ING Groep (ING) Q1 2021 Earnings Call Transcript

ING Groep (ING 1.00%)
Q1 2021 Earnings Call
May 06, 2021, 3:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, this is Pacina welcoming you to ING's Q1 2021 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. Good morning and welcome to the first-quarter results. I hope you're in good health, and I'm happy to take you through today's presentation. I'm joined by our CEO, Tanate Phutrakul; and our CRO, Ljiljana Cortan.

And at the end of the presentation, we'll take your questions. Already for over a year, we have been dealing with the pandemic and I don't think that anybody expected we would find ourselves in lockdown restrictions. However, with vaccination programs under way, we can also look forward to circumstances normalizing again. We continue to support our customers, employees and society, focused on steering the company through challenging times, and we keep on building a sustainable company for the longer term.

Two important building blocks for that are our continued drive to digitalize and further strengthening our ESG profile. Our performance today is also held by our diversified business model. And as we see signs of economic recovery and continue to focus on optimizing our business, I believe ING is well positioned to return to delivering our 10% to 12% ROE ambition. As mentioned, the pandemic continued to impact our lives.

Though looking at the results, you wouldn't necessarily think that we're still in crisis. I'm proud of the hard work put in by all the colleagues, realizing growth in our loan book, and again, a solid increase in fee income while keeping expenses under control. After our loan book decreased in 2020 driven by the pandemic, in the first quarter of 2021, and especially in March, we have been able to return to growth. This enabled us to also fully realize the benefits of the TLTRO III program.

In deposits, we see the impact from reduced spending ongoing for now, and we continued to apply negative charging and other actions to stem this inflow. Risk costs were 223 million or 15 basis points over average customer lending. Overall, for 2021, we expect to move closer at through-the-cycle average of around 25 basis points. The Stage 3 ratio was lower at 1.6%.

And as mentioned last quarter, our track record underscores that we are a low NPL bank and we remain confident about the quality of our loan book. The CET1 ratio was stable at 15.5% with 50% of first quarter resilient net profit reserved for future distribution, bringing the total amount reserved for this outside of CET1 capital to 3.3 billion. Slide 3 focuses on digitalization. It shows the continuing trend of our customers turning to our mobile solutions, supporting the direction of our digital and mobile-first strategy.

With digital and technology being in the core of our business, we have appointed a chief technology officer to our management board, separating this role from the operations function. An important enabler of our digital strategy is TouchPoint which I've mentioned before, but I believe it deserves more attention. When a country wants to introduce a new proposition, there is no need to start from scratch. With TouchPoint, key components such as design, authentication and connectivity through APIs can be taken off the shelf, making the development faster and easier.

Once the proposition is developed, it can also be easily reused across ING, turning a local proposition into a globally scalable solution. And of course, this also applies to propositions which are developed for global use from the start again faster and easier, as our countries don't have to reinvent the wheel. An example of a local proposition being reused is OneApp, and this was built using several components of the TouchPoint technology, after which, local features will build on top, in line with TouchPoint guidance. OneApp is now already used by our customers in the Netherlands, Belgium and Germany and we intend to add other countries as well.

Now, in some countries, we need to make some adjustments to unlock the full potential of TouchPoint and this is progressing. But in the end, TouchPoint will help us to shorten the time to market and the time to volume, improving customer experience and results. Slide 4 covers another building block for a sustainable company, and that's ESG. And last quarter, I took you through the highlights of what we've done in ESG in 2020, and today, I'd like to spend some time on how this translates into results.

For some ESG topics, the link is clear, for example, growing demand for sustainable finance and managing downside risk from climate change. For other topics, the link may be less tangible. Either way, I believe the link is there and I want to take you through how we believe ESG drives value which comes down to a strong governance, a diverse and engaged workforce and a focused approach toward environmental and social topics. The first one is governance, and that goes beyond our organizational chart.

It includes our policies, processes and culture that keeps to help the bank safe secure and compliant, for example, by strengthening our management of compliance risk, by setting values and behaviors that underpin our way of working through the Orange Code and by addressing high-risk behaviors through our behavioral risk assessments. This also includes reporting in line with ESG disclosure standards, an area that keeps evolving and actually could do with more standardization. Then on people. We want to create a workplace where people feel included with a diverse set of perspectives and backgrounds, having a workforce that reflects our diverse customer base and is better able to address their needs.

And initiatives in this area include our 70% principle for mixed teams and being an ambassador of workplace pride which strives for an inclusive workplace. We gain insight in employee engagement by the Organizational Health Index survey and pulse checks, and that we did more frequently in the past year. And these insights also support actions to ensure that colleagues are helped with working from home. And then last but not least, and we've talked about it quite a lot, we focus on environmental and social transitions which are driven by a growing sense of urgency to ensure human rights are respected and to counter climate change.

Both are covered in our ESR policy directing how and with whom we do business. We further contribute to climate alignment through our Terra approach as well as our expertise and products in the area of sustainable finance. And these topics are important to me and I truly believe this enables ING to be a sustainable and trusted company, benefiting all of our stakeholders. And of course, I don't want to claim that today we are perfect in our ways, we still have work to do and we will continue to strengthen our ESG profile.

Now, then if you look at Slide 5, we highlight our business in Poland. That's one of the growth countries where we see that good performance on digitalization and ESG which I was talking about, is also driving results. If you look at digitalization, over the years, we have shared digital highlights with you in our quarterly presentations, but also included initiatives from Poland. Our strength in digitization is reflected in app ratings with top scores in the sectors and the share of mobile-only customers almost quadrupling over the past four years and you can see that on the left-hand side of your slide.

To align with this shift in customer behavior, we have reduced our branch network with almost 25% during the same period. And also going forward, we will continue to gradually adjust our distribution network. On ESG, there is a high participation of women at ING in Poland across all levels. We score better than our peers in Poland on employee engagement with a stronger Organizational Health Index score, the OHI score, translating into a lower rate of employees who voluntarily leave ING.

On sustainable finance, we're also active in Poland with 11 deals in 2020. And all of this led to a No. 1 NPS positions measured against our main peers in the markets. We have a growing share of primary customers, reaching a high level of 45% of total customers and all supporting strong financial results with operating efficiency clearly visible when comparing both income and customer balances to our operating expenses.

And overall, I'm very happy to say that efforts to future-proof our business in Poland are really paying off. Then Slide 6, that's about ROE. And I reiterate that we look at ROE through the cycle. In 2020, ROE was impacted by several factors, such as some sizable incidental costs and COVID-related effects on income and provisioning.

Already this quarter with lower risk costs and less incidental items, ROE improved to 5.4% on a four quarter rolling average basis and to 7.8% for this quarter. Looking forward, ROE will be further supported by the return of loan growth, charging for actual account costs and continued discipline on controllable expenses while we intend to reduce capital over time. Getting back to our ambition -- ROE ambition level will take some time and how much time will also depend on factors beyond our control, such as a recovery of economic activity and prevailing ECB recommendations on distributions. But we continue to take actions on things that we can control, such as optimizing our business.

And in the first quarter, we announced that we are discontinuing our retail Banking activities in the Czech Republic and Austria. And in the Netherlands, we are further aligning the organization to the accelerated use of digital solutions by our customers. I do often get the question, how far along we are with the review or when it will be done, and my answer is that we will always be looking where we can best deploy our capital, people and time. And in reviewing our business, we focus on market and business attractiveness, potential for scale, potential profitability and where there is a broader benefit for the group.

Now, let me take you through the first-quarter results, starting on Slide 8. In the first quarter, total income was up year on year with another strong quarter on fees. NII was slightly higher which included the 233 million euros TLTRO III benefit as we met the eligible lending target as of March 31. Other income was up as well with the year ago quarter also including some negative impact from market volatility that we saw at the end of that quarter driven by the pandemic.

Also sequentially, total income was higher driven by both higher fees and NII, again including the TLTRO benefit I just mentioned. And also, other income was up with improved trading results and partly as last quarter included the impacts from an indemnity receivable in Australia. Slide 9 shows you NII. And in previous quarters, we addressed some pressure on the net interest income from the current market conditions which affected the levers that we generally use to counter the impact from the low rate environment.

And this quarter, that pressure is still visible despite the fact that we are reporting strong loan growth and that swap rates improves. And just to clarify, the majority of our loan growth was realized in the course of February and in March, so it's not fully visible in NII for the first quarter. On swap rates, yes, they improved, but they are still well below the five year rolling average and we reinvest the maturities which can range from overnight to over 10 years. And for illustrative purposes, you could say that we invest approximately 20% of our replicating portfolio every year so an improvement will come over time.

And as we said before, we benefit most from a steepening yield curve in medium durations. NII excluding financial markets, was up year on year. However, when we also exclude the TLTRO III benefits, NII was a bit lower and this reflected continued pressure on liability margins while deposit inflows have been substantial. Lending margins were stable however at lower average lending volumes.

And year on year, impact from foreign exchange was also visible with lower interest results on foreign currency ratio hedging and a negative impact from the devaluation of some foreign currencies. Compared to the previous quarter, NII excluding financial markets and the TLTRO III benefit, was impacted by the aforementioned pressure on liability margins and lower lending volumes. And also, we saw some impact on NII from mortgages driven by higher level of repayment and refinancings in the previous quarters. Our net interest margin increased by 5 basis points this quarter to 146 basis points.

And this was fully driven by TLTRO compensating for a higher average balance sheet and continued pressure on the liability margin. Slide 10 shows net core lending, an overall strong growth this quarter mainly reflecting also the TLTRO eligible lending. And our retail mortgage demand remained strong, especially in Germany, Poland and Spain, driving the growth in net core lending of 2.7 billion euros. In wholesale banking, growth was mainly visible in lending and financial markets primarily driven by TLTRO.

And as mentioned during last quarter's call, in February, the loan pipeline then looked tight with also uncertain repayment levels. And we came from a point below the threshold, but with limited repayments that we then saw and a high loan pipeline conversion in the course of February and in March, I'm happy that we grew sufficiently to meet the target. And we managed this without changing our risk appetite with lending almost fully extended to investment-grade companies. Net customer deposits, they increased with 8.1 billion euros driven by 4.8 billion euros in retail and a 3.3 billion euros increase in wholesale banking.

We said last quarter that the negative loan growth we saw in 2020 was a nonstructural shift and that we expect loan growth to return when uncertainty subsides. And a strong loan growth in March may include some pull-forward effects. And should the loan demand return more structurally as economies open up, then we are well positioned to capture growth and support our customers. Page 11 shows the fee story, and that is a good story.

The year-on-year fee income grew by 9% driven by retail fees which were up 18%. And in investment products, fees were even 25% higher reflecting increases in assets under management, new accounts and a higher number of trades. Daily banking fees grew with 14% as the increase in daily banking package fees absorbed the impacts of a lower level of payment transactions which remained subdued. In wholesale banking, decreased -- fees decreased year on year.

And it was mainly driven by less activity in syndicated lending which activity was very strong during the first two months of 2020, but this was partially compensated by higher fees in trade and commodity finance and financial markets. Sequentially, retail grew by 11% driven by the same factors as year-on-year growth. And wholesale banking was up 9%, mainly due to the financial markets activity. Page 12 shows you the expenses, and I particularly would like to highlight the orange bars.

Expenses this quarter included 84 million of incidental costs included in volatile items reflecting provisions related to the measures that I just mentioned and that we announced earlier for retail in the Netherlands and the discontinuation of the retail Banking activities in the Czech Republic. But if you exclude these incidentals and regulatory costs, operating expenses were under control and just slightly higher year on year, but lower quarter on quarter as we fully absorbed the CLA increases and higher IT expenses, while both comparable quarters also included significant VAT refunds. Regulatory costs are seasonally high in the first quarter as it includes the full payment of Belgian bank taxes as well as the annual contributions to the Single Resolution Fund, the SRF, and the Belgium deposit guarantee scheme. Year on year, this contribution increased due to the strong growth of corporate deposits that we have seen in 2020.

And we will of course continue to monitor these developments, critically review our activities and expenses and act when and where needed. Then on to asset quality on Page 13. Risk costs were 223 million or 15 basis points of average customer lending, well below the elevated levels we have seen in 2020 and also below our through-the-cycle average of around 25 basis points. And this amount includes a 593 million euros management overlay primarily in Stages 1 and 2 which compensated for a 537 million release driven by updated macroeconomic models.

And net-net, that results in an impact of 56 million euro. And this mainly reflects an increase in retail Benelux with additional collective provisioning for vulnerable sectors and clients affected by COVID-19 in Belgium, whereas in wholesale banking, there was a release. Aside from the allocation of the management overlay, in retail Benelux, risk costs mainly reflected some additions to individual files and clients moved to watch list in mid-corps. In retail challengers and growth markets, risk costs reflect collective provisioning mainly in Poland, Spain and Romania.

And wholesale banking Stage 3 risk costs included some additions to new Stage 3 files primarily in the Netherlands and Germany, but these were small. The low Stage 2 ratio reflects macroeconomic models. The Stage 3 ratio of the group was slightly lower, coming from 1.7% to 1.6%, and continues to reflect the strength of our loan book. Slide 14 shows how our CET1 ratio developed which was stable at 15 and a half percent.

And the CET1 capital was 800 million higher which included 0.5 billion or 50% of net profit for the quarter, as the other 50% was reserved for future distribution in line with our policy and the remaining increase was driven by the foreign exchange impact. The risk-weighted assets increased, mainly driven by the aforementioned foreign exchange impact, and the higher credit risk-weighted assets primarily reflecting higher lending volumes partly offset by a better overall credit profile of the loan book. Market risk-weighted assets was down, mainly due to the lower exposures as markets normalized, while operational risk-weighted assets increased due to the technical updates to our AMA model. As you can see on Slide 15, both the CET ratio and leverage ratio are ahead of our ambitions.

On the return on equity, as mentioned earlier, it is below our ambition in the current environment. But we have already seen an improvement versus the previous quarter of -- to 7.8%. And with the supporting factors that I mentioned, we maintain our ambition and very much intend to continue to provide an attractive total return. Our cost income ratio, that was impacted by factors such as the negative rate environment, regulatory costs and COVID-19 impact on lending growth.

In the last four quarters, some sizable incidentals also affected this metric in both income and in costs. To reiterate, cost-to-income does remain an important input for return on equity and we continue to work on our ambition of 50% to 52%. As for dividends, in February, we paid a delayed interim dividend over 2020 of 0.12 per share which we'll declare final at our Annual General Meeting. We currently have an amount of 3.3 billion euros reserve outside of CET1 capital for distribution after 30 September 2021, subject to prevailing ECB recommendations.

And more details can be found about that on Slide 20 in the appendix of this presentation. And to wrap it up with the highlights of the quarter. While we focus on steering the company through the challenges posed by the pandemic, we keep our eye on building a sustainable company for the longer term with two important building blocks. And these are our continued drive to digitalize and further strengthening our ESG profile which will support a future-proof ING, reflected in a continued strong financial performance.

And our performance today is also helped by our diversified business model. And as we see signs of economic recovery and continue to focus on optimizing our business, I believe ING is well positioned to return to delivery on a 10% to 12% ROE ambition. Our results remain really resilient in the midst of a crisis. In this quarter, we managed to grow our loan book, fully realizing the TLTRO III benefits and continued solid growth on fee income while keeping expenses under control.

While negative rates give continued pressure, we see our levers that support NRI strengthening, and we also expect to continue to grow our fee income by 5% to 10% for the year and you saw good evidence of that already in the first quarter. The CET1 ratio was stable at 15 and a half percent with 50% of the first quarter resilient net profit reserved for future distribution, bringing the total amount reserved outside of CET1 capital to 3.3 billion euro. And with that, I open up for questions.

Questions & Answers:

Operator

[Operator instructions] First question is from Stefan Nedialkov from Citi. Go ahead, please.

Stefan Nedialkov -- Citi -- Analyst

Thank you very much. Good morning. It's Stefan from Citi. Steven, you mentioned that the NII drivers are strengthening into the remainder of '21.

But can you give us some more colors on what is strengthening? And related to that, the TLTRO benefit that you managed to book in 1Q. You guys mentioned most of the lending happened in March. What does that mean for loan growth for the remainder of the year and in terms of meeting the next benchmark for the second edition of the TLTRO III? Should we expect a slowdown from here? And what does that mean for meeting the second benchmark of the TLTRO? Related to NII as well. The 100,000 deposit threshold for the Netherlands that you're going to start charging negative rates on and 250,000 in Belgium, could you quantify the base of the deposits that you'll be charging negative rates on and what benefit should we expect going forward? Thank you.

Steven Van Rijswijk -- Chief Executive Officer

Thank you very much, Stefan. With regards to the NII drivers that are strengthening, well, first of all, you've seen the TLTRO benefit in the first quarter and the remainder of that will come of TLTRO III in the second quarter. But thereafter, we go into the next phase of TLTRO, and at this point, we're confident that we can then also benefit from TLTRO in the four quarters thereafter. So that means an approximate amount of 75 million per quarter for the next five quarters.

So that is one. Two, if you look at the negative charging measures that we announced in 2020 and 2021, if you look at that on an annualized basis, assuming no change in customer behavior, that would give an increase based on the charging of 230 million per annum on an annualized basis. And the third lever is of course loan growth. We, of course -- we already see increased activity in Asia and in the Americas in wholesale banking.

We also see continued mortgage growth in C&G countries. And of course, when the economy picks up, that will also mean that in terms of the working capital uses in the wholesale banking, but also in the mid-corporates and SME space, that then will return as well. And maybe to complement my comment on negative charging. If you look at this year's impacts on NII, that is 200 million because some of the measures were only announced earlier this year and will only have effect later this year.

If you look at the loan growth in March, what does that mean for the rest of the year? Clearly, we see economic activity picking up, like I just mentioned. But of course, there were some pull-forwards with the TLTRO eligible lending. So we will need to look at the recovery of economic activity. Because in the end, it's loan growth that is being held by economic activity that then will pick up which we hope that will happen in the course of 2021.

And like we said, that 2020 was a nonstructural shift. The then part of loan growth that is probably going to be short term, those were liquidity facilities that were used for TLTRO III. On the deposit base for net interest rate in Netherlands, I give the floor to Tanate.

Tanate Phutrakul -- Chief Executive Officer

As mentioned, we don't disclose the actual volume that is subject to this NII, but you could imagine that over 95% of our customer base are not affected by this. And as Steven has mentioned that of -- all the actions already taken in 2020 and 2021, we expect that if customer behavior goes as planned, we will benefit from approximately 200 million euros in benefit. And just to remind you, we also gave you a number for last year of 80 million. So the net impact this year of negative charging is approximately 120 million euros.

Stefan Nedialkov -- Citi -- Analyst

Great. Thank you so much. Very clear.

Operator

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

Robin van den Broek -- Mediobanca -- Analyst

Yes. Good morning, gentlemen. Steven, just very quickly, you went very quickly on the last question. But the 230 million per annum you alluded to in Stefan's question, was that related to the NII that is still coming through from the corporate loan growth you've written back end of Q1? So that's more a follow-up.

Second question is on cost of risk. In the last few quarters, you've been taking management overlays to basically offset the impact that models would suggest. I was just wondering, to what extent can you keep doing this? And to what extent should this start to affect your cost of risk guidance for the year? Appreciate that there might be a delay in seeing the visibility from the pandemic more from 2021 toward 2022. And in relation to that, when it comes to capital return, I mean, for regulators, this might become an issue to open up the doors completely to allow capital return to reach the ambitious levels that most banks are trying to sketch.

To what extent do you think that that picture could be compromised by the lack of visibility basically later in the year? Those would be my questions. Thank you.

Steven Van Rijswijk -- Chief Executive Officer

Thank you very much, Robin. I will take the first and the third question. And the second question, I will give to Ljiljana. On the first question, no, the 230 million I was alluding to was the annualized impact of the negative charging of interest rates.

So this year, we say it's 200 million. But annualized, if you take all the measures, it will be 230 million. So that has nothing to do with the loan growth. What is true by the way to come back to your point, is that, because we realized most of the loan growth only in March, the NII benefit from that, we have not really seen as yet.

That will come in the second quarter and thereafter.

Robin van den Broek -- Mediobanca -- Analyst

And is it fair to assume a similar margin on that loan growth?

Steven Van Rijswijk -- Chief Executive Officer

Sorry. Robin, can you speak up a little bit? You're a bit faint.

Robin van den Broek -- Mediobanca -- Analyst

Sorry. Can you hear me now?

Steven Van Rijswijk -- Chief Executive Officer

Yes, yes.

Robin van den Broek -- Mediobanca -- Analyst

OK. No. I was just wondering if you could allude a little bit to the margin we should expect on that pretty sizable loan growth in March for the remainder of the year.

Steven Van Rijswijk -- Chief Executive Officer

I mean we typically we are able to reprice all our deals to our standard checks. So we -- they need to make the applicable returns. It's a variety of companies in different sectors. We keep the margins quite well stable in wholesale banking, and that also goes for the loans that we see here.

To the extent that capital return is ECB recognition can be hampered, I mean, yes, I don't want to speculate. I mean until now, we have been made to understand that the ECB will come out in September with further guidance. Until now, that has been reconfirmed and we have no other indications that would contradict that whatsoever. So that's on that question.

And then on risk costs, I mean Ljiljana, it's your first quarter.

Ljiljana Cortan -- Chief Risk Officer

Yes. The risk costs for the first quarter this year were approximately 15 bps of our average customer lending which is far below our through-the-cycle average of 25 bps. And you will remember our guidance for '21 which is definitely below '20 risk costs however as well more toward through-the-cycle average. At this point of time, we would not change our guidance because we do in first quarter do further prudent provisioning based on the fact that there is still some uncertainty in the countries that we are present and we do see all around the world a difficult pickup of economies.

So probably second quarter will be a time we will reassess our policies and will eventually change the guidance.

Robin van den Broek -- Mediobanca -- Analyst

OK, thank you. Steven, maybe one follow-up. On the -- so on the loans you've written in March, there's no compromise whatsoever to basically meet the benchmark. That's what I got from your answer.

Is that correct?

Steven Van Rijswijk -- Chief Executive Officer

First of all, there's no compromise in our risk standards. So we haven't changed our risk guidance. Clearly, many of those loans are investment grade and 90% of those loans are investment grade. So in that sense, we do it with companies that we want to bank with and in that sense, there's no compromise.

Robin van den Broek -- Mediobanca -- Analyst

OK, thank you guys.

Operator

Next question is from Thomas Dewasmes, Goldman Sachs. Go ahead, please.

Thomas Dewasmes -- Goldman Sachs -- Analyst

Yes, thank you and good morning. Thank you for the presentation. So my two questions are on NII and fees. On NII, so given you just confirmed that you've pretty much secured the bonus rate until the second quarter of 2022, that you are now giving a new guidance on negative rates for deposits and that you're returning to volume growth, is it fair to assume that the fourth-quarter 2020 was sort of a local trough in NII perhaps until the end of 2022? And then on your earlier comments in your presentation on deposit margin and -- where the rate curve is in medium-term maturities, can we assume that perhaps 2023 should be the year where you're going to see have the strongest impact given where the swap rates were in 2018, but that this should improve as at that point? And then my second question on fees relates to the news in Germany there.

So I think you charge fees for new accounts only. Can you confirm that the recent ruling by the Federal Court on general terms and conditions for banking accounts would not affect you.

Steven Van Rijswijk -- Chief Executive Officer

OK. I will take the question on fees. I will take part of the question on NII in terms of the confidence level because you made a remark there, I will comment on that. And then on the '23 question, I will let Tanate answer.

First, on fees. I mean I think that you're alluding to the court ruling in Germany. For ING, I can confirm that we only charge fees on new accounts. You mentioned that you already have -- I don't know how to exactly put it, but you already have the TLTRO second phase in the bank for the next five quarters.

That's not what I said. I said on the first phase of TLTRO, we still have a quarter to go, and that we will book because we met the threshold. And then you get into a second phase of TLTRO and there, we are confident at this point in time that we will book by the quarter, contrary to what we did with the first phase of TLTRO, and that would mean an additional 75 million per quarter for the next four quarters thereafter. So therefore, at this point, we anticipate to book approximately 75 million per quarter for the next five quarters.

Tanate, swap rates in '23.

Tanate Phutrakul -- Chief Executive Officer

Yes. So Thomas, I think if you look at our liability margin compression, there's really three kind of elements to consider. Clearly, the replication is negative, right, because of the curve. And our book has a duration of roughly five years, so that pressure is still there.

And as we mentioned before, there can be some volatility from quarter to quarter depending on the replicated tranches that come due. Another maybe a potential downside is really deposit growth which is something we're trying to manage, something that we're encouraging our depositors to look at alternative savings products, right, like investment funds because the more deposits that come in could pressure on net interest income over time. But then the third is that we do see the fact that the curve is moving up, that the three, the five and the seven year curve is getting better. I don't think it will have a material positive impact in 2021.

But if the curve stays the way it is, that material improvement should start being seen visibly in our numbers starting in '22 and certainly in '23, yes. Thank you.

Thomas Dewasmes -- Goldman Sachs -- Analyst

Thank you. Steven, I think we were saying the same thing actually. I understood your comments perfectly. Can I follow up then on the absolute level in euro billion euross for the loans.

Is the threshold for the second bonus rate lower than it was for the first one, given the dynamics you have seen until last year on volume growth? Thank you.

Tanate Phutrakul -- Chief Executive Officer

Let me take that one. On the measurement, the measurement for the second tranche is from October of 2020 until the end of 2021. So the measurement point is different. And I think if we -- you look at where we were in October, we think we have a somewhat higher confidence of achieving the second tranche where, on the first one, we said it was tight until very late in the quarter.

Thomas Dewasmes -- Goldman Sachs -- Analyst

Thank you.

Operator

Next question is from Raul Sinha from J.P. Morgan. Go ahead, please.

Raul Sinha -- J.P. Morgan -- Analyst

Good morning, all. Maybe one follow-up on the whole debate around loan growth, please. The first one is basically around the March sort of growth that you've seen. And I guess the concern might be that there's a lot of one-off type loan growth in March here.

What I'm trying to understand is how much of the loan growth in March actually reflected genuine pickup in demand. And I think in this context, I just wanted to flag HSBC, for example, one of the other banks did disclose the monthly sort of demand picked up to almost twice the level of a normal run rate from its global commercial clients. So is that something in line with what you have seen from your clients in March? Are you trying to get a sense of how much of March was actually demand driven versus just sort of push that you've had toward TLTRO?

Steven Van Rijswijk -- Chief Executive Officer

Yeah. Thanks, Raul. I think that's -- maybe two elements to that to give you some pointers. I think the largest part of the loan growth in wholesale banking was linked to TLTRO.

So that's a large part of that amount in wholesale banking. What we also do see is some pickup in trade and commodity finance and in lending across the globe. trade and commodity finance was also helped by more exports and that helped volume, but also the -- by the dollar and by the oil price. With regards to other companies that you see increased economic activity, mainly coming from Asia and also coming from the Americas, and gradually we see that picking up in Europe as well.

And if you look at TLTRO, yes, in the end, it's also companies that do require those loans. But part of it, and that's what I mentioned, can be seen as a sort of a pull forward that they are gradually ramping up their investments again. But they're now going back to the market earlier also because we have -- we were in touch with them to actually get those loans in now. And then I look at mortgage demand, that remained strong with a 2.7 billion growth in the various markets across the globe.

Raul Sinha -- J.P. Morgan -- Analyst

Understood. I've got a second one, if I may, on Poland, actually, given you've very helpfully put the spotlight on that. Obviously, the business seems to be performing really well. But I was wondering what your thoughts are on the structure of how Poland sits within the ING group.

Obviously, it's one of the markets that's separately listed. Is that something -- obviously, it trades at a big premium to ING. Is that something that you see is perhaps more relevant for some of your other growth markets or challenger markets which might be -- adds well to your footprint?

Steven Van Rijswijk -- Chief Executive Officer

Sorry, Raul. What is more relevant for other growth markets?

Raul Sinha -- J.P. Morgan -- Analyst

The fact that Poland is separately listed, is that something you are -- you also might be looking at in terms of some of your other challenger and growth markets.

Steven Van Rijswijk -- Chief Executive Officer

OK. Yeah, I got the question. Thank you. No, I mean it was a legal requirement that there is a separate shareholding and that there is a separate listing for that group.

It is a regulation in Poland. So it was not something that we did when we acquired the business many years ago. So it is a part of being a bank in Poland. But Poland, as any other bank, is a complete part of our franchise and is also using all the building blocks including the TouchPoint Architecture technology that I talked about in the slide that I presented.

Raul Sinha -- J.P. Morgan -- Analyst

OK, thank you.

Operator

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

Benjamin Goy -- Deutsche Bank -- Analyst

Yes. Hi, good morning. One question on costs. I guess the first quarter had a rather tough comparison, should be easier from Q2 onwards.

Should we expect then operating expenses to be flattish to down as -- in line with your comments over the last conference call? And then secondly, you reiterated your financial ambitions. Just wondering, in a still a negative interest rate environment, this 50% to 52% cost income ratio, it's not easy for almost all banks in Europe. Conceptually, could it be that you come out higher, but the loan losses should be sustainably lower leading to your ROE ambition or is that something you wouldn't consider?

Steven Van Rijswijk -- Chief Executive Officer

Let me start with the second question because I'm spurred by your question. Well, conceptually, a lot is possible. But we are looking in our return on equity through the cycle. We also look at our risk costs through the cycle which we currently look at, at being 25 basis points as we have experienced that over the past 12 years.

And in that setting, we have set a target of 50% to 52%. So in that, I'm not projecting a lower across the cycle risk cost level to compensate then for other cost levels, if that what -- is that what the question was? So that is not the case. And yes, I mean we're currently not there, but we are working toward that. And if the question is that was your first question, should we expect operating expenses to go down in the second quarter? The answer is yes.

Benjamin Goy -- Deutsche Bank -- Analyst

OK, thank you.

Operator

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

Farquhar Murray -- Autonomous Research -- Analyst

Good morning, all. Just two questions, if I may. My main question was actually on the German court decision and you answered the bulk of that. But just to complete it, can we conclude that there is essentially no silent consent discussion at ING-DiBa, you're essentially clean on that? And then my second question is just some detail around the surge of lending in the first quarter.

I fully understand the kind of rationale incentives around that. But might you have the split of durations of that lending just to get a sense of how much of it is short term versus longer. And presumably, the margin on that lending is lower than average. Is that fair?

Steven Van Rijswijk -- Chief Executive Officer

OK, thank you. So to be absolutely crystal clear, on your first question Farquhar, there is no silent consent decision and discussion in Germany. All right? Then on the second one, if you look at the duration of lending in the first quarter, it's about 50-50, so 50% short term and 50% long term. And it's 50% that has to do with the financial markets or lending.

So actually, the liquidity facilities, if you will, the working capital facilities that companies draw, but the other lending is longer. They are typically more term loan style loans.

Farquhar Murray -- Autonomous Research -- Analyst

Thanks a lot.

Operator

Next question is from Omar Fall from Barclays. Go ahead, please.

Omar Fall -- Barclays -- Analyst

Hi, there. Just a couple of questions from me. Sorry, could you give a bit more color on opex? In particular, are you ready now to give us some guidance on the potential scale of future restructuring costs or should we just assume something in the region of the levels this quarter going forward for a few more periods? Then on retail Netherlands, can you give a bit more explanation of the NII drop there specifically? It looks like kind of 60 million sequentially which is quite a big acceleration from previous periods. So just some additional color there would be very useful.

Steven Van Rijswijk -- Chief Executive Officer

OK. Thank you, Omar. I will take the first question and Tanate will take the second one. As you have seen and we've also made announcements again in the first quarter, I've made announcements in the fourth quarter on elements that we're looking at then what we are restructuring, so the first quarter we made announcement on the Czech Republic and Austria.

We made announcements on our branch network in the Netherlands. We made announcements on private banking in the Netherlands. And we will continue to review our businesses and I will continue to announce when there is something to announce. I want to do this prudently.

I want to execute with certainty and rigor. And that's what I will continue to do. And what we have seen in the course of 2020 is that when the nose of the plane was still up and it gradually came down to flatten it and now the nose of the cost plane is coming down. And like I said to answer the previous question, the nose of the cost plane will continue to go down from hereon.

Tanate Phutrakul -- Chief Executive Officer

Then on the results on NII for the Netherlands, I think there's probably three things that is there. The replication impact has a degree of lumpiness from quarter to quarter, and that you see that in Q1 for the Netherlands. The second one that we are seeing more of is the fact that, given the low rate environment, that we have a number of customers who are refinancing their mortgages and that has lowered to a degree the net interest margin that we generate in the Netherlands. And then the third which is a positive evolution, is that we have seen that the new mortgage margin that we generate is actually increasing over the quarter.

So we now have a new production market share of somewhere around 11%, almost 12%. So that's a positive evolution for the future.

Omar Fall -- Barclays -- Analyst

Understood. Just a quick follow-up on the first question. Could you help us with our modeling just to give us a sense of the NII, revenues or costs? Anything in contribution of the perimeter of announced disposals restructured businesses? And obviously, Austria and Czech, we can get that data to a certain extent, but for some of the others as well, that would be helpful.

Tanate Phutrakul -- Chief Executive Officer

So on NII, as we mentioned, look, the impact of negative interest rate and the inflow of deposits, it's there. But you see the management action that we have taken. We're taking advantage and making sure we achieve the TLTRO benefit, negative rates-charging behavior and other fees increases that we have. And hopefully, we benefit from the improving yield curve environment.

So these are things that are -- actions that we are taking to make sure that our net interest income is remaining resilient. OK? And in terms of the opex, as Steven mentioned before, we don't want to give you a overarching transformation plan, but we want to announce plans as things become execution certain and that's what you've seen in the first quarter as well. So we will give you transparency on actions taken on a quarter-by-quarter basis.

Omar Fall -- Barclays -- Analyst

Thank you.

Operator

We have next question from Giulia Miotto from Morgan Stanley. Go ahead, please.

Giulia Miotto -- Morgan Stanley -- Analyst

Yes. Hi, good morning. Two questions from me as well. I want to go back to the fee, the fee growth, in particular, on the investment products which has been very strong.

Could you give us more details in terms of what you are changing and how sustainable that figure is versus how much comes from trading which could be maybe shorter term? So that is my first question on the fee side. And then I have a question on ESG, given that you highlighted it at the beginning. ING has clearly been very forward-looking on this theme. But in the recent announcement around the net zero, ING wasn't among the banks that have committed to this target.

So I was wondering why. Just your thoughts on that.

Steven Van Rijswijk -- Chief Executive Officer

Thank you, Giulia. And let me start with ESG. And indeed, we haven't been signed the net zero accord for 2050 and the reason is is that a number of the glide path or energy path as they would need to be developed by the European energy agency have not been developed. So we would need to look at what that would mean for these energy paths, and therefore, the change in the energy mix in the world to be able to see what they then would do also to our portfolios.

And like we have done with Terra already a couple of years ago, we want to see what those energy glide paths are, what those scenarios are and when these scenarios are there, and I believe they will come in May, then we will look at that to then see how we can act on that within the setting that was just outlined. So I do not want to give you a marketing story. I want to be very clear on how we can really transition and for those we need the energy path. On fee growth, yes, I mean we have very good fee growth in investment products.

I'll just give you a figure. I mean, in 2020, in total, we had around 700,000 new investment product accounts opened. In the first quarter alone, it was already 256,000. And increasingly, you see that people want to build up a buffer and they do that partially in savings and they do partially do that in investment products.

And we come from an environment whereby we had very little interaction or limited interaction with our clients on investment products. And a year ago, we stood at around 120 billion or so in assets under management. Currently, we stand at 170 billion. But it's still actually quite small compared to a number of our peers.

So with better apps that we have, with more interaction with our clients, but also a broader proposition that's currently execution only but we're also going to start with advice, we will start to develop more of our investment business. But that's not the only part. We have also started to introduce higher payment packages. That is also something that you see in the figures coming through.

But we still do that in a subdued payment environment. And it also means that credit card uses -- usage, among others, as a result of less traveling, is not there yet. So if traveling resumes and if spending by credit card resumes as well, that should have a positive impact on our daily package fees as well. And then when you look at lending, especially wholesale banking lending, there, syndicated loan fees are low because the syndicated loan market has not returned to normal levels compared to the first quarter -- or actually the first two months of the previous year and 2019 and before that -- 2019 before that date.

So also there, we would expect these fees to move up when the economic activity returns to more normal levels.

Giulia Miotto -- Morgan Stanley -- Analyst

Thank you.

Operator

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

Anke Reingen -- RBC Capital Markets -- Analyst

Yeah. Good morning. The first is just -- two follow-up questions first. On NII, did I understand you correctly, ex the TLTRO benefit in Q1, should NII basically go up in the next quarters? And then on the costs, are you able to give us the full-year regulatory costs, what we should expect given the Q1 step-up if this is a guidance for potentially the increase for the full year? And then just following up on the question on the ROE part, so 7.8% in Q1 sort of like reported with 15 basis points of loan loss charges.

I mean if we think about the building blocks, I mean the cost income ratio seems -- yes, it's obviously a bit hard. Is it all revenue goals? And then obviously how important is bringing -- returning capital to your shareholders in order to deliver the ROE target?

Steven Van Rijswijk -- Chief Executive Officer

I will take the question on ROE and on NII, and Tanate will take the question on guidance on regulatory costs. First, on ROE. I think that's -- we have a number of levers to pull to actually get back to a 10% to 12%. The first lever is revenue, the second lever is costs and the third lever is our capital.

And our capital currently stands at 15 and a half percent of common equity Tier 1. We have given guidance of around 12 and a half percent which by the way is still 2% above the MDA trigger level. We have strong capital and we have also strong loan books. And what we would intend is, over the next couple of years, to bring back that capital -- our capital to that level.

And yes, that is of course also one of the levers that we require to get back to the 10% to 12%. With regards to NII excluding TLTRO, like I said, I mean, on the one hand, we are pressured by incoming deposits that is still continuing for the first quarter. That was about 8 billion. We are charging negative interest rates and have increasingly been doing so with an annual impact this year of 200 million and annualized impact of around 230 million.

And of course, we are continuing on our loan growth. And we do anticipate that if the economy is rebounding, then also loan growth will increase again and that should help our NII. And those are the levers that we will be looking at to support NII going forward.

Tanate Phutrakul -- Chief Executive Officer

And I think, Anke, your question on regulatory expenses, there are really three buckets there: deposit guarantee schemes in various markets bank taxes, predominantly in the Netherlands and then the SRF contribution for resolution. And what you saw in Q1 is really the increase in the resolution fund because of the increasing levels of deposit. And that will also feed through into DGS expenses as well as level of the system deposit prices. OK? On bank taxes I think in the Netherlands, we have -- or the government has announced a onetime 50% increase in bank taxes for 2021.

So we also expect somewhat higher bank taxes there as well. So the level of regulatory expenses for '21 will be somewhat elevated compared to 2020.

Anke Reingen -- RBC Capital Markets -- Analyst

OK, thank you very much.

Operator

[Operator instructions] We have a question from Tarik El Mejjad from Bank of America. Go ahead, please.

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

Hi, good morning, everyone. Just one question on cost and restructuring. Could you just help us understand what's your logic and the strategic actually arguments that push you to exit one or the other country in the retail side? So you announced Austria and Czech Republic. What was the trigger? Was it the size, the profitability, the prospects? I guess it's a bit of all of this, but I'm just trying to understand what could come next of smaller other European countries in there without naming anyone? Thank you.

Steven Van Rijswijk -- Chief Executive Officer

Thank you, Tarik. Yes. So indeed, and it's also partly mentioned by you as well, we look, first of all, is the market attractive? And is there an attractive business to be made in such a market given the competitive oomph felt, if you will? Then, secondly, we look at, can we reach sufficient scale? And especially also in Retail, scale -- local scale is still important. And can we realize a sufficient profitability over time? And the last one is, is that something that, what we do in such a market, is that also benefiting other parts of the group or is the group brings certain benefits to that particular market? And if -- and those are the lenses that we look through, through our businesses.

And for these two markets, it meant that on most of them, it did not meet the hurdle through the cycle, and therefore, we decided to exit those markets from a retail point of view.

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

But for the Western European countries or subsidiaries, so you don't look anymore into like this model strategy where you have or basically you neutralize the costs and where basically being only 2% of market share in France, wherever, is not relevant because you look at it from the perspective of adding together all the small countries? So you still look at it from these lens or most of these or the local market share is actually more relevant now?

Steven Van Rijswijk -- Chief Executive Officer

So we look at both. So if you ask, did you stop Model Bank or Maggie, then the answer is yes, that we announced in November. The reason for that was is that integrating the sales and service journeys of our core banks between different markets has proven to be too difficult and too uncertain with a continuing high investments for a longer period of time. What we do, do and that's what I highlight also the TouchPoint Architecture is to use this I would say IT platform to enable multiple countries to reuse apps that have been built or authentication that has been built or APIs that have been built and -- because we can reuse all of those elements that is -- that realizes also scalability in costs.

But when it comes to the back-end offices or the back-end structures, that has proven to be too difficult. And therefore, we have sold Maggie and it also means that local scale is an element and remains of some importance. That's correct.

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

Thank you.

Operator

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

Kiri Vijayarajah -- HSBC -- Analyst

Good morning, everyone. Firstly, can I just come back to the financial markets lending growth? Are you implying that lever's ready to be deployed again for TLTRO purposes, and hence, your confidence there or is it more a case that the volume momentum outside of financial markets is going to be sufficient to meet your TLTRO threshold? So in fact, you don't need to sort of pull that Financial Market lever again. So just trying to understand the dynamics there. And then in terms of the new business and client demand that came in at the back end of the quarter in the Wholesale Bank -- outside the financial markets in the Wholesale Bank and the extra revenues that should eventually generate, could you just give us a feel for how that splits between net interest income and fees? It sounded like from the discussion earlier that it was mainly an NII thing.

But just wanted to clarify if there were kind of ancillary fees we should be kind of penciling in from some of that new business. Thank you.

Steven Van Rijswijk -- Chief Executive Officer

Thanks, Kiri. I think that as you look at the lending growth and the confidence on the TLTRO, I think that, there, it will -- it was a mix between longer-term loans and shorter-term loans, and therefore, also in the lending part in the financial markets part. And that can also be the case for the second part of TLTRO III, that depends on the need of the clients. With regards to the lending growth and the NII story, yes, it will also bring in fees.

So you would -- you could see here syndication fees or you could see other type of underwriting fees that you could get from that. Part of that has not yet been booked. Like I outlined, I think that's what I would like to point at. If you look at the level of fees of wholesale banking in 2019, under normal circumstances, that's when syndicated levels were still there.

When they return, and we hope -- we believe that they will return in the second half of this year, then we'd also see our syndicated fee levels return to normal levels which should give an up.

Kiri Vijayarajah -- HSBC -- Analyst

Great. Thank you.

Operator

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

Unknown speaker -- Credit Suisse -- Analyst

Yes, thank you. Just wondered if you could tell us what is the cumulative management overlay you've now taken over the last three quarters? And if the economy recovers, could we consider all of that potentially being released in the second half of the year? And would provision releases form part of your stable net profit for the purposes of dividend calculation?

Steven Van Rijswijk -- Chief Executive Officer

OK. Sorry. John, can you repeat the second question, please?

Unknown speaker -- Credit Suisse -- Analyst

So the second question was, would provision releases form part of the stable net profit as you see it for the purposes of the 50% dividend accrual?

Steven Van Rijswijk -- Chief Executive Officer

I think the answer on the second question will be given by Tanate, you go first. And then we go back to Ljiljana for the first question.

Tanate Phutrakul -- Chief Executive Officer

So we do expect to basically accrue 50% of our profits. And that means that if risk costs are lower, that will clearly benefit the overall number. So we don't anticipate any adjustment for that basis.

Ljiljana Cortan -- Chief Risk Officer

And on the first one, on the management overlay, as it was already said, we have taken 593 million euros of total overlay in the first quarter reflecting uncertainties and exit of the crisis in the diverse geographies.

Unknown speaker -- Credit Suisse -- Analyst

Thank you. I wondered what was the cumulative number please over a few quarters. Do you have that figure?

Steven Van Rijswijk -- Chief Executive Officer

Yes. We don't disclose that, John.

Unknown speaker -- Credit Suisse -- Analyst

OK, thank you.

Steven Van Rijswijk -- Chief Executive Officer

Thank you.

Operator

[Operator instructions] There are no more questions. Please continue, sir.

Steven Van Rijswijk -- Chief Executive Officer

OK. Thank you very much for your attention. And I'm sure we'll be speaking again in the second quarter. Thank you.

Operator

[Operator signoff]

Duration: 70 minutes

Call participants:

Steven Van Rijswijk -- Chief Executive Officer

Stefan Nedialkov -- Citi -- Analyst

Tanate Phutrakul -- Chief Executive Officer

Robin van den Broek -- Mediobanca -- Analyst

Ljiljana Cortan -- Chief Risk Officer

Thomas Dewasmes -- Goldman Sachs -- Analyst

Raul Sinha -- J.P. Morgan -- Analyst

Benjamin Goy -- Deutsche Bank -- Analyst

Farquhar Murray -- Autonomous Research -- Analyst

Omar Fall -- Barclays -- Analyst

Giulia Miotto -- Morgan Stanley -- Analyst

Anke Reingen -- RBC Capital Markets -- Analyst

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

Kiri Vijayarajah -- HSBC -- Analyst

Unknown speaker -- Credit Suisse -- Analyst

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