ING Groep NV (ING) 2022 Q4 法說會逐字稿

Good morning. This is Priscilla welcoming you to ING's 4Q 2022 Conference Call. Please note today's conference is being recorded. 

Before handing this call -- conference 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 including -- regarding future developments in our business, expectations for our future financial performance, and any statement not involving an historical fact. 

Actual results may differ materially from those projected in any forward-looking statement. A discussion of factors that may cause actual results to differ from those in any forward-looking 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 solicitation of an offer to buy any securities. 

Good morning, Steven, over to you.

Thank you very much. Good morning, and welcome to our full year 2022 results call. I hope you're all well. And as usual, I'm joined by our CFO, Tanate Phutrakul and CRO, Ljiljana Cortan. And I'm pleased to take you through today's presentation. After that, we will take your questions. 

After 2 years in which the pandemic dominated headlines, 2022 was another terminal year, the war in Ukraine and energy crisis, soaring inflation. And for the first time in over 8 years, Central Bank rates turned positive. In this exceptional year, we continue to deliver value, and I'm proud of our ability to adapt and to manage the company through challenging times. To manage the impact of negative rates, we diversify our income to manage through the pandemic, we smoothly switched to working virtual. And most recently with a war in Ukraine, we help to keep our employees in Ukraine safe, and we de-risked our Russian book. 

Let me reiterate that we focus on being the best universal bank in Europe and that we focus on organic growth, which we again delivered in 2022 by adding 585,000 primary customers. Now over 47% of active customers are primary customers, and I'm pleased to see that our focus on offering a superior customer experience is paying off. This is supported by our digital-only mobile-first strategy in retail as visible in the growing share of mobile-only customers, while also a larger part of customer journeys in retail are now end-to-end digital as measured through our Digi Index. 

Another achievement was the growing volume mobilized to help our wholesale banking clients transition to a more sustainable business model. In '22, this volume was up by 15%, exceeding EUR 100 billion. In our P&L, we saw the benefits of the rising rate environment with clean NII up by EUR 1.1 billion in 2022. And this is on top of the structurally higher fee base resulting from our efforts to diversify income. We expect this strong performance on income to continue, reflected in an improved total income growth target, which we will come to later. And all of this has enabled us to return EUR 4.8 billion to our shareholders in 2022. 

Now before we go into the financial results, I want to spend some time on the progress of our strategy and related targets -- on to Slide 3, showing our purpose and strategic priorities. One priority is to deliver a superior customer experience. As banking products are commoditized, the customer experience is a key differentiator for customer growth. This delivers value by increasing diversified income while serving a larger base will lower the cost to serve per customer. 

A superior customer experience means easy, relevant, personal and instant across all channels, leading to a grower number of customers who promote ING. In retail, we have the highest Net Promoter Score in 6 out of 10 countries, which include some of the biggest markets like the Netherlands and Germany. In markets where we are not there yet, we are working hard to improve. In Wholesale Banking, we have seen NPLs improving from 59% at year-end '21 to 67 at the end of this year. More promoters lead to more customers, more cross-sell and in the end, more primary customers and growing our primary customers is a key target as the base for future value creation. With investments in our businesses and also with savings, again, becoming a profitable product, we will continue on our path to grow this base. 

Our other priority is sustainability, where an important aim is to support our clients in their transition to a sustainable business model. Our efforts to do so have paid off, reflected in growing volume mobilized for our wholesale banking clients, and we have momentum to reach EUR 125 billion per annum by 2025. And to support our efforts to see our loan portfolio to net 0, we have updated the intermediate 2030 targets for the sectors covered by our Terra approach, aligning with net-zero pathways. 

Then on to the strategy enables on Slide 4 is also shared during our investor update. -- a seamless digital experience, scalable tech and operations foundation, a safe and secure bank and, of course, our people. We continue to invest in these areas, and I would like to highlight the progress on some of these enablers. We mentioned progress on the Digi Index on the first slide as a 2022 highlight, and this index measures the average straight-through processing rate of 341 retail customer journeys and is a good proxy for how digital we are. 

At year-end, the average SCP rate reached 64%, up from 60% at end '21 and not reflected yet in this measurement is wholesale banking. However, we are working also to digitalize the processes in Wholesale Banking and we'll take that into scope as well. We made good progress on centralizing services and capabilities in our hubs, which helps us to streamline processes and improve quality and productivity.

 For our people, we promote diversity at ING and it's essential for delivering on our strategy, and we believe that diverse teams bring a healthy mix of contrasting perspectives and are more innovative, creative and therefore, bring better outcomes. When looking at diversity and inclusion, we apply the 70% principle, striving for teams to comprise no more than 70% of the same gender, nationality or age group. And we have set a target to grow the representation of women in senior management, which is at 29% now and already very close to our 2025 targets.

Slide 5 shows the outcome of our strategy execution in 2022 and our financial targets for ‘25 -- on fee growth, in daily banking, we see further room to increase our introduce fees in investment products. The continued growth of accounts a strong base for fee growth and market confidence improves. This conference will also support growth of lending fees. Higher fees will support total income growth for 2023. 

The main driver will continue to be liability NII. And while there are some uncertainties such as further central bank rate increases, deposit tracking and customer behavior, the tailwind from liabilities will continue. And for '23, we expect total income growth of over 10%. It also leads to an improvement of our target for the coming years, up from a 3% CAGR to a 4% to 5% CAGR. This income growth will support an improvement of our cost-income ratio to 55% to 56% in '23. 

On the cost side, we expect to see some pressure from the full year effect of inflation, and we continue to invest in our business and to execute our strategy, which will bring benefits in the longer term. On the show, we intend to move to our targeted CET1 ratio of around 12%. Through our 50% payout of resilient net profit combined with additional distributions in roughly equal steps, and we will update the market on a distribution plans with the announcement of our first quarter ‘23 results. 

On return on equity, with the target development of the cost/income ratio are low through the cycle risk costs, and the CEE target ratio target of around 12.5%. We have confidence we will reach our targeted 12.5 -- sorry, 12% ROE by 2025. 

Now let me take you through our full year results '22, starting on Slide 7. The return of positive interest rates in ‘22 clear demonstrated the benefit of our funding profile, with a high share of retail deposits and limited dependence on more volatile wholesale banking funding. After years of being a direct on income, rate increases have turned our large retail deposit base back into a driver of income growth and is clearly visible in the improvement of our deposit margin over the past year. At the same time, the quick pace of rate hikes impacted lending margins as client rates generally track the higher cost of funds with a delay. Combined with lower terms on mortgages, lending margins have come down over 22%, stabilizing at the end of the year. 

Lending – subdued reflect increased uncertainties and lower affordability indicate of mortgages due to high inflation rates and energy prices. These events are visible when we look at total income. In 2022, liability NII was the clear driver of growth, while non-liability NII citing. -- fees came in at a structurally higher level in our focus on diversification. And taking this all together, total income for net TLTRO impact and the Polish mortgage moratorium grew by EUR 1 billion to –.

The next slide is on (inaudible) of income. As mentioned, liability NII was a clear growth driver, up 53% compared to 21% due to the aforementioned reasons. -- lending NII was subdued and came in 8% lower. For fees, fee income was resilient despite uncertainty that has affected the appetite for both investments and lending. The full year increase was driven by impressive growth in daily banking, reflecting growth in primary customers, the increase in payment package fees and new service fees. 

Then expenses on Slide 9. Regulatory costs were slightly lower, mainly reflecting a 50% add-on to the Dutch bank tax in '21. And furthermore, to expenses for the full year included EUR 325 million incidental items, mainly reflecting restructuring provisions. Excluding these incentive items, operating expenses were impacted by high inflation. And this was mainly visible in staff costs, where increases were largely driven by indexation. As an example, a legally required bimonthly indexation in Belgium drove up annual staff costs by 9%. And this impact could not entirely be offset by the benefits from management actions taken to restructure the service model and change the footprint. -- indication. 

In several countries, we have provided voluntary compensation to help our people go up with the rising energy prices. As mentioned, we also continue to invest in our businesses in digitalizing customer journeys and also in marketing campaigns to ensure we keep increasing the number of primary customers, thereby expanding the base for future growth. Combining these investments with the full year impact of inflationary pressure, we expect to see some cost pressure in 2023, and we'll continue to focus on cost control.

Slide 10 shows the risk cost development with the full year 2022 risk costs coming in at EUR 1.86 billion. And this was largely driven by actions taken related to our Russia book and the impact of deteriorated macroeconomic indicators, management overlays for risks from second order effects of the deteriorated environment were largely offset by releases of COVID-related overlays. The total amount of overlays remaining at year-end was EUR 453 million. Our Stage 3 ratio remained low at 1.4%. And although the current environment is not without challenges, we feel confident about the quality of our loan book, supported by the fact that we are well diversified and avoid concentration risk. Our loan book is senior only and well collateralized and in wholesale banking, we mainly work with investment-grade companies. And finally, historically, our provisioning has been prudent and without surprises when we do move into the recovery phase.

Then we move to return on equity on Slide 11. The 2022 return on equity was affected by the higher level of risk costs as well as incidental costs and high capital levels. When adjusting for the incidental costs, our through-the-cycle risk costs and our target around 12.5% CET1 ratio, the ROE was 9.6%. Going forward, reaching our 12% ROE target will be supported by several factors, such as further growth of primary customers, our 4% to 5% CAGR on total income as well as higher fees combined with continued discipline. And the discipline is there on control of expenses and maintaining high asset quality. And at the same time, we intend to reduce the equity level over time, and we take management actions to control risk-weighted assets and to improve capital allocation.

Then I move to Slide 12. Over the past years, we have built a strong track record of delivering an attractive return for our shareholders. ING continues to be a strong investment case as the best European universal bank with consistent strategy execution, income growth, well contained expenses and strong asset growing. And combined with our strong capital position, we are in a good position to return capital to shareholders. The amount we distributed over 2022 represented an attractive shareholder return of 12.5%.

Now I move to the fourth quarter results on Slide 14, and I will take you through those a bit more quickly as the trends are known, and we would like to have sufficient time for Q&A. The fourth quarter results of 22 showed a strong performance on our pre-provision profit when excluding volatile items and regulatory costs, pre-provision profit was up almost 28% year-on-year and 4% higher quarter-on-quarter, and I will address the underlying P&L lines in the following slides. 

Slide 15 shows the strong development of NII, net interest income. And this was driven by the liability NII, reflecting rate increases, limited deposit tracking and a continued deposit inflow. In lending NII, we saw pressure on mortgage margins due to rising interest rates as client rates generally track higher funding costs with a delay as well as declining income from prepayment penalties. Quarter-on-quarter, this effect stabilized. Excluding the net TLTRO impact and the Polish mortgage moratorium, our net interest margin for the fourth quarter increased to 148 basis points, mainly reflecting the higher NII liabilities. 

Slide 16 shows net core lending growth. In retail, mortgages continue to grow, although at a lower pace, reflecting an overall slowdown of demand driven by uncertainty in higher interest rates, higher net core lending and business lending was mainly visible in Belgium. In Wholesale Banking, loan growth was mainly visible in Lending and Working Capital Solutions, which was partly offset by trading commodity finance, reflecting lower commodity prices. Going forward, with still heightened macroeconomic uncertainty, we expect loan demand to remain subdued. Net customer deposit growth, that was EUR 7.2 billion, fully due to retail, mainly reflecting inflows in Germany, the Netherlands and Spain. And Wholesale Banking recorded a seasonal year-end outflow. 

Then we move on to fees on Page 17, which showed resilience despite uncertainty affecting the appetite for both investments and lending. Year-on-year, fee income was down. Daily banking fees continued to grow this quarter by 11% compared to the same quarter last year, and this reflected growth in primary customers, the increase in payment package fees and new services. Lending fees were up year-on-year, thanks to strong fee income in Wholesale Banking. In investment products, we continue to see the effect of lower stock markets and the trading activity, although the opening of investment accounts continued. Sequentially, fees were up, reflecting growth in both investment products and lending. Daily banking fees were lower due to seasonally lower travel-related fees in retail banking. 

Then we move to Slide 18. Excluding regulatory costs and incidental items, operating expenses were well contained with growth well below inflation. As I explained, this is mainly the effect of high inflation rates coming in via salary indexation and CLA increases, while we also keep investing for future growth. Regulatory costs were down year-on-year as the fourth quarter in '21 included a 50% add-on to the annual Dutch bank tax. Quarter-on-quarter, higher regulatory costs reflected the payment of the annual bridge bank tax, which is always paid in the fourth quarter. incidental items this quarter included EUR 43 million of restructuring costs, EUR 30 million of allowances to employees to offer support for their increased energy costs and EUR 9 million for hyperinflation accounting in Turkey. Overall, in light of the current operating environment and especially when looking at the high inflation rates, I'm pleased with how well operating expenses were contained, especially in Belgium and the Netherlands. 

Then to risk costs on the next slide, that's Slide 19, which were EUR 260 million this quarter or 17 basis points over average customer lending. This included a further release of EUR 112 million in stage 2 for Russian exposure and a EUR 46 million release of management overlays for the potential impact of secondary risks in the current macroeconomic environment. In total, we have built up EUR 453 million in management overlays at the end of 2022. 

In Stage 3, we saw some collective provisioning in retail banking, mainly on consumer lending and business banking. In Wholesale Banking, we took stage 3 provisions, mainly for some new files. The slight increase in the Stage 2 ratio was mainly driven by Wholesale Banking. The increase reflected lower total credit outstandings, partly due to a EUR 30 billion repayment of TLTRO funds rather than a deterioration in the risk profile of our loan book as Stage 2 outstandings actually went down. The Stage 3 ratio remained low at 1.4%.

Slide 20. That shows our CET1 ratio, which remained strong at 14.5% and was actually up compared to our third quarter '22 pro forma CET1 ratio of 14.3%, which includes the buyback we announced with the previous quarter's results. This buyback was also the main driver for a EUR 2 billion reduction in CET1 capital, which also includes FX impacts. Risk-weighted assets were EUR 7 billion lower, largely due to a minus EUR 5.7 billion of FX impact. Credit RWA were down when excluding these FX impacts, reflecting an improvement of the overall profile of our loan book and model updates. Higher operational RWA reflected the update of the AMA model. Finally, market RWA were marginally lower. Concerning our distribution, we proposed a final 2022 dividend of $0.389 per share, subject to AGM approval on 24th of April. 

Let me wrap up with the highlights. Overall, in a challenging environment, we have delivered strong results in 2022 and in the fourth quarter. Our people make an effort every day to build a superior experience for our customers and to support the transition to a more sustainable society. We see these efforts positively reflected in primary customer numbers, NPS and volumes mobilized in transition finance. Our financial results show that accelerating NII momentum is a clear tailwind while fee income has proven to be resilient. Expenses were well contained despite the inflationary pressure of indexation in some markets and continued investments to realize our strategy. Our capital position remains strong. And going forward, I'm confident that we will continue to deliver robust financial results and successfully execute our strategy. And with that, I now go over to Q&A. Thank you.

(Operator Instructions) We will take our first question from Benoit Petrarque from Kepler Cheuvreux.

Benoit Petrarque from Kepler Cheuvreux. So 2 questions. One on the 10% plus income growth and the second one on the cost income. So first on the 10% plus income growth, could you maybe be a bit more specific in terms of what you expect potentially because that implies a quite large potential range. So what could be kind of the upper end of this guidance in a favorable scenario around pass-through and markets. And just to make sure, do you still have in mind in that guidance, the 30% pass-through rate for 2023? Or based on the current market developments, things probably change and you have a different assumption. Could you maybe a bit specify that? What is your thoughts around pass-through as well and pass-rated in this guidance? 

Second one is on cost. I think you said in the past that you wanted to maintain costs below inflation. I think the 55%, 56% implies potentially a 6%, 7% cost growth for 2023, which will put you slightly above the inflation deadline. So just wanted to check with you if that's the current -- if it's a proper way of thinking about cost growth? And also maybe on the 55%, 56% can we assume it's going to be more a 56% on the 10% income growth and potentially 55% on a 12%, 13% income growth scenario. Just wanted to clarify that.

Right, thank you very much, Benoit. I think the questions are linked to some extent. So I'll hand over to Tanate.

Thanks, Benoit. I think in terms of context of how we come up with the guidance, I think we want to remind you that we are operating with an environment of significant uncertainty and quite bearishness in terms of macroeconomic outlook, right? So we are prudent in terms of our financial planning in that context. Then in terms of the income growth of more than 10%. What's driving that is really a few items, whether it's on the high or on the low side, as you mentioned it. One is really loan growth. You see that loan growth in Q4 has been slowing, and that will be one determinant and lending margin. The second is the tracking speed, right? We have given you a Q3 results a certain simulation about tracking speeds. And we have a -- if I can refresh your memory around 30%, 40% and 50%. The tracking speed that we see so far in Q4 has been more like 15%, which, in our opinion, is on the low side. So from that perspective, I think we see that the catch-up in terms of deposit tracking should be more prevalent in '23 compared to Q4 '22, okay? 

Then in terms of linkages, yes, indeed that if we are operating at over 10%, then you would imagine the cost income ratio to be on the high end of our guidance. And if we go higher, then obviously, it comes to the low end or beyond.

And maybe just on 2023 cost growth implicitly based on your cost income. Is that in the range of 6%, 7%, are slightly higher than the headline okay, Eurozone inflation for 2023. Is that correct?

Well, that's why we give you guidance with respect to cost income ratio to give you variability in terms of income and cost trajectory. I think we have clearly more pressure in terms of salaries from the high inflation you see in the back end of '22, but we also have also targeted certain investments we will make in terms of, for example, client acquisition. It's one of our primary targets for next year to increase primary customer growth. So within that context, we do expect to operate between 55% to 56% cost income ratio.

We will now move on to our next participant, Raul Sinha from JPMorgan.

A couple of questions from my side. The first one, really, just for Steven, what gives you the confidence to reiterate the 50% to 52% long-term cost-to-income ratio guidance given, obviously, the inflationary pressure that you're seeing in '23, could you talk to us about how you're able to manage the efficiency lever back to what you were thinking about at the Investor Day, given the environment for cost has changed quite dramatically since then. So what gives you the confidence that you can hit 50% to 52%. And also related to that, I guess, your income guidance is higher than expected. Cost to income ratio is same, but the ROE has not gone up in terms of what you think you can make. So is there some new negatives relative to what you saw at the Investor Day? Or are you just being conservative?

The second question is around the buyback phasing for 2023. Could you remind us please of the metformin tax threshold for this year? And I'm surprised that there is some surprise in the market that there was no buyback today. So I just think it will be helpful for us to get a little bit more clear message in terms of the timing of any potential buyback sales year.

Okay. I'll leave the question on the tax and the buyback to Tanate and I'll focus on the guidance that we have for 2025. Yes, clearly, also compared to the rate that we saw during the Investor Day, the rates went further up that both goes for income and it also goes for inflation. In that setting, what you continue to see is that even that first of all, we have been able to grow our interest income on the back of higher interest rates, and that was 17% compared to the same quarter last year. We have been able to actually still grow our fee income, yes, only this year with 2%, but it was on the back of, let's say, more stability, more annuity in our payment business, while our investment business was gone down based on the fact that stock markets were lower and also, to some extent, a bit subdued lending activity.

And we start, therefore, from a better structural base of fee income than we did last year. We have grown our primary customers with 600,000, and we are confident to continue to be able to do that. And these customers are people that we can do more with. And therefore, we continue to be confident to grow our fee base with 5% to 10% per annum. And in that setting, we, on the one hand, benefit from higher interest income, but also tonnages alluded to, with the tracking of the interest rate is currently still lower than we have seen than the 30% that we gave as an example in the investor -- in the presentation that we also showed you in November. And of course, pressure on inflation that we are seeing in salaries in different countries that we need to continue to manage with digitalization through our Scalable Tech and Operations foundation as well as our similar digital services that we do on a continuous basis, and we're very strict on cost management. And that gives me the confidence that we'll move to these returns that we talked about at 12% and the 50% to 52% in 2025.

Raul, just to answer your question on the level of cash distribution to make the hurdle for share buyback in 2023 is approximately EUR 2.8 billion. And as mentioned, we are going to give you an update on -- in terms of our capital management at the end of the Q1 results.

We will now move on to our next question from Flora Bocahut from Jefferies.

Yes. And on the first question I had is regarding the provisions. Obviously, you didn't provide any guidance for 2023 for that P&L line. You've been making positive comments regarding the strength of your loan book in the slide pack. So could you maybe elaborate a bit on the trends that you're seeing there, whether you are seeing first signs of a degradation in the asset quality, and therefore, what we should expect maybe for the 2023 provision outlook compared to the trough cycle guidance?

And then the second question is just coming back to the sorry, the 10% income growth. I just wanted to check to what number that applies. Is that to the reported '22 number? Or is that to the adjusted 22 income for the Polish one-off and the TLTRO impact.

Yes, I'll answer that on income growth, and then Ljiljana will answer on provisions. So the larger than 10%, so I should maybe emphasize that the larger than 10% forecast is based compared to the reported 2002 income level. Sorry, 2022. 2020 – 2022 income level.

Yes, with respect to provisions, as you recall, we usually do not guide. However, if you remember what we talked about in June, we feel quite confident with the portfolio structure and quality as it is and as well with the risk management framework around it, we will -- we are confident ensure that in the next few years, we remain within our through-the-cycle average. Additional to that, I would say the recent results of the fourth quarter gives us additional confidence that we are doing the right thing. That means that we do not see in our portfolios any first increase of the NPEs. It is very limited in the fourth quarter. It's seasonal and it's aligned with expectations. 

And secondly, we do not see any structural delinquencies either on payments or on the, I would say, deterioration of quality in any of the asset classes. Let me also remind you on the structure of our portfolio, which is very much collateralized very much in residential real estate with low LTVs and quite, I would say, subdued part of the consumer lending and business lending, which are usually the first deterioration parts of the portfolio. So having said that, having seen the good development in '22, specifically also fourth quarter, having seen the structure of our portfolio going forward and having the risk management techniques in place that we do have, we feel confident to remain in that range.

We will now move on to our next question from Farquhar Murray from Autonomous.

I think just trying to come back to Slide 7 where you're showing the liability margin. I think in the last call, you kind of indicated that a scope for that to maybe go over 100 bps. And I just wondered if you could give us a sense, particularly looking forward through to -- full year '25, what kind of liability margin you're kind of expecting to kind of normalize back to there? 

And then just coming to the cost side of things. If I look at the 50% to 52% for full year '25, it seems to be almost suggesting costs at a headline level are basically flat between full year '23 and '25. And I just wondered if you could give us a bit of a sense of the bridging elements within that. I think regulatory costs are expected to come down. I kind of now wonder if investment costs also come down and presuming there's some degree of background cost drift within that kind of assumption as well. So I just wonder if you give some detail around that, if that's possible.

So the first one is that on deposit margin. And as I mentioned before, the tracking speed has been slow given the sharp rise in the ECB rates that we see now. But what we've seen historically in more normal times is that deposit margin seems to range around 1%, right? So we are at around 94 basis points as of the end of Q4. So there's a bit more room in normal situation for that. But I have to remind you that the yield curve is having this massively sharp rise and then plateau after a while. So you have to take that into account. 

In terms of cost target for 2025, I think you have to think about 2 things that we expect to moderate. Number one, clearly, is regulatory expenses, DGS contribution, bank taxes, we expect that to decline, particularly starting in 2024. -- we expect to normalize as inflation come down is salary increases, we expect that to normalize as well while continuing to maintain our efficiency programs to mitigate much of the cost increase, which we have done historically.

And just to follow up on that. I mean should we expect an overshoot versus the 100 million early in this year in terms of liability margin?

Well, it just depends on the competitive situation. When we do our planning, we had some observations whether deposit system deposit level would decline or not, but as you franchise. Deposit actually grew by EUR 10 billion. So there is continued buildup of deposits, which bodes well for deposit margin.

We will now move on to our next question from Kiri Vijayarajah from HSBC.

Yes. I've got a couple of questions on the fee side. So firstly, on the retail side, when interest rates were negative and you were actually pretty successful in pushing through some quite meaningful fee increases. I think that's more kind of 2021 rather than last year. But my question is more as interest rates normalize and the deposit margin also normalizes, do you think it gets progressively harder to push through kind of that next leg of retail fee increases that you're kind of assuming in your '23 and '25 target?

And then secondly, still on fees, but more on the Wholesale Bank side, the fees are always sort of jumped around a little bit quarter-to-quarter. But I wondered what your pipeline on the larger deals looks like in the wholesale bank. I know, I guess, for the industry as a whole, that's getting -- that's weakening at the moment. And then on the fee side, on the flow businesses, trading to commodity finance, does that also look like it's going to be subdued in the short term for the first quarter, first half of this year. So really just some color on the wholesale fee outlook, please?

Yes. Thank you very much. And clearly, we are entering a different environment than we did before. At the same time, we -- like we said before, there are a number of levers that we can pull to grow our fee business. First of all, it's growing our primary customer base, very simply put. We -- that's why we grew with 600,000 this year with over 200,000 this quarter. And we work on growing that base. That's also why we continue to work on improving our experience and put marketing to work because when we have these primary customers, they do more with us. That's maybe step 1. 

Step 2 is we continue to focus on extending our services to more customers and also in the fourth quarter, even though the stock market levels are still subdued. For example, in Germany, again, the number of new customers coming on the net new number of customers coming on to the investment app was around 50,000. So we try to -- we continue to grow the number of people that work with us on our fee business products. 

Thirdly, we extend the number of services. So what we have done in Germany, we also with investments, we also extend to other markets or we introduce new payment products. And fourthly, that's the topic that you mentioned. We also repriced there where we can when we provide the adequate service. And what we do, for example, this year, we already announced that as per the first quarter of this year, we will increase our payment packages in the Netherlands for retail customers, and we will increase the payment packages for business customers in Belgium. So we also continue to do that. And all those elements give us confidence that we will continue to leverage make 5% to 10% growth in fee business over the next coming years. 

When it comes to Wholesale Banking, yes, the pipelines are good, and we saw in the fourth quarter that when there was, of course, a lot of uncertainty in the first part of the year. And of course, there is still uncertainty. But at some point, companies do need to invest, and that's why you see a number of the larger syndicated loan deals coming back, and that's what we've also seen in the third quarter, but also in the fourth quarter of this year. And on the flip side, we saw the lower energy prices that have an impact on the trade and the commodity financing, so the trade financing and that's quite dependent on price, and therefore, also the fees on that part are coming in a bit. 

So the latter part is more volatile because it really depends on the pricing of, let's say, the barges of oil and gas. And in terms of the deal volume in wholesale banking, we're cautiously optimistic that, that will also continue in 2023, given the fact that inflation numbers are coming down a bit. GDP levels for Europe are a bit above 0, that the activity in China is resuming after the lockdown has expired, decrease in political tension between China and the U.S., yes, with, of course, a big overhang being the war in Ukraine, but cautiously optimistic also in that sense on fees for 2023.

We will now move on to our next participant, Benjamin Goy from Deutsche Bank.

Just 2 questions. And maybe in light of some new revenues last month, if you could update us on your capital allocation policy, dividend share buyback, organic growth but also M&A. And then secondly, obviously, there's a focus on primary customers, but I was wondering whether you have some more appetite for also growing customers at large, given they are much more profitable eaten the interest rate environment. So I think you're using some key rates in some markets, just to be interested in your thoughts here.

Well, okay, thank you very much. I will answer the question on customers and Tanate on capital allocation. With regards to customers we continue, on the one hand, to focus on growing our primary customers, and those are customers that have part of their salary account with us, plus 1 additional products. And we do that by providing them within easy instant personal and relevant experience. And that's why we're also focusing so much on entered digitalization of the journeys that I talked about at the Digi Index, which will also improve because that gives us the ability to grow. 

And yes, let's take -- I mean, if you look at most of the markets, if not all the markets in the fourth quarter, we again were able to grow that number. And we are able to do that because our experience generally is being perceived as better than that of our customer than our peers. If you look at the Net Promoter Score in 6 out of the 10 retail markets, we came in at #1, including large markets such as the Netherlands and Germany. So that's what we want to do on the rent. And we know that primary customers do a multiple more of what non-primary customers will do with us. That's why in the target we have for 2025, we are focusing on the continued growth of that number, and it's in the KPIs of all of the country heads in all the markets. 

When we look at generically customers growth, if you look at, let's say, the still uncertain outlook that we have on the economic environment, yes, cautiously optimistic, like I just said, we're still a little bit uncertain. When we talk about the larger mid-corporate wholesale banking clients, we largely focus on existing clients and try to help them, try to focus also on their transition finance. Like I said, the transition finance mobilized the last year increased with around 15% from EUR 88 million to EUR 101 million. So we want to be there for our existing clients. And we're prudent with regards to onboarding new clients, also given the fact that currently, the environment is relatively uncertain. And that's the way that we want to grow our client base. Tanate?

So to answer your question, Benjamin, on capital allocation, we always look dynamically at our capital allocation. And that's why we decided to exit from subscale businesses like Czech, Austria and France, and that we deploy our capital to businesses that makes the hurdle. So that's one part of our strategy, which continues. At the same time, for 2023, you would see that our capital deployment in terms of lending will be less, right, given the fact that lending is slowing and that allocation of capital to that aspects of our business will be more modest compared to previous year. But at the same time, we see more profitability coming from deposit gathering and that attracts relatively limited levels of capital required to increase that business. 

So overall, I think we can take whatever we need to do in terms of capital allocation, but stick with our ambition in terms of capital distribution to get to in roughly got to 12.5% by 12% by 2025.

You didn't -- I mean, you didn't mention M&A at all. So I assume this is a very low priority for you or maybe.

Okay. So you are alluding to M&A. Well, look, I mean, our first focus on organic growth. And we have been able, again, to grow with 600,000 customers. We were again able to grow our loan book with EUR 18 billion, which is a bit lower than the previous years because of the economic situation. We were able to grow last year our deposit franchise with EUR 25 billion. We were able to diversify our income further. So -- and we are being seen in a number of the markets as the best player and that also means that we're able to continue to grow our customer base there.

Now in case in some of these markets, local cost, that's the first focus area that we have. In case in some of these markets, I said we want to be -- to reiterate our position as a European universal banking leader so that in some of these markets, there would be an opportunity for in-market consolidation. Under the right conditions, i.e., no big restructurings, a good digital platform, clients that we can put on our platform, broadening of the revenue base, ability to realize cost benefits and then we will look at it. If you ask me, do you focus on large-scale European consolidation moves? The answer is no. I think that is very difficult, also not only in the light of the integration, different intuition we would have to do there, but also because the benefits of cross-border mergers in banking are just limited given the compartmentalization that we see in liquidity, capital, data systems, product requirements that makes it hard. And I'm not a firm believer in that at this point in time.

We will now move on to Andreas Scheriau from Goldman Sachs.

Can I come back to Slide 7, please, and follow up on Farquhar's question. If we're looking forward, the deposit margin will likely expand meaningfully again next quarter. What is your degree of confidence in sustaining the higher deposit margins that we will be seeing in the first and potentially second quarter? And what do you foresee for the development of asset margins from here in the fourth quarter, as you show on the slide, or also in 2017, that was around 150 basis points versus 127 basis points in the fourth quarter. Should that pick up from here as repricing lags fade or stay around this level as this is a more structural issue in a higher rate environment?

And then the second one would be on deposit trends. If you could just speak to what you're seeing there disability and mix within it and how this compares to expectations? And perhaps one specific question, if I can add. You've previously talked about migration from current into savings accounts. What is your expectation with regards to migration into time deposits? Thank you very much.

When we talk about deposit margins, I'll leave that to Tanate. I will give you some answer on the lending margin and deposit trends. I mean on lending, what we -- on the lending margin as such, what we have seen, especially in retail banking, that lending margins have contracted over the last year. And the main reason for that was that on the one hand, the prepayment penalty fees came down, and that was because less people start to prepay their mortgages because the interest rates were higher and most of our mortgages are fixed rate margins. Therefore, they don't feel the need to prepay so quickly. So those levels came off, and it was included in that lending margin. 

And secondly, you will see that the increase in the market rates always grows quicker than that you can reprice to clients. So that has led to a contracting margin on the lending side, not so much in wholesale banking, where the margin remained pretty stable over the year, but largely in retail banking. In the fourth quarter, we now see that leveling off, leveling off on the downside, I mean, which is, yes, we now see a sort of a stable level of prepayments. We now see that gradually, we're able to price in the higher market rates into the mortgages. And therefore, we would expect that to also stabilize going forward and potentially depending on demand to that to have some risk on the upside, I would say. So there is maybe some benefit on the upside. 

In Wholesale Banking, it largely depends that the margin will largely depend on the amount of liquidity that is coming on to the market. Clearly, there is now some monetary contraction by the ECB that in itself could help in terms of getting that margins at a higher level, whatever it will be, and we will need to remain prudent in that regard. We'll price all those deals to the applicable return. If the price is not making that return horrible that in yet leaves us to the ROE levels that we also indicated in our investor update, then we will just not do the deal. So we need to stay prudent and very difficult in that matter. 

When it comes to savings and let's say, the behavior of people, we've also seen it in the fourth quarter again, although we thought in Europe, we would enter into a technical recession. That's still a question and all the central statistics bureau are still calculating whether this is really the case or not because the consumer spending actually in December and November went up quite a bit. So that remains a question. But I think, more in general, one can say that the outlook seems to be a bit more positive than we thought, let's say, a quarter ago. It also shows, by the way, that when we saw that a quarter ago, how volatile this outlook is. But in that setting, we do still see cautious behavior of customers. 

And in the fourth quarter, that meant that only for us already our savings increase in retail with EUR 10 billion, which is quite significant. And we would expect that to continue also in 2023 because spending levels given the current macroeconomic environment are a bit lower. -- when they're moving from current accounts to saving accounts, we haven't really seen a massive shift in that regard. So that remains to be seen. Most of the money that people use, they use for daily usage. 

In the past, by the way, when we talk about pre-financial crisis or during a financial crisis, in many countries, we had only savings accounts because we started as a direct bank there. We broadened our products also to current accounts, and I haven't really seen in the last number of months, a shift in that mix because people typically use their money on a daily basis.

And then to address your question on deposit margin, just giving you our kind of views of where first ECB rates are to go is we do expect that a decision today would be for another rate hike and another 2 rate hikes into the month of May. So with rising ECB rates, then the tracking speed in Q1 and Q2 is likely to lack those ECB rate hikes. So that -- from that perspective, that would point to higher deposit margin. But then we do expect that tracking will increase and that margin would normalize over time to that kind of 90 to 100 basis points level on deposits. So that's kind of our view at the current time. 

And the last really on tracking speed, it really depends on loan growth, right? The low the loan growth, the less demand we have for additional funds, and that would mean that pressure on increasing deposit rates will be less.

We now move on to Sam Moran-Smyth from Barclays.

Two questions, please. So the Dutch Union say the collective labor agreement negotiations have hit deadlock. So could you perhaps update us on the status there from your point of view? And perhaps you could give us a rough guide on how much salary inflation in the Netherlands is baked into your FY '23 cost income guidance? And then secondly, on that cost/income guidance of 55% to 56% and also on the 10% top line growth guidance, could you give us some clarity on which of those are adjusted for the FY '22 exceptionals namely TLTRO and the Polish mortgage moratoriums.

Okay. Tanate will answer the second question. I will do the first one on CLA. Yes, we have been in conversations again with (inaudible) in the past number of weeks. -- those conversations in this country came to a hold. We believe that we offer a fair package for '23 and '24. That package was made public. That is a CLA increase for this year of 3%, the next year of 4%. That is not the total sum because there's also some in scale increases. Obviously, we have taken those all into our cost projections for 2023. And it remains to be seen what the unions will come back with. We are convinced that we have offered something which is completely fair, reasonable and we will expect the units to come back, and then we'll take it from there.

And then, Sam, to answer your question, the 10% or greater guidance that we gave on revenue is based on our reported numbers, so unadjusted.

We'll now move on to our next question from Tarik El Mejjad from Bank of America.

You start today a bit cautiously optimistic even say, conservative in a number of P&L lines. Should we be concerned about you being conservative as well on the capital return announcement in Q1. I mean the end goal is still 12.5%. You repeated that this could be done in equal steps. But if you are consistent with your cautious view on the environment in the short term, would that impact as well the phasing of the conversions towards 12%, 12.5%. And why would you not just instead of taking 3 steps say we would like to pay $2.5 billion to $3 billion excess capital is between buyback and some cash to avoid paying tax and buyback would be much clear message and give confidence on your strategy on that front? 

Secondly, on M&A, I will be slightly more explicit maybe in my question, there were some headlines that would be bidding for the Indian Bank. Could you deny that? Or is this something that you would consider in your earlier answer you focused on Europe? Is there anything outside Europe would be -- could be on the table?

Thank you, Tarik. Look, I think we have been quite clear and also consistent and also reliable on what we have said on our capital distribution and our ability to execute. And we stick to that garden. So we have said we will want to move down roughly (inaudible) 2025. There is nothing in our guidance that would sway from that. As a matter of fact, we just upped our guidance on revenue quite significantly. We are in constructive dialogue with the ECB. And we've said that every time we take a step, we are -- we say that we are in constructive dialogue. We also announced that we will let you know the outcome of it from structured dialogue for the first quarter of 2023. And if I do the math, I know quite well that we need to pay out more than 100% of profit in the next coming years to get to that level given where we currently are I have not forgotten that, that's what we will focus on. 

The same level maybe of preciseness on India, we have been saying a number of times that we focus to reiterate our universal banking leading position in Europe. I don't get out being pedantic about it the last time I looked, India is not in Europe. And I'm actually a bit surprised that one article in an Indian Newspaper on an Indian company in a country which we exited about 6 years ago, would then serve us again as something that we would focus on. So I will not go any further because otherwise, I have to give comments on each of the 225 countries in the world, but I think that this is quite clear.

It appears there is no further questions at this time. I'd like to turn the conference back to Mr. Steven for any additional or closing remarks. Thank you.

Great. Thank you very much. Great to talk to you again at the well, not quite a start, but at least I'll start well, and I hope to talk to you again in the near future. Thank you very much, and have a great day.

Thank you, everyone, for joining today's call. You may now disconnect.