ING Groep NV

AEX:INGA

Earnings Call Transcript 2021-Q3

[Operator]

Good morning. This is Anita Hila welcoming you to ING's Q3 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 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 J. A. van Rijswijk]

Thank you, operator. Good morning and welcome to the third quarter '21 results call. I hope you're all well. I'm joined by our CFO, Tanate Phutrakul; and our COO, Ljiljana Cortan. And I'm happy to take you through today's presentation. After that, we will take your questions. We are already in November, and looking back on '21 so far, I see 2 big themes. One is we learned to cope with COVID-19 and the effects of economies closing down and quickly rebounding. The other is climate change and the urgency to accelerate actions to transition to a low-carbon society. And we support this acceleration where we can have the most impact as a bank, which is by supporting our clients in their transition. Now focusing on our quarterly results. Our preprovision result was good with continued strong performance on fees, a resilient NII, net interest income, and cost control. And I'm pleased that we are reporting such a strong performance despite the pressure on liability income. Higher swap rates are a good development, but, as I have mentioned before, it takes time before we see the positive effects, and overall rate levels are still negative. On lending and mortgage, we continue to grow. On the business side, we saw some demands from mid-corporates coming back, while in Wholesale Banking, repayments were at a higher level. Year-to-date, we are at an annualized 3.8% net core lending growth, so in line with our loan growth ambitions. Though on the business side, there is room for improvement. Risk costs were EUR 39 million. We have released part of the management overlays applied in a previous quarter, reflecting robust GDP forecasts and improved risk indicators in our loan book. Overall, asset quality remained strong with limited risk costs in individual files and a low Stage 3 ratio of 1.5%. We continued close monitoring of our book also with the challenges related to supply chain issues and rising prices. CET1 ratio is 15.8% with 50% of the third quarter resilient net profit reserves for future distribution. And although it is not a third quarter event, it is important to mention that in October, we have paid out a EUR 0.48 dividend and started a share buyback program, which is progressing well. Now before we go to the slides on this quarter's figures, let me spend some time on, first of all, our contribution to the green transition and, secondly, our strong performance in still turbulent times. The first that I want to address is climate action. And the need to accelerate is clear, and we continue our efforts to contribute by reducing our footprint and by supporting our clients in their transition. At the same time, we managed the impact that climate change can have on our operations by embedding climate risk management in our organization. In September, we published our climate report, which integrates our progress on aligning our loan book to net zero ambitions and on embedding climate risk management in our organization. On climate alignment, we are moving in the right direction. And as you know, we have upped our ambition, putting our net zero ambition forward to 2050 from the initial Paris-aligned ambition, as we set in 2018. And we have already translated this into a new net zero target for the upstream oil and gas portfolio, a sector with a strong push to transition. We've also moved our target date forward from 2040 to 2025 to be able to steer more directly and reflect that action is needed now. The net zero target setting for the other sectors will follow, also depending on when transition pathways will be available, which brings me to one of the biggest challenges of climate action, being the availability of transition scenarios which are needed to steer activities and where we also need governments to provide guidance. And I realize this is complex and scenarios can change over time. But for the market to move in the same direction, this is what is needed. I'm proud that our clients choose ING to support their sustainability and traditional efforts. The number of sustainability deals over the first 9 months of almost doubled compared to 2020. We have highlighted the transaction with Aligned. This is actually the fourth sustainability-linked deal in 12 months through which we support the company's efforts to tackle the challenges of data center sustainability and their transition to green data center. And it's a great testament to the strength of our ESG commitment and our clients' trust in our franchise. One thing I want to reiterate before moving to the next slide is that it's key to realize that transition takes time and transitional efforts get recognized in the regulatory framework. For example, in an adjusted green asset ratio, or an additional transitional asset ratio, either way it should -- not only about green now, but also the transitional move in the right direction. This also supports the inclusive approach that we apply and we feel is more effective for accelerating the transition. Slide 4 shows an increase in our preprovision profit, excluding volatile items and regulatory costs, growing at around 10% on both comparable quarters, with a shift visible in the contribution of NII fees. And diversifying our income has been a strategic focus area for the past years. And I'm happy to see it's paying off with strong fee growth across the board. And to preempt the question whether this level -- this higher level is sustainable and if we see room for further growth, my answer to both questions is yes. This quarter's fee level was supported by a primary customer growth and structural growth in daily banking fees. In investment products, the high fee level was sustained, reflecting a growing number of accounts and assets under management despite a lower number of trades compared to the record high level of the first quarter. For future fee growth, we're -- look back at pre-COVID levels for international transactions. And also, lending fees are still at a lower level, a side where we see several drivers, the first being continued growth of our primary customer base. Secondly, we see possibilities to further increase daily banking fees as in some of our largest markets, fee levels are still low and peers either initiate or follow an increase. And in other markets, we're still cheaper than peers. And thirdly, on other products, we continue to work on new or improved propositions. So the digital investment proposition in Germany is an example that is clearly paying off. The share of NII has declined, reflecting ongoing liability margin pressure. However, I believe we have managed that pressure well so far also by introducing negative rates for our retail customers. And based on the current thresholds, we expect a full year contribution of around EUR 220 million for '21 and EUR 300 million for 2022. We will also continue to focus on healthy margins and the recovery of loan growth in the business segments. And having said that, this quarter, the increase of negative interest rate charging in Retail Benelux on July 1 and also a relatively high level of prepayment fees in the Netherlands were helpful for NII. And as a reminder, despite the increasing swap rates, liability margin pressure is still there and the impact per quarter is not linear. Cost control has been good over the past quarters, reflecting several actions we have taken also following the review of our businesses. So overall, a good performance in what remains to be a dynamic and challenging time. Now turn to Slide 5. And I just said it is still a challenging time as the pandemic is still part of our daily lives. But, however, based on the improving risk parameters of our loan book, the analysis of the sectors vulnerable under COVID and a robust macroeconomic forecast, we have released part of the management overlays taken in the previous quarters. The other part of the overlays and increased monitoring of the sectors vulnerable to COVID remain in place as we also monitor the impact of government support schemes ending. The economic rebound and a surge in demand following the reopening of economies is bringing new challenges. And we do not yet see it reflected in macroeconomic forecast, but we do, however, continue to keep a close eye on the loan book, with extra attention for specific sectors or clients who could be more vulnerable to current market dynamics. We have managed our loan books through previous cycles and are supported by a prudent risk framework, which incorporates also our experience and lessons learned from past cycles. And looking at our track record also compared to peers, this framework has proven to be effective. We did not change our risk appetite during COVID. We have not changed it now and continue to be confident on asset quality with a diversified senior and well-collateralized loan book and with our prudent provisioning process. Now let me take you through our third quarter results starting on Slide 7. In third quarter, total income year-on-year was, as mentioned, supported by strong fee growth. And I also included an EUR 84 million TLTRO benefit. Other income was higher as the year ago quarter included a EUR 230 million impairment on our equity stake in TMB. Investment income mainly reflected the annual dividend from our stake in the Bank of Beijing, which is always paid in the third quarter. Investment income further included an estimated EUR 34 million loss related to the previously announced agreement to transfer our Retail Banking operations in Austria. Sequentially, fee income was up, as was NII with the level of included TLTRO benefit comparable to the second quarter. Higher investment income reflected the aforementioned annual dividend from the Bank of Beijing. Now then on NII on Slide 8. Year-on-year, NII, excluding TLTRO, was slightly lower primarily due to the continued negative rate environment and resulting pressure on liability margins, while liability inflows had been substantial. Negative interest rate charging. As a part of this margin pressure, as compared to a year ago, thresholds in the Netherlands have been gradually lowered. While in Belgium, charging was introduced at the beginning of this year. NII from lending was up, reflecting both higher margins and average volumes. Compared to the previous quarter, NII, excluding the TLTRO benefit, was higher. This reflected the aforementioned higher NII on lending and lowering of thresholds for negative interest rate charging in Retail Benelux at the start of the third quarter. This absorbed this quarter's pressure on liability income. I'm pleased that we managed to grow NII this quarter, and we will continue to use all available levers to counter the pressure. However, I also want to caution against drawing a too quick conclusion that we have a change in trends. Next quarter, we won't see a further uptick in the contribution of the negative interest rate charging. And also, prepayment penalties in the Netherlands could return to lower levels, while the pressure on liability income will still be there. And I want to reiterate, and you've heard it before, that the improvement of swap rates is helpful. However, they remain below the 5-year rolling average, and, for a large part, are still in negative territory. And we invest in maturities which can range from overnight to over 10 years. For a list of purposes, you could say that we invest about 20% of our replicating portfolio every year, so an improvement will only come in over time. And as we said before, we benefit most from a steepening yield curve in the medium-term durations and an overall positive curve. Our net interest margin for the quarter increased by 2 basis points to 138 basis points, which was mainly driven by higher lending margins, while the increased negative interest rate charging absorbed most of this quarter's liability margin pressure. Then to Slide 9. That shows net core lending growth. And overall, again, strong growth in mortgages with some repayments in Wholesale Banking, though at a much lower level than the previous quarter. Demand for mortgages continue to be strong, especially in Germany, Poland and Spain. And this was the primary driver of net core lending growth in retail, with some growth also visible in consumer and Business Lending. In Wholesale Banking, we saw an elevated level of repayments on short-term facilities in lending with some higher demand for working capital. With the Delta variant, uncertainty remains how the pandemic will evolve. And while we saw some loan demand in a few business segments this quarter, overall investments and need for working capital are not yet back at pre-COVID levels. When that demand returns, with our geographical and product diversification, we are well positioned to support our customers and capture future growth opportunities. Finally, net customer deposit growth was minus EUR 600 million driven by EUR 1.9 billion of retail, where we saw the impact of our actions to reduce the inflow of [indiscernible] Belgium and Germany, and Wholesale Banking deposits were slightly up. Page 10 is about fees. And there is where the growth continued. Year-on-year, fee income grew by 20% with growth in both Retail and Wholesale Banking. Retail fees were up 22% with an impressive 31% increase in daily bank fees. And this reflects growth in primary customers, the increase in payment package fees and a further recovery of the level of domestic payment transactions, which was actually back at pre-COVID levels. However, international payment transactions actually remained subdued. So not there yet. In investment products, fees were 22% higher driven by the Benelux and Germany, reflecting growth in accounts, assets under management and trades. In Wholesale Banking for the year, fees were 17% higher with growth across segments. And if you look sequentially, retail fees were 6% higher driven by daily banking and lending. Investment products were stable, whereas the third quarter is usually a seasonally lower quarter. And Wholesale Banking fees were slightly lower, reflecting lower fees in Financial Markets, while lending fees were up, reflecting increased syndicated deal activity. Slide 11 shows expenses, which this quarter included EUR 233 million of incidental items, reflecting a EUR 180 million provision for compensation to our retail customers on certain Dutch consumer credit products and EUR 53 million foreign impairment and redundancy costs. Excluding regulatory costs and the incidentals, operating expenses remained under control. Having more than compensated for CLA increases both year-on-year and quarter-on-quarter, expenses were lower. Year-on-year, costs for third-party staff, professional services and marketing went down, while this quarter -- or quarter-on-quarter, this quarter showed a slightly lower VAT refund. Regulatory costs were lower quarter-on-quarter mainly as the previous quarter included additional DGS, or deposit guarantee system, contributions in Germany following the Greensill insolvency. Year-on-year, regulatory costs were slightly higher due to a higher level of core deposits. With the evolving requirements for risk model redevelopment and KYC, we do expect the related expenses to remain elevated. And as mentioned last quarter, there are some unforeseen costs coming in such as VAT charges on intercompany services following a recent ruling -- court ruling for one of our peers. We expect to see the impact from this building up over the coming quarters to around EUR 125 million per annum, and we will need to absorb this over time. Overall, I'm pleased with how the costs are developing also as we start to see the effects of the measures taken so far. We will always keep focusing on optimizing where we invest our capital, and some further measures may materialize. At the same time, we also need to look forward and to invest in areas where we can get the best returns. When making those investments, my focus is on projects which improve customer experience and cost to serve and is executing with certainty. And discipline remains key. We focus on projects where we can achieve solid benefits by leveraging existing products, operations and technology solutions. To give you an example, we are working to improve the customer experience while reducing the time to yes, which means the time where we can give the clients the approval, which we have brought down for a median from 18 days a year ago to 7 days in September. At the same time, the process has become more efficient, allowing us to increase volumes and/or to reduce costs. And we focus on projects like this that can help us to improve the customer experience and grow -- can grow our business profitably. Then on to risk costs where they were EUR 39, this is on Page 12, or 3 basis points of average customer lending. This includes a release of EUR 96 million primarily in Stage 2, which is a partial release of management overlays taken in the previous quarters. And as mentioned on Slide 5, this release reflects the improving risk parameters on our loan book, the analyses of the sectors vulnerable under COVID and robust macroeconomic forecasts. Aside from these releases, in Retail Benelux, risk costs mainly reflected a model update in Belgium and some individual Stage 3 releases. In Retail Challengers & Growth Markets, risk costs further reflected collective provisioning, mainly in Spain and Poland. And in Wholesale Banking, Stage 3 risk costs were low, reflecting very limited additions. And finally, both the Stage 2 and Stage 3 ratio were lower, reflecting lower outstandings in both stages. The next slide shows that our CET1 ratio increased to 15.8%. CET1 capital was EUR 600 million higher mainly due to the inclusion of EUR 700 million or 50% of net profit for the quarter as the other 50% was reserved for future distribution, in line with our policy. Risk-weighted assets increased mainly due to higher credit RWA. And this was driven by EUR 11 billion for model impacts, reflecting ongoing model developments and EBA guidelines. And this was partly offset by an overall improved collateral profile of the loan book. Now with this quarter's model impacts, regulatory RWA inflation known at this moment, ahead of the 2025 Basel IV implementation, has been almost fully incorporated. We still expect RWA impact from the postponed implementation of a risk floor weighting for mortgage in the Netherlands, which we currently estimate at around EUR 8 billion, but we expect this -- for it to be temporary as it is front-loading the outlook for Basel IV. Besides that, we will continue to see releases or additions to risk-weighted assets from regular model updates as the case maybe. And finally, we have started on the path to optimize the capital structure with a EUR 1.7 billion share buyback program, which started on October 5. As you can see on Slide 14, the CET1 ratio is well ahead of our ambition. On ROE, it is improving and with more focus on cost and capital optimization. And with growth returning, we maintain our ambition and very much intend to continue to provide an attractive total return. To reiterate, cost/income remains an important input for our ROE, and we continue to work on our ambition of 50% to 52%. As for distribution, we currently have an amount just over EUR 2.8 billion reserved outside of CET1 capital, as per our policy, and we intend to use specials to return additional capital over time. To wrap up with the highlights of the quarter, climate change is on top of our agenda. As with an urgency to accelerate actions to transition to a low-carbon society, we support this acceleration, also where we can have the most impact as a bank by supporting our clients in their transition. Our performance was strong. This quarter, we managed to realize another record quarter in fees, to grow our mortgage book and to manage the pressure on NII while we kept expenses under control. Risk costs were EUR 39 million. We have released part of the management overlays applied in the previous sectors (sic) [ quarters ], reflecting robust GDP forecasts and improved risk indicators on our loan book. The quality of our loan book was again evidenced with very limited risk costs on individual files and the lowest Stage 3 ratio of 1.5%. We continue close monitoring, though, also with the challenges related to supply chain issues and rising prices. This concludes the presentation, and we are now happy to take your questions. Thank you.

[Operator]

[Operator Instructions] The first question is from Mr. Benoit Petrarque, Kepler Cheuvreux.

[Benoit Petrarque, Head of Benelux Equity Research]

Yes. The first one is on lending growth. So we have seen some repayment of short-term facilities in the Wholesale Banking segment. I wanted to try to get a kind of underlying view on the current loan growth in the Wholesale Banking. So could you help us on that one? And also, looking at lending fees up 20% Q-on-Q, I assume that your pipeline for the fourth quarter is quite good. So just wanted to have your view on, well, lending growth also beyond Q3. And then second question is on NII. Looking at the 2 main moving parts, and I will be the first one, the drag from the replicating portfolio, I think you guided for front book-back book gap of 25 bps on the yield. Just wondering where you are today. And at the current interest rate level, do you expect, let's say, the drag to be offset by loan growth? Or we still have -- or are still kind of at a still decent level on -- in terms of pressure from low rates? So just wondering where you are now. And then maybe on NII, just a sub-question on that. On the negative charging, I think you guided for an incremental of EUR 120 million in 2021. I was wondering if that's still the kind of overall guidance for 2021.

[Steven J. A. van Rijswijk]

Okay, thank you very much. Yes, we are rising frantically because, I mean, the operator said, too, and you came with 5 questions. So I had to sort of rise quickly. So let me take the -- most of the questions. And then on NII and the gap yield and the drag that we still experience, I will give that question to Tanate. So first of all, Benoit, on your question on the net interest rate charging. So the guidance for the next year, we have up to EUR 300 million. That was initially EUR 220 million, I believe, and that is now up to EUR 300 million. So that has gone up, yes? If I look at loan growth in Wholesale Banking for this quarter, we had a growth in trade commodities finance. We see already growth in syndicated loans that also came out in our fees because they are also -- part of the growth in fees came from syndicated loan fees. These are not all yet booked, but we do see an increase in those fees, and that shows that the syndicated loan market is coming back again, at least for now. And on the flip side, we do see that the number of short-term facilities have been decreased and being repaid. So we still do see a mixed picture. And like we said, so if we -- and we're helped, of course, by the economic developments and by the growth in GDP in 2021. And that growth will need to continue and it's currently being expected to continue in 2022, and that will also help to resume loan growth in Wholesale Banking. If you look at the lending fees, I mean, like I said, the question is, am I optimistic in one of my presentations that there is more -- that there can be more to come? And we believe so. And why do we believe so? We believe so because we see a growth in our primary customer, and there were 95,000 this quarter. And it -- the primary customer [ is key ] because as long as we can grow our number of clients but also with clients who take more than one product from us, it automatically means that we're able to grow our fees. Because with those clients, we have more quantitative but also more qualitative interactions. More smart, more easy, more personal. The second lever is the fact that we're still active in a number of markets where we are big, but also other than big, whereby fees are relatively low. And we have seen that in the pressure of the interest rate environment, that fees are increasing and competitors are either starting or following each other. And in other markets, especially in chosen growth markets, we still are, on a number of products, are levying fees that are still quite a bit below what others are charging, and I need to be specific, for exactly the same products. And the third lever is the fact that we are developing a number of new digital propositions, because we have been a low-fee bank, that we are rolling out such as the digital investment proposition that we have in Germany and we'll also start to roll out elsewhere. So those are the 3 elements on the base of which that we're confident. And then last but not least, what we also do see is that the payment levels are back to pre-corona crisis levels. However, not the international payment levels. And the international payment levels are important for us to make our fees on payments, and that needs to resume to get back there. And also, lending fees are still below the levels that we typically saw before corona. Then I will give the floor to Tanate on NII and the gap, the drag.

[Tanate Phutrakul]

So Benoit, thanks for your question. I think if -- we don't give guidance specifically on NII but kind of input factors into sustaining our NII, which is the fact that we need to have somewhere around 3% to 4% loan growth. And so far, with some patches here and there, we're confident that, that loan growth at that pace will resume. The second thing that we rely upon is the fact that our origination margin on loans remains robust, and that is the case during the course of Q3. We also rely on to a certain degree of negative interest rate charging. And as Steven has mentioned, basically, this year, we'll make EUR 220 million from negative rate charging, which will rise to EUR 300 million based on action already taken this year. So those are key components. And then the last component is really about how the financial markets are moving at the moment and how the yield curve is affecting us. And quite frankly, high yield curve is beneficial for us, and that we replicate approximately 20% of our savings book on an annual basis. So while it has taken time for the replicated impact to come down, it will also take somewhat a certain amount of time for the replicated benefits to come up as well. So it will be a gradual process. The only caveat I would make is, of course, if short-term rates were to move fast and it could have a more immediate impact in our results. And to give you a couple of moves that we saw -- already saw in October, Poland has, for example, today increased their rates. And then Romania has increased rates. These are small markets for us, but that, for example, would have immediate beneficial impacts on our results in a sooner period than what I just described. Okay.

[Operator]

The next question is from Ms. Giulia Miotto, Morgan Stanley.

[Giulia Aurora Miotto, Vice President and Equity Analyst]

My first question is on costs. So I believe that ING wants to lower the underlying cost base, excluding the retail costs, excluding one-offs, excluding business [ access ]. However, the wage market and the labor market in the Netherlands and the core European market is going pretty strong, and we see inflation basically everywhere. So what are you seeing in terms of cost inflation? And how do you expect that to develop next year? So that's my first question. And then in terms of the deployment of capital, I just want to confirm that I understood it correctly. So I think you said that you intend to return excess capital via specials. Was that specifically pointing to special dividends rather than buybacks? Or the excess capital can be returned with a mix of a special -- sorry, of special dividends and buybacks?

[Steven J. A. van Rijswijk]

Thank you very much, Giulia. On costs -- and look, we will -- and we'll continue to be disciplined on costs. We do reinvest part of the savings that we got from the actions that we have taken, but the discipline will continue. And therefore, we'll also continue to monitor the right direction of our cost trajectory. We still intend to bring the costs down. And in the past, we have been able also this year to absorb inflation also in the Netherlands but also in other jurisdictions. And we are -- we'll take that on the chin. We'll continue to see how we will be able to compensate that. Capital. There, you ask whether that is by means of dividend or by a share buyback or capital distribution. We don't know it yet. We will give you more information about the specials at the first quarter results 2022.

[Operator]

Okay. The next question is from Mr. Stefan Nedialkov, Citi.

[Stefan Rosenov Nedialkov, Director]

Stefan from Citi. A couple of questions on my side. On capital, I'm not 100% clear how to square the comments on Basel III/IV being fully absorbed and an additional EUR 8 billion coming up. Is the EUR 8 billion from the mortgage floors going to be offset by a release of some of the RWA top-ups you took this quarter? If you can just kind of explain the moving parts there. And also to confirm that based on the European Commission draft legislative proposal of Basel III that was published at the end of October, based on that proposal, you're not seeing any sort of incremental impact. So that's on capital. And a second question. On Turkey, can you update us on the intergroup funding into Turkey as of 3Q, please?

[Steven J. A. van Rijswijk]

Thank you very much, Stefan. On the intergroup funding, that has come down from last quarter, EUR 600 million to now EUR 500 million. So that has come down with EUR 100 million. And then on Basel IV, so what I meant to say was that we still have the mortgage floor that will kick in, in 2022 in the Netherlands that we estimate at EUR 8 billion currently. And that is what we call a prelude to Basel IV. So when Basel is introduced, it will have the same effect as the EUR 8 billion. So it is not being taken off the table. But Basel IV will not add anything else because basically, by means of this floor, that measure then already is taken for our mortgage portfolio in this country. And with regards to the EC legislation and the legislative proposals regarding Basel III, that does not mean further incremental capital increases for ING.

[Stefan Rosenov Nedialkov, Director]

So just to confirm, when you made the comment that the regulatory impacts have been mostly absorbed, you meant except for the EUR 8 billion in Basel IV?

[Steven J. A. van Rijswijk]

Yes. Yes, I'm sorry. Indeed, except for the EUR 8 billion.

[Operator]

The next question is from Mr. Omar Fall, Barclays.

[Omar Fall, Analyst]

Just -- firstly, just a couple of clarifications on numbers. How much was the prepayment penalty amount in mortgages in the Netherlands roughly? And then sorry if I've missed this, but what was the Q-on-Q increase -- negative charging benefit in the quarter? And then on -- similar kind of numbers question, but just on the restructuring costs announced so far for the businesses in runoff, Czech Republic and Austria, is that largely complete and all that's pending is France basically? And then ex the numbers, my question would just be on fees and commissions. Could you let us know specifically by geography what is left now in terms of pricing changes on daily banking fees? I think the last quarter, you maybe mentioned Southern Europe. But I guess it's just hard because if one looks at advertised prices, it's a bit unclear where you differ from incumbents locally now. So is it a case of kind of new customer versus existing customer pricing? Or if you could just give us some specific geographies and products where there's still a material difference, that would be very helpful.

[Steven J. A. van Rijswijk]

Thank you, Omar. And I'll take the questions on restructuring costs and fees. And on prepayment and near quarter-on-quarter, I will leave it to Tanate. So first of all on the fees, I mean, what I can be specific on is that we already announced further payment package increases in the Netherlands, which will start as of the 1st of January 2022. There are also some small ATM increases in Australia that we will be going through. So yes, we will -- we have announced several things. And as soon as there is more to announce, we will let you know. But I can, of course, not make forward-looking statements. But like I said, the lever that we have to pull in terms of the growth of our primary customers, the fact that we are still operating in low-fee markets, that we're still behind a number of the products for other markets and that we can still develop new services that we're rolling out, is helping. And you have seen we have been increasing everywhere around the globe in all markets, we have been increasing all of them. On restructuring costs and restructuring, Czech Republic is completed. Austria is nearing completion but not quite there yet. In France, you know that we are currently having a review. Payvision, we just made the announcement on a provision, but the restructuring in that sense still needs to happen now, the rolling off of Payvision, which will happen in the course of 2022. So most of it is currently undergoing but not completed yet. Tanate?

[Tanate Phutrakul]

Omar, to answer your question on, first, prepayment fees on mortgages, just to clarify from an accounting perspective, these prepayment fees appear in our net interest income line, right, just to not confuse about fees because we talked about prepayment fees. I think the amount of prepayment fees in the Netherlands is approximately EUR 49 million, which is EUR 10 million higher than the same period last year. That's to address your question on prepayment fees. And on the negative interest rate charging, as we mentioned, the full year impact is about EUR 220 million, of which the Q-on-Q increase is approximately EUR 30 million, okay? So that's addressing your first question.

[Operator]

The next question is from Mr. Johan Ekblom, UBS.

[Johan Ekblom]

If we can just continue on the net interest income for a second. This increased guidance on negative deposit pricing for next year, does that mean that there is an incremental benefit into Q4 or into Q1 on the kind of Q3 run rate? So that would be the first part. And then secondly, you spoke briefly about the gearing to higher short-term rates. If we look at the...

[Steven J. A. van Rijswijk]

Johan, your...

[Operator]

I'm afraid he has lost his connection. I will go to the next person for now. That's Mr. Tarik El Mejjad, BofA.

[Tarik El Mejjad, Equity Analyst]

Two quick questions, please. First of all, on the cost of risk, you've maintained your guidance of, I think, below around 20 basis points -- 20, 25, sorry, basis points. And so now, is -- are you thinking to change this guidance for this year or next? And if you can give us some elements of, if not why, would you have any concerns on a pickup of Stage 3 provisions in Q4 onwards. And then second question on -- actually the timing of your Investor Day next year, mid-June. Are you waiting for more -- or a reduction in the uncertainty on the macro-wise and regulation? Or I would -- I believe you would like to quickly give us a more short-term guidance on the higher ROTE and more -- a normalization of your excess capital. Just to understand what we should need to [indiscernible]midyear next year?

[Steven J. A. van Rijswijk]

Thanks, Tarik. I think that's the main reason for the date, is because we want to pick a date in 2022. We saw that this was a good date there. We want to give you a further update on our strategy and the direction -- or the progress that we're making and the direction of the bank. The months of April and May are typically also busy with the AGM and all kinds of other internal strategic meetings. So that's why we chose June and that there are no other reasons behind it. And we are very keen to see you there. And on cost of risk, I give the floor to Ljiljana.

[Ljiljana Cortan]

And let me reconfirm that our risk costs for '21 will remain well below the through-the-cycle average. And we are feeling very much comfortable about it based on the strong quality of our loan book and also risk management frameworks in place, as mentioned before, that haven't changed during the pandemic nor post, and we continue our prudent approach there. So no reason to see fourth quarter different than what we've seen so far.

[Steven J. A. van Rijswijk]

Okay. Thank you very much. Sorry, operator, do we go back to Johan? Is he back? Or do we move forward?

[Operator]

Mr. Ekblom is back in the call. I will go to him. Mr. Ekblom, your line is open once more.

[Johan Ekblom]

Apologies for that. But just very briefly, so the first question was, is there any further sequential benefit to be had on the deposit repricing? Or is it just that it's not a full year effect this year and it will be next year? And the second one was just in Poland. I mean I think if I look at the results of your Polish subsidiary, NII was up 5% Q-on-Q. So just trying to understand, what's the phasing in of the benefit of rate hikes there? Is that more or less a full benefit of the first 50 basis points in there? And can we use that as a proxy for the rate hike we had yesterday? Or is there a delay and there is sort of even more to come?

[Steven J. A. van Rijswijk]

Tanate will do both answers. So first was on NII. So the -- in terms of what will come, right, because that was the question before you dropped off, what will come still in the fourth quarter and how will it phase into the next year. And the second one was on Poland.

[Tanate Phutrakul]

Yes. Thanks, Johan. I think on NII charging, as we mentioned, it's about the, first of all, action we already announced and taken, right? So it's not about any future actions that may take place, just to clear that up. The second one is, of course, that as things take place -- for example, negative charging in the Netherlands and Belgium started in July. Negative charging for a certain high-net-worth individual in Germany starts in November. So these will affect the results going into next year. So it's not that you see the bump in Q3 and it stays at this level. There's a certain gradual increase because of the time delay of the calendar year. So that's to address your first question. The second question, with respect to Poland, the impact of the rate hike is not in our numbers because it's recently announced. I think the strong drive in terms of NII in Poland is much more to do with the strong commercial growth, strong loan growth that we see in Poland at good spreads and that we are doing quite well, in fact very successful in terms of market share, in Poland.

[Operator]

The next question is from Mr. Kiri Vijayarajah, HSBC.

[Kirishanthan Vijayarajah, Analyst]

A couple of questions, if I may, on the gearing to higher oil and energy prices that we're seeing. So firstly, to what extent does that feed through potentially into Wholesale Banking volumes from bigger ticket sizes and potentially more energy CapEx you're seeing in the pipeline? Or is it more a case that you're still somewhat cautious on growing the energy commodity side of things, I guess, particularly with ESG considerations, et cetera? And then in a similar vein in terms of asset quality, does the higher oil price give you scope for maybe more provision releases? I'm thinking particularly on the Stage 3 book. And also, what kind of timing should we see that potentially with 4Q? Is that more a kind of 2022 thing? Does that higher oil and energy prices feed through into your provisioning models?

[Steven J. A. van Rijswijk]

So Ljiljana will take the question on the provisioning levels and the quality of our book. If we look at the oil and gas, well, currently, what we did see, we saw a small uptick in trade commodity finance as a result of the higher oil prices. What we do see is that gradually -- and that's the reason also why the TCF book grew based on higher oil prices. But we also do gradually see higher working capital needs coming in, and that could actually then help that business going forward. Having said that, and that links to your ESG comments, when we talk about the upstream oil and gas sector -- especially the upstream oil sector, there we have a commitment made, and that commitment we pull forward from 2004 to 2025 that we will decrease our commitment to the upstream oil and gas sector by 2025 with 12% because we want to be, for that sector also, at a net zero path. Ljiljana, asset quality.

[Ljiljana Cortan]

Thank you. On the asset quality and impact from the high energy prices, yes, we are monitoring our portfolio very closely, and we are engaging in our -- with our clients in order to understand their positions. And I can confirm that so far, we haven't taken any additional provisions based on that but, as well, have not released any provisions based on that. Looking forward, we will continue engaging with our clients in order to understand their needs and clearly to assess, eventually identify the risks in those portfolio. So far, there is no guidance or view on whether it's going to be further released. What we can say is that clearly, as -- for parts of the economy, the high energy prices will present a benefit. But for some other parts, clearly there will not. And we are looking at overall the picture, and clearly, we'll also assess our strategy going forward on this sector.

[Operator]

The next question is from Mr. Jean Neuez, GS.

[Jean-Francois Neuez]

I have 2 questions. One is on fees and the deposit pricing. So when you applied the new negative rights -- rather the negative rates to new thresholds of clients and fees also on certain products, I just wanted to understand, if we go into a rising rate environment, such as the ones that you've seen in some of your Growth & Challengers Market (sic) [ Challengers & Growth Markets ], how sticky do you think these new fees and deposit pricing you can keep if the environment which pushed you to introduce them in the first place, that of negative rate, changes in the future? And the second thing I wanted to ask was with regards to your comment on the time to yes in the -- in your introductory remarks. It's very interesting how much you've been able to reduce it. Just wanted to understand where you think you stand versus your competitors and whether you've seen any tangible benefit outside of simple client satisfaction. Do you -- does that make you gain share or be able to have a better pricing just because you're faster? And on -- related to this is, is there anything in terms of risk parameters that you have to kind of simplify or maybe overlook as you do that? Just to check.

[Steven J. A. van Rijswijk]

Thank you very much. And on customer experience, what we do measure, and we have specific measurements in the organization, is how we measure easy, smart and personal. And we have specific metrics how we deal with that in each -- every market. We also look at mobile sales, for example. And we also look at the time and the easiness that we then do business with our clients. And one of the metrics here is time to yes. And we also have time to cash. And we also look at how much of our loans can be preapproved, what's the percentage green is, the percentage red and then the percentage gray, which then is then a fall out to someone that then has to intervene. So then personally -- there's personal intervention. And we have all these metrics to improve our customer experience and to make it smart, personal and easy. And we do that because we believe that the differentiation of that customer experience will also be the differentiator in doing business. And what we therefore measure at the same time is Net Promoter Scores not only at an overall customer satisfaction level but also at a product or even at a, I would say, if you look at AI, a bot satisfaction level. How satisfied are you with the usage of this chatbot in your conversation? And we mention that continuously because that customer satisfaction helps to improve our experience and, with that, mobile sales. And what we do see is that our NPS is still at very high levels. And that's what we find important because that's we believe, that customer satisfaction will drive our revenues as well. We do not have figures on all the sub-elements, like I just said, time to yes, time to cash. But what we do know is what -- the NPS scores of our competitors. And we do track that regularly. In 5 of the 12 markets that we are in, we are #1. And we're the #2 in a couple of markets. And we want to be high on customer satisfaction because in the end, that is, for us, a key differentiator. Tanate?

[Tanate Phutrakul]

And Jean, to address your point with respect to fees and rates movement, I think fees -- as Steven mentioned, our fee levels for comparable product as still low compared to competitors'. So I think with rising interest rate, we believe those fees remains good value and remains sticky for our customer base. Then on the rates itself, I think just going back even 18 months ago during the period of COVID, our retail deposit book is one of the most stable and sticky part of our balance sheet, right? It's one of the great strengths of ING, if I may add. And I think as long as the rate hike by central banks are happening in a gradual manner, we think that we can reprice our assets ahead of our liability book. So I think we're also confident that the deposit book, given not too steep -- not too sharp rate increases, we can keep that -- asset prices rising beyond the liability side.

[Operator]

The next question is from Mr. Raul Sinha, JPMorgan.

[Raul Sinha, Analyst]

Some of us probably don't want to wait until June next year, so I wanted to ask you about the 12.5% ambition again. And we see the gap keeps expanding every quarter as you build capital. Maybe to ask it slightly differently, Steven. Consensus currently models your CET1 ratio reducing to 14.9% next year but remaining stable at 14.9% in 2023. Do you think that appropriately captures the pace at which you want to normalize to your ambition?

[Steven J. A. van Rijswijk]

Right. Okay. So, well, basically, from what I got, Raul, your question is for me to comment on the consensus of the pace of the capital decrease. Is that what the question is?

[Raul Sinha, Analyst]

Correct, yes. Basically, we are expecting -- the sum total of expectations in the market is that your CET1 is still going to be almost 15% in 2023.

[Steven J. A. van Rijswijk]

Yes. Yes, yes. Okay, okay. No, I understand.

[Raul Sinha, Analyst]

Is that fair?

[Steven J. A. van Rijswijk]

Well, look, I leave the consensus for now. But I think what I think -- what I find important is that we have just taken a first step by doing a share buyback, which we have not done for 12 years. And so -- and we got approval for that share buyback. And we've also said that after we have completed a share buyback, we will announce new specials. And I do realize that with our dividend policy of 50% of resilient profits, that would require us to pay a significant -- higher amount to be able to bring capital down. Now I cannot tell you about our conversations with the supervisor. I will never do that. But I would like to point out of the good outcome and the pleasant conversation that we've had with the supervisor when we talked about the share buyback that we're currently executing. And that is, in that conference, I want to exuberate when we move to the next steps when we talk about the specials to move us to 12% to 12.5% over the next couple of years.

[Raul Sinha, Analyst]

Okay. Did I hear you correctly when you said you will update on the next distribution in Q1 2022? Does that mean we should expect an update at full year results?

[Steven J. A. van Rijswijk]

That means that you should expect an update at the first quarter results 2022, yes.

[Raul Sinha, Analyst]

So that's in May? Okay.

[Steven J. A. van Rijswijk]

Yes.

[Raul Sinha, Analyst]

Got it.

[Steven J. A. van Rijswijk]

That's before June.

[Raul Sinha, Analyst]

Yes.

[Operator]

The next question is from Mr. Robin van den Broek, Mediobanca.

[Robin van den Broek, Research Analyst]

First question is on flexible credit compensation that you took in cost. I'm just wondering, I mean, you have more variable-rate products in your product portfolio. Could you just talk a little bit about what kind of tail risk you could see on those products. I know there are some consumer claims or some claims organizations still out there that are banging the drums on that. Secondly, in your RWA waterfall, you have EUR 11 billion of ongoing redevelopments of internal models and EBA guidelines impacts. The work ongoing, I guess, is just a reflection that you'll have ongoing internal model redevelopments but not necessarily of negative impacts as big as we've seen in Q3. I was just wondering if you could comment a little bit on that. And lastly, I want to spoke to your Investor Relations Department this morning, they also mentioned that you had a change in tax rate guidance planned for this call. I think I haven't heard that yet. And so just wondering about that.

[Steven J. A. van Rijswijk]

Okay. I'm now looking frantically at Mark Milders. Like what have you been telling? But I will give that question to Tanate, Robin. And on the other 2, if you talk about Kifid, basically we are following the -- Kifid is an independent mediator which basically looks at complaints of clients and then comes to a verdict. And that was put in place to actually make sure that there was an independent party. He overseas that and can come to a verdict pretty quickly. So that's -- those elements can be then taken into account by banks and then, if need be, compensates the customers. And that is what we're doing. We're following exactly these guidelines of Kifid. Based on those guidelines, we want to compensate our customers for a market rate that whilst not a consistent market rate in the past, it was not a clear market rate, so the information provision to our clients was not sufficiently clear, and therefore we then use the market rate that we should have used to compensate our clients with what that body, Kifid, is saying that we should do. And we are currently also talking to the consumer organization to see how to best do that and then contact our clients as of December to then pay these amounts in 2022 and then be done with it in 2022. This is our current best estimate. And based on what we can see, we've taken all elements of Kifid into account, and that's where we currently are. So for -- as far as we can see, we have provided prudently for that. With regards to our models, yes, you're right, I mean, there's always model updates. We have a number of rating systems which consist of PD, LGD, IFRS, EAD models and so forth and so forth. And I have also some financial markets models that can bore you with this for ages. And Ljiljana looks now very enthusiastic. She wants to talk about this, but we will not do that. But we have regular model updates. And sometimes it will be up and sometimes it will be down, but that's just nothing out of the ordinary. So EUR 11 billion was a, in that sense, a special event. What we meant with the EBA guidelines is that we need to have certain compliance here with some model redevelopments as per the 1st of January 2022, and that is now being taken into account. Tanate, what the hell did Mark Milders say?

[Tanate Phutrakul]

So it's just on tax rate. I know you guys needed to calculate our net profit after tax, the weighted average tax rate, and also to calculate our ROE. And so from time to time, we give guidance with respect to the effective tax rate. Our previous guidance was to have our effective tax rate in the range of 28% to 30%. And now we're giving a different guidance that we expect in the coming periods that our effective tax rate will move down from that level to 27% to 29%, okay? And this is due to changes in our deductibility in terms of certain items. And also geographically, some of our profits have shifted to lower geographies from a tax rate perspective. So this is a move that we wanted to flag to you, that there's a shift in tax rate.

[Robin van den Broek, Research Analyst]

So Steven, just one follow-up on the Kifid matter. I was also referring to other products with variable rates like mortgages or SME loans, where the market rate is sort of central and where you may not have reflected reductions in market rates to your clients appropriately. Do you see any tail risk coming from that side? Or is that...

[Steven J. A. van Rijswijk]

No, no. Okay.

[Robin van den Broek, Research Analyst]

Something you worry about?

[Steven J. A. van Rijswijk]

Okay. So no, I'm not so worried about that because, I mean, mortgages and these type of private individual products, they were all linked to public market rates. It was for that -- for some of the variable loans or credit cards, there was no public market rates that one referred to so that the bank referred to an internal rate. And for customers, that wasn't clear. But that's not the case with mortgages.

[Robin van den Broek, Research Analyst]

Okay, that's great to hear.

[Operator]

[Operator Instructions] -- I'm sorry, this was the last question.

[Steven J. A. van Rijswijk]

Okay. Then I would like to thank you very much for your attention, and I hope to speak in 3 months' time. Thank you very much and have a great day.

[Operator]

Ladies and gentlemen, this concludes the conference call. Thank you for attending. You may now disconnect your lines. Have a nice day.