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ING Groep (NYSE:ING)
Q4 2020 Earnings Call
Feb 12, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good morning. This is Patricia KlosovNorton, welcoming you to ING's fourth-quarter and full-year 2020 conference call. Before handing this conference call over to Steven Van Rijswijk, chief executive officer of ING Group, let me first say that today's comments may include forward-looking statements such as statements regarding future developments in our business, expectations for our future financial performance and any statement not involving a historical fact. Actual results may differ materially from those projected in any forward-looking statement.

A discussion of factors that may cause actual results to differ from those in any forward-looking statements is contained in our public filings including our most recent annual report on Form 20-F filed with the United States Securities and Exchange Commission and our earnings press release as posted on our website today. Furthermore, nothing in today's comments constitutes an offer to sell or a solicitation of an offer to buy any securities. Good morning, Steven. Over to you.

Steven Van Rijswijk -- Chief Executive Officer

Thank you very much, and good morning, everyone, and welcome to our full-year 2020 results call. I hope you're all in good health, and I'm happy to take you through today's presentation. I'm joined by our CFO, Tanate Phutrakul; and our new CRO, Ljiljana Cortan, who joined us as of the 1st of January, and we're happy to have her on board. Welcome, Ljiljana.

At the end of the presentation, we will always have time to take your questions. When we presented our 2019 results a year ago, I don't think anyone expected that the year 2020 would evolve the way it did. 2020 goes into history books due to the COVID-19 pandemic which presented unprecedented challenges to our employees, customers and society. And also at ING, we have felt this effect.

We continue to support our customers, employees and society during this time, and I'm sure I speak for many of us when I say that with the vaccination programs in the way, we very much look forward to circumstances normalizing again. During 2020, we have taken several actions to further build a sustainable company, and I'm pleased to see an increasing interest and recognition for our strong profile on ESG topics. Our digital model continues to be a clear advantage as we have added another 578,000 primary customers in 2020 and a number of mobile interactions continue to grow. I'm proud to say this support us to deliver strong performance with pricing discipline, good fee growth and cost control.

The most notable effect of COVID-19 was on lending and deposits, with low lending demand turning historic low -- strong loan growth into a small negative for 2020, while deposit inflow doubled and rates in the Euro swap market and non-Eurozone country declines. These factors have put pressure on NII which we believe will be alleviated in normal circumstances. Full-year risk costs were at 2.7 billion or 43 basis points over average customer lending. Around 30% was in Stage 1 and two driven by IFRS 9-related provisions and management overlays.

For 2021, we expect to move close to our through-the-cycle average of around 25 basis points. On asset quality, we have a strong and well-diversified loan book built through a proven risk management framework which we did not change in our COVID-19. Our strong track record underscores that we are a low NPL bank also when compared to our Eurozone peers. The CET1 ratio improved from 15.3% to 15.5%, and this almost fully excludes the fourth-quarter net profit as this has been added to the 2.5 billion already reserved for future distributions, in line with our policy.

This brings the total amount of reserves for future distributions to 3.3 billion euro. We want to provide our shareholders with a healthy return and will start distribution of this amount with the delayed interim cash dividend over full-year 2020 of 0.12 per share, in line with the current ECB recommendation. We intend to distribute the remaining amount reserved after September 30, subject to prevailing ECB recommendations and relevant approvals. Looking forward, when economies recover, we are well positioned to capture growth again as we benefit from our geographical and product diversification.

Now, let me take you through our full-year results, starting on Slide 4. So when you look at Slide 4, here are some highlights of our efforts in 2020 to further build on being a sustainable company. We are pleased to see an increasing interest in the market and that we are recognized for our strong ESG profile. It's an area where we are considered an industry leader, and that's on environmental topics, where we make a difference with our Terra approach and also the transparency that we provide through our reporting.

In 2020, we published our second Terra update report which contains targets and progress on our alignment with the Paris climate goals in the 9 most carbon-intensive sectors. Demand for sustainable finance solutions remained strong in 2020. Aside from the numbers shown on the slide, we supported the issuance of 9 social bonds which included the first COVID-19-linked bond in Europe. We further took action to provide support during the pandemic and published our annual human rights update which include the impact of COVID-19.

We revised our remuneration policy, formulated with stakeholder feedback and a strong link between variable pay and sustainable performance. And we continued our focus on ensuring the right behavior at ING through initiatives such as the assessments of our behavioral risk management team. We are a pioneer in the sector with our own dedicated behavioral risk management team, and in 2020, the team developed Dialogue Starter, and that is a method to further support teams in mitigating behavioral risks. Our strong ESG profile is also reflected in our ESG ratings.

In December 2020, CDP confirms our place on its climate A List, while MSCI upgraded our rating to AA. Recently, we also received an ESG evaluation from S&P, rated us as strong, with a score of 83 out of 100. Slide 5. This slide shows that our focus on our digital-, mobile-first customer proposition has benefited us as we saw customers increasingly turning to these channels under COVID-19.

The share of mobile-only customers increased in 2020, as did the number of mobile interactions, growing to an 87% share, while also the number of total interactions continue to grow. We also showed an upward trend in our product and services sales, with our digital investment account in Germany as an example of how we successfully offer digital and differentiating customer experience. 326 new -- 326,000 new investment accounts were opened in 2020, contributing to 20% growth in a number of investment accounts and 25% growth in assets under management. And customers appreciated the mobile capabilities offered, with the number of trades via the app almost tripling to 45%.

Also worth mentioning is that 20% of those new accounts were opened by customers who were new to ING, demonstrating that our digital offering also attracts new customers in a time of crisis when people could be more inclined to stick to their main bank. This is further evidenced by the fact that our primary customer base grew by 578,000 customers, reaching 19 -- sorry, 13.9 million at the end of 2020. Now, on to Slide 6 which shows the clear effect of the pandemic on lending and deposits. In normal circumstances, lending is a growth driver for us, with average loan growth exceeding 5% in previous years, outpacing deposit growth.

In 2020, COVID-19 changed that picture. Mortgage demands remained, but the demand from businesses dropped driven by delayed investment plans and less need for working capital. Also in our main markets, governments provide direct liquidity support rather than via the banks. Combined with ECB actions such as TLTRO III and bond purchase programs, a high availability of liquidity made the repricing normally seen in times of crisis more modest.

On deposits, we saw a record inflow, as lockdown restrictions and growing uncertainty resulted in shifts from spending to saving. While we managed to steer part of this to investment products, the overall effect is clearly visible. At the same time, the euro swap rates moved further into negative territory, and in a response to COVID-19, central banks and non-Eurozone countries cut our rates. The pressure from negative rate is not new.

But in the past years, we successfully countered this pressure and NII grew. This became more difficult in the second half of 2020 driven by the factors that I just mentioned. We saw added pressure from FX translation which was partially offset by margin discipline and increased charging of negative rates. In the current circumstances, we expect pressure on NII to continue.

However, with global progress on vaccinations, a return to normality comes closer. And with that, also more normalized spending patterns and lending demands. I don't want to speculate on timing, but I'm confident that loan growth will again be an effective lever for us, where we will also benefit from our geographical and product diversification. Finally, the conditional TLTRO III benefit is not included.

As mentioned before, we first need to be virtually certain again that we will meet the eligible loan target growth. And looking at our pipeline, we're close, but it will be tight as we're also dependent on repayments and cash flow movements. And while an additional 300 million in NII is certainly welcome, we maintain our risk appetite and margin discipline to avoid trading short-term NII benefit for future risk costs or longer-term super low loans. On Slide 7, you can see that despite the pandemic, we realized strong fee growth in 2020.

And this growth was partially driven by investment products with an impressive 31% increase compared to '19. We saw new account openings increasing reflecting the success of our digital investment solution in Germany which I mentioned before, and also marketing campaigns in other countries. A higher number of trades in a volatile market also helped. A significant part of the fee growth can be considered structural as assets under management grew strongly.

Daily banking fees grew 12% year on year. And main drivers here were increased package fees at the beginning of the year and also the introduction of account fees in Germany. With these measures, we countered the impact of a drop in domestic and international payment transactions, especially in the first half, as lockdown measures and travel restrictions were put into place. Though not yet back at normal levels, we have already seen some recovery of the domestic transaction in the second half of 2020 as spending increasingly shifted to online and lockdown restrictions were temporarily loosened.

International transactions remain subdued as travel restrictions stayed in place. The development of lending fees reflects the lower loan demand from businesses. Overall, in a challenging year, fees grew by 5%, and we remain our 5% to 10% growth ambition supported by a 5.5% CAGR over the past five years and the belief that in a normalized circumstances, daily banking fees will benefit from a normalized level of payment transactions, investment products will remain at a higher level, while lending fees should increase again in line with loan demand from our business clients. On to Slide 8.

2020 expenses included 673 million in volatile items including goodwill impairments taken in the second quarter as well as provisions and impairments related to the review of activities and measures that we announced so far on wholesale banking, on Maggie and on the branch networks in our retail countries. Excluding these volatile items, operating expenses were only slightly higher compared to '19 as our focus on costs almost fully offset contractual salary increases. We continue to review our activities resulting in the additional measure of reducing our branch network in Belgium, and we're also looking at network optimization in challengers and growth countries. As I said last quarter, the nose of the cost plane needs to come down, and we're not stopping here.

However, carefully reviewing the business takes time. We are taking a diligent approach, and we will announce further measures in due course. Slide 9 shows the risk cost development, with full-year 2020 risk costs coming in at 2.7 billion. Approximately 30% of this is Stage 1 and Stage 2 provisioning reflecting, on the one hand, the working of IFRS 9, especially in the second quarter when macroeconomic model updates resulted in significant provisioning.

In the second half, the improved macroeconomic outlook resulted in releases which we have largely compensated with management overlays to reflect remaining uncertainty, and we prepare for a possible delay in expected credit losses which could materialize when the direct government support in our markets roll off. At 43 basis points, we are above our through-the-cycle average of around 25 basis points which is a trend we have also seen at our Eurozone peers. In line with our track record, we remain well below the average of these peers. The total amount of loans on which payment holidays were granted remained limited to 19.4 billion or 2.6% of our loan book.

We received only a small number of extension requests, and 93% of these payment holidays have already expired. While so far, we don't see a significant deterioration of the risk for loans, with expired payment holidays during 2020, we have conservatively taken additional provisions mainly related to business clients and sectors which we consider high risk under COVID-19. As mentioned, for 2021, we expect to move close to our through-the-cycle average of around 25 basis points. If you look at Slide 10, that reinforces our strong track record of managing asset quality.

Both on average risk costs and Stage 3, we are historically well below our Eurozone peers which is a result of the solid risk management framework we have had in place for a long time. This has been built using our extensive experience and applying lessons we learned during times of crisis, such as limiting concentration risk by applying exposure caps. And within these caps, our policy framework sets the standard for our risk appetite. In the current crisis, we benefit from applying this framework with limited and well-structured exposures to sectors at high risk under COVID-19.

While the current crisis is unprecedented, we are confident on asset quality with a diversified, senior and well-collateralized loan book and with our current prudent provisioning process. I want to emphasize this as we often get questions on asset quality, and I'm not saying that nothing ever goes wrong as taking risk is part of banking, but we take calculated risks in line with our risk appetite. And I believe that in the industry, ING is considered to be a bank with good lending standards, and I believe our track record does underscore that. Now on ROE on Slide 11.

In 2020, the ROE was impacted by several factors, such as some sizable incidents and incidental costs and COVID-19-related effects on income and provisioning, with a CET1 ratio well above our ambition level. We look at ROE through the cycle, I've said it many times before, and the lower level in 2020 doesn't mean we let go our 10% to 12% ambition. Not at all. We believe that going forward, our results will be supported by the return of loan growth, further charging for actual account costs and continued discipline on controllable expenses, while provisioning levels will normalize.

At the same time, we intend to, over time, reduce the equity level as we take management actions to control RWA, risk-weighted assets, and intend to bring the CET1 ratio more aligned with our ambition level. As for timing, we can control it for parts of these factors, but it also depends on when we will be able to move on from the pandemic and return to normal circumstances. And for CET1 reduction, we need to take into account prevailing ECB recommendations. However, our intentions should be clear which I think they are.

As you can see on Slide 12, both CET1 ratio and leverage ratio are ahead of our ambitions. Regarding ROE, as I addressed on Slide 11, in the current environment, it is below our ambition. But with the supporting factors I mentioned, we maintain our ambition and very much intend to continue to provide an attractive total return through the cycle. Our cost-to-income ratio was impacted by factors such as the negative rate environment and regulatory costs.

In 2020, some sizable incidentals also affected this metric on both income and costs. To reiterate, cost to income remains an important input for our ROE. We have the ambition to reach 50% to 52%, and we have supporting factors on both income and on costs. As for dividend, we announced our updated distribution plan last quarter and for -- and after the fourth-quarter results, we will pay a delayed interim dividend over 2020 of 0.12 per share which is in line with the current ECB recommendations.

Later in the presentation, I will discuss our other intentions going forward. Now let me take you through our fourth-quarter results, starting on Slide 13, and we'll go through this a bit faster. First of all, to keep your attention, but also to allow some time for Q&A. In the fourth quarter, we had another strong quarter on fees.

Total income was lower due to: one, pressure on liability margins; two, lower results in foreign currency ratio hedging; and three, a negative effect from currency translation. Sequentially, both NII and fees were up. Total income was lower including the impact from an indemnity receivable in Australia which was offset in the tax line, valuations adjustments in financial markets and hedge ineffectiveness. Then to NII on Slide 15.

As mentioned earlier, we have seen some pressure on NII from the current market conditions which affected the levers we generally use to counter the impact from the low rate environment. NII excluding financial markets, was lower year on year reflecting the continued pressure on liability margins, while deposit inflows this year were substantial. We improved lending margins. However, lending volumes declined reflecting lower demand.

Year on year, the impact from foreign currency was also visible this quarter, with lower interest results on foreign currency ratio hedging, while also devaluation of some foreign currencies had a substantial negative impact. Compared to the previous quarter, NII excluding FM was stable, overall lending margins improved and the interest results on foreign currency ratio hedging slightly recovered, countering continued pressure on liability margins. Our net interest margin increased by 3 basis points this quarter to 141 basis points, and this mainly reflects higher NII including financial markets and a lower average balance sheet due to the lower average customer lending. As stated previously, NIM is an important metric for the market.

But we know that NIM can be impacted by volatile items, so we believe it is better to look at overall NII development and guidance. Then turning to core lending on Page 16. Overall, we saw a slight decrease this quarter reflecting low demand from business clients. But in retail, mortgages demand remained strong, especially in Germany.

However, with some lower lending to businesses, overall net core lending was down by 200 million in retail. In wholesale banking, net core lending in Trade & Commodity Finance was up reflecting higher average oil prices. In lending, net core lending decreased due to repayments of term loans including year end's balance sheet optimization, and that we see every year as well as further repayments of increased utilization of the revolving credit facilities that we saw in March of last year. And overall, this resulted in a total 900 million decline in net core lending.

So 200 million in retail, 700 million in wholesale. Net customer deposits increased by 7.8 billion, a level well above the last quarter of '19, driven by 8.8 billion in higher savings in retail, while the 1 billion decrease in wholesale banking was more in line with previous years. As mentioned before, the negative loan growth is a shift in demand which we don't consider as structural, and we do expect loan growth to return when uncertainty subsides. And with our geographical diversification, we will be able to benefit as demand picks up.

And positive signs of that are already visible in Asia and in the U.S. Now on to fees. Both year on year and quarter on quarter, fee income was up by 5% driven by another strong quarter in retail banking. Year over year, retail fees were up with even 19%.

And in investment products, those fees increased with almost 33% reflecting the increase in investment accounts and number of trades, while daily banking fees grew 25%. That results from the level of payment transactions continue -- which continue to recover and the increase of daily banking package fees that we put in place in the first quarter of 2020. The full benefit of this action should become visible however when transaction levels return to normal which we will hope to be the case in the course of 2021. Lower fees in wholesale banking were mainly driven by lower demand, lower Trade & Commodity Finance volumes and less activity for our clients in financial markets.

Sequentially, retail grew by almost 8% driven by the same factors as year-on-year growth, while wholesale banking was slightly higher as higher payment charges offset a decline in lending fees. On Slide 18, we look at our costs. Expenses this quarter included 223 million of incidental costs included in volatile items, mainly reflecting provisions and impairments related to measures we announced for wholesale banking, for Maggie and our retail branch network. Excluding these incidental and regulatory costs, operating expenses were under control as were lower year on year and stable quarter on quarter as we fully absorbed CLA increases and higher IT expenses.

Regulatory costs are seasonally high in the fourth quarter as it includes the full payment of Dutch banking taxes. The year-on-year increase reflects a catch-up on contributions to the Dutch deposit guarantee scheme due to the strong growth of corporate deposits in the first half of 2020. As mentioned, also going forward, we will continue to monitor developments, critically review our activities and expenses and act when and where needed and is again focused on bringing the nose of the cost plane down. Slide 19 shows the risk costs split per business line.

Risk costs were 208 million for the quarter or 14 basis points of average customer lending, and it is well below the elevated levels of the previous quarters and also below the through-the-cycle average of 25 basis points. And this amount includes a 413 million management overlay primarily in Stage 1 and 2 which was applied to compensate for a 622 million release driven by updated macroeconomic indicators resulting in a net impact of minus 209 million, mainly in wholesale banking. Aside from this allocation of the management overlay, in Retail Benelux, risk costs mainly reflected some additions to individual files. And in retail challengers and growth markets, risk costs included a 59 million provision for Swiss franc index mortgages in Poland.

In wholesale banking, Stage 3 risk costs included some additions to existing Stage 3 files. The lower Stage 2 ratio reflects the improved macroeconomic outlook, and the Stage 3 ratio for the group was stable and remained low at 1.7%. The next slide shows our CET1 development. And that was up 0.2%, reaching a very healthy 15 and a half percent.

The CET1 capital was 0.5 billion lower, and that includes the implementation of the nonperforming exposure backstop. Except for 2 million, net profit for the quarter was not added to CET1 capital as it was reserved for future distribution. And the CET1 ratio was further distributed by lower risk-weighted assets, mainly driven by lower volumes, a shorter duration in the wholesale banking book and a better loss given default profile. And that lever effect was driven by both a reduction of outstandings with a lower coverage ratio in wholesale banking and improved house prices in retail.

The market risk-weighted assets were up mainly due to TRIM impact exposures as markets normalized, while operational risk-weighted asset decreased due to technical updates on our AMA model. Now and I'm sure you have been waiting for that, we turn to our distribution plans on this slide, 21. As announced last quarter, we have moved to a 50% payout ratio of resilient net profits, and we have adjusted our CET1 ambition to around 12 and a half percent. In line with the distribution plan, we have reserved 1.5 billion euro over 2020, adding to the already 1.8 billion originally reserved for the final 2019 dividend, bringing the total amount reserved outside of capital to 3.3 billion.

To align with our current ECB recommendations, we will pay 0.12 per share after publication of this quarter results. We intend to distribute the remaining amount reserved after September 30, subject to prevailing ECB recommendations and relevant approvals. And for 2021, we will reserve in line with our distribution policy. And given current ECB recommendations, payment of that interim dividend will also be delayed until after September 30, 2021.

With a CET1 ratio of 15 and a half percent. There is also room for further distribution. And over the coming years, we intend to bring down our CET1 ratio toward our ambition level of 12 and a half percent. To wrap it up, 2020 was a year that brought unprecedented challenges to our employees, to our customers and to societies for which we continue to provide support.

Fee growth was good, with an impressive contribution from investment products and despite COVID-19 impact on payments and lending. Full-year 2020 risk costs were above our through-the-cycle average, but well below our peers, and include provisioning for a delay in expected losses. While for 2021, we expect to move closer to our through-the-cycle average. We're confident on the quality of our well-diversified loan book and the strong risk management framework we have in place.

Our track record, and you've seen it in one of the slides, in the scores that we are a low NPL bank. The CET1 ratio improved to 15 and a half percent, in line with the current ECB recommendation, we'll start distribution of this amount with the delayed interim cash dividend over full-year 2020 of 0.12 per share. We intend to distribute the remaining amount reserved after September 30, subject to prevailing ECB recommendations and relevant approvals. And looking forward, and I really look -- want to look forward, when economies recover, we are well positioned to capture growth again as we benefit from our geographical and product and service diversification.

And with that, I would like to move to questions.

Questions & Answers:


Operator

[Operator instructions] Our first question is from Mr. Robin van den Broek, Mediobanca. Go ahead, sir.

Robin van den Broek -- Mediobanca -- Analyst

Yes, good morning, gentlemen and ladies. Thank you for taking my question. The first one is -- well, first of all, thank you for your strong message on cost of risk and capital return. I think it's very welcome.

And with the risk of sounding a little bit greedy, but you're flagging excess capital above your 12.5% ambition. You've also indicated that your current expectation is that the vaccine rollout will be successful, loan growth will restore -- will be restored in the second half of the year. I was just thinking about the time frame on releasing that buffer above 12 and a half. I mean what kind of announcement, given the road map you sketched could we expect with the full-year '21 results? That will be question one.

And the second one is a little bit the reasoning about -- around NII. I guess the pressure from the replicating portfolio is still there. Q4, you had a bit of a one-off from the FX ratio that went against that to offset that, and financial markets were a little bit stronger Q-on-Q. I'm just wondering, the trajectory from here on, should we expect that pressure will basically prevail in H1? And then when H2, we see recovery of loan growth come back on, that NII can have a flat to slightly growing structure again? Your thoughts around that will be very helpful.

Thank you.

Steven Van Rijswijk -- Chief Executive Officer

Thank you very much. I will take the first question and then Tanate will take the second question. Yes, I mean we do have very strong capital. And like we said, we intend to move toward the ambition level of 12 and a half percent.

I mean clearly, the COVID pandemic is not over yet and of course we see the inoculation programs taking off. And with that, we believe that GDP growth, and then also loan growth, will be there as of the second half of this year. At the same point in time, we need to be mindful of the current uncertainty and potential cliff effects that we haven't seen coming as yet. But having said that, we will move over the next number of years to our 12 and a half percent.

But we're not giving a road map for that at this point in time. Tanate?

Tanate Phutrakul -- Chief Financial Officer

Robin, let me give you a bit of guidance around net interest income. I think first of all, clearly, we flagged before in Q3 about this FX ratio hedging, and that has basically plateaued during the course of Q4, and we expect that plateauing to go into the future. I think if you talk about other things that could affect our NII in the future, loan growth is clearly one which we flag. Continued pricing discipline on origination margin has always been there and we expect that to continue, and we have started in a number of our markets charging negative rates for deposits coming in.

You see that in the Netherlands, for example, we have decreased our threshold for charging negative rates from 1 million to 250,000. We introduced negative charging in Belgium. We introduced negative charging for new customers in Germany. So we do see that the impact of negative charging on our results will become a bit more material going forward as well.

Operator

Our next question is from Mr. Omar Fall, Barclays. Go ahead, sir.

Omar Fall -- Barclays -- Analyst

Hi. Good morning. Can you hear me?

Steven Van Rijswijk -- Chief Executive Officer

Yes, fairly well. Hi, Omar.

Omar Fall -- Barclays -- Analyst

Hi, there. So I just want to go back to NII, please. Assuming you hit the TLTRO bonus threshold and the new -- the incremental negative charging effect, that looks like a benefit of around 400 million euros or so. The replication portfolio drag should be pretty close to that amount on an annual basing -- on an annual basis, I'm guessing if you're investing around 500 billion at the five-year swap rate.

Is that the right way to look at it, that these two elements kind of offset each other? I know you don't want to give a -- you don't want to say how confident you are about hitting the TLTRO bonus threshold. But do these effects kind of offset each other which basically means that should you return to volume growth and asset margins continue at the current positive trend, doesn't that mean that NII has a pretty good chance of rising this year? Set to aspire for rates, of course. And then the second question is just if you could give us a bit more sense of the glide path on fees. Obviously, we had the big jump in investment-driven products.

How much product-related fees? How much more momentum do you think there's been -- there is? Has the year started well? Are you seeing further evidence of, say, deposit transformation into fee-driven products, for instance? That would be great. Thank you.

Steven Van Rijswijk -- Chief Executive Officer

Thank you very much, Omar. I'll take the fee question and then Tanate will take the NII question. I think on fees, we see very good momentum. We are converting a number of our clients in using more investment products.

And therefore, the -- like we said on Germany, over 326,000 new investment product lines. And we also -- we do see that trend continuing also in the first month of this year. We have increased our daily banking packages in a number of markets which the benefits you gradually see coming in, in the fourth quarter, but that's still only part of it, and continued benefit we would see in 2021. The number of payments is still at a subdued level, especially constrained by limited international travel.

And though we, therefore, have been able to increase our fees with 5% quarter on quarter and also 5% year on year, this is on the back of lower payment levels than what we would see pre COVID, and especially international payment levels. So when we return to what we would call normality, those payment levels should increase. And therefore, also the fees on those payments should increase as well. And then last but not least, when we look at lending, we see of course a subdued number of structured loans which has decreased the lending fees for wholesale banking quite steeply over the past four quarters.

And that should return to a level that we've seen pre-crisis as soon as lending demand picks up. So I think, in short, most of the elements are structural on the retail side, with of course an element of investment fees that could be lower if the volatility may reduce. But other than that, it's very structural and potentially a higher fee level for wholesale banking if lending activity picks up again.

Tanate Phutrakul -- Chief Financial Officer

And Omar, just to address your question on NII, we obviously don't give disclosure on the replication impact on our results. And they can be volatile from year-to-year, depending on which part of the investments run off and get reinvested. But I can tell you about the management actions that we are taking, for example, as Steven mentioned at the top of the presentation, that if we are able to make the TLTRO III targets, we would book anywhere around 300 million in the first half of 2021 on that benefit. But again, it's too tight to call for now.

And just for actions already taken with respect to negative charging, that, as we have previously disclosed, would have a positive impact of around 100 million and 140 million euros full-year impact as well, OK? And the last point of course that we are actively managing and discussing with our customer is that deposit inflow continues to come into the bank, and we are discussing other options for them to invest their money including investment funds.

Omar Fall -- Barclays -- Analyst

Thank you.

Operator

Next question is from Mr. Stefan Nedialkov, Citi. Go ahead, sir.

Stefan Nedialkov -- Citi -- Analyst

Yeah. Hi, guys. It's Stefan from Citigroup.

Steven Van Rijswijk -- Chief Executive Officer

Hi, Stefan.

Stefan Nedialkov -- Citi -- Analyst

Hi, guys. A couple of questions on NII and fees, unsurprisingly given that you guys are not giving overall group guidance for 2021. On NII, can you confirm that even if you don't meet your benchmark for the first TLTRO, you can still accrue benefit on your entire outstanding TLTRO amount as part of the second extension of TLTRO III? Meaning that if your loan growth picks up in the second half of '21, you can still accrue benefit on the TLTRO you took out in the first tranche. My second question is on the transformation of deposits into fees potentially of this around 40 billion of deposit inflow that you saw in 2020 which is quite a bit higher versus your regular run rate.

How much of that deposit base do you believe is sort of on the conservative/saving side of things versus something that can be shepherded into investment products? And I know that you kind of mentioned a little bit on that point, but if you can put some numbers around that, it will be really helpful. You guys obviously have a good digital platform. Beyond your own product, you also offer third-party product. For example, scalable capital in Germany, how much can that deposit -- massive deposit inflow be diverted into your platform product, therefore, earning fees for you? And if I may, also related to that, there's a slide in your deck where you basically show annual mobile nondeposit sales increasing quite a lot from 2018 to 2020 from 46 per thousand to 74 per thousand.

What is driving that growth? If you can give us a bit of color on investment product versus the AXA insurance products, etc. That will be very, very helpful. Thank you.

Steven Van Rijswijk -- Chief Executive Officer

OK. I will -- thank you, Stefan. I will take the questions on fees and mobile sales growth and then Tanate will go back to NII. Maybe that's the topic of today.

So Tanate will do NII, I will do fees. So in terms of mobile sales growth, let's start with that, Stefan. I mean we have a mobile- and digital-first mindset, and that means that we very much focus on the strength of our digital channels and our app environment. So we have a strong app environment and strong interaction with our clients.

And we focus on end-to-end digitalization to make the interaction with our clients better, easier and smarter. And it also means that we are getting to better personalization of our clients because, in the end, if we get better personal interaction with our clients, that means clients contact us for particular questions, that means that drives better quality interaction but also drives better growth. And that is the reason why you also see there is an increased sales of products via the mobile app, because of the strength of our digital channels. And that's what we will continue to do, drive personalization because that drives better interaction, that drives growth, that drives primary customers.

Looking at fees, yes, we of course have had a significant inflow in 2020. That also was due to the fact of the lower spending pattern of our clients. Over the past four or five years, you saw that there was a balance between deposits growth and lending growth, where the later years, especially there was more lending growth and fee growth. We continue to look at different ways to diversify our income and to also manage our clients.

So we have, like Tanate said, started to charge negative interest rates in various markets at different levels, and we continue to do so. We have built an app environment such that it is easy for people to invest and move their savings money to investment products. And so as an example, of the 300,000 clients that started to invest with ING in Germany, 20% were new to bank lines. And so also clients that normally would not be in ING changed their bank and started to invest through banks.

So we will continue to do so. If lending demand picks up, then you may see a reversal of deposits compared to lending. And in the meantime, we continue to nurture our clients to use their money increasingly more, to use investment products. It is too hard to put a number on that at this point in time.

Tanate Phutrakul -- Chief Financial Officer

OK. Stefan, if we talk about NII and TLTRO mechanism I guess the first tranche, as you know, is a measurement from March last year to March this year so that, as we mentioned before, is tight and we see where we go on that and the measurement point for the second tranche being October of 2020 to December 2021. So indeed, it's a new measurement point. And given our expectations with resumption of loan growth in the latter part of this year, that's something that is before us, but still uncertain to determine today.

Then your second question which is around the 40 billion of deposits inflow into the bank. How much of that is natural inflows? And how much of that is driven by COVID? I think it's clearly something which is extraordinary levels of inflows, even what you have seen in the past. So I think we hesitate to say how much of that would get converted into investment funds. But we do measure, as management, how many additional accounts are open, as Steven has mentioned, in terms of investment funds new to bank and how much our investors and savers are increasing their investment activities, OK? So something that is perhaps too early for us to give you guidance on, on how much of that deposit will be transferred to investment funds.

Stefan Nedialkov -- Citi -- Analyst

Great. Thank you very much.

Operator

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

Benoit Petrarque -- Kepler Cheuvreux -- Analyst

Yes. Good morning. It's Benoit from Kepler. Just two questions on my side.

So first of all, coming back to the loan growth for 2021. You are guiding for close to across-the-cycle average on cost of risk. So you are -- it looks like you are pretty optimistic on growth into 2021. And I was wondering if we should get a loan growth in line with your quarter cycle in 2021 or are you thinking about something a bit higher bit also playing a catch-up on this very low growth in 2020? Just wondering how much loan growth you are likely to make in 2021 or if you could provide the direction at least.

And then moving to the cost, I think there's clearly more focus on the cost control. It was down, on a clean basis, 1% in Q4. Could you talk about the short-term projects you are working on the cost side? And could you be a bit more specific on the cost trend into 2021, please? Thank you.

Steven Van Rijswijk -- Chief Executive Officer

Thanks very much, Benoit. Yeah, on the risk costs, what we have said is that we will move -- and I'm looking at Ljiljana, who looks very stern at me as the new CRO, that we will move toward the through-the-cycle average of risk costs. And that is due to the fact that we have been very prudent in making reservations in the past number of quarters. You've seen significant overlays that we put in the second and the third quarter.

Macroeconomic outlooks are improving, and that also means that we had -- we released some 600 million of those overlays. But to be prudent again, we put again over 400 million overlays on top of it to counter that effect of the releases of the 600 million. And therefore, based on our conservative stance, the limited inflow and watch list, the low NPL level, the largely collateralized loan book and the good diversification that we have in the book, we are quite confident on that our risk costs will go back to a more normalized level and, therefore, move toward the through-the-cycle average. Now that is separate from the loan growth as such.

But we do believe, what we have seen in our main markets, is that loan growth subsided on the back of lower working capital needs after the initial spike in March of 2020 after -- with lower investments. But -- and that's also because we're quite well diversified. If we look at Asia and we look at the U.S., there, we see already loan growth coming. And therefore, if also in Europe, and we believe in the second half of the year, based on the speed, depending on the speed of the inoculation programs, GDP will again be positive, and we will get back to a more normal economic activity.

And also those peripheral investments, that means that also in Europe then growth will start to kick in. Now that's on the loan growth. One -- maybe to finalize on that point, Benoit, where that is at again the same levels of what we have seen over the '16, '19 period remains to be seen. We will of course remain prudent within our risk framework.

And we will of course remain prudent in pricing because we believe it's important to be very strict on pricing in that regard. But we believe that we will see also, next to mortgage growth, also some business growth in the second half of 2021. On costs, you've seen the announcements that we've made in November on the Wholesale Bank and on Maggie. You've seen the announcements that we made on the branch network in the Netherlands in July.

You've seen announcements on the branch network that we made in Belgium. We are working on branch network optimization in challengers and growth countries. And I will continue to focus on optimizing our network in line with the digital offering that we have. In that sense, COVID-19 has shown that our digital model is the right one and that we benefit from a digital-first and mobile-first mindset.

I will also review business lines, and Tanate and I are continuing to review business lines, to see whether through the cycle, we make the appropriate return. And if not, we will take appropriate action. And when we take that action, we will announce it. I want to be clear on that the nose of the cost plane needs to come further down.

And the second element of that is that I want to be clear on execution certainty. And as soon as we've analyzed further, we will make further announcements on next measures.

Benoit Petrarque -- Kepler Cheuvreux -- Analyst

Thank you. Very clear.

Operator

Our next question is from Mr. Thomas Dewasmes of Goldman Sachs. Go ahead, please, sir.

Thomas Dewasmes -- Goldman Sachs -- Analyst

Yes. Good morning. Thank you. Two questions, please.

First one on costs. Just to confirm on your last comment on challenger markets. Are you then saying that your decision on what to do with cost is going to depend on the rate trajectory from here and perhaps how fast the curve can return to what it used to be just before the quick cuts with COVID-19? And then just on the cost of risk again, I appreciate that there has been quite a few lumpy items in 2020 with the fraud case, the Swiss franc mortgages, the oil price being very volatile. If I take your 25 bps guidance for next year, given you're seeing 6%, 7% year-on-year growth in deposits in retail banking, what is worrying you the most? Is that SME lending? Is that consumer lending? Where do you expect the cost of risk to materialize in the retail segment, please? Thank you.

Steven Van Rijswijk -- Chief Executive Officer

OK. On cost, well, let me make one thing clear. We hope for the best, but we cater for the worst. So I look at what the current interest rate curve is doing and I will base myself on that.

And I will not hope for better interest rates at a later point in time. So we take measures with the current picture of the world in mind, not with a hopeful future picture in mind. And hence, I will continue to take action and not hope for interest rates to return to pre-COVID levels. That's number one.

On the cost of risk guidance for 2021. I mean -- and I've presented it also in the investor presentation in 2019, we have a very well-diversified book. Present in many countries. We have sector caps on some of the more volatile sectors, such as leveraged finance and real estate.

We have put caps on those already a few years ago. And our exposure in a number of the more higher-risk sectors such as leisure, cafés, bars, restaurants, hotels, travel, so airlines, transportation, agriculture is quite limited. And as I've said before, we have provided in the last number of quarters with management overlays for potential risk costs that may come on a number of those high-risk sectors. So in that sense, based on our diversification, on our strong risk management framework and our as being a low NPL bank, I'm confident about the cost of risk levels next year.

Thomas Dewasmes -- Goldman Sachs -- Analyst

Thank you.

Operator

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

Jon Peace -- Credit Suisse -- Analyst

Yes. Thank you. [Inaudible] return, please? And what's your preference? So what will make you decide between whether to pay the full-year '19 dividend final -- between dividend and buyback? And have you had any consultation with the ECB about how comfortable they will be for you to pay back potentially a double-digit percentage of your market cap later on this year? And how do you think about the stress test in this context as to whether that might [Inaudible]?

Steven Van Rijswijk -- Chief Executive Officer

Jon, I mean, you were breaking up a little bit, but clearly your question was about dividends. And in that sense, I will give the word to Tanate.

Tanate Phutrakul -- Chief Financial Officer

Yeah. So I think what you're asking is have we been in a bit of consultation with the ECB with respect to our dividend announcement. And we have been in discussions on this and we have been making sure that what we announced is in line with the ECB recommendations, right? And I suppose, Jon, to give you a sense of what we are doing in terms of these dividend announcements, it's all been very much in line with our dividend policy, right? Whether it's 2019, it's not that we're paying extra, it's simply paying what we actually originally thought that we could afford to pay and we can afford to pay in '19. And for 2020, it's the same thing, based on our 50% of resilient profit.

That's all we're doing in terms of capital return intentions, OK? And in terms of discussion around 2019. I think it's also the case that we will simply look at a balance between cash distribution in form of dividend and also in terms of share buyback, and we maintain that flexibility. And it's really depending on how we see the intrinsic value based on the stock price at that prevailing moment in time.

Jon Peace -- Credit Suisse -- Analyst

Thank you.

Operator

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

Benjamin Goy -- Deutsche Bank -- Analyst

Hi. Good morning. Two questions from my side, please. First, on primary customers.

You added 600,000 in 2020 which is a good number, but it's lower than what you delivered in previous years and about 60% was driven by Germany. So I was wondering, in a year like 2020 where many people probably got comfortable using digital-only banks, why wasn't this growing faster and on a more broad-based basis or on a positive spin, do you expect 2021 to see higher growth and then also in other countries outside of Germany? And then secondly, a question for Ljiljana. Given the risk function is obviously crucial, and particular in these times, I was just wondering on her first impressions with some fresh pair of eyes on ING's risk management.

Steven Van Rijswijk -- Chief Executive Officer

Yeah. Thank you very much, Benjamin. On the primary customers, in a year whereby there is subdued economic activity, you will see that customers typically stick with their existing banks or do not use an additional amount of products. And hence, even in this year with a lower economic activity and economy is contracting, growing still with this amount of primary customers, but also growing the number of mobile sales on our app, was quite impressive.

And therefore, I believe that when economic activity returns to more normalized levels, we will benefit that, both in terms of primary customers but also in terms of profitable growth. Because in the end, I want to have profitable growth, not only primary customers for the sake of primary customers, it has to come with a beneficial relationship for both the client and for ING. And then over to Ljiljana. What are your first impressions?

Ljiljana Cortan -- Chief Risk Officer -- Analyst

Good morning. Well, fresh pair of eyes confirms what has been shared with the markets already for years, that ING has a very stable and well-built risk management framework in place. Building further on this strong basis, I'm sure we are going to be able to capture the opportunities of the future, both with respect to our positioning as digital leader, but as well growth. As already said many times, we do have a structured framework around portfolio in sense of the risk policies, concentration limits, caps and some of those are actually already there for some years.

So I do believe we are on the journey toward recovery. And I believe, as also correctly said by Steven, we are going to go toward the cycle average. However, that journey is going to be long, and we do not, not account for certain eventual bumps due to the uncertainties in front of us. However, very comfortable that we're going to be there, as already shared.

Thank you.

Operator

Next question is from Mr. Raul Sinha, JPMorgan. Go ahead, please.

Raul Sinha -- JPMorgan Chase & Co. -- Analyst

Good morning. Thanks for taking my question. I've got a question on Basel IV capital. You're choosing not to disclose a ratio on the slides.

And I just wanted to ask why that might be the case, given your ambition clearly is Basel IV fully loaded 12 and a half long term. And if you could give us perhaps some of the moving parts that are still remaining to get from your current 15.5% down to a fully loaded Basel IV, that will be quite helpful. The second question is a broader question on mortgages. If I look at the loan book growth trajectory at ING, clearly, one of the features of this crisis has been the pickup in mortgage loan growth across your markets.

And that clearly has helped offset some of the other books that have been shrinking quite dramatically. What do you think is the outlook for mortgage growth into '21? Are you worried that this might start to slow down or do you think there are enough, say, positive structural drivers that could still continue to drive positive loan growth for you on the mortgage side?

Steven Van Rijswijk -- Chief Executive Officer

Thank you, Raul. On Basel IV, I mean, the 12 and a half percent ambition level is let's say the Basel IV ambition level. And basically, the 15.5% also. And that we still have, with all the measurements on Basel and other model adjustments, have 50 basis points to go.

So last quarter, it was 60 basis points. This quarter, we included an additional impact of around 10 basis points. And hence, we have 50 basis points to go. So we're well capitalized also to include all Basel effects if they still were to come.

Raul Sinha -- JPMorgan Chase & Co. -- Analyst

And what is the sort of let's say the remaining part? I mean I guess, TRIM is more or less done. But in terms of portfolios, perhaps maybe the Dutch mortgages, is there anything else we should keep in mind in terms of the moving parts?

Steven Van Rijswijk -- Chief Executive Officer

Yes. It's basically the day one implementation of the output factor of Basel were to come in 2023 or '24.

Raul Sinha -- JPMorgan Chase & Co. -- Analyst

Got it.

Steven Van Rijswijk -- Chief Executive Officer

And then on the loan growth. Yes, I mean, what we have seen of course is that the house prices continue to increase on the back of low interest rates. And that has helped of course the value of these houses, but also the affordability for people to pay for their houses. So a low interest rate environment is stimulating that.

Of course, we need to be mindful of a cliff effect when the measures that are being taken by governments and banks alike would stop, what would that do with unemployment, for example. But as we've also seen in the previous crisis, in the financial crisis 2008, 2010, then mortgage demand continued. And we don't expect that to be different this time, especially not since the housing shortage in the various countries underpins the fact that there is a need for more houses to be mortgaged.

Operator

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

Kiri Vijayarajah -- HSBC -- Analyst

Yes. Good morning, everyone. A couple of questions from my side. Firstly, in the Wholesale Bank and the loan growth or rather the loan shrinkage there, looks like it's moderating.

So where are we on that? Are we coming toward the end of that derisking process in areas like leveraged finance? And is the ambition, therefore, to start regrowing again more meaningfully in the Wholesale Bank as things recover? So is the message you're back in growth mode in wholesale for 2021? That's the first question. And then secondly, just coming back to the higher fee packages. I was just wondering, are there any particular geographies which have got more room to catch up in terms of the repricing effort? And also, kind of which geographies are you finding it harder to put fee increases through? So some color on that would be useful. Because, obviously, Germany is a big success story, but really on the other end of the spectrum, where are you finding the challenges on the fee side? Thank you.

Steven Van Rijswijk -- Chief Executive Officer

Yes. Thanks very much, Kiri. I mean in terms of package fees, I mean, let me -- and I think it's a good question. What I want to say there is that we come from an environment whereby we historically charge very limited package fees in many of the countries in which we are operating in.

So in many of the countries where we started as a direct bank, ING Direct a number of years ago, actually, we charge 0. So we come from a -- in that sense, the bad news is it was 0. The good news is we have some upside. And hence, we will of course also look at the cost and making it equitable for our clients.

We have, in most of the markets, quite some upside to go in terms of charging for our package fees. And that's what we are doing. Next of course to nudging our clients, for example, to using or nonuse of ATMs or using call centers. So it's either charging of package fees or charging of behavior fees or avoidance of costs.

So that's the first element. The second element of course is that many banks are in the same boat as we are in. And hence, yes, it will determine how the market will develop itself in that respect. But again, we come from a very low fee environment and, therefore, we have substantial upside.

With regards to the loan growth, the fourth quarter, in that sense for wholesale banking, was actually quite good given the circumstances, given the fact that end of year, a number of clients in wholesale banking are decreasing their balances. And although we have seen a small decrease with 700 million in the light of low investment environment, we still have seen an up on let's say the daily banking and trade environment which is quite good and is a testimony of the first signals that we see in Asia and the U.S. And that means that if we can return to more normal economic levels, we believe that we will also see continued loan growth in wholesale banking. But of course, the vaccination programs have just started and economic activity is not yet where it is, so it will likely be more visible toward the second half of 2021.

Kiri Vijayarajah -- HSBC -- Analyst

Great. Thank you, Steven.

Steven Van Rijswijk -- Chief Executive Officer

Thank you.

Operator

Our next question is from Ms. Daphne Tsang, Redburn Europe Limited. Go ahead, please.

Daphne Tsang -- Redburn Europe Limited -- Analyst

Hi. Thank you for taking my question. I've got one on NII, please. So your NIM is very resilient this quarter which is good news.

But excluding the balance sheet effect you are seeing a little bit improvement on better lending margin. I know you don't guide on the specific impact from replication portfolio, but can you share some color on the dynamic there between the product lending spreads and the continued drag from lower replication income, I think? Would you be able to leverage your pricing discipline to create that offset toward the direct which we see in Q4? And also on product lending spread, is there any mix shift effects there in 4Q that helps your margins which may not necessarily continue or may even reverse in the coming quarter as lending will kind of pick up in other areas outside of mortgage? Thank you.

Steven Van Rijswijk -- Chief Executive Officer

OK. Thank you very much. And it's NII, so it's, Tanate.

Tanate Phutrakul -- Chief Financial Officer

Thank you very much, Daphne. I think what you're asking about the balance sheet impact and our net interest margin. I think probably a few points to make. As we mentioned before, we have had compression in the past couple of quarters because of this FX ratio hedging impact, and that has plateaued during the course of Q4.

In fact, it went up slightly, OK? And if you wanted to see how that moves, is really looking at currencies like U.S. dollar, Polish zloty, Turkish lira against the euro. The bigger the difference, the better the FX ratio hedging results in ING's P&L. That's one.

The second is that, as we always mentioned, we maintain risk and pricing discipline across the board, whether in consumer lending, business lending, mortgages or other areas, and you will see in the more detailed disclosure later today, that we maintain that pricing discipline on origination of new loans. So that's the second. And then the third of course is the fact that we do see that replication drag in our P&L. But at the same time, we have, as mentioned, introduced a number of actions on negative interest rates that will actually help kind of mitigate some of that.

And maybe the last point to make is the fact that it is true that our net interest margin is down. But the impact of TLTRO having taken roughly 55 billion euros of that funding, we have not booked any income against it, and that has a drag on our NIM of about 6 basis points. So that we'll see what happens at the end of Q1.

Daphne Tsang -- Redburn Europe Limited -- Analyst

And then just a follow-up question, please. On charging negative rates which yield do you see more room to charge negative rate based on the announcement measures already in Netherlands, Belgium and other countries as well?

Tanate Phutrakul -- Chief Financial Officer

Yes. So mostly in the Eurozone countries. And it's also, as we mentioned, it's about gradually, as we have done in the past, lowering the threshold of this negative charging. Again, as we mentioned in the Netherlands, we went from 1 million threshold to 250,000.

We started charging 1 million in Belgium. In Germany, for new to bank customers with savings of more than 100,000, they do get charged negative rates on deposits with us. And in Spain, we have also introduced some fees for customers with higher amount of limits, but without a primary relationship with us. So it's in a number of geographies, principally in the Eurozone area.

Daphne Tsang -- Redburn Europe Limited -- Analyst

Got it. Thank you.

Operator

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

Anke Reingen -- RBC Capital Markets -- Analyst

Yeah, thank you very much for taking my question. First is just on the cost. You stressed that you're looking at bringing the nose down. I just wanted to confirm that this basically implies that costs should be lower than the 9.4 billion underlying in 2020 and '21.

And then you put up the slide about the ESG leadership. I mean just limiting it to like the financial implications. If you maybe just can talk a bit through about how you think this is basically maybe a competitive financial advantage because other banks are talking about selling asset management products which is maybe less likely here or your potential on financing. If you can maybe help us to see -- or is it controlling the damage just in terms of limiting it to the financial aspect of things.

Thank you very much.

Steven Van Rijswijk -- Chief Executive Officer

You have to come back to me with the ESG question because the line was breaking up a bit. But let me first answer the cost question, and then I will ask you to ask your question on ESG again. So yes, I can't make it any clearer than this. So what you've now seen is that the cost over the past years were going up.

And this year, the last six months, we've shown that we have flattened the costs. And I've indicated that I -- we intend to bring the costs playing or no cost playing further down. And that's exactly, as you mentioned, that means that we will bring the cost -- that we intend to bring the cost down compared to where they are from this level.

Anke Reingen -- RBC Capital Markets -- Analyst

Yeah. On the ESG, so basically, can you talk a bit about in terms of financial impact about the opportunities and threats for ING?

Steven Van Rijswijk -- Chief Executive Officer

Yeah. Well, maybe I can say a couple of things on that. So first of all, we have been working on our climate profile since 2015, and that has, for example, include the fact that we have decided to stop our coal investments or investments in coal and we'll completely stop that as of 2025. We have discussions with a number of auto sectors to actually decrease the emissions.

And we work with those clients to decrease those emissions over a number of years. So we try to do that in an inclusive way. And why do we do that? Because the simplest way is just to say, well, we stop completely with financing industries, but then you change the bank book, but you do not change the world. And so what we will do is to work as much as we can in the different sectors with our clients for them to apply certain methodologies.

And then within that, we very strictly measure in our Terra report that we have issued now, and you can see that on our website in the third quarter of last year for the second time, that on those 9 sectors with the highest CO2 emissions, we manage a measure sector by sector, whether we are in line with the Paris Accord or not. And if not, we will take appropriate action to get in line with that Accord. So that's how we manage it both from a risk and from a reporting side. Now with regards to our ESG profile, because we're so prominent, we have been in dialogue with many of these clients.

And that's why you also see that many of these clients choose us to issue, for example, green bonds and green loans or sustainable loans and sustainable bonds, and we link those bonds and loans to particular targets either that they make for that loan specifically, then it's a sustainable linked loan really links to what that loan is being used for, for example, renewable energy or more broadly that the company has broader sustainability KPIS. And then we link that to those KPIS which KPIs need to be independently measurable and objectifiable to make sure there is real impact also with their client of their CO2 footprint. And that's how we steer both and internally our business but also influence and discuss with our clients.

Operator

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

Farquhar Murray -- Autonomous Research -- Analyst

Good morning, everyone. Just two brief questions from me. Firstly, on the latent impact of fee charge increases on travel-related card payments. Do you have a sense of how much more normal travel would add there? For instance, what our overseas transaction volumes running at currently versus more normal circumstances? And then secondly, just on the FX mortgage book charge you've taken.

Could you just update me on how large that FX mortgage book is? I had a couple of hundred million in my head, but just wondered if it might have moved.

Steven Van Rijswijk -- Chief Executive Officer

Yeah. On the fees, I mean, basically, our international travel is currently almost 0. So if you look at let's say the impact of -- in our payment business, what you would see between let's say the first and the second quarter, the largest part of that impact comes from the fact that people do not travel. And of course, we made it up by an increased payment -- a number of payment packages, so an increase in the charge that we levy for payment packages and in a return to more normal of our I would say local credit cards and payment business.

But if you look at, especially between the first and the second quarter, that dip will come from largely the nontravel which is currently still the case. So as soon as travel returns again, we should have that amount back. For the FX mortgages, the amount of FX mortgages that we had in Poland, that would be an equivalent of around 200 million.

Farquhar Murray -- Autonomous Research -- Analyst

Got it. Thanks.

Steven Van Rijswijk -- Chief Executive Officer

Thank you.

Operator

Our next question is from Ms. Giulia Aurora Miotto of Morgan Stanley. Go ahead, please. Ms.

Miotto, please unmute your line.

Giulia Aurora Miotto -- Morgan Stanley -- Analyst

Hi. Can you hear me? Hello?

Steven Van Rijswijk -- Chief Executive Officer

Yes, we can hear you very well.

Giulia Aurora Miotto -- Morgan Stanley -- Analyst

OK, fine. So first question, I want to go back to the excess capital. So we have been talking a lot about capital distribution, but I was wondering if there is any other plan about the excess capital. And I'm talking about, for example, considering M&A transaction or taking more restructuring costs, for example, to cut the costs down further.

So that's my first question. And then, Steven, I was wondering, strategically, after the first few quarters in the job, shall we expect an investor day with new updated targets in -- toward the end of this year or how are you thinking about that one? Thank you.

Steven Van Rijswijk -- Chief Executive Officer

Thank you very much, Giulia. Any M&A plans? Yes, this is a question I've heard before. Clearly, we have capital and we intend to distribute it. With regards to M&A, we are a mobile-first and digital-first bank.

And we want to provide a better and more diverse offer to our clients, like we -- I also discussed with an increase in mobile sales that I talked about half an hour ago. So that means that if you want to improve the offer to your clients, make it more personal. If we see investments that can improve our digital offer, for example, technology companies or people with a technology feature that we do not have, so you can make our interaction even better, faster, smarter and more personal, then we will look at those type of technologies or companies. And if we can see companies that add or augment our sales and services features in terms of diversification away from NII and more fees and commission business, we will look at those as well.

That's the priority for M&A. When looking to IR Day, I mean, we -- that question was also asked before. We're still in a COVID crisis, so there is still quite a bit of uncertainty. But I think that the uncertainty will subside in the second half of this year.

And then we will likely announce an investor day in the first part of 2021, probably in the first quarter -- '22, '22.

Giulia Aurora Miotto -- Morgan Stanley -- Analyst

Great. Thanks.

Steven Van Rijswijk -- Chief Executive Officer

Thank you.

Operator

Next question is from Mr. Tarik El Mejjad of Bank of America. Go ahead, please.

Tarik El Mejjad -- Bank of America Merrill Lynch -- Analyst

Hi. Good morning, everyone. I'm just being mindful of time. Very good clarification.

In terms of the dividends that you'll pay from September, I think the wording has been carefully chosen to give you some flexibility. But should we think about this payment be done within Q4 or could it be spread out in 2022 as well? Thank you.

Steven Van Rijswijk -- Chief Executive Officer

Tanate?

Tanate Phutrakul -- Chief Financial Officer

So Tarik, you recognized a finely crafted wording there. And I think we just want to be making sure that we respect the ECB recommendations. So when the ECB recommendations are lifted, we would take the necessary legal and regulatory steps to make those dividends available. But so far, what we want to confirm is it will be after September '21.

Tarik El Mejjad -- Bank of America Merrill Lynch -- Analyst

Thank you very much.

Operator

Next question is from Mr. Jason Kalamboussis, KBC Securities. Go ahead, please.

Jason Kalamboussis -- KBC Securities -- Analyst

Yes. hi, there. Quick questions. The first one is, I mean, you have highlighted overall, good outlook, how you're doing better in impairments, et cetera, versus peers.

So costs remain probably the one area. They have slightly increased this year. You have peers that saw deeper decreases throughout the year. So I just wanted to understand why do you find that it's better to approach this from an ad hoc basis, reviewing area by area, rather than putting a cost larger target and drive the whole group to get there which can be more efficient over 12 months? The second question was on wholesale banking.

In the third quarter, we discussed about the fact that you have, by lowering your CET1 ratio to 12 and a half, you were able to better price. I just wanted to understand how was the fourth quarter versus the third quarter? I'm also looking in the outlook for 2021. Do you find that with a number of peers like ABN, Natixis, SocGen all retrieving from areas, you are more likely to benefit and therefore being able eventually to still increase your pricing in some areas? And in which ones? And the last one, just if you could give us a sense of what international payment fees were in '19 so that we know a bit what you can come back to once everything normalizes. Thank you.

Steven Van Rijswijk -- Chief Executive Officer

With regards to the first question on why we do things ad hoc rather than doing a, I think that you mean a big bang. I understand the comment. Let me make clear that we do not do things ad hoc. So -- and I would like to prevent to do things ad hoc.

And that's why I want to announce things with execution certainty. And what I want to make sure is that we, as an organization, focus on making the business lines sufficiently profitable and resilient through the cycle. And that basically means that we're reviewing business line per business line, that we look at the way that our business develops in terms of our digital proposition and the requirement that has certain branches or provide other better services. And every time we do that, and we see that there is a requirement to actually cut costs or actually -- or say, redesign our operations, then we will do so, and we will do so with execution certainty.

That I find important. With regards to the wholesale banking, I mean, in terms of pricing in the fourth quarter, I think if you look at both wholesale banking and retail banking, in terms of our new production, we have been able to price up across. But that was also -- we benefited of course from lower funding costs. It was the larger part.

And here and there, we were able to increase the price on the street in some of our books. With regards to the retrieval of -- or the going back to let's say a small number of markets that we see with some of our peers, yes of course in the end, it's a question of demand and supply. But regardless of that, and also we have done that even before that time, we have always been disciplined in pricing. Either we get pricing with the right returns and then we will -- and of course, with the right risk profile, and then we will distribute the loan.

If not, we will not do it and we will return the money, and that we will continue to do. Because we're not a market share player, we want to be there to actually price the right through-the-cycle return with our clients and not to just gain market share for the sake of gaining market share. It's about profitable growth, not just growth.

Operator

Our next question is from Mr. Stefan Nedialkov, Citi. Go ahead, please.

Stefan Nedialkov -- Citi -- Analyst

Yeah. Hi, guys. It's Stefan from Citi. I requeued to ask two quick follow-ups.

On capital and Basel IV impact, Raul asked the question. I wasn't 100% sure. Is the 50 basis points of remaining regulatory impact, does that include everything, i.e., TRIM, whatever TRIM is left, plus the DMB floors plus any additional Basel IV impact? Is all of that 50 basis points? And my second question goes back to this big NII discussion we have been having on the call. What other levers could you potentially have to improve margins here? For example, one thing that some banks have done in the past is, upon observing a higher duration and behavioral maturity of deposits, they increased their replicating portfolio.

In COVID, are you noticing that behavioral maturities are increasing and potentially that could improve your deposit margins by extending durations? Thank you.

Steven Van Rijswijk -- Chief Executive Officer

OK. I will give Tanate two seconds to chew on the second question, because the answer on the first question is, yes, 50 basis points includes all.

Tanate Phutrakul -- Chief Financial Officer

And I think, Stefan, with respect to duration management, we don't take a P&L view on how we manage duration, right? It's purely risk management-driven. So the replication, the duration is there to make sure that we offset any risk -- market risk in our banking book, OK? So we don't do that. But having said that, we constantly review the duration of our liabilities given client behavior, of course. And the other factors that we have talked about, I think it's just more of the same, lending growth, margin discipline, negative charging and diversification, so different asset classes than before.

I think if you look in 2020, where maybe there's opportunity going forward is the fact that, for example, consumer lending, we had traditionally been able to grow consumer lending in previous year. But this year, we see contraction, and I think that's related to COVID situation. So we do expect certain pockets of higher-margin loans like consumer lending to resume growing in 2021.

Stefan Nedialkov -- Citi -- Analyst

So is it fair to assume that behavioral maturities have not lengthened meaningfully during COVID?

Tanate Phutrakul -- Chief Financial Officer

No, it hasn't materially changed. Yes.

Stefan Nedialkov -- Citi -- Analyst

Thank you.

Operator

[Operator instructions] We have a question from Martina Matouskova of Jefferies. Go ahead, please. Your line is open.

Martina Matouskova -- Jefferies -- Analyst

Good morning. I think all the questions have been answered, so just one quick follow-up. Can you just refresh my memory how you look at the operational average, whether is it on a stated basis or adjusted basis? Because if I look at a consensus and I adjust everything, I think flat -- revenues are flat and the underlying opex is flat as well which doesn't really give much of operational leverage. Is that something you are targeting or you think that consensus is kind of underestimating what you can deliver on the cost? Thanks.

Steven Van Rijswijk -- Chief Executive Officer

Yes. So on the -- in the end, and I've said it also in a previous call that I'm looking at -- I'm focused on positive seasons. And it basically means that we want to make sure that there is a delta between the revenue and the costs. And that means that we're working on a few things, be very disciplined on our lending margins.

We have started to charge negatively, changed behavioral fees, have more diversification in income which you have seen coming through in this year as well and take actions on costs. And again, I'll repeat myself, but that plane needs to come down -- or the nose needs to come down. And that's the way we will create operational leverage.

Martina Matouskova -- Jefferies -- Analyst

OK, thank you.

Operator

There are no further questions, sir. Please continue.

Steven Van Rijswijk -- Chief Executive Officer

So thank you very much for your time, and I hope to talk to you soon. And have a great day and everybody, have a great weekend. Thanks again.

Operator

[Operator signoff]

Duration: 94 minutes

Call participants:

Steven Van Rijswijk -- Chief Executive Officer

Robin van den Broek -- Mediobanca -- Analyst

Tanate Phutrakul -- Chief Financial Officer

Omar Fall -- Barclays -- Analyst

Stefan Nedialkov -- Citi -- Analyst

Benoit Petrarque -- Kepler Cheuvreux -- Analyst

Thomas Dewasmes -- Goldman Sachs -- Analyst

Jon Peace -- Credit Suisse -- Analyst

Benjamin Goy -- Deutsche Bank -- Analyst

Ljiljana Cortan -- Chief Risk Officer -- Analyst

Raul Sinha -- JPMorgan Chase & Co. -- Analyst

Kiri Vijayarajah -- HSBC -- Analyst

Daphne Tsang -- Redburn Europe Limited -- Analyst

Anke Reingen -- RBC Capital Markets -- Analyst

Farquhar Murray -- Autonomous Research -- Analyst

Giulia Aurora Miotto -- Morgan Stanley -- Analyst

Tarik El Mejjad -- Bank of America Merrill Lynch -- Analyst

Jason Kalamboussis -- KBC Securities -- Analyst

Martina Matouskova -- Jefferies -- Analyst

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