ING Groep NV (ING) 2014 Q3 法說會逐字稿

Good morning, this is Kirsten welcoming you to ING's Q3 2014 conference call. Before handing this conference call over to Ralph Hamers, 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 historical fact. Actual results may differ materially from those projected in any forward-looking statement. A discussion of factors that may cause actual results to differ from those in any forward-looking statement is contained in our public filings, including our most recent annual report on Form 20-F filed with the United States Securities and Exchange Commission, and our earnings press release as posted on our website today. Furthermore, nothing in today's comments constitutes an offer to sell or a solicitation of an offer to buy any securities.

Good morning, Ralph. Over to you.

Good morning and welcome, everyone, to ING's third-quarter 2014 results conference call. As usual I'll take you through today's presentation. Patrick Flynn, our CFO, Wilfred Nagel, our CRO, are here with me from the executive board.

Please note that at 10.30 today there will be a separate analysts call for you, hosted by NN Group, so any questions on NN specifically, we refer you to that call.

Then let's just go to the key points. ING posted an excellent set of quarterly results. The underlying net result banking was EUR1,123m, and that was up 37% from the third quarter last year and 22% from the previous quarter.

The results reflect a strong increase in interest result and a lower risk cost. And at the same time we were able to support our customers with EUR3.3b of net lending growth, funded by EUR4.3b of net funds entrusted.

After comfortably passing the AQR and the stress test, as you have seen over the last couple of weeks, we have been able to bring forward our final payment to the state to coming Friday, November 7, and that's what we have announced today. And this is a major milestone. The repayment brings us an important step closer to fully meeting the EC restructuring requirements and they also complete our strategic repositioning as a leading European bank.

As a last point, NN Group has been reclassified as held-for-sale and discontinued operations. And that has led to a write-down for goodwill and other non-current assets of EUR403m.

Taking a look at the overall result of the Bank, the strong underlying net result banking was on the back of a continued volume growth, combined with better margins and a lower risk cost, as you can see in the picture. And this resulted in a return on equity of 12.7% in the third quarter and 11.4% for the year-to-date return on equity.

Turning to slide 4, excluding the negative CVA/DVA impacts and correcting for the deconsolidation of ING Vysaya Bank, income rose by 8%, 8.1% to be exact, over the past year, supported by a strong increase in net interest income. And the net interest income growth was especially in retail Germany, retail Netherlands, structured finance and financial markets.

If we then take a closer look at the net interest margin, net interest margin rose to 153 basis points. That was due to a higher margin on savings and a stronger contribution from financial markets this quarter. The increase in savings margins reflect a reduction in client savings rates, and that was more than offsetting, at least for this quarter, the low interest rate environment in which we have to operate.

As we expect pressure on the savings margins to continue, given the low interest rate environment, we constantly monitor clearly our deposit rates in all countries. For example, in October we have also therefore already reduced our clients' savings rates further in the Netherlands and France. So it has our special attention there in order to ensure that we manage the savings rate so that we keep a healthy margin.

Then looking at the development of the loan book and the funds entrusted, the strong interest result was underpinned by our commitment to serve our clients' financial needs. In the third quarter we have been able to extend EUR3.3b in net lending, primarily in structured finance, in general lending and residential mortgages. And that was funded by EUR4.3b of net inflows of funds entrusted, and that was generated across the whole franchise.

Now if we take a closer look at this, we see for the quarter retail banking up EUR1.4b out of the EUR3.3b and commercial banking up EUR1.9b out of the EUR3.3b. That's for the quarter.

Now if we take a look at the nine-month picture, which is on slide 7, we take a look at the lending development across the nine months, we see that net lending increased by EUR15.8b. And if we recalculate that on an annualized basis, we get to a 4.3% annualized growth. And that's driven by both retail banking and commercial banking, and within the commercial banking particularly in structured finance and transaction services.

And this includes -- so this net growth EUR15.8b includes the runoff of the WestlandUtrecht portfolio, the lease portfolio, part of the real estate finance portfolio and also the reduction in our exposure on Russia.

So basically the annual growth rate or the annualized growth rate for the first nine months, even with running down some of the portfolios, is at 4.3%. And that's consistent with the strategy that we set out at the IR day in March.

Then on the cost side, in the first nine months we have been able to keep the expenses at around last year's level and we're confident that we can keep them roughly flat this year.

Then if you take a close look at the quarterly cost/income, we actually see that decreasing. 55.5% in Q2 and decreasing to 54.1% for Q3.

If we then look at basically how the costs will develop going forward, that's where the restructuring programs come in and the remainder of what we need to do there. We actually see that all of these programs are on track to reach the cost savings of EUR955m by the 2017.

Talking about these restructuring programs, I'm now on page 9, you know that much of our existing cost programs are focused on the [option] IT environment. And we know that even on completion of these programs, particularly in retail Benelux, we will not yet be best-in-class.

So if you take a look at this chart, and this is the chart that we also presented at our investment day, we basically see that because of the CB TOM implementation, the commercial bank will actually move into best-in-class territory in the IT environment if it comes to the combination of cost effectiveness and cost efficiency.

But the -- and the challenger and growth countries, which is called challengers here, they are already in that quartile. But the Benelux programs will get us to the middle of the pack. And we have indicated before that we want to finish these programs, but at the same time that we will continue to invest in IT to deliver much better services and harmonizing systems and processes in order to take further steps in the future.

Now then the other cost component, the risk cost component, risk costs decreased, both in comparison to the third quarter of last year as well as the second quarter of this year. It decreased to EUR322m. And if you calculate that as a -- in terms of risk-weighted assets, we get to 44 basis points of risk-weighted assets.

These risk costs are a bit flattered this quarter as commercial banking benefited from a release on a larger file. As I said before, the commercial banking risk costs will be volatile quarter on quarter. The trend is downward. However, this is one of those elements which makes it volatile if we have releases on larger files, and that is what we've seen in the third quarter.

Risk costs in the retail bank were slightly up from the previous quarter. We expect them to remain at this elevated level in the coming quarters, specifically in the retail Netherlands environment.

If we turn to the NPL ratio, NPL ratio decreased marginally to 2.8% in the third quarter due to a lower amount of non-performing loans. And this was reflected across nearly all the reporting segments this quarter. So no-one particularly stood out either negatively or positively in terms of development.

Taking a closer look at retail banking Netherlands, as indicated already, risk costs in retail Netherlands were down from last year but stable in comparison to the second quarter. They remain above normalized levels and we expect this to be for the foreseeable quarters. So risk costs are expected to remain elevated, although we do see a gradually improving macro picture in the Netherlands.

Then if we go back to the result and how it divides between the performance of the retail bank and the commercial bank, I'm now on slide 13, so back to the overall results. Strong results of ING bank were driven by both sides. The pre-tax result of retail banking increased 27% from the third quarter last year, and that's on the back of better volumes and better margins. And the commercial bank, the pre-tax result also increased substantially on both comparable quarters, but that's if we exclude the negative CVA/DVA results.

So this, again, I think if you look at this picture, it again confirms the strength of our client-focused model, both on the retail side as well as in the -- as the commercial banking side with the global reach. Well diversified but also a good balance between the two because the retail banking franchise is important for the funding and the commercial banking franchise is also important for the lending, and both performed quite well.

Taking a closer look at retail banking then, slide 14, you can see here that all retail divisions have reported strong results this quarter, so all -- year on year you see the results in all retail areas going up. Maybe particular attention requested for retail Germany, basically reporting another record-high quarterly result, and that's driven by both the volume and there's income growth as well as lower risk cost in Germany.

And the same we see in the rest of the world. It's noteworthy that behind this result we see improved contributions from Turkey and France, and as well as better results from our stake in Thai Military Bank, TMB, this quarter in Thailand.

Then moving over to the commercial bank, slide 15, the commercial bank delivered its improved results in the lending business, as you know. And you can see that in the -- also in the lending growth and the transaction services area, and specifically for this quarter supported by lower risks cost.

The cost/income of the commercial bank, if you compare to a year ago, so the same quarter last year the cost/income was 45.2%. It's now down to 44.1%. So you see the effect of increased efficiency, both in terms of a larger lending book as well as a good focus on the cost side through the CB TOM.

Then particular attention for the structured finance development. So structured finance posted another excellent quarter, supported by strong volume growth. You see that both in the interest income as well as in non-interest income, where we see the arrangement fees then increasing as well. And lending assets have grown by 22.3% from the third quarter last year and 8.2% from the second quarter this year.

In this picture, that is also partly due to positive foreign exchange effects. Correcting for it, there was the growth -- there was still a growth there as well, because the net lending assets growth, if we correct for the foreign exchange, grew EUR1.3b in the third quarter 2014. And that was particularly in the energy trades -- energy, transport and infrastructure group. And those are longer-term assets so they take longer to come on the book but they will also stay longer. These are more project finance assets.

The net lending assets in the trade and export finance, you see that going down. That's the light blue bar on the negative side in the chart on net lending growth. That's the more shorter-term assets and they declined slightly in the third quarter of 2014. And here you basically see some of the effects of the efforts to reduce exposure to Russia.

And the return on equity of the structured finance rose to 24.5% in the third quarter and 22.2% year to date, so good results there.

Now moving to our capital position. On the back of these results, ING Bank's pro-forma core tier 1 ratio on a fully loaded basis increased to 11.1%. And that's, as said, primarily and principally due to the retained earnings as well as higher revaluation reserves. The leverage ratio increased to 4%. And on Group level, the Group core tier 1 ratio, as we now report that as well, was at 13.2%.

Then we turn to slide 18. If we look at the total position of the Bank, with a core tier 1 of 11.1%, and then we look at the surplus position on Group level, basically taking the market value of Voya and NN and correcting that for the remaining Group debt, we saw a surplus of EUR6.4b. And therefore we feel comfortable to start a process to prepay the government. And so therefore, after we do the final payment to the Dutch State, the surplus on Group level pro-forma will be at EUR5.4b.

So that's why we're very pleased today that we are able to announce today that we have received the regulatory approval from the DNB and the ECB to bring this final payment of state aid forward. And we will continue to look at the opportunities to further divest our remaining stakes in NN Group and Voya over time, but we will do that maintaining an orderly market as well.

Slide 19 gives you a summary of the ambitions that we indicated in our -- on our strategy day in March, Ambition 2017. So we're on track in terms of most of these elements. And therefore we remain with the policy to pay a minimum dividend of 40% of profit over the financial year 2015, comprising both an interim and a final dividend in cash.

To wrap up, well, we just went through everything. It's a good summary slide. It was a really good quarter for the Bank, a good quarter on the back of -- actually also this quarter we did the IPO, but then this quarter we were -- we went through the AQR and the stress test with quite a healthy picture. We have very strong results, both on the Bank and the insurance company. So -- and within the Bank we see an excellent contribution from all segments, so a good picture.

And with that, I would like to close the introduction and open the call for questions.

(Operator Instructions). Anton Kryachok, UBS.

Good morning. Congratulations on a good set of numbers and thank you very much for taking my questions. Just two questions from my side, please, one on dividends and one on net interest income.

Starting with dividends, perhaps, you have successfully passed the AQR. The capital build in this quarter has stronger than expected and now we have visibility on state aid repayment and you're not using bank capital to repay the final tranche of state aid. So I was just wondering what are any other moving factors which you would take into account when making the decision where the actual payout ratio will be in 2015.

And the second question, please, on net interest income and specifically on margin trends. I think on an underlying basis your ability to re-price savings continues to be a very important driving factor for defending net interest margin. And on slide 27 you have provided a very helpful picture on where you are in terms of deposit pricing. And in the Netherlands you have reached a level of 120 basis points, which some people think is important due to the Dutch wealth tax. I was just wondering whether you can give us your perspective on whether the 120bps Dutch deposit pricing is an absolute floor or over time you can go lower. Thank you.

Thanks for those questions. I'll actually refer them to Patrick and I'll fill in if there is the need. Patrick?

Yes. In respect of the dividend payout ratio, as Ralph said, our intention is to pay 40% plus, or a minimum of a 40% payout for next year. As you probably will have noted, the fact that we have repaid the State or will on Friday repay the State from Group means that that dividend will be for both the first and second half, which is an acceleration of our commitment we gave at the investor day.

We're going to stick to the 40%-plus for now. Let's see how the results pan out in 2015 before we start making any broader commitments. I'd like to see the profits earned first before we decide how to distribute them. But the commitment remains 40%-plus in 2015, first and second half, in cash.

Now in terms of interest margin, you asked our ability to deflect. Again, this reference point in the Netherlands, I think it's more an issue that -- on your side of the table than ours. No disrespect, but we don't see it. And when we're talking about it internally and our ability to manage interest margin, it's not something that features as a major barrier in our thinking.

We have been able to reduce deposit rates, as you note. We did that significantly in the beginning of this quarter. We flagged with the results last, which means that deposit margins improved about 2 basis points. There's a drag maybe of low interest rates of about 3 or 4 basis points a quarter and we think that we will be able to offset that with rate cuts.

But the speed, as I said before, the speed of those rate cuts can slow down and it may not necessarily be a perfect symmetry between the drag, which is a constant factor of low rates, and our ability to cut. They may not be in perfect symmetry. But over time -- over the near term, at least, we think we can offset the impact of low rates with further rate cuts on deposits.

And maybe to add also on the Netherlands specifically, we're showing here the Profijtrekening, which is one of the larger savings accounts that we have and the price there and how we've moved it. But there's many other savings books that we have or savings accounts that we have where we pay already lower than 120. So it's not necessarily a psychological hurdle that stands -- that basically limited us to stay at this level.

And we're following the market. We're managing this as to the inflow, the acquisition of clients and what it's worth paying for it. So -- but there is no specific hurdle there on that 120 basis points.

Further questions?

Farquhar Murray, Autonomous.

Morning, gentlemen. I have two questions, if I may. Firstly, with the state capital repayment now done and the CET1 ratio tripping over 11%, at what point do you think you'll be able to clarify the approach to making the final exit from NN Group and what are the key considerations there? In particular, what do you mean or what are the restrictions related to exiting through an orderly market that you're discussing there?

And then just coming back with regards to the dividend discussion, there seems to be slightly academic discussion about a dividend in 2014. And I wouldn't mind just clarifying your preference. At a certain level, given the EUR5.4b surplus in the holding, that discussion is slightly academic and I'm just trying to understand would you prefer to do a distribution of the surplus first before coming round to the dividend, or would -- or is there scope for flex there? Thanks.

Yes. With respect of NN, as you know, we have a lock-up to the January 2 -- January 3 next year. And in this phase we're polling opinions about what people want us to do with that, shareholders want us to do and other stakeholders as well.

What we're trying to make clear here is that we are not going to be doing any radical large steps, in part because we've got commitments in the IPO prospectus that we will exit NN in an orderly manner. The liquidity in NN is relatively limited, therefore it does mean that we need to take things in a steady manner. So what we won't be doing is one large massive sell-down either in cash or spin.

The steps we will take will be a progressive, steady, orderly progress so that we do not disturb the market and we do things in an orderly manner, a bit like the way we've been dealing with Voya, transacting in an orderly manner. So that's the sort of thinking around how we exit.

We have not decided what we do with surplus, whether we distribute it in cash or spin. That's a decision we have not made yet and don't have to make till we conclude or go through the lock-up period.

And in terms of 2014, we've achieved a lot this quarter, as Ralph said, particularly with the state repayment and that clears the path for dividends next year. We got a brand new regulator yesterday. We need to get used to them a bit. So 2014, we'll revisit 2014 when we get the full-year fourth-quarter results and we'll talk about that in February.

Ashik Musaddi, JPMorgan.

Hi. Good morning, everyone. First of all, well done on the good set of numbers. I have two questions. First of all, would you give us some color on how should we think about risk cost going forward, given that you have already met the 44 basis points today, obviously including the big releases from corporate commercial banking. But how should we expect the risk cost in commercial banking going forward? I.e. what is the one-off element here? How much is the run rate and what should be the level that we should focus for 2015 and then 2016 as well? So that's our first one.

Secondly is given that your capital position fully loaded is already at 11.1% and you are targeting 11% by the end of 2017, how should we think about that, because it looks like if you do a 40% payout, you will generate -- you will add 1 percentage point capital every year or 70 basis points? So you will end up at 13% or 14% capital in three years' time, as compared to what you're forecasting or what you're targeting, 11%. So how should we think about the missing link here? These would be my two questions. Thank you.

Yes, on risk cost, as you indeed mentioned, we are now at 44 basis points, which is our through-the-cycle average. And that would be something that you expect under normal circumstances. However, if you look at the outside world, the circumstances are far from normal. And if you look into the numbers, as Ralph represented them on, I think, slide 10, what you will see is that the three main contributors of provisions, retail Benelux, retail international and commercial banking, you see two of the three contributing pretty much the same number as last quarter and only commercial banking sharply lower, which is due to the fact that, and this is something we flagged before, that commercial banking provisioning is definitely lumpy. In a quarter-on-quarter comparison you can see quite meaningful swings without them necessarily indicating a trend.

And I would certainly say that this level is not reflective of a long-term trend that you should simply extrapolate. We've been saying that before. And certainly this quarter is a demonstration of that lumpiness.

A while ago we talked about when we expected to see the 44 basis points on a more structural basis, and we said that would be well into 2015, most likely. If you look at the most recent projections of growth for the Eurozone, which have come off quite a bit, there's a plus and a minus there. The minus is we are predominantly in Europe, so this will definitely affect the outlook also for provisions. The plus is that, relatively speaking, the Dutch economy is doing a little bit better. And what was predominantly export-led recovery is now beginning to look a bit more like a domestic spending recovery as well.

So we think there are going to be potentially some positive movements in the longer run on that side, but I think for the next few quarters I would expect the domestic markets, the big ones for us, to be pretty much where they are and commercial banking to continue to be somewhat lumpy.

And on your second question, I think when we presented our story in March, we indicated that the way we want to go about capital distribution, we had three stakeholders here. The first one was the taxpayer that should never come into a situation to bailout the bank anymore, and therefore we said, well, we want to grow our core tier 1.

The second one is that we have a commitment to support the economies in which we're active and therefore we want to grow the business. And for that we need more capital as well.

And then the third one, and this is not in a particular area -- not in a particular priority, and the third one was the shareholder who hadn't received a dividend for quite a long time, so therefore we should go back.

Now basically the way we worked it out is it's a 40% minimum dividend payout. And clearly, depending on how growth develops and how the core tier 1 develops, that's why we called it a minimum dividend payout.

Having said that, we don't know how the growth will develop. We hope it's going to be good. But we also don't know how the regulatory area will develop in terms of further requirements. We know there is discussions going on on TLAC and other concepts and we just don't know where that's going to end either.

But having said that, the logic through which we manage is a minimum 40% dividend leaving room for growth and capital build-up. And if it's not necessary for the other two, that's why we called it a minimum 40% divided. I hope that helps.

That's very clear. Thanks a lot.

David Lock, Deutsche Bank.

Morning, everyone. Thank you very much for a clear presentation. My two questions, the first one is on costs. I know, Ralph, in the past that you've spoken about declining branch footfall, a change in the way that people are approaching banking. I just wondered if you could update us on what you're seeing in terms of trends in your retail business in particular. I know you've appointed a new Innovation Officer and operating -- Chief Operating Officer in the last six months. I just wondered if you could update in terms of the work they're doing and potentially if there's any upside to that cost plan that you've already got in place.

My second question is on Ukraine. I note that whereas in the second quarter we had a big jump in NPLs there, it's actually been stable in the third quarter and coverage has also been quite stable. I just wondered if you give us any update on the outlook, particularly for Ukraine, if there's any color you give on how you see that area going forward for your business. Thank you.

I will give the second quarter -- the second question to Wilfred first and then I'll come back on the cost side.

Yes. So on Ukraine, obviously the business climate remains grim. You see it in many areas, all the international airlines have reduced their capacity into Ukraine. The local airline is struggling, rumored to be bankrupt. Car sales down by 80%. Banking system very weak. Lots of negative signals.

However, if you look at what's happening in our portfolio, first of all let me note that about a quarter of the book is subs of foreign companies fully guaranteed by their parents. Another third or so is agri business, predominantly based in the western part of the country and actually doing quite well. Of course a lot of the export companies in the Ukraine have most of their costs in local currency and export in hard currency, so effectively they benefit from the current situation. So there's quite a large part of the book that is not really that heavily affected by the situation.

Now the other part is where you see the NPLs and the associated provisions. We use our tried, trusted and relatively successful provisioning methodology on each of the situations that we get into. The Ukraine, in that sense, is no exception. We obviously watch it very carefully. We make an assessment every quarter of what we believe the best estimate of the outlook is, and that translates into the numbers that you're seeing.

What we are seeing in the market over the past few weeks is that foreign currency supply is improving slightly and that the central bank is regularly and fairly predictably acting in terms of supplying liquidity where they can.

Positive note also that the gas supply has now been agreed with the Russians, so that gives a bit of relief over potentially also the production shortfalls that would occur on the industrial side. That at least will now not be triggered by a lack of energy supply. So some marginally positive news, but it remains a fairly grim picture.

Then coming back to the cost side, thanks for that question. I think the trends are -- remain the same. People want to do, on the retail side specifically, to do their banking more and more themselves. They're very well informed. They're self-directed.

What does it mean? It really means that the requirements that they have on -- in terms of banking is that they want to be able to do it everywhere and in any way. And basically that gives rise to new projects that we're thinking about in terms of making one channel for basically working through branches and call centers and mobile and Internet and all that.

So the COO and the Innovation Officer are both looking at these kind of ideas, how we can work on that. While at the same time, because that's a real change, is that you can't work front to back in separate programs. So you need to work on one and the same programs to be able to improve the client experience on one side, whereas you do reduce the complexity of your IT and you reduce the number of applications, as we're showing and we've shown in the strategy day.

So we're making a lot of progress on -- given the current programs. But I do expect that more standardization across countries, but also more standardization within the countries and reducing of complexity will lead to further cost savings in those areas.

Andrew Coombs, Citigroup.

Good morning. My first question would just be a follow-up on NN. Perhaps you could just remind us of the pros and cons of a spin-off versus the sell-down as you see them. I know you said you're polling opinions at the moment, but interested to know your thoughts there.

And second, in terms of loan growth, if I look at slide 7, you've provided the nine-month numbers there. Just backing out third quarter, it does look like you've seen a slowdown in loan growth relative to both Q1 and Q2 in both the retail bank and in the commercial bank. I assume the commercial bank is due to the real estate run-off and reduction in Russia that you allude to. It also looks like you're seeing a contraction in lending in both the Netherlands and Belgium on the retail side as well. But perhaps you could elaborate there on the key movement. Thank you.

Patrick first.

Yes. In terms of the sell-down versus spin, as I mentioned, one of the things we need to do is make sure we maintain an orderly market, which suggests, given the relatively limited amount of liquidity in NN, that a sell down, a negative process would benefit from building liquidity first. We think, although we haven't finalized the work on this, that if we do a spin, it has to be the end piece of the puzzle. I don't think you can do a sell-down and cash spin and then sell down the cash or variants along that. The spin would have to be the entire remainder.

And given that we would want to build liquidity, that would suggest that if we were to do a spin, it would be more to the back end of an orderly process rather than the beginning. We also want to avoid a significant flow back. So spin to the extent we would use it would be more towards the back end of an execution process seeking to build liquidity and build flow in the stock beforehand.

I hope that helps you clarify some of the mechanical thinking around this. This is about how you do it. It doesn't say what you do with the proceeds because we haven't decided about that yet.

Then on your question as to loan growth, clearly you know, in the end, loan growth also has to do with GDP development. But the good thing is that on the commercial banking side, we have a global reach.

I would not read too much into the third quarter as a trend, if not for the fact that the longer-term industry lending activities and the project finance activities, they're actually coming on stream. We started hiring more people about a year ago, a year and a half ago. The bids for these projects went out nine months ago and now basically you see this book being built. This takes time.

And I actually think that, if anything, because this is a business in which we play in a global scale, we're number eight, seven on a global level and we're number one or two in Europe on this one, that we actually see that that book is growing and it's a longer-term side of the book. So if anything, I think that's a good development, although maybe at lower amounts. For the quarter, this will basically structurally build up the loan book. That's on the commercial banking side.

And then in basically the trade, the transaction services, it's a matter of pricing yourself into more volume on that. And clearly we always make very clear decisions there as to keeping the pricing discipline as well.

Now on the more domestic side of things, we see the Netherlands, we see actually the mortgage production coming up. However, and net-net, as you know, we transferred mortgages out of our book to NN Bank to build up that bank and we have the WestlandUtrecht book in run-off. But we do see actually a good and healthy mortgage production in the Netherlands. But that book will decrease over time because of the transfers of business.

On the -- as a [mid corps] in the Netherlands, we actually see demand in the third quarter a little bit lower than in the second quarter. But we do expect, given the fact, as indicated by Wilfred already, that we see the Dutch economy being also more driven now by domestic demand rather than just export-oriented growth that more working capital will be needed if this continues and more investment loans will be requested. So we do expect an upturn there but it's not there yet. We don't see it.

If you go to Belgium, we see continuous growth. There is just one file that is a little bit more volatile. There's one client that is in these numbers, and depending -- it's a big one. And depending on where or how much they [draw] by the end of the quarter, you see these numbers going down or up. But the trend is still a growth trend in Belgium.

And then in Germany we're still growing on the consumer finance side and the mortgages. And generally internationally, whether it's Poland, Romania, Turkey, we see rapid growth in the portfolio.

So I hope that gives a picture as to how we expect the lending portfolio to grow. But in the end, as said, it's all GDP-driven. But within most of the countries, certainly the challenger countries as well as the growth countries, we are taking market share. So it's not only dependent on the GDP.

Very helpful. Thank you.

Omar Fall, Jefferies.

Hi. Good morning. Just two questions, please. Firstly your ROE target of 10% to 13% is now very old. Given that you are already at 13% this quarter and there are further P&L improvements to come and you're already above your capital target, can you give us a sense of how internally you're thinking about where that number could really get to?

Secondly, what do you view as to the risk of some form of political backlash from the fact that you're so explicitly choosing not to grow the Dutch mortgage book for the foreseeable future? Of course, demand is currently low, but it's surprising that for a housing market that's only just recovering, politicians would have nothing to say about a bank that's been under state aid for so many years reining back lending to such a crucial part of the economy. Thanks.

Okay. I'll give the answer to the second question and then Patrick will follow with the answer to the first question.

So on the second question, so basically it's not so much that we're not in the market in terms of mortgages and in terms of SME lending. We're open for business. Even today we announced that we want to extend the TLTRO support to our SME clients. If it concerns investment loans, we will actually give the discount to our clients. So we're very much aware of our role also in the Dutch economy if it comes to supporting the SME, as well as supporting the housing market.

Now if we come to the picture of our mortgage book, we are open and we are producing mortgages. Actually we price always to ensure that we are one of the top-three mortgage providers in the Netherlands, with a minimum market share of around 15%, in order to support our clients, our natural market share and also to get some new clients in.

It just happens to be that at the same time we have decided to run down the WestlandUtrecht book and we transfer mortgages to NN Bank, which is an EC requirement. So if you take the total development from an ING perspective, as if we were still one full company, including the insurance company, you would probably see that the mortgage book would be stable, because you also know that a lot of people do prepay their mortgages these days given the fact that the interest on savings is not as interesting anymore versus the after-tax cost on the mortgages. So you see some prepayments there as well.

So both sides we feel that we're committed to the economy. If we come to like the actual production amount, the domestic bank in the Netherlands produces around EUR6b of new mortgages per annum.

With that, I'd like to give the floor to Patrick.

Yes. I find it interesting you talking about the ROE target being so old. On one hand I'd agree with you. We only set it six months ago, but it does feel that six months has encompassed a hell of a lot, given we've done an IPO and repaid the state in that period.

I think it's a -- this is about consistent delivery here. We're very, very pleased with the 12.5% in the quarter, but it's 11.4% year to date. So even in the four-year plan and we've very ambitious targets in there about loan growth. We want to be delivering consistently on these metrics and we're not claiming victory on one quarter.

And I also have to remind you that the fourth quarter is typically a lower one in financial markets and that bank tax, the EUR140m-odd that has to be paid every year comes in Q4. So it's typically a little bit lower than the other three.

So this is about consistent delivery of ROE targets year on year. And only when we're -- if we're consistently outperforming, then we'll think about changing the ROE target, and we're not there yet.

Okay. Thank you.

Jean-Pierre Lambert, KBW.

Yes. Hello. Good morning. I would like to ask two questions related to dividends. Now that you have 11%, is there a thought that the supervisory authorities may push you to a higher core equity tier 1 and do you have initial conversations with your new supervisor on this topic?

And the second point related to dividend. Would you consider increasing the leverage to pay a dividend for 2014 or is that totally excluded? Thank you.

Yes. The regulator on core tier 1, well he only -- they only really kicked in yesterday so we haven't really had an opportunity to talk to them that. Our listening to what they've said beforehand and they talk about level playing fields in Europe and they talk about common standards. The AQR and the stress test were all about a leveling. So we're assuming that whatever they do will be a consistent application. But as of today, I don't have any insights or expectation that core tier 1 targets are being put higher by the ECB.

As Ralph mentioned, what is potentially on the radar screen in terms of capital is the last TLAC debate, which we will get -- the whole industry will get some clarity on. That's, I think, the major area now in that space.

Obviously the -- if the markets do rebound strongly, which we're not seeing yet, the counter-cyclical buffer is part of the overall Basel 3 framework. However, I think at this point it's somewhat remote to be thinking that that will kick in. And if it does, I think we will be in a much better place if the economy is growing strongly enough for that to happen.

So a long-winded answer, but at this moment we do not see direct pressure on our core tier 1 from the ECB, partly because they started just yesterday.

On 2014, dividends for 2014, Q4, we've just completed Q3. Let's see how Q4 pans out. Of course we evaluate all our options and we will think about this. And I'm sure you will be asking questions about it. But we will reevaluate the decision when we have the fourth-quarter results.

Matthew Clark, Nomura.

Good morning. A question on the deposit rates. I'm a bit curious on your comment that there's a 3- to 4-basis-point headwind every quarter that you need to offset. Just so that I understand, I thought that you invested your deposits at around a three-year duration. And looking at lagged roll-down of that kind of duration asset portfolio, I'd have though there'd be a slightly lighter headwind stretched over time.

So maybe just could you clarify whether you see these cuts to the savings deposits as defensive or offensive and whether they're still invested at a three-year duration, because if you're cutting the rate in July and again in October, that would suggest maybe that they're being invested at a shorter duration. Thanks.

Obviously we're in multiple countries which have different dynamics, and we're trying to give you an average. And 3-odd years for application of deposits is a good estimate of the overall position.

The low rate environment does have a drag. It is relatively constant. Rates have come down lower so we are giving you an estimate of that drag effect, which is in the 3- to 4-basis-point range.

The setting of deposit rates is also, primarily, I would say, probably driven by commercial considerations, customer considerations, not exclusively based on offsetting 3- to 4-basis-point negative headwind. So it's -- we look at setting deposit rates in the context of the commercial proposition, what competition are doing in the various geographies. And when we consider those conditions justified, we then do reduce rates. So it's not about trying to seamlessly offset or perfectly offset 3 to 4 basis points of negative headwind every quarter.

So that 3 to 4 basis points, that's the impact on your Group in just margin, or is that the headwind on the balance of deposits?

Margin.

Okay. Thank you.

Kiri Vijayarajah, Barclays.

Yes. Good morning, guys. Just some questions -- a couple of questions on structured finance. Firstly just to clarify what you said earlier about the slower new lending numbers in structured finance. Were you deliberately taking your foot off the pedal there, given that you've probably overshot your target in the first half? Or is it just that there's just fewer opportunities out there given what we're seeing in terms of the macro? And could you just comment on how your pipeline is looking, say right now versus, say, a quarter ago?

And then secondly, still on structured finance but looking further out, how vulnerable do you think that 20%-plus kind of ROE is in that business, because it does look like quite a crowded space in terms of the number of banks globally that are targeting that area? Thank you.

Not so much -- I don't think that I indicated that it was slowing. What I indicated on structured finance is that what we see is that the longer-term side of structured finance actually is coming on stream now because it takes a little bit more time before you get these assets on the books and they will also stay longer on the books.

At the same time, we have the TCF and transaction services element within the commercial bank, which is a little bit more volatile and depends on how you price yourself in the market. And we can -- basically we can move that. Now it happens that in the third quarter we see a decrease on that because of the mitigation of the risk on Russia. But the longer-term side is actually taking off and we're not taking off -- not taking the foot off the pedal there.

In terms of the return on equity in that environment in structured finance, what we have seen in the past is that there's always been moments where banks have come into this business either more regionally or more globally, and they often come then with a lower price for a while.

But what we tend to see then is that the sponsors of these projects, they really prefer the more professional banks who understand the underlying business. Because this is business, or certainly the longer-term side of this business is a business that you really need to understand, because in these projects you sometimes have to restructure the loan structure and all that and then you have to understand what is happening underlying. And if you're then engaging with a bank that is not as experienced as we are, and we have been building this business for the last 25 years, then basically the sponsors are surprised by the reaction.

Now what we see therefore is that this is more -- it's -- next to an expertise business, it's also a relationship business. So sponsors keep coming back to the top banks. And we have been able to keep our position in the top 5 to top 10 for the last couple of years, even during the crisis, so that basically we think that this business will continue, but it will also continue on these returns.

Now in some presentations over the last couple of months we have shown actually that the returns in this area have been rather resilient even across -- even over the last five years. So it's a good return business. It's a long-term business. It's a combination of a relationship and expertise business. So we feel confident that this return on equity, whether it is 20% or whether it's 19%, we have seen it ranging between 19% and 24% over the last couple of years.

Okay. Great. Thank you.

(Operator Instructions). Maxense Le Gouvello, Credit Suisse.

Good morning, gentlemen. I would have two questions. Can you give a little bit more color regarding the good growth that we are able to see on the loan side in the rest of the world, which countries really are pulling this good performance?

And my second question is regarding the exposure to Russia. Listening to your conference call on the Q2, I was expecting a larger significant decrease of the EUR7.8b that you released at that time. Thanks.

Okay. We'll start with the second question for Wilfred. I'll take the first one.

Yes. On the exposure reduction in Russia, understandable question. We have given some indications of our ambition there and I can imagine if you look at the numbers Q3, you may wonder whether we're going to get there.

There's a couple of things at play here. One is the repayments that we were expecting and the ones that we were stimulating we knew were a bit back-ended into Q4. In other words, we were expecting less of a drop in Q3 than in Q4, so in that sense we're not entirely surprised.

Secondly, what is at play quite substantially here is currency movements. Most of the business we do with our Russian clients is in dollars. I'm sure you've noticed the dollar has strengthened against the euro and that has had an impact of about EUR400m on the reported exposures. Also the pre-settlement exposures have been influenced by the fact that the ruble of course has continued to decline, and that has added about EUR300m to EUR350m to the pre-settlement exposure.

So if you strip out those effects, the scheduled repayments and the ones that we thought we were going to be able to get, we have indeed obtained, so there is no issue with clients defaulting or not paying for other reasons. But it's -- the effect of that is masked by the things I've just described to you. We're still expecting a further reduction in Q4, which, in notional terms, will be bigger than the one in Q3. Given the uncertainty around currency rates, we can't quite predict what the impact measured in euros will be.

Okay. Then on your second question, the -- or on your first question actually, the growth in the rest of the world. The rest of the world basically means the countries in which we're active from a domestic perspective outside the Benelux and Germany. And basically what we see there in the third quarter, we see a growth in the net lending of EUR1.9b, so that's actually the areas that grow the fastest.

Now what is the underlying? The underlying is mortgages as well as SME and mid corps as we would call them. And you should basically realize that in countries like Poland, Romania and Turkey, where we have large domestic banks, that these GDPs are growing, growing fast even in some of these, and we are taking market share, so growing generally twice as fast as the market in some of these countries. So that's where some of this lending growth is coming from. And it looks good for the third quarter.

That's very clear.

Benoit Petrarque, Kepler.

Yes. Good morning, all. Two questions from my side. The first one will be on the Dutch mortgage margins. There's clearly an ongoing re-pricing going on on this book. Where do you think margin will trend in the coming quarters? I think there has been a bit of margin expansion still in the third quarter.

And linked to that, is that fair to assume that you're -- are your margin on high loan-to-value sustainable because simply there's limited competition on that segment?

Second question will be on Germany. Actually for the first time for some quarters we have seen small net outflows of savings. Nothing huge, but we were used of nice positives there. Is that the effect of lower rates, savings rates? And what do you see in the fourth quarter? Are you comfortable you can lower savings rates further down in the coming quarters there?

And then just a remark on the 3 to 4bps impact on NIM. It puts it at 12 to 16bps on an annualized basis. Is that the kind of headwind you are expecting in the coming years? Thank you.

On the second question about savings rate, so basically the 3 to 4 basis points we already discussed, and I think Patrick already elaborated on that.

In the fourth quarter, whether we can reduce savings rates even further, all of this is the combination of what's happening in the market, how can we grow our client business and what is the funding that we need. And what we've seen actually is that over the last couple of quarters we have been able to reduce the savings rate. And we see that new development in the market is that savings rates are going down everywhere. So we can either lead that reduction or follow that reduction.

So as we have already announced in October, which is the fourth quarter, we did reduce savings rates in the Netherlands and France. And if we feel there is an opportunity or a need, we can reduce savings rates also in other countries, including Germany. So that's that one.

Then on the Dutch mortgages, maybe Patrick?

Yes. The -- we have a -- we are producing, but we have a limited appetite for mortgages given the concentration risk. New production margins are healthy and that does contribute to the overall margin. The nature of the market has changed with LTV levels by virtue of government regulation coming down. So the production is at healthy or better loan-to-value levels than in the past. And also the tax incentive has now pushed people towards amortizing so there's no more -- you see very little of interest-only. So quality is better and margins are pretty good as well.

Yes. In terms of the headwinds, the 3 to 4 basis points, I think we're looking forward for maybe the next 12 months. We'll reassess what we -- what the position is. It's difficult to predict six months ahead, never mind 12. So I'll reserve judgment on what will happen beyond 12 months.

Thank you.

Jan Willem Knoll, ABN Amro.

Yes. Good morning, all, and thanks for taking my question. I have a question on your exposure to the energy and commodity sector. We've seen fundamentals in this sector weakening rapidly of late. How is your loan book holding up in this segment and what are your expectations for the coming quarters in terms of loan loss provisions, risk migrations but also, let's say, appetite to grow the book?

And secondly on lending margins also in commercial banking, you mentioned in the presentation that front book lending margins are down in the quarter. Can you explain in which segment specifically you see the weakness and how should we be thinking about lending margins going forward, i.e. do you expect that pricing pressure to continue? Thanks.

Yes. So on the exposure to the energy and commodity sector, a couple of things are happening there. Obviously the low oil prices and the shifting dynamics globally are having an impact. So far we're not seeing any direct impact in terms of risk migration, quality deterioration of the book. We're obviously watching this closely.

What you do see is here and there, but more anecdotally than structurally at this point, is some stickiness in terms of redeploying rigs and FPSOs. And that could be an early indicator of larger problems, but we're not seeing any strong indications.

Obviously we stress test our books with some regularity for lower oil prices. And particularly low prices for long is what you would want to worry about a bit more. At the current levels, we're not extremely concerned. And indeed, even if they come a bit lower, it wouldn't have a massive enormous impact. So at this point, no particular worries, but it is a space we're watching closely.

And in terms of commercial margin -- commercial banking interest margin, in the quarter there were lower margins in both the structured finance and in general lending. There is more overt margin pressure in general lending. However, I think the decline in structured finance is more mechanical. I think we're seeing that margin's relatively stable in current quarters, so the quarterly decline is more of a mechanical effect reflecting how we accounted for things last quarter.

So the outlook for structured finance, broadly stable margins for the -- which is our growth focus area, whereas the pressure is more in general lending, which is not the focus of our growth ambitions.

And just to follow up, the weakness in the energy and commodity sector, any -- does it have any impact on your ability to grow or your risk appetite in terms of willingness to grow?

No. I think our long-term strategy in the energy sector is unchanged. Obviously the economics of a lot of projects will look different under the current oil price scenario than they would have a while ago. So that may lead to reduced demand. In that sense I think you may see a bit of an impact on the growth going forward, but that is not directly related to our appetite.

Also with lower oil prices, very simply, for example, in the TCF space, you will see a reduction in the monetary value of a regular shipment, and we're already seeing that in terms of the volumes. So will it have an impact? Yes. But is that due to reduced appetite on our side? No, not necessarily.

Okay. That's very clear. Thanks.

I take it this was the last question. Well, gentlemen and ladies, thanks very much for joining us today on this call. Our teams on the Investor Relations side are of course available for further questions and more detailed questions as they may come when you start going through our numbers. So we're very happy to take you through some of the more details. Thanks for being here.

Just to sum up, we had a very good quarter for the Bank at EUR1,123m net profit, underlying net profit for the Bank. We had the announcement today that after a good outcome of the AQR and the stress test that we have been able to bring forward the prepayment of the -- the repayment of the state. So good news from all different sides and results in commercial performance and as well as on the restructuring side.

Thanks very much and talk to you next time. Thanks.

Thank you, ladies and gentlemen. That concludes today's ING Q3 2014 conference call. Thank you for your participation. You may now disconnect.