ING Groep NV (ING) 2024 Q2 法說會逐字稿

Welcoming you to the ING's 2Q 2024 conference call. Before handing this conference call over to Steven van Rijswijk, Chief Executive Officer of ING Groep.

Let me first say that today's comments may include forward-looking statements. Such as statements regarding future developments in our business, patience for our future financial performance and any statement not involving a historical fact. Actual results may differ materially from those projected in any forward-looking statement.

A discussion of factors that may cause actual results to differ from those in any forward-looking 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 is posted on our website today. Furthermore, nothing in today's comments constitutes an offer to sell for a solicitation of an offer to buy any securities.

Good morning, Steven, over to you.

Thank you very much, good morning and welcome to our results call for the second quarter of 2024. I hope you're all well and as usual, I'm joined by our CRO, Ljiljana Cortan; and our CFO, Tanate Phutrakul. In today's presentation, we'll discuss the strong quarter we had inform you about how we're progressing on the priorities. We set out during our recent Capital Markets Day.

Today, we'll walk you through the financial quarter and show you how we're performing compared to our network targets. At the end of the call, we'll happy to take your questions. Now, let's move to slide 2.

Before going through our strong results in more detail, let's start with a recap of the key messages from our recent Capital Markets Day. First, we've shown that our entrepreneurship, our relentless focus on our customers and our collaborative culture have made us a very successful bank, delivering value for all stakeholders. This DNA enables us to capture opportunities in the highly attractive markets in which we operate.

By executing our Growing the Different strategy we'll capture this potential and accelerate the growth increase our impact and deliver value for our stakeholders.

And I'll now take you through how we are done so in second quarter. On slide 3, we show how we are accelerating growth. After a successful first quarter, we again had very strong commercial performance in the second quarter with an increase in the number of customers in lending and in deposits. The number of mobile primary customers increased by almost 250,000 with increase in all countries where we pursue growth opportunities.

And with this increase we've grown the number of mobile primary customers by well over 900,000 customers in the last 12 months and we're well on track to reach our target of 1 million per annum. We have also grown our lending book with a particularly strong performance in mortgages where we saw growth across all markets. Growth in wholesale banking lending was offset by loan sales as we continue to optimize capital usage. On the liability side, successful marketing efforts in retail banking and a stronger focus on deposit gathering in Wholesale Banking resulted in EUR15 billion in flow this quarter.

Annualized customer balances growth, so that's lending and deposits combined amounted to 6.2% in the first half year, actually in the annual target of 4% that we set during our Capital Markets Day.

Then I'm moving on to slide 4. And there we showed increasing impacts for all our stakeholders. After growing by 430,000 in the first half year, we now have 13.7 million mobile primary customers. And this growth reflects the appreciation of our products and services. 65% of our customers now only do business via the mobile and we're the most loved bank in many markets we operate with a number net promoter score in 6 out of the 10 retail markets.

We have a highly engaged workforce and we're proud that we're seen as a role model in advancing LGBTQIA+ inclusion in workplaces worldwide. The number of sustainable deals has increased further with EUR32 billion of volume mobilised in the second quarter and EUR57 billion in the first half year, which is EUR10 billion more than last year.

In retail, more than 40% of the mortgage production in the Netherlands has at least an A-Label. And finally, we're showing excellent financial results for our shareholders. As a result of continuing strong profitability, we have announced an interim dividend of EUR0.35 per share, bringing the year-to-date yield to over 13% already.

Slide 5 lists how we are delivering value. Net interest income remained resilient, with an increase compared to last quarter, despite the negative impact of higher accounting asymmetry. Fee income was very close to [EUR1 billion] this quarter and we're well underway to reach the EUR4 billion this year that we stated earlier. Most of this growth compared to last year was driven by structural increases, as Tanate will show you in more detail later.

Risk costs continue to be below our through-the-cycle average and we remain comfortable with the quality of our loan book. And this has all resulted in a return on equity of 14% and we're confident that we will end the year with a return on equity of more than 12%. We have achieved this return while operating at a healthy CET1 ratio. With the ongoing share buyback, we've made further steps converging our CET1 ratio towards our target level and will update the market on next steps with our third quarter results.

This slide 6. And on this slide, I would like to zoom in on an individual country and show how we're executing on our strategy in retail banking. In Romania, we've been the most preferred bank since 2016, and this appreciation of our digital products and services have resulted in strong growth in the number of total customers and over half of these customers now use us as their primary bank.

We've also been able to grow both sides of the balance sheet and make a very healthy return. And we firmly believe we can grow further and make more impact for our customers. For example, we completely redesigned our digital onboarding process that now really stands out in a country, and we've introduced a digital mortgage in Romania with digital financial approval and collateral appraisal.

To increased presence in new segments, as we also talked about during Capital Markets Day, we have introduced dedicated value propositions for Gen Z while we renewed our focus on the affluent segment. And we've increased crossover in business banking so that more customers use our daily banking pages, which helps to further increase fee income. Overall, Romania is a great example of how we're growing the difference. And now I'll hand over to Tanate, who will take you through the results of the second quarter in more detail, starting on slide 8.

Thank you, Steven. As Steven mentioned in his introduction, net interest income was strong again this quarter and improved quarter on quarter, despite a more negative impact from accounting asymmetry. Lending NII increased for the fifth consecutive quarter, driven by higher volumes, while the margin grows by 1 basis point.

Liability NII continue to be resilient as the expected normalization of liability margin was almost fully compensated by higher volumes. The overall net interest margin, which takes the development in the total balance sheet into account decreased by 3 basis points, driven by the impact of increased accounting asymmetry.

Now if you go to page 9, I'll show you more details on this. The point I'd like to make here is that the structural drivers of net interest income developed very well this quarter, while reported net interest income increased by EUR5 million quarter-on-quarter. However, when excluding the impact of one-offs and the increase accounting asymmetry, our net interest income actually increased by a strong EUR65 million compared to the previous quarter.

As you know, the negative impact from accounting asymmetry on a net income is more than compensated by other income. I'll get back on this on slide 12. On the next slide, we'll show you the strong volume growth in both core lending and deposits. The commercial momentum that we had in the first quarter continues in the second with strong net core lending growth of almost [EUR8 billion]. We have been able to grow our mortgage book in all of our retail countries, just not driven by recovery of the market, but also by increasing our market share in some countries.

In the Netherlands, for example, we have grown now market share in new production to over 16% on the back of providing an excellent customer experience. Growth in wholesale banking lending was offset by loan sales as we continue to focus on capital efficiency.

On liabilities, we saw core deposit growth by EUR14.7 billion in the second quarter due to strong performance in both retail and wholesale banking. In retail, we grew across many markets driven by effective marketing and supported by the inflows of holiday allowances in some countries. In wholesale banking, our focus on increasing deposit paid off with strong inflows in payment and cash management in particular.

Now turning to slide 11. Fee income year on year was again double digit as we made almost EUR1 billion in fees this quarter. This is a record. The growth was particularly driven by retail banking as we were able to grow more by our primary customer, active investment product customer lifting income from daily banking, investment products and insurance.

In addition, we paid low commissions to independent agents and brokers in Belgium. We also benefited from favorable market conditions that led to higher fees from mortgage brokerage and increase in the number of investment product trades as well. In wholesale banking fees was slightly lower due to lending, but was still at a strong level. Given the strong performance across the bank, we remain confident that we can reach our EUR4 billion fee income outlook this year.

Now on slide 12, we show what the developments in the different income lines in the first half of the year mean for our guidance for total income this year, we note that we previously provided an outlook for net interest income, assuming a stable accounting asymmetry resulting in a range of between EUR15 billion to EUR15.5 billion.

However, as this asymmetry remain difficult to forecast, we have now excluded this impact from our outlook. Any impact from accounting asymmetry will be more than compensated in other income. As structural drivers of NII remains strong. We continue to guide for interest income, excluding accounting as asymmetry to end up in the upper end of the range. We are confident that the fee income will reach the EUR4 billion outlook. And as a result, we have increased our total income guidance this year from around EUR22 billion to more than EUR22 billion.

Now on slide 13, we'd like to explain a bit about the cost development. Total expenses in the first half of the year increased by roughly 3% compared to the first six months of 2023. In the same period, expenses, excluding regulatory costs and incidental items, were approximately 6% higher which is in line with our outlook for 2024.

This increase was mainly because of the impact of inflation on staff expenses, reflecting salary indexation and collective labor agreement increases across most of our markets. We also continue to invest in our business and had to pay a higher VAT following the implementation of the Danske Bank ruling in the Netherlands. Regulatory costs were significantly lower than last year because no contribution is required to the Eurozone Single Resolution Fund for 2024. For the full year, we continue to guide for total expense phase of around EUR12 billion.

On to risk cost on page 14, total risk costs were EUR300 million this quarter or 18 basis points of average customer lending still below our through-the-cycle average and demonstrating the quality of our loan book In retail banking asset quality continued to be strong, and we benefited from strong improvement in the macroeconomic outlook for house prices.

In wholesale banking, risk costs, including additions to Stage 3 for a number of unrelated existing files, we have also transferred part of the Russian related exposure from Stage 2 to Stage 3, reflecting the worsening economic outlook in that country. At the end of the second quarter, we still have a stock of overlays amounting to EUR415 million.

Page 15 shows the development of our core Tier 1 ratio, which was mostly impacted by the ongoing share buyback, which we announced last quarter. Core Tier 1 decreased by [EUR1.7 billion] as the buyback was partly offset by the inclusion of net profit for the quarter after reserving for dividends. Total risk-weighted asset increased by EUR7.3 billion, excluding EUR0.6 billion of FX impact.

Credit risk-weighted assets, again, excluding FX impact, increased by EUR7.7 billion, partly driven by an increase in exposure. A temporary increase from quarterly model updates had an impact of EUR6.5 billion, of which the majority will be reversed before year end. This temporary increase has no impact on our capital outlook. Changes in the profile of the books resulted in a decrease of the credit risk-weighted assets by EUR2.1 billion.

Operational risk-weighted assets were stable. Market risk-weighted assets decreased by EUR0.4 billion. Interim cash dividend of EUR0.35 per share will be paid on the August 12, and we will update the market with our Q3 results on the next steps in converging on our core Tier 1 ratio to our target levels of around 12.5%.

Then finally, on to slide 16, as Stevan and I as explained today, executing on our strategy has resulted in a very successful first half year with good commercial and financial performance. Mobile primary customer increased by 430,000 as more and more customers choose us as their primary bank. An increasing number of customers that are using mobile as their preferred channel.

Total income increased with strong NII double digit fee income growth and we have updated our outlook for total income for the full year to end up above EUR22 billion. The development of operating expenses was in line with our outlook, while regulatory costs decreased significantly compared to last year. Core Tier 1 ratio and continue to be high at 14%. Our four quarter rolling return on equity remains very attractive at 14%, and we're confident we'll be able to provide an ROE of over 12% for the full year.

Now on to the Q&A. Over to you, operator.

(Operator Instructions)

Benoit Petrarque, Kepler Cheuvreux.

Yes, good morning, gentlemen. Thanks for taking my questions. So the first one will be on net interest income looking at the two main moving parts, so leading NII and maybe liability NII. On the other lending NII and I obviously very strong growth on the volume side. It sounds that you or least I am more positive on the on the lending NII developments going forward. I also a bit more positive on lending volumes for the rest of the year and also on our lending margin developments that will be the first question in NII.

And then NII again, on page 22, you provide a very interesting sensitivity. Last quarter you told us that based on the curve end of March, you expect to be between 100 bps and 110 bps on the liability margin.

I see delta based on the current curve of EUR600 million on interest income from replicating income in '26, which will be about 9 bps on the total customer deposits.

So my question is on the based on the current curve, are you maybe a little bit more also positive on this range of 100, 110? And are we more likely to be on the high end of this of this range based on the current curve, That's the question? And then just a very tiny question on the asset sales.

So wholesale book is down EUR1 billion, but how much is your kind of effect of the assets to asset sales in, say, Q2 or H1? I just wanted to get the full picture on an underlying basis? And also if you talk about asset is a strategy in the past and just wondering where you are on that. Thank you very much.

All right. Thanks, Benoit. I will do the one on asset sales and the NII. And Tanate will talk about the graph on page 22. Talking about the NII, I think we also are quite positive. And if you look at the volumes in mortgages, to start with, the volumes were good. You also saw, if you look at the market share of the new production in the Netherlands, it was 16% and higher, where our total market share is around 13%. So we're doing very well.

That also has to do, by the way, with our strength of our digital channel and interaction with our broker. So we're doing very well. I'm very happy with that. You also, by the way, see it in our number one MPS position in this market. And also you see gradually increasing volumes in Belgium and Germany. And those markets are recovering a bit slower on the mortgage side.

So they are still quite some way off of where their mortgage sales were or how sales were in '22 and '21 and before that time. So that recovers slower, but also in the slower market, we're doing well. So that gives us also confidence for the future. In wholesale banking, we saw also lending growth, but we also have a number of underwrites and loan sales.

And therefore, I link question one and question three, we had about EUR2 billion in loan sales this quarter. And therefore, you see the total going down, but we also have a number of committed facilities which are undrawn.

So we grow, but you don't see it in the numbers because it's not drawn at this point in time. But we see in our pipelines of deals, that the market is becoming stronger. So from a volume point of view, we have a positive viewpoint on based on what we see the market shares in the market, and how the markets in mortgages and wholesale banking are recovering.

If you look at the margins, in wholesale banking, you already see a bit of margin expansion, it's only 1 basis points, but it gives at least it has been stable. And but it you now see if the growth is coming back, when liquidity in the market should become a bit lower with quantitative tightening, that should have a positive impact on it. Let's see where that goes. But we saw at least for this quarter, a limited increase. And deposit margin is holding a well in line with what we expected. But I will let Tanate talk about page 22.

Thank you, Benoit. I think we wanted to provide this mechanical replication of the U curve for the Eurozone deposit book. I think this is one determinant of where our net NII for liability will go but I think there are three other developments. I think volume is clearly one in terms of deposits and you can see that we are quite optimistic about our momentum in terms of volumes given what we see in Q1 and also Q2.

We also will be determined by the mix of our deposits between term deposits, savings and current accounts and what we also saw is that the migration from current account to savings account has stopped, right? So that is a clear trend line, which is also positive for our NII liability. And the third is the deposit rate itself and that, of course, we do not give forward guidance, but we reaffirm the guidance that going to '25, the liability margin should be between 100 to 110 with some of those positive momentum that I mentioned.

Thank you very much.

Giulia Miotto, Morgan Stanley.

Hi, good morning. Thank you for taking my questions. The first one, I want to stay on the same topic and double-click on the margins by country, is it correct that Belgium is still under pressure, probably on lending and deposits, whereas Netherlands and Germany look better? or any further color that you can give us by country and would be welcome.

And then my second question is that goes on a different topic capital, The EUR 6.5 billion temporary and moderate increases. So can you give us a bit more color on that, what are those and how do you why are they temporary, especially how do you then offset them? Thank you.

Yes, on the margins, I will take the question and Ljiljana take it on the EUR6.5 billion temporary increase. Yeah, it is true that in terms of the countries, if you look at mortgage margins, they are better in the Netherlands and Germany than they are in Belgium. So what we clearly do, of course, is when we look at pricing of our products and of our service to our customers, we look at where we do, where do we make the right return on IT

And we are a return-focused bank. And if we are able to make a return that meets our internal return hurdles, then we'll do it and have not we don't. And that's also there for how are you if you to get the expansion of the mortgage book, is the significant expansion in the Netherlands also as a result of the fact that as an attractive market.

But I must say that also the mortgage markets in Belgium and Germany are still a bit slow. So there is some recovery, but not to the tune that we have seen in Netherlands already, which is now already back at the level of house sales as of 2022. And that's where we're currently are.

Good morning, Giulia. On the models yes, we have seen a temporary increase this quarter, which is a bit higher than usual of EUR6.5 billion. And we say majority of it will be reversed before the year end with no implications for our capital outlook.

And what do we mean with that? You know that we execute in line with our ING model roadmap strategy every quarter. The model updates in some quarters, it goes up or down depending on the timing of the changes taken, but as well on the timing on the mitigating actions that are being taken in parallel in order to I also work on that impact.

What we have seen in the second quarter is the negative impact that you've mentioned. However, most of it will be taken through a different mitigating actions, primarily risk transfers that we use in order to, I would say, come to the structure level of RWA that we will operate at.

If you look, for example, in the last six quarters, you will see a net impact of our model changes of around EUR1 billion to EUR1.5 billion which is the proved that we actively manage our RWA throughout the year in which some quarters might have the upticks due to these changes. But then in the others taken a risk mitigating action in place, they're going down.

Okay. Thank you. If I understand, it correctly this negative EUR6.5 billion impact will be offset by SRTs is that correct?

Not just SRT. There is a number of other, I would say, actions which are insurance policies, derivatives hedging, so different risk transfers, mitigations. And yes, largely, it will be offset.

Okay, perfect. Thank you very much. And if I can go back on the margin question, anything on the deposit margin by country instead? Thank you.

I give this to Tanate.

I think as I mentioned already, Giulia deposit margin is depending on volume and on mix to be clear and the mix, I think we have seen favorable development in terms of stabilization of current account. So I think that's good on the mix. And I think in Q2, we had such a high inflows of deposits. So is it moved the net interest margin down a little bit.

We had quite a big promotions in Germany. And so I think I just repeat the key drivers, replicated income, volume growth and mix. Those are the key drivers for margins, but we stick with our guidance that we expect net interest margin for liability for this year to be above 110. And that it will be in the corridor of around 100 to 110 going forward.

Yes, thank you very much. I was looking for more like comments by country. If you have any if any country is looking differently or if these trends are sort of similar across countries?

I think limited change by country. What I can say is that the margin is actually expanding somewhat in the non-Eurozone countries where interest rate environment is somewhat more favorable for us.

Thank you.

Tarik El Mejjad, Bank of America.

Hi, good morning. Two quick questions, please. First, follow up on the liability margins. One of the moving parts is the pricing on deposits you can't comment, it depends on competition and other factors, but can you, in your three main Eurozone retail markets, describe a bit the dynamics there in terms of competition and pressure on pricing there? And the second question is on costs.

I understand your approach on costs, which being very kind of continuous and looking for opportunities to optimize costs as it goes, but what are the areas we could potentially look for in terms of finding some levers to offset the sticky high inflation in costs and help the [joes]? And maybe you can just confirm that despite, I mean, looking at your guidance for costs and revenues, we should expect quite wide negative joes this year and negative joes next year with potentially slim to slightly improving in 2026? Thank you.

All right. The cost question goes to Tanate and I will say something about the liability margin. First of all, like Tanate already said, the margin is holding up well. So, and there are different price points, so in the Netherlands, the base deposit rate is relatively high, and that is a bit lower in Belgium and in Germany, but there you still see in Belgium they work with loyalty premiums, i.e. the longer you stay as a depositor in Belgium, the more you get, and in Germany they work with marketing actions.

So, what we currently see, and you see it in the past quarters, is that we, of course, we look at our own products, our own balance sheets, and we also look at how to grow in a profitable way our primary customers, and that's how we are also looking at deposit gathering.

Now, what we therefore especially see in Germany that with marketing actions, and we saw it in the first quarter again, as we have done in the first quarter also the last year, or maybe it was April last year, that we started a marketing action at the right point, in a profitable way, by which we got a significant amount of deposits in, and that's how we continue to look at.

How do you balance growth of customers, profitable growth of customers, with balance sheet management, and with getting more deposits in the bank? Now, and there you see a bit more action in Germany than you see in Belgium and the Netherlands.

Then a question, Tarik on expense developments. As we kind of highlighted on page 13, we do expect that the cost development for this year to be around 3%, a combination of regulatory expenses and operating expenses. We do expect that if you look at the first half of the year where the increase in business growth have come from some of the big buckets are really, as we mentioned on our Capital Markets Day, we have increased the level of customer acquisition costs.

These include front office staff, marketing expenses to acquire customers and you see that the volume of new primary customer is developing nicely. This would be one of the big principal drivers of business growth that we see. And you're right that we don't take restructuring provision on a program basis, but as they come in this quarter, we took around EUR34 million restructuring provision for a restructuring in Belgium, which is related to a reduction of our operational staff levels.

To give you the comfort about the outlook for the future. If we stick with our CMD guidance, which is that cost income ratio is ready to rise to around 54% next year and gravitate back to 2027 of around 52% to 54% cost-to-income ratio. So does dose would be reaffirmation of our guidance for the CMD.

Okay.

Thank you very much.

Sam Moran-Smyth, Barclays.

Hi, morning. Thanks for taking my questions. So two questions on, I guess, either side of the balance sheet. So on assets, net core lending this quarter, when annualized was of your 4% annual growth target, but also significantly about Eurozone system growth. And when you came to Benoit commented on core retail market, so Netherlands, Belgium, Germany but it looks like the highest relative growth this quarter was actually in a challenging market. So perhaps you could give us some color on which markets you feel taking most market share and why you expect that to continue?

And then my second question is on the liability side. You mentioned a couple of times to marketing campaigns in Germany. And I appreciate that latest campaign started in Q1 went into Q2. But when I look at net core deposit growth in Germany this quarter was actually quite subdued compared to other quarters. But you had those promotions. So should we think about that as a net number where you have had inflows, but you've also had outflows. And if so, and are those outflows going to competitors? Or are they going into asset management products or I suppose any color there would be really appreciated. Thank you.

All right. So maybe on the marketing campaign in Germany, that's led to a big inflow in Germany in over EUR11 billion in the first quarter. So I was talking about that in the context of the first quarter inflow in Germany, it was EUR11 billion. And so indeed that it has lost those levels in the second quarter because we did not do a marketing campaign this quarter.

That was the last year when we did the marketing campaign in April, which then led to an inflow of high relief from the top of my head, [EUR16 million]. So this quarter is actually a deposit inflow of all brands in various markets, but and depending on at which point in time we want to again push the pedal to grow our customers will do new marketing campaigns, but I cannot say anything about that. But now you see actually increase of deposits across the various markets in which we operate.

And then there was a bit of static on the line, but I believe the first question was about where do you where do you see most growth in markets in lending? Is it correct? Can you repeat the question, Sam?

Yes. Specifically in reference to challenger marketers.

To the challenging markets? Well, I mean, also there, we see a significant growth in most of the markets. And we also see a return of the market in Poland, whereby the economy is gradually improving again and there we see particular growth coming in that market as well.

So next to now is that we saw very strong gradually market coming back in in Belgium and Germany, but not to the level that we have yet seen a few a few years ago. And we see a return of the growth in Poland. And we see also Italy doing particularly well.

If you don't mind. If I could just quickly follow up on German deposits. And when you talk about marketing campaigns, if I was to go on your German retail banking website right now, I can still get I think it's 3.3%. And so the promotion is still there, but are we talking more specifically about actual marketing rather than just a higher bonus rate? Just to clarify, sir.

Yeah, what we typically talk about when there's a marketing campaign, so that means that you are allowed to get a certain interest rate for a certain period. And when we talk about the campaign itself, it is about the start of that campaign. The start, when we start to offer something new for a certain period that is when you see a big increase in the deposits flowing in.

Understood. Thank you, very much.

Thank you

Benjamin Goy, Deutsche Bank.

Yes, hi. Good morning. Two questions, please. So first on costs, and thank you for the breakdown of the cost inflation. Now we have seen your two largest markets. You have essentially seen the CAs of the sector or of key competitors. So wondering if you can help us a little understand how your cost CAGR looks throughout the plan. Was it slightly elevated initially given these (inaudible)

And then secondly, on the deposits, and particularly if you can share a bit more color on the current accounts, which were nicely up quarter on quarter. Is that in the byproduct of these savings campaigns that people also bring over current accounts and use them more frequently or how can you explain the growth? Thank you.

All right. I'll do the current account question. Tanate talks about costs as he typically does. So if you look at the current account growth and that indeed and part of it is just growth of new customers coming in, you see a 250,000 mobile primary customers. And with these customers, we do more deals also activity, keep more money on our accounts, but also do we have a current account growth on the back of holiday allowances, amongst the Netherlands and Belgium and in Spain. But also we had a campaign in Italy this quarter as well.

So that's what caused it as well. But typically holiday allowances causes, growing the costs go up on the fixed part of it is that's what we typically also see in the third quarter of the year is that you see an increase in transaction fees in the third quarter on the back of the holiday period because then people start spending money typically in our case by way of credit card fees. So that will then have a positive impact on the transaction fees as what we have seen over the past year.

So that's a bit how it goes. Second quarter increased due to holiday allowances, third quarter increasing credit cards uses because of holidays.

Then, Ben in terms of costs, particularly the collective labor increase, we do see the delayed impact in terms of wage inflation and that you have mentioned, we watch our competitors in a number of markets like Germany and the Netherlands. So we do expect that the cost increase in the short term, so '24, '25 to remain sticky, but that the normalization in terms of wage increase to become more prevalent in '26, '27. So more uptake in the first part of our planning process period and more normalization in the back end.

Understood. Thank you.

Anke Reingen, RBC.

Yes. Thank you very much for taking my questions. And the first is on the slide 22 again. Sorry for following up. But in 2025, the EUR500 million step-up in the replicating portfolio income, and why should it not be a similar step up in the guidance you gave on the 4.4 post on the deposit cost? Is there anything that would make the headwind larger, so it's not EUR500 million step up?

And then secondly, the loan volume growth, I mean, is really quite impressive and you mentioned market share gains. And can you elaborate a bit about what you're doing to grow faster than the competition? Thank you very much.

All right. I'll talk about loan growth. Tanate talks about page 22. Well, I mean, in the end, but I think we always highlighted that it's a matter of customer experience. And what we do is we build a very strong channels. Like we talked also about Romania, for example, where we said we have a digital approval or digital collateral valuation.

And it just means that we continuously work very diligently, very focused on lower time to yes and lower time to cash. So how long does it take when you get an approval? How long does it take when you get your money? And in the Netherlands, we have with our brokers and the broker channel is the largest channel for mortgages.

The time to yes is less than 24 hours, which is just very good. And I think it's the best in the market. You also see and I don't know where you come from, but in Germany, we also there is being sold a lot through brokers. But also you see that in the way that we do it with our clients, we continuously work on do that fully digital as far as we can, as far as law permits us to do so.

So in the end, it's creating an environment where there's more certainty for customers in a quicker and less friction type of way. So easy, instant, personal relevance. That's the name of the game. And that's just hard work every day.

Then Anke, in terms of the step up on page 22, that's the replicated income and everything. The other legs of it, which we don't we cannot disclose is what happens to customer rates. But we do give on that page a sensitivity analysis, right that every 10 basis points or pass through has an impact of around EUR400 million on NII. So that's the second leg. The only thing I would describe is that competition for deposits from what we see in the second quarter has remained benign, right that we are able to gather quite significant in volume in many markets that we operate in. So those are the missing pieces that you need to make your judgment is what is the outlook in terms of competition in terms of retail deposits and what tracking do you assume in your model?

Thank you very much.

(Operator Instructions)

Hugh Moorhead, Berenberg.

Good morning and thanks for taking my questions. One on fee from one on risk cost, please. Firstly, on fee income on strong performance in insurance this quarter, is that is that sort of should we see that as being driven by one-off like a marketing campaign, for example? Or are we seeing a bit more of a structural recovery in that business?

If you could just give a bit more insight, that would be great, please. And then secondly, on loan losses on cost of risk this quarter, excluding the overlay right-back, is 25 bps a bit above your through the cycle guidance? And should we see how should we view this quarter in terms of risk cost normalizing? How are you guys thinking about the evolution of the overlay as the quarters come? For example, will you sort of continue to use the overlay to keep the cost of risk at around 20 basis points?

And also finally -- sorry, are you able to quantify the Russia impact of some the transfer of the Russia exposures from Stage 2 to Stage 3 as well, please? Thank you.

All right, so I'll give the question about the risk cost overlays, Russia trends to Ljiljana, and I'll talk about fees that makes my job fun. And so well, I mean, there are many reasons why our fee performance is strong. It starts with getting more customers in the bank who do more with us, and we have (technical difficulty) [430,000] to a new normal amortizing new more farmer debt, then it's about them doing more with us when they're in the bank.

So if you look at the investments accounts, we increase and that total the Capital Market Day, we have approximately 4.5 million investment at accounts on a total of approximately 40 million customers. So that's only, let's say 1%. So there's nothing wrong with it. But that means there's a lot of upside and that grew over the past year with 8% and this quarter was 3%.

Then in insurance, yeah, we're because we do more. And we also made specific agreements with insurance providers in different markets for individuals, but now also starting in business banking, still relatively small. We also are selling more bespoke insurance products to our customers, which we did not do in the past. So we start from a very low base.

And as I said previously, there is a lot more we can do with our customers, we just need to offer it to them and start offering into them, which we start to do also a bit more in insurance fees and that's why you see the increase coming from. And the same goes for daily banking, where in some countries there were some increase in price packages.

And then on top of it, and that's more, let's say, the beta side of the story. Like I told you, there is some recovery in the mortgage markets in the various markets and also in Germany and Netherlands. And therefore, you see that we have a bit more mortgage fees than we had in previous quarters as well recovering back. But a lot of things have to do to summarize by just doing more with our customers and offering more bespoke solutions to them in the fields of investments and insurance.

Ljiljana, risk costs.

Hello and good morning. Yes, the risk costs were EUR300 million. Or if we look at the net amount, it's 18 bps of through the cycle. Overlays are being made when we believe our models are not able to capture fully the risks that we see in the environment. And they are to be used once these risks happen or they are to be released if we don't see these risks happen.

So also the average calculation of through the cycle cost of risk cost includes always overlays. And when it comes to the specific Russian impact this quarter, you will have seen that uptick, I would say in S3, so Stage 3 provisions. And from Russia, that uptick is approximately EUR133 million on the side of the S3. So that's why increase. However, there is as well a partial offset on the Stage 2 impact. Net impact on Russia is EUR39 million Additional risk costs this quarter.

Great. Thanks very much.

Farquhar Murray, Autonomous.

Morning all. Just two questions, if I may. Firstly, just going back on the model updates at EUR6.5 billion of RWA, which parts of the model all lending books did that come from? And in terms of separate mitigating actions. Could we just include should be expected cost from THOSE?

And then secondly, as you move into a cutting cycle, what's ING's philosophy going to be on deposit pricing. I think on the way up, you characterized it a slow follower. Is ING willing to move the other way on the way down? Thanks.

All right, I take the question on the deposit cycle or the cutting cycle. And then Ljiljana talks about the model updates. I mean, clearly, we cannot say anything of our, about our strategy in terms of our deposit rates going forward.

Clearly, indeed, depending on whether we grow and want to grow in customers and make our income there, it's an economic position we take on it. So in the end, it's a balancing between do we want to have more customers on who we in total then, because we have more customers make more money? Or do we have an impact by leaving rates as they are or lowering them and therefore make more money or less customers?

And that's just an economic equation, which we can't continuously calibrate. We have been in a period whereby rates moved up very quickly. And then at some point, competitors started starting to move. And there we have seen that in markets where you typically see that as a challenger, we grow our customers very quickly.

We start with marketing actions and sometimes rates higher a bit quicker to get those customers in. And in markets where that is not the case, we keep it much more stable. And we are in a good position in practically all the markets in which we operate. So we will be nimble in terms of our approaches, depending on where we want to grow and where we want to be stable in terms of our share or our total balance sheet. And that's how we take it. That's all I want to say about that going forward.

Good morning. On the model update. Yes, the update comes from actually various models but the majority one comes from the low default portfolio in the wholesale banking space.

And is there any cost mitigating actions?

There are risk transfer mitigating actions. As I say, those are the low default portfolio. So there is a number of instruments available also in the market and internally to manage those.

The question is, are the costs to the mitigating actions?

Farquhar, we look at a three part of a pyramid, right? We look at revenue trajectory, risk costs -- sorry, risk-weighted asset and return on equity. And we will find a way to optimize. We expect the impact from a revenue perspective to be minor in terms of managing our risk weighted assets on this particular point.

All right. Thanks much.

Thank you. There are no further questions in case. I'll now hand it back to Steven van Rijswijk for closing remarks. Thank you.

Good. Thank you very much for listening in and for the call on the second quarter was also 2024. I wish you a great summer. I hope that you still have some time to take some time off and go on holiday. I'm sure we'll speak again on the third quarter. Thanks very much.

Thank you. This concludes today's call. Thank you for your participation. Stay safe. You may now disconnect.