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ING Groep N.V. (ING) Q1 2019 Earnings Call Transcript

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ING earnings call for the period ending March 31, 2019.

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ING Group N.V. (ING -4.05%)
Q1 2019 Earnings Call
May 2, 2019, 10:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good morning. Welcome to ING's first quarter 2019 conference call. Before handing this conference call over to Ralph Hamers, Chief Executive Officer of ING Group, let me first say that today's comments may include forward-looking statements such as statements regarding future developments in our business, expectations for our future financial performance, and any statement not involving a historical fact.

Actual results may differ materially from those projected in any forward-looking statements. 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 and form 20-F filed with the United States Securities and Exchange Commission, and our earnings release as posted on our website today. Furthermore, nothing in today's comments constitutes an effort to sell or a solicitation of an offer to buy any securities.

Good morning, Ralph. Over to you.

Ralph Hamers -- Chief Executive Officer

Thank you, Patricia. Good morning, everyone. Welcome to the first quarter 2019 results call. As always, I'll take you through the presentation that you have been provided with. With me are our CRO, Steven Rijswijk and our new CFO, Tenate Phutrakul. Welcome Tenate.

During the investor day at the end of March, we were already able to cover a wide range of topics. It was really a pleasure to spend quite some time with many of you in Germany. You'll see that many of the things that we talked about there are covered and reflected in these first quarter results.

So, let's turn to the key points of this quarter's performance. ING Group posted a net profit of 1.1 euros billion in the first quarter. That's leading to a four-quarter rolling underlying return equity of 11% for the quarter -- so, strong performance there. On the retail side, we recorded a net inflow of 150,000 primary customers to reach 12.6 million. Australia and Germany were the strongest contributors for this quarter's growth, but we see growth everywhere on primary clients.

The first quarter was another strong quarter for long growth with net core lending up by 8.7 billion euros. Again, well-diversified by the businesses in the geographies -- you'll see that later -- and a net customer deposit inflow of around 5 billion euros.

Next to the long growth of resilient margins, results were supported by solid fee income despite challenging market conditions and the release of a currency translation reserve related to the say of Kotak. On the cost side, we maintained a good cost discipline. As we had expected, the retail balance cost continuing to trend down, showing the effect of the transformation program.

The Group's CET1 ratio came in at a strong 14.7% from 14.5% at the end of the fourth quarter 2018. That was, among others, supported by the sale of our Kotak stake. As a key priority, you know that we continue our work on the global KYC enhancement program, which is rolled out across the whole bank in all client segments, in all business units. We have more than 2,500 FTEs working on KYC. Around 500 FTEs are involved in file enhancement and therefore more on a project-related basis.

On page three, basically, we come back to the key value accelerators that we presented to you in Frankfurt last month. It all begins with growing primary customers in both retail and wholesale. As you know, these are people and businesses that have a deeper relationship with ING. They're more loyal. They're more profitable. They create what we call lifetime value. On the back of their loyalty, they do more business with us, whether or not with our own products or third-party products and services.

Next to that, we see the trend that customers, consumers, corporates alike, they expect the same superior differentiating service and experience no matter where. That provides us with a great opportunity to deliver cross-border scalable efficiency through which we can adapt fast to the needs of our clients and the service that we can offer on a more scalable basis. Once you have that, you can increase the time to volume for new products and services. A very simple explanation -- rather than going country-by-country, you can reach many more customers and faster when launching a new service because basically, you can launch it across different countries at once.

We will also continue to benefit from the attractive position as a retail-funded player and a net credit spread receiver going forward as we have indicated. Sustainability is something that is part of our purpose. At the same time, it's also a driver for growth and value that's integrated throughout all of the businesses. In this quarter as well, you see some real proof points of this.

Let's take a look at the commercial performance. The first quarter 2019 shows that we kept good commercial growth momentum. I've already mentioned the primary customer growth that's progressing well toward our new ambition. Around one-third of our total customer base is now primary. You see that has gone up over the last couple of years. These results can't be achieved without our dedication to our customer experience and digitization across the new markets where we operate.

You see that if you look at the digital interactions that we measure through logins to the mobile app, we have increased these interactions dramatically. It's up by more than 25%. We reached the 1 billion digital interaction mark this quarter. That's clearly showing the strategy that we launched five, six years ago to really focus on digital banking, to really invest in technology and make sure that we create a differentiating experience, that it's actually kind of evidence here that we saw that right and it really looks very promising for us going forward.

Furthermore, if you look at the underlying customers and the way they interact, 26% of our customers currently are mobile only. This percentage actually more than doubled in the past two years. In the first quarter, we ranked number one in 6 out of our 13 retail markets in terms of Net Promoter Scores. In another four markets, we ranked number two.

So, we keep a close eye on the underlying improvements in client experience and how that affects the Net Promoter Score. This is not only our compass. It is also a leading indicator of future growth and then success for us. That's why we keep presenting it to you every quarter. Now, for this quarter, this led to a further core lending growth of 8.7 billion euros and a customer deposit growth of 4.8 billion euros.

Turning to slide five, kind of showing that we continue to lead the way with innovations that improve the customer experience, in the first quarter, we made it easier for our customers to make payments in the Benelux by being part of the initial launch of instant payments in the Netherlands and Belgium. So, what this will do, this will allow customers to have their funds credited to the beneficiary account within five seconds 24/7.

So, this is really kind of a breakthrough in banking, I guess. This is literally real time banking seven days a week, 24 hours a day. So, this is a breakthrough in our view. Clearly, we will continue to expand this to other countries later this year. You realize we can't do this ourselves. Other banks have to make these investments in their systems to have real time clearing, more or less, as well.

Also, in the first quarter, we took several steps in our blockchain and distributed ledger technology, helping to improve the offering to our clients, to decrease the costs for our clients, improve the client experience. We've done so in a consortium with MineHub as well as the first client transaction on the Komgo platform that we have reported to you earlier. It has now materialized. So, promising steps into a direction where things will be cheaper, faster, and safer in an environment that is very important to us, which is trade and commodity businesses.

Now, all of that and clearly also our own DLT work, distributed ledger technology work, is being noticed. In a recent analysis in Forbes Magazine, investment strategy firm Reality Shares ranked ING the fifth among global listed companies for its blockchain-related potential. So, clearly, we are leading the way there and basically, creating some opportunities for further efficiency and safety in banking.

You're familiar with our strong commitment to sustainability. Now, on slide six for you, our commitment is clearly to our own footprint and how we can further reduce that, but also the CO2 impact that our clients have and the support that we can give to reduce this. Now, in the first quarter alone, ING supported 12 sustainable bond transactions and 16 sustainable loan transactions, clearly giving us the lead in ESG issuance segments.

Many of these deals were first as we empower our customers in transitioning to a low carbon economy. Customers really trust us in devising their own kind of plan in order to ensure that they are able to issue green bonds and we really know how that works for them. But we do more than just advising customers and doing these transactions. We're also advising governments in Austria, Poland, and Spain to achieve their sustainability goals and the transactions that we do with companies are basically everywhere in the world.

During the quarter, we were recognized for our leadership by several independent institutions, as you can see here. We were named for the fourth year in a row to CDP's A-list of 126 companies that are leading the fight on climate change. We also remain a sustainability leader according to Sustainalytics, ranking us ninth out of 300 banks globally.

Now, turning to the results -- I'm on page eight now -- the underlying pre-tax result was nearly 1.6 billion euros in the first quarter. Results were down 6% from a year ago. But this is fully explained by higher but still relatively low risk cost. Increase in operating expenses year on year was more than offset by higher income.

The higher income mainly reflects 119 million euros gained on the release of a currency translation reserve related to the sale of Kotak share. When this gain is excluded, year on year income was broadly unchanged because if you really look at the underlying, the business growth we are able to generate was largely offset by lower treasury-related results and negative value adjustments in FM.

Sequentially, the lower pre-tax result is fully explained by seasonally higher regulatory costs in the first quarter, as you know despite lower operational costs. We'll come back to that.

First, turning to slide nine, if you look at the NII here, excluding financial markets, it increased 2.8% year on year. That's driven by higher interest results on customer lending due to the volume growth that we have indicated and better margins on mortgages. So, the interest margin on no mortgage lending declined slightly as we generally noticed increased competitive pressures in the market.

However, if you really kind of dig deep, the commercial margins saw selective improvement as we increased internal transfer pricing pretty much across the board. So, vis-à-vis our clients, we are selectively able to reprice. So, that's what we do see coming through. So, on mortgages, we see in the margins directly and in the other businesses, we see it beyond the increase into transfer pricing because that is the all-in price for our customers.

Margins on customer deposits were slightly lower due to the replicating portfolio yields in our main markets, putting pressure on liability income as we can no longer offset that by further reducing our core savings rates. The group NIM was down only 1 basis point to 155 basis points in the first quarter, as you can see. That's explained by the lower, always volatile interest result in the financial markets environment, while the negative impact of the deposit margins were offset by also the smaller balance sheet we have and the way we calculate our NIM.

On our four-quarter rolling average, which filters out the volatility quarter-by-quarter in the NIM, you actually see the blue line for the ones you have that are color printed, that NIM was up 1 basis point it 154 basis points. So, overall, a good result on managing our margins here.

Looking where the lending comes from, the total, 8.7 billion euros is further explained. You see that on slide 10. Again, it's well-spread across the different businesses. Retail banking actually increased by 4.8 billion euros, of which 2.9 billion euros was in mortgages in almost all countries, 2 billion euros was other lending growth, mostly in the form of business lending in Belgium and Netherlands, but also big across the board.

Wholesale banking reported an increase of 3.9 billion euros, of which part is explained by volume growth in trade and commodity finance. That's on the back of higher oil prices in the quarter. This was next to the growth in transport and logistics as well as energy, which explains most of the other lending growth in wholesale for the quarter.

Going back to the investor day, we already guided to you that our focus on return and appropriate risk may lead to lower wholesale banking and lending growth going forward. Particularly because of strong competition and looser credit standards in the market, we are cautious. As you know, as a general principle, we are unwilling to compromise on structure or our prudent risk and return standards. Our focus is return equity. So, pricing and structure are key elements in the way we look at this business.

Turning to slide 11 on the fee income, fee income has increased by 2.1% year on year, 675 million euros now versus 661 million euros in the same quarter last year. In retail banking, this was mainly visible in the Netherlands and Germany with increased fees. In Turkey and Belgium, fee income actually declined. In Turkey, this was largely due to less business activity. In Belgium, this was mostly related to lower investment balances during the first quarter due to the still volatile equity markets at the start of the year.

Fees and wholesale banking were down compared to the first quarter '18 and sequentially fees in wholesale banking were also down due to seasonally lower deal activity in our lending business in the first quarter.

Financial markets total income was down on the same quarter last year, but up from the prior quarter, a development we've also seen with most of our peers. Actually, if you look at the underlying, the client business was actually rather strong in financial markets and the drop was mainly caused by a negative valuation adjustment. But in rates and credit trading, we actually saw much better results in financial markets. That is also the sequential development there.

Turning to 12, we see and cover the expenses. If we look at the expenses excluding regulatory costs, they went up 3.6% year on year and that's mainly in the retail challenged growth markets to support new business growth that we have there. But there was also growth in the corporate line and that's due to higher shareholder and KYC-related expenses. There is a central KYC organization that we have there.

Wholesale banking expenses excluding regulatory costs were broadly flat when corrected for the release of provisioning in Luxembourg, which you may well remember in the first quarter of 2018. So, if you correct for that and if you correct for the inclusion of Payvision since the second quarter of 2018, we actually have flat costs in the wholesale bank. With that, proving the recipe that we, again, repeated at the investor day and I'll come back to that later as well.

Now, retail Benelux, we continue to see our transformation efforts paying off with the underlying cost base dropping 4.1% year on year. So, also proving the recipe that in that area where income will be and the pressure that costs really have to decrease and the transformation benefits are coming through if you look at the cost decrease in that area.

Quarter on quarter, expenses excluding regulatory costs were down as well. So, if you compare it to the fourth quarter of 2018, that's a decrease of 1.3%. That's due to lower staff and transformation-related expenses as well as lower marketing costs primarily in the retail Benelux. That's just a quarterly effect.

Regulatory costs, as you know, in our first quarter are seasonally high. That's due to the booking of the Belgian bank tax and most of the resolution fund contributions that we book in the first quarter. Year on year, they went up 4.5% and that's mirroring developments in our balance sheet as well as some annual contributions in Poland that we now take in the first quarter.

Bank taxes have become a meaningful part of our cost base, as you can see. They are expected to grow a little bit further with the introduction of Romanian bank tax, which we are currently estimating to be around 11 million euros to 12 million euros a year.

On a four-quarter rolling average basis to cost income ratio remain broadly unchanged at 55%. When taking out regulatory cost, one can already see that we are very efficient with a level just below the 50%.

Looking at risk cost, slide 13, here you see an overview of the asset quality developments. Risk cost came in at 207 million euros. That's 14 basis points of average customer lend. Guiding risk cost and basis points over average customer lending is the new metric that we use since the first quarter to better align with some payer reporting under the old decision, Q1 risk costs were 26 basis points of average risk-weighted assets.

This compares to the 242 million euros in the fourth quarter and the very low 85 million euros in the same quarter last year. Retail Netherlands recorded low risk cost of 11 million euros in the quarter. Retail Belgium was broadly stable at 42 million euros. As you can see here, that's mostly business lending.

In retail challenges and growth markets, the risk costs were mainly recorded in Turkey, Spain, and Poland. In Germany, risk costs were negligible for the quarter. Turkey saw a substantial decrease in risk costs in the quarter if you compare to the fourth quarter because in the previous quarter, we saw a large stage two migration in the IFRS 9, as a result of the worst macroeconomic outlook there, which mostly affected business lending.

The stage three ratio in the country is still manageable at 3.1%. Clearly, we keep monitoring the situation there closely. Wholesale banking risk costs were, again, low for the quarter, 71 million euros. As always, a few individuals state three files, this time in Belgium, the Americas, and Italy, and no trend really detected there from an industry perspective or geographic perspective, just specific individual files.

Now, turning to capital, as you can see, we're making good progress in our CET1 ratio, which improved 26 basis points to 14.7% from 14.5% as per the end of 2018. The largest contribution this quarter was the sale of our stake in Kotak Mahindra Bank, which led to a meaningful reduction of risk-weighted assets. We also added back 238 million euros of net profits to capital, which further helped to CET1 ratio.

The remaining move in risk-weighted assets is largely explained by the positive impact from risk migration and lower market risk-weighted assets, which were partly offset by volume growth and model updates, including a modest impact of IFRS 16. That's the operational leasing accounting treatment in effect since January 1st, 2019. Actually, we can discuss it later. Slide 22 shows you more detail on the underlying risk-weighted asset movements.

As you can see, we're well-positioned to achieve a CET1 ratio of around 13.5%. As you know, that's the ambition that we have to manage it around 13.5% level. We're certainly remaining well ahead of our current requirement of 11.81%.

[Inaudible] has also indicated to you during the investor day our CET1 ratio could develop in a more volatile way during the year due to potential trim impacts and model updates coming through, which may lead to the risk-weighted asset variability in the quarters to come. However, as you know, the overall impact is more or less determined by what we expect from Basel in our portfolio and that has not really changed. Therefore, we feel comfortable with this picture.

As I alluded to earlier in the presentation and I've shown you during the investor day this slide -- I'm now on slide 15 -- we have been repeating this for the last five years as to how to look at the total set of results as per the recipe we have for the different areas in which we are active. This slide summarizes exactly that. Therefore, you have to look at the results more in this way rather than in a consolidated way and come to a conclusion.

So, it's important that in the retail Benelux environment the cost really go down, whereas in the retail challenge, we don't mind costs going up if it supports profitable growth and you see income increasing. In the wholesale bank, clearly depending on how we fare with the development of our lending book and repricing if income continues to increase, then we can manage a flat cost base. If there's more pressure on income, then we'll have to look at the cost picture.

In the end, what we look at is at cross-border scalability in efficiency, operating leverage, which explains to you during the investor day that's really important to us. The cost income ratio is not necessarily how we run our business on a day to day basis. It's one of the input factors, but the underlying operational efficiency, basically the volumes over operating expenses, that's what we look at to see whether our digitalization efforts and our transformation toward a digital bank, a digital dynamic player, a platform, if you will, whether that is really delivering the results. So, that's an important one to know.

If we see pressure on the top line because of lower growth or if we see higher costs coming through regulatory, we see expenses from a return on equity perspective, we'll have to look for further cost control, which can't always be compensated in the actual quarter, but over time, we will continue to look at the cost income ratio to go down, but again, we don't manage that on a day-to-day basis.

Getting more efficient is what we are champions at. We've proven it before. I think what you see in the quarter and market leaders is really delivering results on the back of the transformation that we started a couple of years ago.

Summarizing from a financial ambitions perspective -- I'm now on slide 16 -- we continue to perform well against all of these financial ambitions. CET1 is up and therefore, a comfortable cushion toward the 13.5% after Basel IV. Leverage ratio well above the 4% ambition that we have right there.

Despite higher capital requirements coming through, we continue to produce a very attractive underlying return on equity, which on a fourth quarter rolling basis stood at 11%. So, midrange there, as I reiterated on the previous slide on the cost income ratio, it's not how we run our business, but it does remain an input factor for our return on equity and we remain committed over time to get to the 50-52 but it's operating leverage that we really are after. As for 2019, our policy is to pay a progressive dividend like we did in the past years.

Wrapping it up, Q1 performance confirms we're still on the right track with the execution of think forward. We see the organic growth coming through a number of customers in the lending book, in the savings book. Overall, we retain good commercial momentum, keep being disciplined on cost, continue to improve the way we manage our non-financial risk within the company as well, another step, I think, closer to being a real dynamic digital player and making sure that we empower customers to stay a step ahead of life and business.

With that, we have plenty of time for questions. So, let's start that session.

Questions and Answers:


Thank you, sir. Ladies and gentlemen, we're starting the question and answer session now. If you have a question, please press *1 now on your telephone, *1 for questions and remarks. Go ahead, please. In the interest of time, we kindly ask each analyst to limit yourself to two questions only. Our first question is from Mr. Stefan Nedialkov, Citi. Go ahead. Your line is open.

Stefan Nedialkov -- Citigroup -- Analyst

Hi, guys. Good morning. A couple of questions from me -- on the fee side of things, could you please update us in terms of your partnerships? For example, Scalable Capital was supposed to be rolled out to other countries. I believe it's still only in Germany. How much of the weakness versus consensus that we're seeing today would you say is seasonal versus more structural? Obviously, you're paying more fees to external brokers in Germany. At the same time, fees in Belgium seem to be quite resilient. I'm just trying to understand the seasonality versus structural trends here in terms of fees.

And the second question is in terms of your German strategy. Obviously, there have been quite a few headlines. I'm not going to be mentioning specific names, but if you could tell us in what kind of context would having more branches make sense for you in Germany?

Ralph Hamers -- Chief Executive Officer

Thanks, Stefan for the questions. So, looking at fees, as we had indicated on the investor day, every day, we're getting closer to being a dynamic digital player, a platform, if you will. Every day, we're adding more primary customers. So, every day, the opportunity for us to kind of offer third-party products or even peer products to our customer base we're getting closer to that. So, the opportunity for us to increase our fee income is there. That's why we're very confident that fee income over the next couple of years will increase like 5% to 10% per anum.

However, if you now look at this quarter's results, specifically, we paid away a little bit more fees on the mortgage origination in different countries, although in Germany, we had a bit less origination there. So, therefore you see the fees going up on mortgages. We see behavioral fees coming through in Germany as well. We see fees in the Netherlands coming up as well.

So, where you see a bit of a dampening effect on the fee income growth it is on paying a little bit more fees away for mortgage origination and in Belgium specifically if it is rated to the assets under management as indicated already in my introduction. So, it's on the back of the more volatility equity market in the fourth quarter that came off at a lower or weaker start. That's where we see lower fees coming in.

So, our partnerships like the AXA one, like the transform one, like the provision one as well, they will generate more fee income and more partners to be sought after and looking at how we can roll out new services and products to the 12.6 million primary customers that we have.

Now, in Germany, specifically we don't comment on market rumors. You know our strategy is organic and it is successful as an organic player. We're growing very fast in Germany, as you know. We have close to 9 million customers now. It's the biggest franchise from a number of customer perspectives that we have. So, it's a dominant part of what we do. If it comes to inorganic elements to our strategy, we've always indicated that would come through a couple of dimensions.

If we see an opportunity to buy lending capability skills with a portfolio or without a portfolio, we would certainly look at that and that's what we have been doing from the past here and there. If we see potential in acquiring companies that provide us with new technology through which we can either get closer to our clients in the value chain like through the acquisition of Payvision or an acquisition that provides us with technology that helps us to improve the customer experience, we do that. We do that on a regular basis.

Then in markets in which we are active, we're a large player, if consolidation is happening in those markets, we have a duty to look at what's happening there and how that can affect our position. That's what we've done in India when consolidation was forced by the regulator. We took a position there as to what we wanted to do. You know that in Thailand, we also in preliminary discussions there as to how we can actually consolidate in that market. That's it. Thank you.


Next question is from Mr. Benoit Petrarque, Kepler Cheuvreux. Go ahead, please.

Benoit Petrarque -- Kepler Cheuvreux -- Analyst

Yes, good morning. Three questions, two on NI -- the first one is around the replication drag, especially in the Netherlands, Q on Q -- I wouldn't assume this drag to continue in the year, but is the Q on Q trend or can the Q on Q trend be replicated for the rest of the year or do you assume pressure going forward. Also, broadly speaking on replication drag, do you think you can push clients further down on SME, mid-corporate segment or actions maybe on the investment side to offset low interest rates, which is likely to continue? That's the first question.

The second one is on the wholesale banking, NI down 6% Q on Q. Surely, [inaudible] has been a drag there. But do you see commercial margin pressure? I'm a bit confused with how your ability to reprice to pass on this transfer pricing to clients. So, are we going to see more pressure on the commercial side in wholesale banking or is that a temporary issue in the first quarter? The last one is on the cost -- up 2% clean year on year, is the 2% a kind of run rate for 2019 or do you think cost savings will materialize in the summer, especially around the restructuring and we could end up below that level toward year end? Thank you very much.

Tenate Phutrakul -- Chief Financial Officer

Hi, Benoit, this is Tenate. I'll just give you a bit of a comment on the savings replication question that you had. I think it would not be fair to look at the NII reduction in the Netherlands and do an extrapolation on that because it's a combination of two factors. I think within those numbers, you see some volatility from bank treasury results in there as well as the actual replication in itself. But indeed, we do see compression in terms of savings margin that is happening in the Netherlands, given the fact that we are out now at a very low level in terms of our deposit rates in that market.

To address that question how you should look at it, I think our replications is anywhere between the three, the five, and the seven-year part of the curve. So, you can work it out depending on how the curve moves, how difficult or how good it would be in terms of replication. Having said that, I think we are taking steps, whereby as we mentioned in the previous quarterly call, we are increasing the fund transfer pricing to the front office in terms of lending origination and that is happening across the whole of ING, which means that the origination margin that you see going forward is actually quite robust.

As Ralph mentioned just now, in retail banking, particularly in mortgages, which is a major part of the Netherlands, you see margin improvement across the whole of our ING mortgage book in all of our geographies. So, it is part of the mitigation that we are taking to make those steps.

In terms of wholesale banking NII, I think it's, again, a combination of things because within that NII, it reflects not only the underlying margin for the lending business, but it's also in terms of the impact in financial markets where the results for Q1 while, I think, reasonable in the context of what's happening in that particular part of our business, but it still has a negative impact on our net interest margin as well.

The last point on wholesale banking is there's a shift in terms of our mix, at least in Q1, whereby we are doing somewhat less in terms of industry lending, a bit more in terms of trade finance and that comes with lower margins than what you normally see from us on wholesale.

Then in terms of cost guidance, I think, again, if you look at our cost discipline, we're still there. We still have the three-prong approach, which basically means that we do expect cost reductions and cost efficiency to go forward in market leaders. You see that visible in the first quarter there. We do allow cost growth in challenge and growth, where you see robust growth continuing to be there in Australia, in Poland, in, for example, places like Romania.

So, that's actually helping us in terms of revenue growth and margin growth and of course in wholesale banking, we're taking steps to look at cost reductions where we need to and cost growth required, for example, in QYC program. I think when you study our results in detail, you can see a fairly substantial cost reduction in our financial markets where we are matching revenue pressure with costs decline during that period. Thanks.


Our next question is from Mr. Adrian Cighi, RBC Capital Markets. Go ahead, please.

Adrian Cighi -- RBC Capital Markets -- Analyst

Thank you very much. Two questions, please -- just one follow-up on the potential banking consolidation theme -- very helpful color on the criteria for potential acquisitions. Can you maybe talk about any specific return hurdles and over what period you would hope to achieve these should you pursue any acquisitions that maybe don't fit the capability or the skills criteria you outlined? And then on the capital progress this quarter, you've shown a positive risk migration of 28 basis points. Can you help us understand how much of this would impact the Basel IV guidance that you've provided or not? Thank you.

Ralph Hamers -- Chief Executive Officer

Okay. So, on the first one, Adrian, in inorganic growth as we were indicating in terms of seeking additional lending capabilities, it's been there over the last couple of years as a focus point, we basically indicated of the beginning of the think forward strategy that we felt that we had a too high concentration risk in our balance sheet as it came to mortgage exposure. We wanted to diversify our balance sheet, our asset mix into more consumer lending, mid-corporate lending, and wholesale banking lending.

For a lot of wholesale banking activities, we had our own kind of specialists already and we grew our sector units there. On mid corporates and SMEs and consumer lending, we've always been looking at new technology being applied in those areas with instant scoring and instant lending, but also to extend available specific portfolios.

From a return on equity criteria, our return on equity is what it is, so, we would always look at the same kind of criteria on the basis of which we run our own business. That's how we would look at that.

On CET1, I will give that to Steven.

Steven Rijswijk -- Chief Risk Officer

Yes, thank you. So, if you look at the risk migration, it is largely due to a number of impacts. We are doing some better collateral and data quality management. There were some write-offs that were going through the books, as a result of which it was taken out of RWA. There were some price increases in both the housing prices and retail as well as in our real estate in wholesale banking.

These are temporary blips up but these blips could also go down to the other side. In that sense, we do not change our guidance on Basel IV, which, again, is 15% to 18% based on our RWA benefit at that point in time with about one-third that we can achieve lower as a result of management actions and 80% of that increase will come due by the end of 2022 because Basel IV mostly depends with us on input factors. Thank you.


Our next question is from Mr. Farquhar Murray, Autonomous. Go ahead, please.

Farquhar Murray -- Autonomous Research -- Analyst

Good morning, gentlemen. Two questions, if I may -- firstly, on the NIM outlook, the performance of 1Q 19 is quite solid and you refer to favorable moves on commercial margins and mortgages. Can you now extend the guidance for high-140s to low 150s NIM to the end of this year on the back of that? Secondly, just on the new risk cost guidance of 25 BPs on average customer lending, how does that compare when you look at your internal analysis versus the previous guidance? Would you actually be able to give us some indication about what that means at a segmental business level down to wholesale banking? Thanks.

Ralph Hamers -- Chief Executive Officer

Thank you. On the NIM outlook and looking at how we've been able to manage it over the first quarter, basically, you have the pressure more on the savings side and how you can manage that pressure on the savings side, at least from an interest income perspective, maybe on the asset side, repricing is an important driver there.

Repricing we do in two ways. It is by shifting the FTP of the internal front, transfer front pricing. The other one is the commercial margins on top of that. Both we're doing. So, the client being able to charge a bit more helps you offset the pressure that we have on the savings side. On the back of that for the next two quarters we can guide as you are used to that. We can manage the NIM around the high 140s and low 150s.

As to the cost of risk guidance, I'll give it to Steven, where we move from a guidance of risk cost to lending assets.

Steven Rijswijk -- Chief Risk Officer

Yes. Basically, the 25 basis points is a translation where we were with the 40-45-basis point guidance over RWA. Please note that that is a through cycle RWA as a result of which you cannot compare directly to what it is based on the current RWA of 310 million euros. You look at it through the cycle, RWA to come back to a translation of 25 basis points. So, in that sense, there is no shift in our risk appetite and our policies and the legal and [inaudible] levels that we have. It has remained the same as before.

We give that guidance on a bank basis only. It is a broader risk appetite, but we steer our risk appetite much further into detail into countries, products, sectors, legal in a way that we deal with our security and our restructuring units. That's the way we manage the risk and the risk cost and it is a guidance to basically translate it into a figure for the market. No change there.


Our next question is from Mr. Pawel Dziedzic of Goldman Sachs. Go ahead, please.

Pawel Dziedzic -- Goldman Sachs -- Analyst

Good morning. Thank you for the presentation. Two follow-up questions -- first on costs, you mentioned that you have a good performance overall. There is some seasonality in 1Q. If we look at your rolling average, your cost to income is at 55%. I know this is not a primary target, but to what extent do you expect to make some progress toward lower level this year? Would we see more cost rated to client acquisition, perhaps, a rollout of project investment, KYC related as well? To what extent do you have capacity to go below the 55%? That's the first question.

The second question is also a follow-up and it's on the cost of risk guidance. So, I wanted to ask it a little bit differently. In what operating environment, what would need to happen or should we expect to see current low levels to continue in the foreseeable future? Thank you.

Ralph Hamers -- Chief Executive Officer

Thank you, Pawel. I will take the one on cost and then Steven will come back on the risk cost question. Looking at cost here, there's a lot of seasonality built in from a regulatory cost perspective. That's why we've kind of calculated for rolling average. If you look at the coming year, we're still in a major transformation in unite, where you could expect further cost decreases to come in. We do expect FTE decreases over time.

At the same time, where we are on the Unite Transformation Program, we have made almost all strategic milestones. At the same time, we decided that going forward, we want to speed up the client migration from Belgium to the omnichannel digital interaction layer, basically for them to benefit from all the digital interactions with the bank. So, we are actually moving that forward and moving the migration of products a little bit later as a consequence of which some of the cost benefits will also come a bit later.

So, if you then look specifically for the year, really, we manage to further decrease cost in the market leader environment and saying we'll always play it by ear if we see the opportunities and we would allow some cost growth, but for the year, we're cautious there as well and the wholesale banking as well because we really want to see how we go through this year. So, I can't really guide you on cost income on this one, but you can expect from us to really be focused on the cost developments, vis-à-vis the transition that we're going through. On cost of risk, Steven?

Steven Rijswijk -- Chief Risk Officer

Yes. I think, Pawel, in general, a worsening of macroeconomic circumstances obviously has impact on risk cost. 25 basis points is the average over a longer period. So, it's hard to directly pinpoint exactly what the exact circumstances are because there are many factors impacting that, like I also said during the investor day presentation, almost a year to manage it top-down, if you will.

We [inaudible] by compartmentalization and good risk awareness both in the first and second line of personal accountability. If you look at this year in the current circumstances as we've seen in previous years, we would expect this risk cost to remain below the long-term average.


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

Robin van den Broek -- Mediobanca -- Analyst

Yes. My first question is on NIM. The ability to put in higher costs in the internal transfer pricing model. In Q4, credit spreds widened materially, which probably gave you the rationale to do that in Q1. In Q1, though, credit spreads tightened significantly. I was wondering if that offset was structural in your view or that we could see that to dissipate going forward leading to some more NIM pressure on the longer term. That's the first question.

The second one -- I think your answer on cost of risk, the change in guidance, seems to imply that your RWAs are somewhat understated from a point in the cycle perspective. I was just wondering how that would feed into your fully loaded base for target level of 13.5%. Should we either assume that you want to be above that level given where we are in the cycle or should we start to factor in more DPS progressing given the fact that you basically are where you want to be on a headline level today? Thank you.

Ralph Hamers -- Chief Executive Officer

Thank you, Robin. On the internal FTP and the credit spreads tightening, specifically we don't manage that necessarily on a quarter by quarter basis. We do look at where the margins are in terms of new production as well. That's where we see that over a higher FTP, the margins, specifically on the wholesale bank side have been flattish too, maybe even a little bit improving. So, higher pricing altogether there in the new production for the first quarter.

In terms of the other businesses, we've seen in the first quarter the mortgage margin in the Netherlands improving and Belgium improving and the business lending margins over the higher internal FTP to be flattish. I'm talking new production here. I'm talking what happened in the first quarter of '19. So, that's what I can give you on that one. On the cost of risk, I'll give it to you, Steven.

Steven Rijswijk -- Chief Risk Officer

Thanks, Robin. Clearly, we are, from an economic point of view, at sort of a high-point of the cycle and also therefore a lower point of the cycle in terms of RWA. I actually look at the past five to six years, we have seen a risk migration coming in on a quarterly or yearly basis.

When the cycle changes, one would expect some impact of that risk migration going back. So, in that sense, it doesn't change our guidance. That's why we said if you look at the average cost of risk through the cycle with ups and downs, we go to a 40 to 45 basis points translated now to 25 basis points on lending assets through the cycle and that's what we will remain at.

In terms of capital return, I don't think that you should read anything into this. At this point in time, also with what we have in the quarter, there are some blips up that may expose the risk migration that is relatively benign. It doesn't change our overall guidance on dividend policy.

Robin van den Broek -- Mediobanca -- Analyst

Ralph, just to come back on the margins, I think you're saying commercial rates are basically higher, but the margin is sort of stable on the back of the higher FTP, but again, if credit spreads tighten this significantly, isn't that an issue?

Ralph Hamers -- Chief Executive Officer

I can talk about what we saw in the first quarter. So, specifically on the credit spreads, we look at it specifically in the wholesale market, it is really on a client-by-client basis, it's a sector-by-sector basis. So, that's how we manage that. So, whatever happens in the capital markets specifically does not necessarily influence the client rates directly.


Next question is from Mr. Nick Davey, Redburn. Go ahead, please.

Nick Davey -- Redburn -- Analyst

Good morning. Two questions, the first one on KYC costs -- can I just ask for a bit more detail about the charges that have appeared in Q1 and the outlook there? Was there any temporary one on costs there that would mean corporate line costs could fall from here or conversely is this, as you've outlined at the investor day, a bit of a project for the year? Any expectations we should have for the higher costs from that source, even wholesale bank or corporate line?

Then the second question, just coming back to the challenging growth markets, I think the question was asked about stable pre-provision income and the pace of cost growth. The only question I would have is if you could just provide the impact of FX and challenge of growth markets in general, just so we could get a feel in constant currency terms about how revenue and cost growth is progressing.

Ralph Hamers -- Chief Executive Officer

Yeah. I'll give the second one to Tenate to follow-up on either now or maybe later. On KYC, as we've indicated, there were two components to the program that we're running. One is the structural improvements. For the structural improvements, we're beefing up the organization. We're hiring more people. We're investing in systems and processes. That basically we do by clearly increasing the investments in that area, but there's only so much you can do. We are reprioritizing some of the investments that we had envisaged to do in other areas toward this area.

So, although we're investing more in that area, it doesn't necessarily lead to a big cost increase from that perspective. So, that's the more structural improvements for which we'd really have to reprioritize some of the investments that we're making on the IT, etc.

Now, in the total KYC organization, as we were indicating, we have some 2,500 full-time employees now working on it and it is growing. Around 500 are working on the non-structural business, which is more the project-related part of this program, which is the final enhancement. So, when we're through the final enhancement, it goes to what we call business as usual in terms of your KYC element on this, then the cost on the FTE side will go down.

But at this moment, it's 2,500 for the total. We envision some increases there. The underlying actual investments are being reprioritized from other areas into this. That's the picture I can give to you. So, the one to hold on to maybe for you is the 500, that once the final enhancements are done, that is something that you can expect as a cost going down. But having sad that, the structural improvements going through in this area will continue for a while and will be reprioritized from other areas. Tenate?

Tenate Phutrakul -- Chief Financial Officer

To address your question, Nick, on the cost evolution in C&G -- as Ralph mentioned, half of that is in Germany. The other half is in the other challenge and growth countries. Your question on foreign exchange is predominately driven by Turkish lire against the euro and the positive impact of that in Q1 is approximately 10 million euros to 15 million euros.

Nick Davey -- Redburn -- Analyst

Just following up on the KYC, Ralph, am I then OK to assume that plausibly, these KYC charges could drift up to the course of this year while you're making some of these permanent investments and running the 500 staff on top and then the reductions may come in 2020. Is that fair?

Ralph Hamers -- Chief Executive Officer

Yeah. The announcement you should expect during 2020 that that would actually come off on the structural improvements that will stay also during 2020.


Next question is from Mr. Bruce Hamilton, Morgan Stanley. Go ahead, sir.

Bruce Hamilton -- Morgan Stanley -- Managing Director

Hi, there. Thanks for taking my questions. Most of the questions have been asked, but maybe just following up on consolidation, Ralph, you gave useful color there -- when you talk about not wanting to dilute the return target to the bank, obviously, is good news, but do you give us any timeline for any larger deal that you hope to get up to that, double-digit ROE and how appealing is the redomiciling to get any benefits in terms of reduced domestic SIFI buffer? Then finally, just on cross-border deals generally, do you think the sector as a whole is close? How do you think about the time frame and likelihood of deals happening from here?

Ralph Hamers -- Chief Executive Officer

I won't comment to the specific rumors that are going around. I can talk in general about what I expect in the European banking landscape to happen. We are a supporter of the Banking Union as the most pan-European bank, I guess, around with so many local activities in several European countries and Euro Zone countries. But for the banks as a whole, including ours, to benefit from that Banking Union, we need to finalize the Banking Union.

So, from a regulatory perspective or supervisory perspective, it has been done. The SSM, the single supervisory mechanism, that works. It works quite well, actually. We have the single resolution board as well in order to make sure that if banks fail, there's a recipe through which we manage these failures. Then to support the resolution of banks, it's also being filled as we speak. So, that's done as well and will be done over time.

As a third part, which is how to protect depositors in bank failures as well, for which we have to come to some kind of a deposit guarantee system, which basically needs to be finalized before banks can actually benefit on an additional two out of three benefits that consolidation can bring. So, the three benefits that consolidation can bring, which is the cost-benefit that is also there, which is generally if you can't do cross-border scalability the way we can, it will be limited to what you can do in a country, then the second one is liquidity optimization and the third one is capital optimization.

So, the second and the third one will not be there, not to a large extent, in my view, if we don't finalize the banking union in full. So, basically, what banks need to focus on is to which extent you can actually have cost synergies. Therefore, for most banks, this will limit the opportunity to local M&A for the moment. So, that's it. So, that's the color I can give. Thank you.


The next question is from Mr. Jean-Pierre Lambert of KBW. Go ahead, please.

Jean-Pierre Lambert -- KBW -- Managing Director

Hello, most questions have been answered. Just to follow-up on the digital indication of activity, which was up quite a lot, I think 25% or 26% year on year, this is maybe inflated by people just checking their accounts on a more regular basis on their mobile. Can you distinguish between the fundamental transactions and basically the review of an outstanding situation of accounts.

Ralph Hamers -- Chief Executive Officer

Jean-Pierre, I think you're completely right from the perspective that an element of the number of interactions is inflated by the changing behavior of customers, that while they do their banking on a mobile, they just check in more often on something that they wouldn't check in as frequently in a desktop environment or let a loan go to the branch five times a day to check your balance.

Having said that, you have to look at it from a different perspective. If you build a platform in which you have a daily interaction, like people checking the news five times a day on news sites, that basically just provides banks with a great opportunity to build a broader relationship with those customers who maybe only check in to check their accounts a couple of times a day, but never the less, you are in touch with them.

So, yes, if you would only look at what that provides for an opportunity as a bank only, then yeah, there were will be further upside because you have more interaction and you get to know your customer a little bit better because of the behavior and the whole digitization will be able to generate more intelligence around the client. But if you look a little bit beyond that and you have the traffic and you think of yourself as a platform a little bit more than a bank, then the opportunities are much broader.

That's why on the investor day when we alluded to the fact that, for example, in Holland, we are the number ten app in daily usage for the average Dutch person, whereas the number one through nine are all Facebook and Google apps. That is what shows the opportunity that you have. You have to think beyond your role as a bank and start thinking platform. Then these digital interactions do matter. But clearly, there's certainly some inflation there.


Our next question is from Mr. Marcell Houben, Credit Suisse. Go ahead, please.

Marcell Houben -- Credit Suisse -- Analyst

Good morning. Thank you for taking my questions. The first one is on the fee side here. Ralph, could you give us a little bit of color on the fee growth within the retail division or the key drivers? I know I understand the ambition of 5% to 10% growth, but on a management and investment product line in there it seems there was a lot of volatility seen the last couple quarters within retail Germany and Belgium, Holland, as well the other [inaudible] growth. Could you just give us the key drivers here to give us better model capabilities for us as analysts? That was my first one.

The second one is on the wholesale lending or lending growth. This quarter, we see some nice lending growth of close to 6% analyzed. A large part of it is driven by wholesale lending, which if I remember correctly, you wanted to slim down the exposure a little bit. How should we read into this lending growth in this quarter of the wholesale bank?

Then lastly, if I could just go through a third quick one on the cost of income ratio target. I know it's not a key focus anymore, the 52%, but you dropped the timing up by 2020. In your best case scenario, when would you expect to release this level? Is it 2022 or is it delivered earlier than that, for example?

Ralph Hamers -- Chief Executive Officer

Thank you. On the fee growth, there are different dimensions in which you can grow fees. We use all of the dimension here. The first one here is for the services that you already offer, depending on how the underlying costs develop, you increase your fees. For example, in daily banking activities for the use of your current account, your cart, the additional services you offer, around salary counts, you can increase fees just because the services are increasing and the costs may be going up as well.

Then there's an element in that same area which is what we would call behavioral fees. So, basically, how do you make sure that people who interact with us either by withdrawing cash from an ATM or making calls into our call centers, how do you make sure that people really do that if they need it? So, how do you make sure that people don't go to your ATM five times a week for 25 euros but they go one time a week for 125 euros? So, there are aspects like that that specifically in the challenger markets is important for us because we don't have our largest ATM networks there but we pay fees to other banks on the back of the behavior of our own customers.

Then clearly, the third element if it comes to fees is the more primary customers you have and the better you know these customers and the more services you either develop yourself or offer from third parties, whether this is investment products or insurance or non-banking in the future, that's the real upside.

You should realize that the success of our model has always been that we don't charge fees for things that we feel don't add value. So, we're not in the business like many others maybe are to charge fees just because we can charge fees. That's not what we're going to do. It doesn't fit us. It doesn't fit what the client expects from us. If we charge fees, it is because they do see it as a value-add. That's the one on fees.

On cost income guidance, it's great that you ask, but as we have said, the real important element for us to see whether the transformation is delivering the efficiencies is the operating leverage component, which is the volumes of our operating costs. Clearly, some volumes with margin pressure make less income than others and some costs could just increase just because government is introducing a new bank tax. So, we want to eliminate from that, which doesn't mean that we don't want to compensate for those increases in costs or income pressures, but these are blurring our way to measure whether the digitization is having an effect. That's why we separate the two.

In the cost income, clearly there is the component of margin pressure or repricing and there is the element of regulatory costs. So, therefore, we do keep it as an input, we will manage it down. You can expect us to manage it down toward the 50% to 52% and you will see steps in that direction, but we're not giving a specific date by which we will have achieved that.

Maybe on the banking loan growth, I'm actually going to give it to Steven.

Steven Rijswijk -- Chief Risk Officer

Thank you. So, regarding the loan growth, as you look at the total loan growth of 8.7 billion euros this quarter, approximately 4 billion euros comes from wholesale banking. Within that, approximately half of that within wholesale banking comes from trade and commodity finance on the back of higher oil prices. We've seen it also in previous quarters, in previous years, sometimes the price goes up and goes down immediately with the same lending volume, the value goes up because of that higher oil price.

When we look at the remaining growth in wholesale banking, quite a significant part of that is by further draw downs on revolving credit facilities. So, again, that is readily cyclical. So, we still stick to the 3% to 4% loan growth over the year. You will see some quarters which are impacted by these types of events.

Marcell Houben -- Credit Suisse -- Analyst

Thank you. Ralph, can I follow-up on the fees? Can you disclose the assets under management for the retail division?

Ralph Hamers -- Chief Executive Officer

We can but we don't.

Marcell Houben -- Credit Suisse -- Analyst

All right. Fair enough. Thank you.


Our next question is from Mr. Kiri Vijayarajah of HSBC. Go ahead, please.

Kiri Vijayarajah -- HSBC -- Analyst

Yes. Good morning, everyone. Can I just come back to the weaker fee result in the wholesale bank and linking that to your lower risk appetite there? I'm wondering if that lower fee number in the wholesale bank is kind of a good level going forward or could it compress a bit further as those self-imposed exposure caps start to bite a bit more as the year progresses. You do less of the leverage loan, so, less fees from that.

Then secondly, just very quickly, could you give us an update on Italy? Any impact of the ban on boarding new customers, has that had any impact on the underlying franchise at all and any visibility on how long that ban will stay in force? Thank you.

Ralph Hamers -- Chief Executive Officer

Also, banking fees clearly -- if we have restricted risk appetite and we're cautious to enter into deals that don't fulfill our requirements from risk appetite perspective or from a structure perspective, that does limit our ability to do large deals and with that, it will and may have an effect on our fee income. Having said that, I'm willing to take that because in the end, it will never pay. Clearly, in the leveraged finance business, we do see that there is a risk appetite in the market that doesn't match ours and that does have a dampening effect on fees on the wholesale side.

In addition to that, in the first quarter, from a markets perspective, whether it is more debt capital markets or equity capital markets, it wasn't a very strong fee quarter either. At a certain moment in time, you would expect that to come back.

So, over time, in the market sectors that we know very well, we do expect business will continue, whether it is in the transportation business, the oil and gas business, the sectors that we really know, we don't think there are going to be strange players going through. So, we will be able to charge arrangement fees and distribution fees there and also, on the DCM side, we do expect the market to be back and on the back of that, be able to increase our fee income there as well.

Then turning to Italy, clearly, the customer ban is not good news for the franchise itself in terms of how do you motivate your people. Having said that, what we need to do there is important, which is having to ensure that we do play a role as a gatekeeper the way the regulator expects from us. That's what we're doing. So, the enhancement plan that we roll out globally is clearly also being implemented in Italy and was already implemented in the process of being implemented in Italy. We will continue with that. As for how that influences the timing of the customer ban itself, I don't know. We will have to work with the regulator to get a feel or to supervise to get a feel as to when that can be lifted. We don't have that as we speak.

Kiri Vijayarajah -- HSBC -- Analyst

That's very clear. Thank you.


Our next question is from Mr. Maxence Le Gouvello Du Timat of Jefferies International. Go ahead, please.

Maxence Le Gouvello Du Timat -- Jefferies International -- Analyst

Yeah, good morning, everyone. Most of my questions have been answered. The last one regarding the appointment of Mike Rees at the supervisory board. It's quite the surprise considering Mike's profile on the Asian exposure. Just from the ring, how it fit with your strategy on digital retail banking or will his focus be only on the [inaudible]? Thank you.

Ralph Hamers -- Chief Executive Officer

Well, thanks for the question. So, Mike comes with a whole set of experiences, including the Asia experience, where we are active as a wholesale bank. We're also active as a digital bank. As you know, we are testing, for example, the Philippines market. So, his Asian experience comes in. His wholesale banking experience comes in as a welcome experience as well. He's also a formidable banker. The core of what we do is still banking. So, it's good to have good bankers on board.


Next question is from Mr. Jose Coll, Santander. Go ahead, please, your line is open.

Jose Coll -- Santander -- Analyst

Thank you. Two questions, please -- the first one would be according to the press, about two weeks ago, they claimed you are in the process of closing down your SME business in Spain, which arguably was small, but I thought this was a segment in which you wanted to expand. I guess this fits with your previous comment on minding the operating leverage, but could you comment farther on this move? Is this something that we can expect could happen in other C&G units?

My question is on Turkey. I see that total lending net of FX decrease about 4 percentage points in the quarter, which considering that the stage three ratio is quickly rolling from 2.8% to 3.1% might not be too impressive. So, I wonder if you could give us some guidance in terms of lending reduction for the rest of the year and what is your target or guidance for intergroup lending by the end of the year. Thank you.

Ralph Hamers -- Chief Executive Officer

Thanks, Jose. The first question I'll give the answer. The second one, Steven will take that. So, how do we go about SME business? So, in Spain, we started the SME business and we also work with Kabbage on that one. As you know, the way we do these kinds of things, we look at whether they develop well, whether we feel they can become profitable. If not, this is the way we go over these things as an innovator, in innovation, you also have to dare to pull the plug if things don't look to become successful in the way you have approached them.

That is what we've seen there. That doesn't mean that this is also for the rest of C&G. We have to look at it country-by-country. The SME business that we do in other C&G businesses, specifically in Poland and Romania, we're very committed to that and it's doing quite well. On Turkey stage three, I'll give the word to Steven.

Steven Rijswijk -- Chief Risk Officer

Thanks, Jose. In Turkey, the book went down with about 1 billion euros in the first quarter this year. Part of it is a currency difference, but the largest part is a rolling off of loans as well as clients deleveraging. So, we're still, in that sense, conservative and focused on de-risking. If you look at inter-company balance sheet or intergroup funding, that came down in the first quarter with an additional 300 million euros. So, we had 3 billion euros by the end of the year, coming down to 2.7 billion euros now. These had the stage three ratio end up a bit from 2.8% to 3.1%.

In that sense, we keep a keen eye on making sure we remain also within risk appetites in that country. A large part of the book is wholesale banking. We stay close to our clients, but clearly, especially on our loans, we are very strict in that that we also need to see revenues in foreign currency before we actually grant loans in that currency.

Jose Coll -- Santander -- Analyst

Maybe just a follow-up on Turkey -- is it fair to assume that the roll-off in the first quarter is the run rate for the rest of the year in terms of the lending book and the intergroup funding? Thank you.

Steven Rijswijk -- Chief Risk Officer

That would be a bit too straightforward to assume that, but clearly, we've managed the risks in Turkey on a daily basis. Part of the loan decrease also came from clients not rolling over their loans because also clients are deleveraging that respect, but we remain conservative.

Jose Coll -- Santander -- Analyst

Thank you very much.


We have no further questions. Please continue.

Ralph Hamers -- Chief Executive Officer

Thank you very much, then. Thanks for giving us all these questions. It's good that you raised them. I'm sure that after going through the material, you may have some more. You know that our team is always ready to take you through and give you some more insights where we are able to. Just to summarize the first quarter, you see a continuing good commercial momentum, which we're very happy to see.

We're keeping discipline on the cost side, although you have to kind of differentiate between the different areas that we manage, market leaders versus C&G versus wholesale banking. We continue to improve the way we manage non-financial risk. So, from that perspective, we're satisfied with the performance, also, financially. Thanks for your interest and support. That's it. Thank you.

Duration: 91 minutes

Call participants:

Ralph Hamers -- Chief Executive Officer

Tenate Phutrakul -- Chief Financial Officer

Steven Rijswijk -- Chief Risk Officer

Stefan Nedialkov -- Citigroup -- Analyst

Benoit Petrarque -- Kepler Cheuvreux -- Analyst

Adrian Cighi -- RBC Capital Markets -- Analyst

Farquhar Murray -- Autonomous Research -- Analyst

Pawel Dziedzic -- Goldman Sachs -- Analyst

Robin van den Broek -- Mediobanca -- Analyst

Nick Davey -- Redburn -- Analyst

Bruce Hamilton -- Morgan Stanley -- Managing Director

Jean-Pierre Lambert -- KBW -- Managing Director

Marcell Houben -- Credit Suisse -- Analyst

Kiri Vijayarajah -- HSBC -- Analyst

Maxence Le Gouvello Du Timat -- Jefferies International -- Analyst

Jose Coll -- Santander -- Analyst

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