ING Groep [ING] Conference call transcript for 2025 q2
2025-08-01 00:00:00
Fiscal: 2025 q2
Operator: Good morning. This is Saskia, welcoming you to ING's Second Quarter 2025 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 statements not involving a historical fact. Actual results may differ materially from those projected in any forward-looking statements. A discussion of factors that may cause actual results to differ from those in any forward-looking statement is contained in our public filings, including our most recent annual report 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: Great. Thank you very much, and good morning, everybody. Welcome to our results call for the second quarter of '25. I hope that you're all well, and thank you for joining us. And as usual, I'm joined by our CEO, Ljiljana Cortan; and our CFO, Tanate Phutrakul. The second quarter started with sharp market volatility as well as macroeconomic and geopolitical uncertainty. And in that context, we are pleased with our strong results, which we will discuss in today's presentation. We have continued to successfully execute on our strategy, and I will start with sharing some highlights of the progress that we're making on the priorities that we set on our Capital Markets Day just over a year ago. And thereafter, Tanate will walk you through the quarterly financials. And as always, we will be happy to take your questions at the end of the call. Now, let's move to Slide 2. This slide illustrates our continued strong growth trajectory in the second quarter. We grew the mobile primary customer base by more than 300,000 customers, which underscores the strength of our offering, with growth of more than 1.1 million mobile primary customers in the last 12 months, we are doing well compared to the target that we set at Capital Markets Day. We also recorded significant growth in our loan book. Net core lending in retail banking grew by a record of EUR 11.3 billion, which was again mainly driven by mortgages, while we also support our clients with additional business lending and consumer lending. In Wholesale Banking, net core lending growth was EUR 4 billion as we financed more working capital and increase our short-term trade-related financing. Demand for long-term corporate loans has remained subdued in the current uncertain macroeconomic environment. Net core deposit growth was over EUR 6 billion, also driven by retail banking, which benefited from the seasonality of holiday allowances. In Wholesale Banking, we continue attracting deposits in payments and cash management and money markets, but this was more than offset by lower short-term client balances in our cash pooling business. With 7% annualized growth in customer balances in the first half of the year, we are well on track to reach our target of 4% per annum. On the P&L side, our focus on further diversifying our income streams is yielding solid structural changes to income composition. Fee income increased by 11% versus the first half of 2024 and now makes up almost 20% of our total income. We are confident that we can grow at the higher end of our 5% to 10% range this year and confirm our EUR 5 billion fee income target for 2027. Our fourth quarter rolling average ROE was 12.7%. And also there, we have improved our outlook for the full year. We continue to support clients in their sustainability transitions and with the volume of sustainable finance mobilized rising 19% from the first half of last year to EUR 68 billion. Now we go to the next slide, where I will give more insight on customer growth. On Slide 3, we show that we have significantly increased the pace of customer acquisition in the last few years, which is clear evidence of the appreciation of our products and services. And over the past 12 months, our customer base has expanded by almost 1.2 million customers, and we are currently serving more than 40 million private individuals globally. Customer acquisition is a key driver of future value as it also leads to a growing mobile primary customer base, cross-selling products and converting customers to mobile primary customers is most successful in the first year after onboarding, a period which we call the honeymoon phase. However, also, after this honeymoon phase, our customers continue to buy more products from us and choose us as their primary bank. Now on the next page, I will explain why we focus on increasing our mobile primary customer base. Then we move to Slide 4. And there you see on the left-hand side of the slide, you see that the number of primary and mobile primary customers is increasing. At the end of the second quarter, more than 41% of all of our customers chose ING as their primary bank. And these mobile primary customers buy more products, show lower attrition and generate higher revenues. And we see significant upside to further increase conversion rates, especially in countries with relatively low conversion rates, such as Germany and Spain. And this also drives our focus on broadening our product foundations. The second quarter growth in customers also resulted in further growth in customer balances and as we show on Slide 5, average customer lending balances have increased significantly, especially in the last 12 months and this growth was fully driven by retail banking and mortgages, in particular, which is in line with our strategy to allocate more capital towards this business line. Average customer deposits have also risen considerably since 2024 due to good momentum in both Retail and Wholesale Banking. And this growth in volume has helped offset the margin pressure on NII in recent quarters and will be a key driver for value going forward. On Slide 6, we recap how our strategic execution has also enabled us to consistently deliver value for our shareholders. We have distributed cash dividends in line with our distribution policy and have been executing share buybacks for a number of years now. In total, we have distributed close to EUR 30 billion since 2021, including the announced interim dividend over the first half of 2025, which will be paid on the 11th of August. And as a result of these distributions, we have consistently delivered a yield of more than 15% in the last few quarters, and it is significant, but even more impressive given the increase in our share price over the same period. Going forward, we remain committed to generating a healthy shareholder return, and we will update the market with our third quarter 2025 results. And now we go to Slide 8, we go to the outlook for '25. And before going to the usual outlook and target slide, I would like to give more details on the expected development of commercial NII going forward. In the third quarter of this year, we expect commercial NII to be roughly stable, driven by the continued impact of the stronger euro and increase thereafter. And overall, we forecast commercial NII in the second half of 2025 to be higher in the first half, and the increase is expected to be driven by continued volume growth as margins are expected to remain stable for the remainder of this year before gradually increasing in 2026 and 2027. Then I move to Slide 9, where we show our updated outlook for 2025. I would like to reiterate that we are confident in our ability to continue progressing on our targets, supported by the strong results in the first half of the year. We have already grown the number of mobile primary customers by almost 500,000 this year and are well on track to reach our annual growth target of EUR 1 million in 2025. Fee income growth is expected to come in at the higher end of our 5% to 10% range, which helps to offset pressure from FX on our commercial NII. And as a result, we confirm our outlook for total income and expect it to be roughly stable compared to 2024. Prudent expense management remains a priority, and we are taking proactive measures to ensure we continue to operate efficiently, while also selectively investing for growth. And as such, we now forecast total expenses to end up at the lower end of the range we gave earlier, including incidental items recorded in the first half of 2025. The outlook for CET1 remains unchanged for the year at 12.8% to 13%. Considered our improved outlook for fees and expenses, we've also increased our outlook for ROE this year, which we now believe will be around 12.5%. And now I will hand over to Tanate who will take you through the second quarter financial results in more detail, starting on Slide 11.
Tanate Phutrakul: Thank you, Steven. I would like to start on Slide 11, where we show the development of our total income, which increased further compared to the previous quarter. Commercial NII was supported by the repricing of customer deposits and continued volume growth, which almost fully compensated for the impact of the lower ECB deposit facility rate and a stronger euro, which Steven alluded to earlier. On a sequential basis, the appreciation of the euro had a EUR 37 million negative impact on the commercial NII. Fee income increased significantly and grew by 12% year-on-year. Most of this growth is structural, which is also why we expect -- our expectations for the full year have increased. Lastly, all other income, which is a combination of other income, investment income, and other income was supported by good results in financial market, treasury and higher income related to our stake in Van Lanschot Kempen Bank. Now let's discuss Slide 12, where we show continued growth in customer balances. We recorded another quarter of strong commercial momentum, particularly with our retail banking business. Net core lending rose by EUR 15.4 billion, driven by record growth in retail, which grew by over EUR 11 billion. We continue to do well in mortgages, grew the loan book in most of our markets in the second quarter. We also saw an increase in business lending portfolio, notably in Belgium, the Netherlands and Poland. Wholesale Banking also grew net core lending driven by working capital solutions and short-term trade finance related financing. Demand for long-term corporate loans have remained subdued due to the ongoing economic uncertainty. On liabilities, we saw core deposit increase by more than EUR 6 billion this quarter due to a strong performance in Retail Banking, which benefited from the payment holidays allowances. In wholesale, growth in PCM and Money Markets was more than offset by lower short-term balances in our cash pooling business. On Slide 13, you can see our commercial NII was resilient. Liability NII was affected by the pressure from lower ECB deposit rate and the full quarter impact of the successful promotional campaign in Germany launched in the first quarter. These effects were almost fully compensated by repricing of customer deposits and strong volume growth. I'd like to note that the liability margin would have been stable without the impact of the German savings campaign. Lending NII was impacted by the appreciation of the euro relative to other currencies, but still grew versus the previous quarter, supported by volume growth. The lending margin contributed continued to be affected by the mix shift towards a more profitable retail business with significant growth in mortgages, which have a lower lending margin, but a higher ROE. I will give more insights on this in the next slide. The progress on our strategy to allocate more capital towards more profitable retail banking business is visible on the Slide 14. At the time of our Capital Markets Day, the distribution of capital between the 2 business lines was roughly equal 50-50. We set the target to change this to 55% Retail and 45% Wholesale by the end of 2027. By the end of the second quarter, the share of capital allocated to retail has already exceeded 53%, reflecting strong growth momentum in retail banking and the focus on capital optimization in the Wholesale Bank. The ROE of retail lending is higher than the -- in wholesale lending as despite lower lending margin, the relative RWA consumption and risk costs are lower. As such, faster growth in Retail Banking has a positive impact on the group return on equity by the dampening impact on the overall lending margin. In the second quarter, the impact of this shift was roughly 2 basis points. Turning to Slide 15. Fee growth year-on-year was again double digit, driven by structural revenue driver or what we call Alpha. Wholesale banking fee came in at EUR 360 million, a quarterly record for our franchise driven by strong fee income in lending, daily banking and trade finance. Growth in Retail Banking was fueled by continued increase in mobile primary customer, which also resulted in higher daily banking fees. Investment product had also a strong quarter, reflecting growth in the number of investment accounts, increase in asset under management and higher customer trading activity. In addition, Retail Banking expanded its fee income from insurance product by 8%. Total fee from insurance product now amounts to almost EUR 70 million this quarter. Given the strong performance across the bank, we are confident we can grow our fee income at the high end of the 5% to 10% range this year and reach our EUR 5 billion target in 2027. Slide 16, we show the development of all other income. Income in financial market is mostly driven by client activity. We continue supporting our clients in turbulent times, and this is evident in the results. Treasury has again a strong quarter with income on both comparable quarter, mainly driven by results from our FX ratio hedging and we benefited from positive revaluation of derivative for the forward purchase contract for our stake in Van Lanschot Kempen. Following the regulatory approval received last week, we now hold a 20.3% stake in this bank. Next, Slide 17. Our expenses, including -- excluding regulatory costs and incidental items rose 4.5% year-on-year, but was stable compared to the previous quarter. The year-on-year increase was largely attributable to wage inflation, continued investment in business growth, mainly in customer acquisition, in enhancing and scaling our tech platform and developing products for new customer segments. In Spain, for example, we have launched a dedicated digital bank account to support customer between age 14 and 17 with a tailor-made experience in the existing ING app. Operating efficiencies compensated for part of the cost increase, and we continue to digitize our services and infrastructure to further increase operating leverage. We have, for example, deployed our 1 app in 6 different retail markets and have introduced generative AI-powered chat bots in the Netherlands, in Germany, in Belgium, Romania and Spain. Incidental expenses also included EUR 85 million for a rebalancing of our workforce in Wholesale Banking, resulting in around 230 redundancies. As a result of our focus on expense management, we have improved our outlook for 2025. We now expect total expenses, including incidental items recorded in the first half of this year to end up at the lower end of the range we gave earlier. Now, on to risk costs on the next slide. Total risk costs were EUR 299 million this quarter or 17 basis points of average customer lending, which is below our through-the-cycle average and demonstrate the quality of our loan book. Net addition to Stage 3 provisions amounted to EUR 221 million and were mainly related to collective provisioning in various retail markets. Individual Stage 3 cost decreased, reflecting limited inflow of newly defaulted files. This is also reflecting a further decline of our Stage 3 ratio. Stage 1 and Stage 2 risk costs were EUR 78 million, including addition to reflect update of the macroeconomic forecast. We remain confident in the quality of our loan book. Slide 19 shows the development of our core Tier 1 ratio, which came down compared to last quarter. The decrease in core Tier 1 capital is fully attributable to the reduction of capital from the ongoing EUR 2 billion share buyback, which is partly offset by the inclusion of EUR 800 million from the quarterly net profit for this quarter. This decrease was partly offset by lower risk-weighted assets. Credit risk-weighted assets, excluding FX impact, increased by EUR 5.2 billion this quarter. This is mostly driven by volume growth, partly offset by impact of positive model updates and a change in the profile of the loan book. Operational risk-weighted assets remained flat, while market risk-weighted assets decreased by EUR 2.4 billion due to hedging and FX activities. The interim dividend over the first half of 2025 is EUR 0.35 per share and will be paid on the 11th of August, continuing our established track record of providing an attractive return to our shareholders. Now, Steven would like to wrap up today's presentation.
Steven van Rijswijk: Indeed. Thanks, Tanate. And I would like to recap a few messages before going into Q&A. At the start, I would like to say that despite the ongoing geopolitical and macroeconomic turmoil, we have been able to generate continued commercial growth in this quarter. Commercial NII was resilient, and we expect this to grow. In the second half of this year, fees have grown by 12% compared to 2024, and we feel confident we can grow fees at the higher end of our 5% to 10% range this year. And costs remained well within our guidance. We are taking proactive measures to ensure we continue to operate efficiently and now forecast total expenses to end up at the lower end of the EUR 12.5 billion to EUR 12.7 billion range we indicated earlier. All in all, this translates into an improved outlook for profitability in 2025, and we now expect to deliver a healthy return on equity of around 12.5%. And with this, I would like to open the floor for Q&A. Operator?
Operator: [Operator Instructions] And our first question comes from Giulia Aurora Miotto to from Morgan Stanley.
Giulia Miotto: I have 2. The first one is perhaps, we underestimated the FX sensitivity that ING has. Would it be possible to have a disclosure around the revenue and cost mix so that we can estimate it going forward given that the euro-dollar is being quite volatile? That would be my first question. And then secondly, you mentioned that corporates, the loan demand is muted considering that there is uncertainty. Is that -- do you see any signs that this can change in the coming quarters, especially in Germany or not really too early to say?
Steven van Rijswijk: All right. I will talk about the corporates and Tanate will talk about the FX sensitivity. Yes. So what we have seen this quarter was a growth in the wholesale bank of EUR 4 billion, but that was largely working capital solutions and trade-related financing, so short-term receivable type of financing structures. On the longer term, maybe term loans, we saw more syndicated loans than we saw previous quarter, but not the big jumbo deals that we saw previously. And of course, we did offset, there was a limited growth in the term loans, but that was offset by capital velocity that we use to bring that down again. So there was a bit of growth in the corporate term loan, but that was still muted. In that sense, it's a bit too early to call whether that will change or not. So of course, there is now a trade deal. Let's see if the signatures will be put on paper. That should then alleviate some concern, but it's for now a bit too early to say.
Tanate Phutrakul: Giulia, yes, we'll consider a bit of our disclosure if this volatility of U.S. dollar will continue. But to give you a sense, already with an 8% reduction in the U.S. dollar against the euro in Q2 that has an impact of 37 million in NII and an overall impact of maybe around 60 million to 70 million on total revenue, right?
Giulia Miotto: Got it. That's very helpful. Do you have the number for the costs? You gave the number for revenues? Do you have the number for costs?
Tanate Phutrakul: No, we don't. But we'll consider it in future disclosure.
Operator: And up next, we have a question from Benoit Petrarque from Kepler Cheuvreux.
Benoit Petrarque: So the first question is actually on commercial NII. I get the reason of the downgrade, which is really coming from the FX rates. Just wanted to talk about the underlying commercial NII trends, if you are satisfied with all the trends you see around replicating income, lending margin, whether this is all in line with plans, so ex-FX impacts. The second one is on commercial NII guidance. So when you look at the Q4 -- implicit Q4 guidance, I get to a 2.5% to 5% quarter-on-quarter improvement in the fourth quarter. So I'm just wondering, if you could walk us through the moving parts around the -- this improvement in the fourth quarter. Just maybe last 1 to Steven, we've seen an interview in the Dutch Financial Daily a few days ago. I think you referred to the lack of level-playing field regarding capital requirements in Europe. And I think you mentioned that moving the head office to the German border will be very efficient from a capital standpoint. I think we discussed that quite some time ago, but could you maybe talk about that? And are you kind of serious to consider a plan to the head of -- to move the head office to German?
Steven van Rijswijk: Yes. Let me talk about the Gelsenkirchen remark I made in the newspaper, and then Tanate will talk about the NII and the fourth quarter implicit guidance in terms of what you mentioned. So I think in that article, I said a few things. First of all, that in Europe, we have still many trade imperfections between countries in and of itself with our own import tariffs between markets and our own non-harmonized regulation, and that goes for many sectors. And we need to work on that in Europe because we really need -- because we need to become more competitive. Then talking about the banking sector, you see that there as well. So -- and I gave an example, but there was a statistic example of, if I just moved the head office to Gelsenkirchen, which is just across the border from the Netherlands, then with the same activity that we have, given the current regulation, I need to hold less capital and they will pay less taxes. Yes, that is strange. And I want also in this country, and I'm concerned about the business climate in this country that a country also needs to have strong banks to also make sure that businesses can -- and households can thrive in good times and in the bad times and you should, as a country once they have strong banks and not try to chase them away. So in that sense, European rules are not harmonized enough. And I find it odd that banks from, for example, Germany and France, even if they serve clients here, have to hold less capital. And the same goes then for those banks that also have to pay less taxes because we pay taxes over our business abroad in this country and others then will not. And I think we should also in this country think much more about how to make our banks competitive.
Tanate Phutrakul: Thank you, Steven. I think if you ask about our commercial NII, what's positive compared to last quarter and what may be more challenging, I think what remains the same is the part of the ECB rate cut, right, the facility rate going to 175, that remains per plan, and the steeper forward curve is also what we were expecting then and what we see now. So those are things, which remain the same in terms of our outlook. What I think has changed in a positive front is the fact that the volumes have come in higher than plan, both on lending and on deposits. So I think that is also quite strong and positive. And then maybe on the challenging side is that the demand for long-term lending in Wholesale Banking has been more soft -- continuing to be soft and the outlook remains challenging. I think these are the moving parts that I'd like to cover.
Benoit Petrarque: Maybe on the Q4 improvements?
Tanate Phutrakul: Yes, I think on the Q4 improvements, I think the big driver is really volumes and maybe less impact on FX in Q4. At the same time, we never comment on further rate actions, but you can imagine that we will manage our margin at around 100 basis points on liability and rising to 100 to 110 in 2026.
Operator: And Tarik El Mejjad from Bank of America has our next question.
Tarik El Mejjad: Just a couple of questions on my side, please, focused on M&A and deposit strategy. So can you give us a bit of an update on what have been your main deposit gathering campaigns in Q2 and those that you probably launched in Q3. And then on the M&A, is my understanding is correct to see that the focus you would have -- you have at the moment is more into buying deposits. And kind of going back to your ING Direct DNA of making much more spread on deposits versus targets on fees, where for the fees, you're still mainly focusing on getting more primary clients and cross-selling. Those are my 2 quick questions.
Steven van Rijswijk: All right. Talking about the deposit strategy first. So we didn't have really big campaigns in the second quarter. We had a big campaign in Germany in the first quarter that led them to an increase in deposits with EUR 23 billion in aggregate, of which about EUR 16 billion came from Germany. Now that campaign is now ending. And then you -- that means that some of the money that we then gained will flow out in the third quarter of this year, which could have an impact on deposit growth for the third quarter, also because it coincides with people going on holidays, so they spend more money that they received in the second quarter. So that could have an impact. But there's no big campaigns going on at this time. And the impact, by the way, of these campaigns is what we see in Germany is similar to what we have seen in previous campaigns that about 2/3 of the money is sticky and 1/3 of the money leaves. So that is good. With regards to M&A, but also our activities, no, I think that what we are doing is that we're diversifying our business. So on the one hand, we become more specific in the type of services that we offer to existing customers. So not one size fits all, but Gen Z and expats and mass affluent and affluent. So we become more specific in targeting those customer segments. And that then helps also to get more mobile primary customers in. And the second -- and who will do more business with ING, diversified business. And secondly, we tried to fill in the blanks in markets where we are already active, but we're in some markets only active in wholesale banking, so the top end and private individuals, the low end, if you will. And then we need to want to fill it up with SME, self-employed, mid-corporates, private banking, wealth management. So we try to broaden the business. And that's what you also see reflected in our figures that we're actually growing. Yes, of course, we grow in lending and deposits.
Operator: And our next question now comes from Chris Hallam from Goldman Sachs.
Chris Hallam: Just a few clarifications, I guess. So first of all, what's embedded in the commercial NII guide with regards to savings rates cuts in H2? And is the planning there around the rate mainly in response to your own planning or, I guess, relative to competition, i.e. are you driving to a predetermined liability margin outcome? Or are you just paying what needs to be paid relative to this? And then second, on market share, what are you seeing on mortgage market share, particularly given the extra capital you're putting to work there? And do those share trends differ much across your main markets?
Steven van Rijswijk: I think on the market share in mortgages, clearly, by the way, we price the mortgage to the return. So we don't grow for the sake of growing. We grow when we also can make the right return on that. But we have, over the past year, improved our processes and made them more easy in digital, whether it's direct selling or through the brokers. And that has meant that in some markets, most notably in the Netherlands, we have been increasing the market share of the new production, which now hovers around 17%. So it's now stabilizing, so -- but that's where we currently are. And we're happy with the growth that we show there.
Tanate Phutrakul: Chris, obviously, we can't give any guidance around any further deposit rate action in the future. But I think as you see, we manage commercial NII on margin, and we have been able to manage the liability NII at around 100 basis points this year, and that continues to be our guidance. And you can see that despite the rate action we've taken earlier this year, liquidity remains strong and deposit growth remains strong.
Operator: And from KBW, we have Hari Sivakumaran with our next question.
Hari Sivakumaran: I just wanted to ask on the fee guidance. I appreciate you improved it to the upper end of the 5% to 10%. But you're currently running at kind of 11%, half 1 versus half 1 last year, and that's EUR 2.2 billion. Is there anything that's kind of holding you back from going above 10% fee growth this year? And then my second question is on the wholesale business, and I appreciate the slide on the change in the mix of capital consumption. But the ROE has sort of been stuck at around 10.5% for the last 2 quarters. I'm just wondering if there's anything more that can be done to improve that.
Steven van Rijswijk: So let me first start with the RE and Wholesale Bank. So we have given guidance on 2025 for an ROE combined of 12.5% or around '27 of 14%, and we're confident on both counts. And we also want to make improvements in both businesses. For both, it means we need to diversify more. I just talked about retail, but the same goes for wholesale. So we have been investing consistently in transaction services and financial markets to cross-sell next to the big lending engine that we have in Wholesale Banking to get to higher returns. That's 1 element. The second element to improve our return there is to improve capital velocity, which means we want to do more with the same capital or the same with less capital. That's also why you see a shift in capital from wholesale to retail. But we are still embarking on our first SRT, which will come in the second half of this year, and that will also help the return of Wholesale Banking and that's only the first and then in '26, we will continue with SRTs and the years thereafter as well. When we talk about fee guidance, yes, look, we're -- yes, indeed, we have very good growth with 12%. We have been able to show average growth of 5% to 10% over the last 5 years. We continue to give that guidance over the period '24, '27. So yes, we are happy with what we're doing. We, of course, want to sustain these levels. But we stick now -- for now to our guidance of 5% to 10%, albeit at the higher end of the 5% to 10%, so we become more specific.
Operator: And from Barclays, we now have Namita Samtani with our next question.
Namita Samtani: Just my first one. Just wondering on the liability margin when you guide to 100 to 110 bps in 2027 when the replicating portfolio becomes the severe tailwind. To me, 110 bps would be the floor. Would you agree with that? So what stops the group from printing above 110 bps liability margin in 2027? And secondly, I just wanted to ask Steven, I just wondered related to Tanate's intentions to step down as CFO, in the press release, you write after 7 years as CFO on the Board, it's a logical moment for Tanate to step down. I just wondered why it's a logical time. ING has targets up to 2027, which we're yet to see if they can achieve.
Steven van Rijswijk: All right. Thank you very much. And by the way, I heard it's your birthday today. Is that correct?
Namita Samtani: It's my sweet 16.
Steven van Rijswijk: Very good. Congratulations in the case. Yes. Look, the 7 years logical time to step down, I think what I meant with that, look, this has been a very good period. Tanate and I know each other for a long time, we have been working together since I believe the year 2000 when we were both stationed in Asia, and I'm very grateful that he has been with me for 7 years at the Board. And now Tanate is retiring from ING. And this was my expression to be grateful. There was not anything particularly meant by 7 years or what it should be exactly, but this is very good time at our Board, which I'm very grateful for. Nothing more, nothing less. And in terms of candidates, yes, we never disclosed who we are exactly looking for. But of course, you can be sure that this is a rigorous process, and we have ample time to announce a successor before the AGM of 2026. Tanate, on liability margin?
Tanate Phutrakul: Yes. More to mundane topics, liability margins for next year. I think, look, it's always a balance when you look at liability margin around competition in the market. Our ambition to grow our volumes and managing margin, right? And if we look historically, what we see is that the margin has been around that 100, 110 over the long cycle. So that's something that we plan on. Maybe something that I think gives me comfort around that 100, 110 is that the mix of our deposits have stabilized, right? The current account has now normalized to before the 0 rate level. The level of term deposits are coming down, the level of savings is going up. So that also bodes well for improving the net interest margin on liability. So is -- to summarize, it's a balance between volume and margin.
Operator: Our next question now comes from Farquhar Murray from Autonomous.
Farquhar Murray: Just 1 question for me and really just a follow-up to a degree on Hari's question earlier on fees. I mean the upper end of 5% to 10% full year '25 seems a bit more confident than earlier in the year. I just wondered if that is indeed slightly more confident and also what kind of products or geographies are behind that? And then more generally, what kind of proof points can you give for your kind of view that that's alpha-driven rather than beta.
Steven van Rijswijk: All right. Well, indeed, that shows more confidence than given just the range. And why is there more confidence? Now we see good mobile primary customer growth. We see the number of -- and as a result of it, you also then do more payments. We see a higher percentage of our customers becoming primary customers. We see a growth in our number of trading accounts that was last year, 4.6 million, is now 4.9 million. So the number of people that trade with us is increasing. We have put in place over the past couple of years, insurance products in private individuals and in business banking. And now you see and I would say, insurance, I would say, sort of a snowball. It draws down a hill and step by step by step by step, it becomes a bit bigger. And we saw also the number of the lending deals in Wholesale Banking increased, the syndicated loans, so that all helped. But there you see that by broadening our customer base, by broadening the type of service that we provide, we are making this step-by-step bigger, and you see -- and therefore, we are seeing with these actions that a number of people that do fee business with us is just larger and it helps in our confidence.
Farquhar Murray: Just a follow-on, would you have a magnitude on the insurance revenues now?
Steven van Rijswijk: Yes. It's with this, for the first time that we put it in the presentation, it's now EUR 69 million this quarter. So we split that out now.
Operator: And up next, we have Benjamin Goy from Deutsche Bank.
Benjamin Goy: Two questions, 1 follow-up and 1 more general question. The first on the implied increase in the Q4 NII. I was just wondering, Tanate, you mentioned volume growth is part of the assumption there. Is there any specifics that you can share? Is there an uptick expected in long-term corporate lending that you would need to see to get this increase or yes, volumes across the board loans and deposits? And then secondly, your digital business banking is part of your growth area in the retail business. And in Germany, you entered the Amazon partnership. I mean I know it's only one partnership and probably don't want to over interpret it. But never it looks promising, and it seemed to be below expectation. I was wondering how successful is the digital business banking in your markets without branch-based networks? And how much can growth be driven by that?
Steven van Rijswijk: All right. I'll answer on the business banking and Tanate on NII. If you look in general, in business banking, business banking consists of 3 parts. Self-employed, SME and mid-corporates and self-employed is being done fully digitally like private individuals, SME is being done mostly digital first, supported by sales teams who are remote and mid-corporates or what you perhaps in Germany would call Mittelstand or maybe even lower Mittelstands, you would do with a relationship model and with sector knowledge supported by digital. So a large part of activities in business banking are digital. And in Germany, in particular, we started from the low end because we are already with private individuals. And then the move towards self-employed and SME is not so difficult to make because we already have a number of the digital services. In the past, we only did that through indirectly through a partnership with Amazon, but now we approach these customers directly compared to the significant mortgage and customer lending book and wholesale banking book that we have in Germany, business banking in Germany is relatively small, but it's almost like with the insurance. Like I just said, it starts small and then we do it step by step by step, we grow it to diversify our business.
Tanate Phutrakul: Benjamin, just on the commercial development in the fourth quarter. I think we look at a number of factors in giving our scenario. I think we look at volume, right? We have a longer-term planning estimate of 4%, but we're ending up at least the first half year high at around 7%. So that's something that factor in our thinking. We're still planning on another ECB facility rate cut in September of 25 basis points, and we will take the necessary rate action to maintain a margin of 1%. So those are the consideration that goes into our guidance about commercial NII?
Operator: And from UBS, we now have Johan Ekblom with our next question.
Johan Ekblom: Just maybe if we can come back to NII and look a bit further ahead into next year. I mean you flagged in the presentation a further headwind from the replicating book. But then I guess there are some tailwinds on the deposit repricing. If I add those up, that's about a EUR 400 million tailwind into next year and then you plan on 4% volume growth. Are there any other significant drivers than those that we should think about in terms of NII '26 versus 2025? Because I guess that pick up you're flagging for Q4. It should really continue throughout all of next year, if I'm not mistaken. And then maybe digging a bit deeper on the volume side. I mean, we've seen a couple of quarters of very strong volume growth, and I think you flagged in the past that the strong mortgage growth at a system level in the Netherlands is probably not long-term sustainability levels. But maybe if you can give us an update on what you're seeing there and I also noted that there was quite a strong pickup in the Belgian loan book, in particular in the non-mortgage side, is there anything structurally going on there? I mean you've been losing share in Belgium for a number of years. Is there any chance of a decent turnaround there?
Steven van Rijswijk: All right. I'll take the view on the mortgages. If we look at mortgages in the different markets, we see actually sales volumes that are growing in all these markets. And the reason being that is that there are still shortages on houses. So that's what we are seeing. Of course, there was a dip in new mortgages in a number of the countries with the uncertainties coming in as a result of the war and the supply chain challenges that we have seen in 2022 and '23, but that is largely gone. It's gone in the Netherlands, and it's gone in Belgium. So if you look at the Dutch housing market, there is a 17% year-on-year increase expected in terms of number of houses sold in this country. If you look at the Belgium housing markets, we also see an increase of about 15% when we talk about building permits in sum of the months and 18% mortgage production year-on-year up in total compared to the previous year. So we're also benefiting from that. Same in Germany, whereby we saw mortgage lending coming down, new mortgage lending quite steeply to about 60% of what was normal over the years '22 and '23 and '24 gradually recovering, but now really recovering well. So with a 35% increase in terms of houses sold. So in that sense, we're benefiting from that, again, we have been working on improving our processes over the past years. And, therefore, that helps us in our mortgage share on new production. But in the end, we will only print if we also can make adequate returns. So that is on mortgages. Sorry, then, regarding in Belgium, in business banking, there we saw higher balances, but that has to do with the very large clients, which can be volatile quarter-on-quarter. .
Tanate Phutrakul: So in terms of looking to 2026, I think on the lending side, we plan on a recovery in terms of lending margin from 125 for 2025 to between 125 to 130 in the coming period. I think that kind of better outlook is driven by the fact that we have seen higher business banking loan growth, right? That is coming in with better margin. High consumer lending growth, again, with better margin and more return to normalization in terms of corporate lending, which has higher margins. So these are driving our expectations for higher lending margin. And then if you talk about the liability side, I think we give now a bit more details about the impact on replication on Page 26 of our presentation, where you do see that based on the curve prevailing in June, that there's a EUR 300 million reduction in terms of replicated income. But we have also given a better look into 2026 that without any further rate action on savings, we expect that the EUR 1 billion additional income from savings repricing would go to EUR 1.3 billion and term deposits will go from EUR 400 million to EUR 800 million. So that helps compensate from that additional headwind from replication.
Operator: We're now moving on to a question from Matthew Clark from Mediobanca.
Jonathan Matthew Clark: A few questions again on NII, I'm afraid. Firstly, in terms of the German deposit campaign of the first quarter. Should we still be expecting an outflow from that to come through in the third quarter? I think the special interest rate period ended during the second quarter, but near the end. So just wondering we've seen any of that outflow effects yet or whether that's still to come? Second question is on commercial NII, in the third quarter, which you're guiding flat. I'm just trying to understand why it can't be more positive. You've got a very positive kind of volume tailwind, even despite the FX and actually the FX has rebounded quarter-to-date, and then flat margin guidance effectively for both the lending margin and perhaps even implicit a bit of an improvement in the liability margin guidance in order to meet that full year 100 basis point guide. So why can't we see commercial NII up already in the third quarter is the question.
Steven van Rijswijk: Yes. Thanks, Matt. On deposit campaign, yes, that campaign indeed, you have seen it rightly that we started in the first quarter and ended early June. So there was some outflow, but we will continue to see some outflow in the third quarter, at least we expect that based on also what we have seen in previous campaigns, where typically 2/3 of the money stays and 1/3 of the money goes. So that's why we also said that, that may also have an impact in deposit growth in the third quarter because also in the third quarter, people are typically going on summer holiday, and that means that they spent a bit more money than they do in other quarters. So that could be a seasonal effect that we can see -- sort of could see it in the third quarter. Tanate, NII?
Tanate Phutrakul: Yes. NII guidance. I think what you see is not a full impact of foreign exchange impact in Q2. We expect the full impact in Q3. That's why we think that the impact on FX would be more significant in Q3, hence our guidance on flat commercial NII.
Jonathan Matthew Clark: Can I just follow up your guidance on FX, what FX date is that based on? Is that based on the end of June? Or is that based on 30th of July FX rate?
Tanate Phutrakul: That's based on the end of June FX rate.
Operator: And from RBC, we now have Anke Reingen with our next question.
Anke Reingen: Just very simply, first, on the liability margin. Is it as simple as given the German campaign has finished that the liability margin should everything else being equal, go back to the 100 basis points in Q3. I mean, obviously, everything else being equal. And then on your upgrade to the 2025 ROE, I mean, do you think it's -- I mean, 2027 is also obviously also some time out. But do you think that we'll have better 2025 trends leading to structurally a better outcome in 2027 as well? Or is it more of a timing effect some of the measures coming through quicker?
Steven van Rijswijk: Okay. Look, we don't give current new guidance on 2027, but we are comfortable about '25, but we're also very comfortable on 2027. Tanate, on liability margin, how is that developing?
Tanate Phutrakul: On a like-for-like basis, with the German campaign ending, liability margin would be at around 100 basis points. In fact, a little bit better than 100 basis points.
Operator: And we're moving to another question, now coming from Juan Pablo Cobo from Santander.
Juan Lopez Cobo: First 1 is regarding expenses. I don't know if you could give us a bit more detail. You are mentioning that you are doing some initiatives on KYC contact centers. It could be useful if you could give some color on how much are you spending on this? And if there is any additional room to cut costs there. Maybe related to still new expenses regarding the incidental items. And maybe just to have some feeling about future initiatives. What could be the payback for instance, of the EUR 85 million wholesale banking business initiative. So what's the savings that we could expect in the future? And then my second question is regarding your ROE guidance. I don't know if you could give us a bit more detail that upgrades where does it come? Because also it's true that equity is coming down because of -- probably because of the FX impact. So that upgrades on ROE, what part is coming from, actually, better net income and what part is coming from lower equity.
Steven van Rijswijk: All right. I'll talk about expenses and the initiatives that we've taken in wholesale banking and Tanate talks about ROE. So talking about expenses. And look, I mean, we have experienced so far still higher inflation levels that came in, in our cost line from previous years. We, of course, are investing for growth. So that is end marketing and new products. And that we're partly offsetting by digitalizing our operations further. And there, we do and we're looking currently in various initiatives. And these initiatives have to do with KYC, how can we utilize that? How can we further digitalize our contact center operations with AI, but also with the GenAI chatbots? We look at GenAI in lending. We look also at GenAI in coding. So those are all initiatives that are currently being developed centrally steered. Step by step, we will integrate them in our operations. And as soon as their outcome from that, we will let you know. With regards to the initiatives we've taken in wholesale banking, where we did the restructuring in the front office side of Wholesale Banking the, 230 FCE, that we took a provision of EUR 85 million. Annualized, the benefit of that will be EUR 40 million, but that will only start to come in, in the course of 2026.
Tanate Phutrakul: And then, Juan, just in terms of the composition for our updated outlook on return on equity, it's a combination of factors. I think we are more fee-intense in terms of our revenue, which is more ROE accretive, right? This is part of our strategy even going to 2027. I think we operate at the lower end of our cost guidance that also improves profitability and a combination of that improved fee intensity, lower cost drives different guidance on ROE.
Operator: [Operator Instructions] And next, we have Delphine Lee from JPMorgan.
Delphine Lee: Just wanted to go back to NII, to understand a little bit sort of the improvement that you expect in '26, '27 on the lending margin. So from what you said previously, I think it is basically the result of some improving mix with a better growth in kind of higher-margin products? I mean, is that -- is there anything else? Or if you could just comment a bit because yes, just want to understand a bit like how much pickup we should expect on that. And on the liability margin, just to go back to another question on the liability margin for '27, I mean, from what you're saying, you do have more than a bit in pickup in the replicating income. And it feels like you're basically saying the deposit mix is improving, and you're still getting volumes as well.
Tanate Phutrakul: I'm not sure how many different ways I can answer the same questions. But I think really on the lending, it's about resumption of commercial lending growth in the wholesale bank, right? That has been solved the last 2 quarters. And in our outlook for the next couple of years, we expect that to resume to a more normal pace. And I think we also expect that consumer loans and business banking loans will take a greater share, and that's why our guidance of 125 and 130 basis points. And then coming to the liability margin, yes, we have some positive tailwind coming at us, right? The pressure from the facility cuts by the ECBs, according to the forward curve, is coming to an end. So the long-term replication is getting there. But at the same time, we think competition will be normalized, which means that we need to balance between margin and volume on deposits and that we think the guidance of 100 to 110, it's a good number to plan for.
Operator: Thank you very much. And as there are currently no further questions in the queue. I'd now like to hand the call back over to you, Mr. van Rijswijk for any additional or closing remarks.
Steven van Rijswijk: Thank you very much, and thanks, everybody, for your time and your questions. I know it's probably a busy time for you as well, given that many companies are coming out with the figures in this week. So I hope that you deal with it all well. And I hope that you can also enjoy a summer break. Thanks again, and we'll speak, in any case, in 3 months' time again. Thank you.
Operator: Thank you for joining today's call. Ladies and gentlemen, you may now disconnect.
