. What is more relevant for other growth markets?

[Raul Sinha:]

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

[Steven Van Rijswijk:]

Okay. Yes, 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. It is a regulation in Poland. So it was not something that we did when we acquired the business many years ago. So it is a 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 TouchPoint Architecture technology that I talked about in the slide that I presented.

[Raul Sinha:]

Okay, thank you.

[Operator:]

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

[Benjamin Goy:]

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 call? And then secondly, you reiterated your financial ambitions. Just wondering, in a still a 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 ROE ambition or is that something you wouldn’t consider?

[Steven Van Rijswijk:]

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, 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 what – is that what the question was? So that is not the case. And yes, I mean we’re currently not there, but we are working toward 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.

[Benjamin Goy:]

Okay, thank you.

[Operator:]

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

[Farquhar Murray:]

Good morning, all. Just two questions, if I may. My main question was actually on the German court decision and you answered the bulk of that. But just to complete it, can we conclude that there is essentially no silent consent discussion at ING-DiBa, 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 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. And presumably, the margin on that lending is lower than average. Is that fair?

[Steven Van Rijswijk:]

Okay, thank you. So to be absolutely crystal clear, on your first question Farquhar, there is no silent consent decision and discussion in Germany. All 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. They are typically more term loan style loans.

[Farquhar Murray:]

Thanks a lot.

[Operator:]

Next question is from Omar Fall from Barclays. Go ahead, please.

[Omar Fall:]

Hi, there. Just a couple of questions from 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 this quarter 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.

[Steven Van Rijswijk:]

Okay. Thank you, Omar. I will take the first question and Tanate 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 then what we are restructuring, so the first quarter we made announcement 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 I 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 when the nose of the plane was still up and it gradually came down to flatten it and now the nose of the cost 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.

[Tanate Phutrakul:]

Then 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 rate 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 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.

[Omar Fall:]

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 in contribution of the perimeter of announced disposals restructured businesses? And obviously, Austria and Czech, we can get that data to a certain extent, but for some of the others as well, that would be helpful.

[Tanate Phutrakul:]

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. We’re taking advantage and making sure we achieve the TLTRO benefit, negative rates-charging behavior and other fees increases that we have. And hopefully, we benefit from the improving yield curve environment. So these are things that are – actions that we are taking to make sure that our net interest income is remaining resilient. Okay? And in terms of the OpEx, as Steven mentioned before, we don’t want to give you a 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.

[Omar Fall:]

Thank you.

[Operator:]

We have next question from Giulia Miotto from Morgan Stanley. Go ahead, please.

[Giulia Miotto:]

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 figure 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, given 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.

[Steven Van Rijswijk:]

Thank you, Giulia. And let me start with ESG. And indeed, we haven’t been signed the net zero accord for 2050 and the reason is that a number of the glide path or energy path 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 they 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 path. On fee growth, yes, 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 want to build up a buffer and 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 assets under 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 with 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 uses – usage, among 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, there, 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 2019 and before that – 2019 before that date. So also there, we would expect these fees to move up when the economic activity returns to more normal levels.

[Giulia Miotto:]

Thank you.

[Operator:]

Next question is from Anke Reingen from RBC. Go ahead, please.

[Anke Reingen:]

Yes. Good morning. The first is just – two follow-up questions first. On NII, did I understand you correctly, ex the TLTRO benefit in Q1, should NII basically go up in the next quarters? And then on the costs, are you able to give us the full-year regulatory costs, 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 following up on the question on the ROE part, so 7.8% in Q1 sort of like reported with 15 basis points of loan loss charges. I mean if we think about the building blocks, I mean the cost income ratio seems – yes, 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?

[Steven Van Rijswijk:]

I will take the question on ROE and on NII, and Tanate will take the question on guidance on regulatory costs. First, on ROE. I think that’s – we have a number of levers to pull to actually get back to a 10% to 12%. 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 1. 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 that capital – our capital to that level. And yes, that is of course also one of the levers that we require to get back to the 10% to 12%. 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 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 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 NII going forward.

[Tanate Phutrakul:]

And I think, Anke, your question on regulatory expenses, there are really three buckets there

[Anke Reingen:]

Okay, thank you very much.

[Operator:]

We have a question from Tarik El Mejjad from Bank of America. Go ahead, please.

[Tarik El Mejjad:]

Hi, good morning, everyone. Just one question on cost and restructuring. Could 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 Austria and Czech Republic. 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 smaller other European countries in there without naming anyone? Thank you.

[Steven Van Rijswijk:]

Thank you, Tarik. Yes. 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 the competitive oomph felt, 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 that something that, what we do in such a market, is that also benefiting other parts of the group or is the group brings certain benefits to that particular market? And if – and those are the lenses that we look through, 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.

[Tarik El Mejjad:]

But for the Western European countries or subsidiaries, so you don’t look anymore into like this model strategy where you have or basically you neutralize the costs and where basically being only 2% of market share in France, wherever, is not relevant because you look at it from the perspective of adding together all the small countries? So you still look at it from these lens or most of these or the local market share is actually more relevant now?

[Steven Van Rijswijk:]

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. The reason for that was is that integrating the sales and service journeys of our core banks between different markets has proven to be too difficult and too uncertain with a continuing high investments for a longer period of time. What we do, do and that’s what I highlight also 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 is – 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 sold Maggie and it also means that local scale is an element and remains of some importance. That’s correct.

[Tarik El Mejjad:]

Thank you.

[Operator:]

Next question is from Kiri Vijayarajah of HSBC. Go ahead, please.

[Kiri Vijayarajah:]

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 TLTRO threshold? So in fact, you don’t need to sort of pull that Financial Market lever again. So just trying to understand 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 the 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.

[Steven Van Rijswijk:]

Thanks, Kiri. I think that as you look at the lending growth and the confidence on the TLTRO, I think that, there, it will – it was a mix between longer-term loans and shorter-term loans, and therefore, also in the lending part in the financial markets part. And that can also be the case for the second part of TLTRO III, that depends on the need of the clients. With regards to the lending growth and the NII story, yes, it will also bring in fees. So you would – you could see here 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 I outlined, 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, then we’d also see our syndicated fee levels return to normal levels which should give an up.

[Kiri Vijayarajah:]

Great. Thank you.

[Operator:]

Next question is from Jon Peace from Credit Suisse. Go ahead, please.

[Jon Peace:]

Yes, 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 profit for the purposes of dividend calculation?

[Steven Van Rijswijk:]

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

[Jon Peace:]

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?

[Steven Van Rijswijk:]

I think the answer on the second question will be given by Tanate, you go first. And then we go back to Ljiljana for the first question.

[Tanate Phutrakul:]

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 number. So we don’t anticipate any adjustment for that basis.

[Ljiljana Cortan:]

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.

[Jon Peace:]

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

[Steven Van Rijswijk:]

Yes. We don’t disclose that, John.

[Jon Peace:]

Okay, thank you.

[Steven Van Rijswijk:]

Thank you.

[Operator:]

There are no more questions. Please continue, sir.

[A - Steven Van Rijswijk:]

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

[Operator:]

Ladies and gentlemen this concludes the conference call. You may now disconnect your line. Have a nice day.