ING Groep NV

AEX:INGA

Earnings Call Transcript 2021-Q4

[Operator]

Good morning. This is Patricia [indiscernible] welcome you to ING's Fourth Quarter 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 statements regarding future developments in our business, expectations for our future financial performance and any statement I'm involving in 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 statements is contained in our public filings, including our most recent annual report on Form 20-F filed with the United States Securities and Exchange Commission and our earnings press release as posted on our website today. Furthermore, nothing in today's comments constitutes an offer to sell or a solicitation of an offer to buy any security. Good morning, Steven, over to you.

[Steven J. A. van Rijswijk]

Thank you very much, operator. Good morning, and welcome to our full year 2021 results call. I hope you're all well, and I'm joined by our CFO, Tanate Phutrakul; and CRO, Ljiljana Cortan. I am I happy to take you through today's presentation. After that, we will take your questions. A year ago, we were looking forward to circumstances normalizing again and now reflecting on 2021, we're not yet back to normal as COVID-19 is still there and the world faces trained supply chains, staff shortages and rising prices. On the positive side, consumer confidence is up, and businesses have become more optimistic. Economies have shown resilience and the same applies to RNG. And I'm proud that our customers recognize our strengths, resulting in further growth of our primary customer base and the number of sustainability deals. Our digital-only, mobile-first focus continues to pay off with mobile becoming the main channel for which customers interact with ING in '21. And these factors support our efforts to diversify income and offset the continued pressure on liability income caused by the negative rate environment. Loan growth has always been important to counter this pressure. In 2021, loan growth returns on the corporate side contributing to the overall EUR 30.6 billion net core lending growth. And at the same time, we were able to stem the inflows of deposits. Fees grew by 17%, which is quite an accomplishment. On costs, we managed to keep full year cost broadly flat, which means we absorbed CLA increases and higher costs related to employee performance and marketing, which were reduced in 2020, reflecting COVID-19 impacts. Full year risk costs were EUR 516 million or 8 basis points over average customer lending well below our through-the-cycle average. On asset quality, the Stage 3 ratio was low at 1.5%, and we remain confident on the quality of our loan book. The CET1 ratio improved to 15.9%, with 50% of the fourth quarter resilient net profit reserve for future distribution, and we proposed a EUR 0.41 final cash dividend bring the full year cash dividend for EUR 0.21 to EUR 0.62, subject to shareholder approval in April. Now before we go to this year's figures, let me spend some time on some key aspects of our strategy being our efforts to grow our primary customer base, our focus on the mobile channel and on income diversification. Slide 4 shows that also in 2021, customers recognize our strengths, resulting in almost 0.5 million new primary customers in '21. And keep in mind, this is net growth as we have also taken actions to reduce savings, which resulted in some reductions of primary customers, and it excludes the retail markets that we exited in '21. Growth of primary customers continue to be a strategic priority, and we'll come back on this during our strategy update in June this year. We've talked before about the transition opportunity and how ING is well positioned to benefit from that. The exponential growth of sustainability deals support in '21 proves that clients turn to us for financing solutions related to transition challenges. And one transaction we're highlighting this quarter is a sustainability loan for CEMEX, active in the cement industry, which is a good example of our support authorization activities in the hard-to-abate CO2-intense sectors. We believe that as a bank, we play an important role in financing the transition to a low-carbon society, and we will continue to focus on providing this support with our inclusive approach. We are working on translating this also into more concrete targets, which we will address on our Investor Day in June. And as I said before, we counter this alone. As the urgency for climate action increases, corporations, governments and regulators have to work together to define new ways of doing business that align economic growth with positive environmental and social impact. On Slide 5, you can see that our focus on the digital mobile first customer proposition has benefited us as we saw our customers increasingly turning to these channels during the pandemic. Also, in 2021, the share of mobile-only customers increased, and mobile is now the main channel through which our customers interact with us. This is also reflected in a number of mobile interactions growing to a 91% share while the number of total interactions continue to grow as well. We also saw a strong upward trend in our mobile product sales over 2020. We highlighted our digital investment account in Germany as an example of how we successfully offer a digital-only and differentiating customer experience. Now looking at '21, we see the success of the story continues. We opened 390,000 new investment accounts outpacing the 226,000 over 2020. And also, worth mentioning that over 20% of those new accounts were opened by customers who were new to ING, demonstrating our digital offering continue to attract new customers. Now on to Slide 6, our ability to grow primary customers and focus on diversifying income support income growth in '21 despite the continued liability drag. And fees have been an important contributor growing by 17% in '21 and by a 7% CAGR over the past 5 years. In that period, the share of fee income on total income increased from 15% to 19%, helping to reduce dependency on NII, and I now reiterate a 5% to 10% growth ambition going forward. Looking at loan growth, net core lending growth was back at levels more comparable to pre-COVID, half of the growth was in mortgages, while over '21 wholesale Banking Group as well, which partly reflected the TLTRO. We also see a strong pipeline, so that is a positive signal going into 2022, and it supports our 3% to 4% loan growth ambition. Access to the limit deposit inflow have also paid off mostly visible in Retail Germany, where we introduced negative interest rates in November. The pressure from low interest rates is clearly visible in the declining contributing -- contribution of liability NII. And I want to emphasize that this graph is backward looking, and the development of income components is not a guidance going forward. And specifically on liability income, it is not a linear drag as we generally invest in maturities ranging from overnight to 10 years and it quarterly impacts -- depends on what rolls off and how we reinvest. Pressure on the liability income will continue until also the longer maturity in our replicating portfolio have been repriced to today's environment. And having said that though, the yield development curve is positive for us and we expect pressure on liability income to reduce somewhat in '22. Over '21, the pressure was clear, though. However, we have been able to more than offset this and we'll continue to focus on diversifying our income. Slide 7 shows full year NII and fees. And first, NII, as you saw on the previous slide, liability NII has been declining and it leaves the counter pressure were successful until the pandemic start in 2020. In '21, loan growth again offers some support, however, liability pressure remained high. And if we exclude TLTRO benefits, NII was done. And while we're optimistic looking at the yield curve development, this continuing pressure, reinforce our strategy to diversify income and reduce dependency on NII. 2021 was a very successful year with fee growth fully compensating lower NII, while excluding TLTRO benefits, and we believe this higher fee level is largely structural as it is driven by primary customer growth, structural fee growth in daily banking and growth in investment accounts and assets under management. Future fee growth is supported by the fact that we're not back at pre-COVID levels for international transactions and also lending fees are still at a lower level. In Germany, the consent process for new and increased fees is well underway and for the Netherlands, an increase in package fees has been announced. Aside from that, we see several factors and drivers. The first being continued growth of our primary customer base. Secondly, we see possibilities to further increase daily banking fees, which we also have to do as the cost of operating an account has been increasing for banks and some of our largest markets, fee levels are still low, and peers initiate either or they follow an increase, while in other markets, we are still cheaper than peers. And thirdly, on other products, we continue to work on new and improved propositions. The digital investment proposition in Germany is an example where that is clearly materializing. Now we go to expenses on Slide 8. Regulatory costs were up, mainly reflecting an incidental 50% increase in Deutsche Bank tax, '21 expenses for included EUR 522 million in incidental items, mainly reflecting provisions for strategic measures we announced over the past 2 years, such as a departure from several European retail banking markets and a further reduction of the branch network in Retail Benelux. And also, included a provision for compensation of certain consumer credit products. Excluding these items, operating expenses were broadly flat compared to 2020 and our focus on costs almost fully offset contractual salary increases and higher expenses related to performance and marketing as these return to more normal levels after being reduced in 2020. And going forward, we could expect to see some inflationary pressure in our expenses in CLAs. Overall, we will continue to focus on managing costs and aim to absorb inflationary effects and keep costs at least flat in 2022. Slide 9 shows the risk cost development with 2021 risk costs coming in at EUR 516 million. In Stage 1 and 2, we saw an overall release of around EUR 470 million, mainly driven by releases of management overlays taken in previous quarters, and it further reflects clients being removed from watch list and moving back to Stage 1. Total additions in Stage 3 included a total of EUR 254 million specific provisions taken in the fourth quarter, which I will come back to later on. The remaining Stage 3 provisioning was largely in retail banking and included several more updates on Retail Belgium and collective provisioning in our challenger and growth markets. Stage 3 additions in Wholesale Bank were limited and mainly reflected additions to existing files. Our Stage 3 ratio remained low at 1.5%, although the current environment is not without challenges, we feel confident about the quality of our loan book, supported by the fact that it's well diversified and avoid concentration risk. The loan book is practically all senior and well collateralized. And in wholesale banking, we mainly work with investment-grade companies. And finally, historically, our provisioning has been prudent without surprises when we do move into the recovery phase. Now on Slide 10, you see ROE and that recovered from the low level in 2020, primarily reflecting lower loan loss provisioning as other factors remain unchanged such as high incidental costs and high capital levels. And we look at ROE through the cycle and the recovery of our level in '21 supports our belief that we can reach the 10% to 12% ambition. And going forward, this should be supported by several factors, such as further growth of primary customers, lower and fees combined with continued discipline on controllable expenses. And at the same time, we intend to reduce equity level over time, and we take management actions to control RWA is bringing the CET ratio more in line with our ambition level. Now on Slide 11, in line with our distribution policy, we intend to pay out a final dividend of EUR 0.41 per share over 2021, subject to shareholder approval. And this means that the full year dividend over '21 amounts to EUR 0.62 per share. And this year, we nearly completed the EUR 1.7 billion share buyback program that started in October last year. And overall yield in '21 was 9.4% and the share buyback will improve earnings per share -- dividend per share and return on equity. And with a CET run ratio of 15.9%. We have significant excess capital, and we are in a constructive dialogue with the ECB about our distribution plans we will announce next steps if and when we have received necessary approvals. As you can see on Slide 12, CET1 ratio is well ahead of our ambition. On ROE, it has improved significantly and with continued growth as well as focus on cost and capital. We maintain our ambition and very much intend to continue to provide an attractive total return. To reiterate, cost-to-income ratio remains an important input for ROE. We continue to work on 50% to 52% ambition in that regard. And as for distribution, as I mentioned, we proposed a full year dividend of EUR 0.62 subject to shareholder approval for the final dividend. Now let me take you through our fourth quarter results, starting on Slide 14, which we will try to go through a bit faster. Year-on-year, NII, excluding TLTRO, was lower -- slightly lower, primarily due to pressure on liability income and a minus EUR 22 million reclassification from other income to NOI. And this was partly absorbed by increased negative interest rate charging in the Retail Benelux as compared to a year ago thresholds in the Netherlands, have been gradually lowered while in Belgium charging was introduced at the beginning of '21. NII from lending was up, reflecting mainly higher average volumes, and we're looking at excluding reclassification, NII went slightly up quarter-on-quarter as higher lending NII and increasing interest rates -- negative interest rate charging more than offset this quarter's pressure on liability income. Our net interest margin declined quarter-on-quarter by 1 basis points to 137 basis points, driven by the aforementioned reclassification as increased negative interest rate charging absorbed most of this quarter's pressure. Slide 15 shows the core lending growth, overall strong growth continued in retail, while in the fourth quarter, wholesale banking also had strong contribution, resulting in a net core lending growth of EUR 13.4 billion. In retail, mortgages were the primary driver of lending growth, with some growth also visible in consumer and business lending. Mortgage model strong in Germany, but also in Spain, Australia and Poland. In Wholesale Banking, loan growth returned with partly reflected TLTRO eligible deals, total number for the fourth quarter should not be extrapolated. However, when we look at the pipeline, we see signs that demand remains strong, and we are positive on loan growth in Wholesale Banking going forward. Net customer deposit growth was minus EUR 2.1 billion, and retail savings were up by EUR 2.7 billion with inflows in the Netherlands and non-Eurozone countries, while we saw an outflow in Germany and France. And for Germany, this was mainly the result of the introduction of net negative rate charging in November. Also, banking recorded an outflow of EUR 4.9 billion, mainly in PCM. And turning to fees on Slide 16. Year-on-year, fee income grew by 20%, with both growth in retail and wholesale. Retail fees were up 7% with an impressive 27% increase in daily banking. This reflects growth in primary customers. The increase in payment package fees and a further recovery in the level of domestic payment transactions, which was basically back at pre-COVID levels. International payment levels actually remain subdued in transactions. In investment accounts products fees were 12% higher, reflecting growth in accounts, asset under management and trades. The wholesale banking fees were 26% higher with growth across all product groups and sequentially retail fees were 3% higher, driven by investment products and daily banking. In Wholesale Banking, fees were up 9%, mainly reflecting higher fees in financial markets and corporate finance. Slide 17 shows expenses, which this quarter included EUR 166 million of incidental items, mainly reflecting EUR 141 million of provisions and impairments related to the announced closure of the French retail banking activities. Excluding regulatory costs and these incidentals, operating expenses remain under control. Year-on-year, these costs were slightly higher, mainly reflecting a lower VAT refund and higher staff expenses related to CLA increases and performing related expenses, which were reduced to lower levels in the fourth quarter last year. So that's 2020. Quarter-on-quarter was also largely driven by the staff-related cost increases while also marketing our [indiscernible] were higher. Regulatory costs were up, including the Deutsche Bank tax, which was 50% higher in '21. In '22, these levels should normalize again. Overall, I'm pleased with how operating costs are developing. Also, as we already see some effects of measures taken so far, we will always keep focusing on optimize where we invest our capital and further measures can always materialize. But at the same time, we also need to look forward and we will invest in areas where we can get the best returns. Now we go to risk costs, that's Page 18. They were EUR 346 million or 22 basis points over average customer lending. The increased level compared to previous quarter reflected our prudent approach in certain environments. With EUR 230 million to reflect the uncertainty in recovery scenarios and valuation in certain asset classes, mainly in Wholesale Banking. And in addition, we took EUR 124 million related to residential mortgages by increasing inflation and interest rates could affect customers' ability to pay, which could impact house prices. Now this was partly offset by EUR 124 million release of management overlays taken in previous quarters, mainly related to payment holidays and sector-based overlays predominantly as a result of reductions on watch list.Aside from these releases and Retail Benelux, risk was mainly reflected [indiscernible] Belgium and some individual Stage 3 releases and retail challenging growth markets, risk costs further reflect the collective provisioning, mainly in Spain and Poland and also taking Stage 3 risk costs further included limited additions to mainly existing files. Finally, the Stage 3 ratio -- sorry, Stage 2 ratio was slightly lower and Stage 3 ratio was stable. Slide 19 shows that our CET1 ratio increased to 15.9%. CET1 capital was EUR 600 million higher, mainly due to the inclusion of 50% of net profit for the quarter. And with net profit being equal to resilient net profit, the other 50% was reserved for future distribution in line with our policy. RWA increased mainly due to the higher market and operational RWA. Credit RWA area were down, mainly reflecting overall improved profile of the loan book and 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 risk floor waiting for mortgage in the Netherlands, which we currently estimate at around EUR 7.5 billion, but we expect this floor to be temporary as it is front loading the outlook for under Basel IV. And besides that, we will continue to see releases or additions to RWA from regular model updates. To wrap up with the highlights of the quarter on Page 21. Our customers continue to recognize our strengths resulting in further growth of our primary customer base as well as the number of sustainability deals. Our digital-only, mobile-first focus continue to pay off with mobile becoming the main channel through which customers interact with ING in 2021. And these factors support our efforts to diversify income with full year loan growth returning and fees increasing by almost EUR 0.5 billion or 17%. And this offsets the continued pressure on liability income caused by the negative rate environment. On costs, we managed to keep full cost -- full year cost flat. Full year risk costs were EUR 516 million or 8 basis points over average customer lending well below our through-the-cycle average and this included some prudent adjustments to Stage 3 provisioning on existing files. The CET1 ratio improved to 15.9%, with 50% of the fourth quarter resilient net profit reserve for future distribution. And we proposed a EUR 0.41 final cash dividend, bringing the full year cash dividend to EUR 0.62 subject to AGM approval in April. That concludes the presentation, and I will now open the floor for Q&A.

[Operator]

[Operator Instructions] Our first question is from Mr. Benjamin Goy of Deutsche Bank.

[Benjamin Goy, Research Analyst]

Two questions, please, from my side. First, on costs, maybe just to double check in the absence of restructuring cost for any incidental should we expect then that the underlying cost base is stable. Can you also absorb investments and the likes in 2022? And then secondly, you're obviously guiding towards payout above 100% -- yes, yes, 100% going forward. I was just wondering how the discussions with regulators have evolved over the last months. I mean we saw a larger peer view announcing effectively that plan. Do you think the likelihood of that has also become more -- or has increased for ING?

[Steven J. A. van Rijswijk]

Thank you very much, Ben, and I will answer the first question, and Tanate will answer the question on payout. Yes. I mean, so the cost base is stable. Please note that the fourth quarter was impacted also by CLA and by performance-related salaries. And, of course, by a slightly increased marketing and IT expenses on the back of growth because we want to continue to grow our business as well. Now gradually, we see some of the impacts that we made as a result of the announcements that we made on some of our retail markets and some of our other activities kicking in, that is gradually kicking in over 2021, but will continue to kick in over 2022. And that means that despite what we see in currently seeing inflation and CLA pressure that we intend to keep our costs at least flat over the year 2022. Tanate?

[Tanate Phutrakul]

Benjamin. So adding just on capital returns. I think our discussion with the regulators are constructive. Look at what we announced so far, EUR 0.41 in dividend payments. EUR 1.7 billion share buyback, which is coming to its conclusion and rising levels of core Tier 1. So that capital strength means that our conversation with the regulator has been constructive as we say. And these discussions are ongoing, but we expect that we would conclude our discussion before we announce our first quarter results.

[Operator]

Next questions are from Mr. Benoit Petrarque of Kepler Cheuvreux.

[Benoit Petrarque, Head of Benelux Equity Research]

So the first one will be on NII. So the rate curve is moving quite fast now. I just wanted to discuss basically this gradual positive effect into the replicating portfolio, especially at which point -- when do you expect the kind of loan growth to -- at a 3%, 4% level to offset the pressure on liability income. And are we getting closer at current level to that point? I was wondering that, that could be -- well, something we will start to see in 2022. And also, let's be a bit hopeful on the rate increase. What is your sensitivity again to say, 50 bps hike of ECB rates on NII that will be very useful, please? And then the second question will be on the fees. Just how do you see fees going into 2022? I mean you are coming from a very strong year at almost 20% year-on-year. Do you still expect some of this at least, do you think that includes some structural market-related effects or do you see this growth into '22? That would be very useful.

[Steven J. A. van Rijswijk]

Thank you very much, Benoit. I will answer the question on fees, and Tanate will talk about NII. If you look at fees, I mean, most of the elements that we currently see in our fee buildup are structural. We have increased the number of people that have investment product accounts with us. For example, if you look at Germany in 2020, we grew the number of accounts for investments with 326,000. This year, it was 390,000. So in total, more than 2 million clients in Germany are currently investing through us. We increased the number of payments. We increased the payment packages in some countries, as a result of which our fees went up as well. And we also do more insurance with a number of our clients in the different countries. But please note that we also continue to grow our primary customers. And if we grow our primary customers, that means that we have clients that do more with us. And like we always have said, clients who do more with us are more sustainable from both sides, from the clients but also from our side in doing business together. And you see that on one of the pages in terms of mobile sales that also increased quite dramatically in this year compared to the year before. So all those elements play a role. So higher number of primary clients, increasing payment packages, more clients that do investments with us, more clients do insurance with us. And I think that what -- and the reason why I am confident is that if you look at the lending fees in Wholesale Banking, that is not quite yet back at the level that we saw pre-COVID. If you also look at the international payment volume, that's completely not back where it was before the COVID crisis. Yes, we saw domestic payments coming back -- the international payments coming back and that is a significant part also of that income. So in that sense, I'm positive. I'm confident. And therefore, we continue to guide a growth in fee income of 5% to 10% per annum also for the years going forward. Tanate on NII?

[Tanate Phutrakul]

Benoit, just on NII, maybe I give you a bit of color in terms of what is some headwinds and what is some tailwind. Clearly, our going in assumption for 2022 is that the TLTRO program will end, okay? And with that ending of the TLTRO program, it means that we will be missing somewhere around EUR 300 million in NII compared to 2021. Having said that, if you look at the other components, we were fairly confident given what we see in Q4 that the 3% to 4% loan growth is there, and we think it will be there across the board, whether retail or wholesale banking. We also believe that we see a strong pickup in high-margin business in our Central European business, which I think will also be contributing to that NII uplift. The other couple of things to point out is that negative charging for liability is continuing, not about the future, but the current actions already taken. And that for the full year 2021, we have a positive impact from that negative rate charging of approximately EUR 220 million and that would raise to about EUR 300 million for 2022. These are kind of also some positive tailwind that you could see. And to address your question on the curve movements, we do expect that the negative rate compression that we will see in '22 will be significantly less than what we saw in 2021. But I think it's not so easy to just say what would a 50 basis point uplift would mean, it's a much more dynamic calculation that we would have to make. But I would say that these rate movements that we see now is really helpful in terms of mitigating some of the compression we saw in 2021.

[Benoit Petrarque, Head of Benelux Equity Research]

Yes, this is very useful. On the 50 bps, I was just mentioning the short end of the cost of the refinancing rate, let's say, from the ECB world kind of [indiscernible] 50 bps. Any guidance on that?

[Tanate Phutrakul]

Well, I think we do our replication in the barbell, and we see really good evolutions in the long end. So indeed, if the short end would move, it will be very, very helpful.

[Operator]

Our next question is from Mr. Stefan Nedialkov, Citi.

[Stefan Rosenov Nedialkov, Research Analyst]

I want to ask a couple of questions here. The countercyclical buffer has gone up by around 20 bps at the group level. I'm assuming that the BaFin increase in the buffer. So we're now at 10.7% RAP, which means that the buffer to the management targets has shrunk by 20 bps. Is this something that you're so to say, going to absorb within the management buffer? Or are you thinking that maybe as regulators tighten the common cyclical buffers across Europe, so the 12.5 might move higher, maybe closer towards 13% or so. So that's one question. And the second one is on costs. It's encouraging to see that you're aiming to absorb inflation for '22. That will presumably come via restructuring in the business as you have been doing over the past couple of years. Is it fair to assume that the flat guidance or at most of that guidance is exclusive of any restructuring costs that we may be seeing from the various businesses?

[Steven J. A. van Rijswijk]

Yes. Thanks very much, Stefan. I will do the question on costs and then Tanate will do the question on the countercyclical buffers. We took quite some -- I mean, first of all, you're right. So yes, that's what I guide on is the cost excluding these restructuring amounts if they would come. We've done quite a bit of restructuring in 2021 with Czech Republic, Austria, France, Yolt, Payvision some of the branch networks in the Benelux. Not all of those benefits have yet to materialize. So the announcement that we made earlier in the year still means that it takes us quite a lot of time to actually run off those businesses. Let me take the Czech Republic and Austria that has taken until the end of this year to roll off. So that takes time. So benefits of some of these announcements that we made in 2021. And 2020, by the way, will also materialize in 2022 and that will help us. But indeed, it is excluding new restructurings if these would take place. Tanate?

[Tanate Phutrakul]

Stefan, so just addressing the question on countercyclical buffer. So we clearly have issued a press release on our new MDA target and in calculating our 12.5% capital target. We already take a certain assumption about rising levels of countercyclical buffer. So far, I think about 6 or 7 countries of material size have increased our buffer, which is contained in our numbers but we stick with our 12.5% core Tier 1 guidance.

[Operator]

Next question is from Mr. Omar Fall of Barclays.

[Omar Fall, Analyst]

You mentioned the very helpful impact from higher policy rates. So just to clarify, is there an expectation then that, if and when, actual policy rates increase, you'd be able to maintain the negative rate charging you're currently doing and the EUR 300 million benefit and then you'd have some positive beta there for -- at some period? Then the second question would just be to help us with our modeling, could you give us the cost base of France retail, Austria and Czech Republic or just some slightly better clarification of the components of OpEx that you'd expect to see removed in 2022? That would be very helpful.

[Steven J. A. van Rijswijk]

Thanks, Omar, for your question. So on the policy rates, Yes, I mean -- and clearly, you also mentioned what is the beta there and then that is a good word because it depends on the beta tracking that we then will do. Clearly, as long as the rates are negative, the beta will probably be higher. And if the rates are positive, then the beta tracking will probably be a bit lower. But it also depends on what competition is doing and how the rates not will only move in the short term but also in the long term. So it's not a one-sided answer that you can give. What will, of course, help is that now we already see that the market rates on the long end are increasing. Those are -- and we see that mortgage rates are more linked to the long end of the spectrum and the ECB is more focused on the shorter end of the spectrum. But yes, we will need to wait and watch the ECB all going to announce as of today, but also in the next quarter. So we will need a remain. But if you look at it overall, a gradually increasing interest yield curve. Upper sloping will be helpful for us, both on the short term and on the long term of the yield curve. Then on the cost base of France, Czech Republic and Austria, we do not disclose individual cost basis, but Tanate will give you some flavor.

[Tanate Phutrakul]

I think we -- as Steven mentioned, we don't disclose the absolute cost number, but we did disclose the number of employees affected by these closures. And for Czech for Austria, we have announced numbers of around 560 staff. And for France, as we announced recently, it will affect 460 FTEs.

[Operator]

Next question are from Ms. Giulia Miotto of Morgan Stanley.

[Giulia Aurora Miotto, Vice President and Equity Analyst]

Can you hear me?

[Steven J. A. van Rijswijk]

Yes, very well.

[Giulia Aurora Miotto, Vice President and Equity Analyst]

Perfect. Okay. So two questions on my side. And I want to go back to the NII sensitivity question. So it is the perception of investors that we have might be sensitive with respect to peripheral European banks because the mortgage book is mostly fixed. And if I look at what you disclosed in the annual report, I think there is a EUR 60 million impact for 100 basis points or more in 1 year, which is basically a negligible impact. But what we have seen for the year is clearly a much higher impact. So it will be very helpful if you could give us any sort of sensitivity for either in parallel or front-end move? So that's my first question. And then my second question on fees. So I totally understand the structural discussion around the retail fees. But my question is on wholesale banking fees actually. So EUR 322 million in the quarter is pretty high also by pre-COVID standards. And is that sustainable? What is driving that? Any color that you can give us on wholesale banking fees.

[Steven J. A. van Rijswijk]

Thanks very much, Giulia. You're correct. The wholesale banking fees were good this quarter, and that was a result of more event-type driven fees also in Financial Markets and Corporate Finance. So in that sense, that was good. But if you look at the lending fees within that, because most of the fee that we make in Wholesale Banking are still from, let's say, the syndicated loans and the underwriting activity that we do. And that market is not completely back. It's typically still a take in hold market on a number of these elements will be held by M&A, of course, that if there's more M&A, there's also more underwriting, but that is still to come. So yes, we benefited this quarter from some one-off or positive one-offs in terms of event-driven fees, but we have not yet benefited from the syndicated loan market coming completely back. That's on Wholesale Banking.

[Tanate Phutrakul]

And Giulia, I think your question is, as you know, in most of our markets, we do fixed rate mortgage loans, but it does not mean that we keep that long-dated interest rate positions, right, from a hedging perspective. We -- as long as we originate the loans, we start swapping the position down to the level of interest rate risk that we are comfortable with, okay? So I think if you want to see the sensitivity you should look at the 3- to 5- to 7-year piece of the curve. And also, if -- as we mentioned before, if the short end of the curve, kind of the 6 months was to start moving materially, that really will be quite positive on ING's results, net interest income results.

[Giulia Aurora Miotto, Vice President and Equity Analyst]

And maybe just a follow-up to this last point. In terms of your replicating portfolio, can we assume that about 2/3 of the deposit in terms of size or any more color on that?

[Tanate Phutrakul]

We don't give that information, but of our EUR 600 billion of liability, a fairly significant part of our Eurozone base, indeed.

[Operator]

Next question is from Mr. Kiri Vijayarajah of HSBC.

[Kirishanthan Vijayarajah, Analyst]

A couple of questions. So firstly, on the wholesale bank and the rapid lending growth you're seeing there. If you go back, you have been doing some derisking there when you first became the CEO. So my question is really, how do we get comfortable, you haven't simply kind of backtracked on your kind of risk appetite in the wholesale bank? Can you give us comfort you haven't just gone back and restarted some of the old lending in wholesale banking? And then the second question more on the retail side and the extra revisioning you're taking there. You've planned high inflation, higher interest rates, risk of falling property values. And I just wondered what early warning signs you're seeing that was the trigger there? What are you seeing that maybe some of your peers aren't seeing yet? And just thinking in between the lines, is it fair to say Turkey with a fairly minor elements. I mean you do mention it in the slides, but you didn't really mention it in your verbal commentary. So just curious as to where Turkey fits into the extra provisioning you've taken on the retail side this quarter.

[Steven J. A. van Rijswijk]

Sorry, the last part was, we couldn't quite get that. Turkey and what else you said?

[Kirishanthan Vijayarajah, Analyst]

When you flagged the extra provisioning triggered by debt servicing, high inflation, higher interest rates and also falling property values for the extra provisioning. And yes, it's -- I mean a lot of your peers haven't really been flagging that yet, and maybe you're ahead of the curve. But I just wondered what early warning signs has been the trigger for you to actually take those extra provisions?

[Steven J. A. van Rijswijk]

Right. Okay. Clear. So Ljiljana will answer the questions on the provisioning and the early warning signs or signals that we see. I will take the question on lending and wholesale banking and also respond to Turkey because we -- because I believe you asked in Turkey as well, but it was not in our -- it wasn't a slide, but not in the further comments. If you look at the lending and Wholesale Banking, I mean, yes, I mean I used to work in Wholesale Banking, and then I was a COO and then I became the CEO and -- but I have not become yet schizophrenic, I hope, in the sense that we did change or tighten some of the policies over 2017 and that had made to do with the more cyclical sectors in real estate finance and leveraged finance because we saw then at least in leverage finance some of the structure is not being conducive to what we would like to do, which means the final takes or the underwriting standards in terms of the governance. And the same was going for, let's say, some of the indicator levels, which is loan to value in terms of our real estate finance book. And that's what we then tied. We never changed that since. So if you look at what the growth in Wholesale Banking currently is, which is fully in line with the policy that we have had since then, which is largely investment grade. In this quarter also a bit of a pull forward due to TLTRO. Short-term facilities also in trade, also supported by higher oil prices or higher commodity prices. That's where it is. So there has not been a change of tax in what we do in Wholesale Banking. I will leave the risk costs to Ljiljana.

[Ljiljana Cortan]

Kiri, yes, the early warning signs that you mentioned, let me please clarify that these are not related to the asset quality that we see in the fourth quarter on contrary we do see the signs in all of the metrics of further strong and improving asset quality. The early warning signs that we talk about is more related to the forward-looking macro indicators that has been, I would say, accelerated in the fourth quarter, specifically with the outlook on inflation, it is going to stay high for longer and definitely its impact and eventually amplification effect on other macro variables. And just let me give you a few of the numbers that has made us think of what could happen going forward, clearly, depending on the monetary response is the fact that in December, as we know the Eurozone inflation has peaked to the highest since the euro introduction, not just that, but also fourth quarter inflation year-on-year has almost doubled in some of our core markets compared to the third quarter, driven by the strong energy increase of the prices, which actually horizon of the end is not yet there. And let us not forget it in the last few years during pandemic, we have seen a double-digit growth in our also core markets with respect to the property valuations and we have seen quite benign, I would say, outlook and position of the household incomes. So all of these coming together with what we see on the longer end of the curve, which is increasing interest rates, and looking forward to today's announcement as well of ECB and how they look into it. We are taking this prudent stance. Let me just add that most of these provisions have been taken on the, I would say, more vulnerable part of our portfolio, which is primarily Stage 3, having in mind that we expect eventual impacts first to material on this weaker part of portfolio. So they are not taken systematically for the whole book.

[Operator]

Next questions are from Mr. Farquhar Murray of Autonomous.

[Farquhar Charles Murray, Partner, Insurance and Banks]

Just two questions, if I may. Firstly, on costs. You mentioned the impact of a risk profile reduction on regulatory costs in the quarter. Could I just ask if you could elaborate on the mechanics of that? And in particular, has that only really just kicked in for this final quarter or did it support the whole of the year? And then secondly, just coming back to the countercyclical buffer. Are you willing to elaborate on the assumptions you build into the target for that? And then just more generally and maybe even philosophically, can we -- we can all mechanically just increase the countercyclical buffer and it narrows the headroom to MDA. But is the target exercise really so bottom-up mechanical and can we just take everything else that given within that? And I'm asking that because obviously, if we do move to a landscape with much larger countercyclical buffers, does the domestic buffer of 2.5% really makes sense in that case? Because it looks like it was built for a different environment.

[Steven J. A. van Rijswijk]

Okay. So -- and you have to guide me a little bit how you exactly your question, but I think that the first question related to the higher bank taxes that we saw in the fourth quarter in terms of DGS. So -- or lower, but I mean -- can you just repeat what that question exactly was?

[Farquhar Charles Murray, Partner, Insurance and Banks]

No. So I'm sorry, that's my fault. It's actually the other component. Obviously, there's a higher incidental component, which I understand. But actually below that, you seem to essentially have had a slight reduction on the rest of the regulatory costs and you seem to be attributing that to a risk profile reduction, which I think related to leverage. And I'm really just trying to understand what's the timing and mechanics of that? I'm sorry if it wasn't clear to start with.

[Steven J. A. van Rijswijk]

Okay.

[Tanate Phutrakul]

So just on -- Farquhar on the calculation of DGS. DGS calculates based on any banks given majors of different dimensions. And one of the driver of the contribution of DGS is the level of leverage ratio that you have and given the improvement in the leverage ratio for ING, our contribution to DGS came down.

[Farquhar Charles Murray, Partner, Insurance and Banks]

And did all of that just kicking in the fourth quarter?

[Tanate Phutrakul]

Principally, yes.

[Steven J. A. van Rijswijk]

Yes. And then on countercyclical buffer, is really a bottom of exercise. Well, in the end, yes. So basically, what it comes down to is that these countries can include the countercyclical buffers or not. What we have done when we came to our levels of 12.5% or around 12.5%. Because the change that, for example, the Netherlands made in the local SRB buffer that was here for a long time. They decrease that. But in return, there was an opportunity for the Dutch Central Bank to start levying a countercyclical buffer. So in our buffers, we take into account the possibility that some of the countercyclical buffer will materialize at some point. And that's when we include that. So based on what we currently know, based on what has been introduced, we have currently no intent to change our guidance on our CET1 ratio.

[Operator]

Our next questions are from Mr. Tarik El Mejjad of Bank of America.

[Tarik El Mejjad, Equity Analyst]

Just come back, please, on the question on the countercyclical buffer. I mean I understand that you seeing a compensation of the higher potential buffer in Netherlands through the lower pillar -- lower, sorry, domestic systemic buffer that you had in March 2020. But the question is really the 2.5%, how valid still it is in the context where LTVs are lower since last 10 years. It is in place singulation fund almost filled you have much higher RWAs on mortgages. So what's really your discussion with the DNB about this 2.5%? Because clearly, we are in different contexts. And in a European context, sounds very elevated. And when you think about still the ambition to take the CCyB to 2% in the next 2 years, are we not in the spirits where the DNB will be in a loop of stocking up capital for the Deutsche Bank? So the second question is on costs. So in your 10%, 12% ROE, you envisioned in a bullet point that you are counting on termination or the filling up of the singulation fund. So what's your expectations about that from 2024? Do you think it will fully stop the contribution? Or it's only the contribution regarding the increase of the size of the fund. So what's your view in there?

[Steven J. A. van Rijswijk]

Okay. When it comes to the 2.5% systemic risk buffer that we have here in the Netherlands, that is high compared to systemic risk buffers that other national competent authorities are levying I have been advocating against that for quite a long time already. This is based on the premise that banks who are systemic are systemic for the country and the intent of, let's say, the banking union with the 3 pillars was, which is the asset having in SSM having one resolution agency and having also on deposit guarantee system, that there was not so much dependency anymore on 1 country, but there would be dependency on Europe. And in my view, currently, we're actually doubling this. So I understand and appreciate the prudency, but I think that this is not justified anymore in terms of where we're going. And continuously, I think what was good is that the percentage was changed in March 2020, as you rightly mentioned. But I still think from a European context, this is not what it should be and it also goes against level playing field. So that's my first remark. And by the way, this is not a secret to the Deutsche Central Bank. We have quite open discussions about that. And that comes back then to the second element, which is, yes, the banking union should help with that. And one of the pillars is the European DGS funds. The contribution to that continues at the current level into 2024, and then it will be tapering off. We do not think that yet that will go to 0 completely, but it will go down from that time onwards. Does that answer your questions?

[Tarik El Mejjad, Equity Analyst]

Yes. Just following up very quickly on the first one. But don't you think the -- sorry, the DNB is in the mindset of really locking up and capital within the Deutsche Bank? Because I'm sure they understand all the agreements we're putting forward and still to take any opportunity to keep offer. So it was clearly a put for them to systemic buffer and then compensate. So they haven't done that. So do you think -- and does it make you more cautious when it comes to capital return and in down the excess capital over time or not?

[Steven J. A. van Rijswijk]

That's a good question. The answer is no. Look, I cannot comment on the future views of DNB. That's for the DNB. But I don't have particular concerns in that regard, and it's for sure not a element that we currently discuss around the table when we talk about the distribution plan. So the answer on that question is, no.

[Operator]

The next questions are from Mr. Jon Peace of Credit Suisse.

[Karl Jonathan Peace, Managing Director]

So my first question, just following on from Tarik's point. I think it would be quite helpful to manage our expectations. If you could give us a rough idea of how quickly you plan to get to a 12.5% target? I know you've mentioned maybe a couple of times last year, the phrase a couple of years. I mean, could you just maybe clarify, are you still thinking 2 to 3 years rather than 4 to 5 years to return to a 12.5% target? And then my second question, please, is on the cost of risk. How much do you see that normalizing in 2022, given you still have some overlays, given the underlying run rate is still pretty good. Should we still expect it to be below or even well below the through-the-cycle rates? And is Q4 a good proxy for the potential cost of risk next year? Or would that be a little conservative given you took some extra provisioning?

[Steven J. A. van Rijswijk]

So Ljiljana will do the question on the cost of risk. And regarding, I would say, how quickly we will get to 12.5%. Look, we have we have been saying that we will do this in the next couple of years. I'm not going to speculate what's the exact number here will be. But it's clear that if you look at our current levels of 15.9% we have compared to 12.5%, we have EUR 10 billion of excess capital. We started last year with a share buyback based on the capital we already have reserved. We've told you that we will -- before the first quarter figures, will come with a conclusion of our current discussion with the ECB on paying further excess capital. And we will then work step by step towards our 12.5% common equity Tier 1 in the next couple of years. Ljiljana, is the fourth quarter any predictor of what it will be in '22?

[Ljiljana Cortan]

Well, I would not take it as a proxy for '22 extra provisioning. As we explained, we have taken a specific management overlays this quarter, and they are very specific to a certain macro indicators that will, in the end, realize or not in '22. What I believe is important to look at the overall cost of risk for the year, which are at 8 bps, well below the through the cycle. And actually, we remain with our guidance going forward as well in line through the cycle. So in short answer is no, we do not expect this to continue in the same trend, and we were prudent for the reasons that we have mentioned before.

[Operator]

Next questions are from Mr. Jean Neuez, Goldman Sachs.

[Jean-Francois Neuez]

I have two questions, please. One is on -- for the net interest income, the pricing component. So you noticed in 1 of your slides that there were strong volumes in Q4 and you noted that some of them were due to the ramp-up towards TLTRO, I guess, another for the cutoff date. I know it's early in the year, but are you noticing changes now that the threshold has been passed in time in competitive behavior when it comes to front book pricing, in particular for nonfinancial corporates in the various markets where you operate? I'd expect that the comment you made on the EUR 300 million TLTRO is all else equal for the loss of income, but I also think that the TLTRO, overtime, has had its desired effect from a monetary perspective, which was to bring down cost of lending for company. So I'm just trying to understand whether that can reverse or partially reverse? And my second question is on the cost line. I wanted to understand when you say that the cost would be roughly flat or at least flat in 2022. Whether you could give us some example of what you're doing to achieve this and to counter inflation, which is picking up and essentially to try to understand how more there is to go in the years that continue or whether that -- those are actions which are point in time as opposed to structural?

[Steven J. A. van Rijswijk]

Okay. Thank you very much. In terms of loan volumes, there was some pull forward of the loans in Wholesale Banking due to TLTRO. In the end, we still see that there's a lot of liquidity in the market, and that is, of course, then determining the price levels in that particular loan book. What we have seen, and like I said also in the presentation, we do see a good pipeline. And again, I particularly pointed out that the pipeline that we currently see. So that's also encouraging for our loan growth in 2022, which I said you should not extrapolate the fourth quarter in '21, but we're still aiming for -- typically for a 3% to 4% loan growth, which we're doing as well. And when there is more normalization in the economies, you see the economies that continue to grow also for the coming years. The outlook in that sense is good despite the uncertainties that we all know. And of course, we have the whole transition ahead of us. And it also means that we have to -- in Europe, companies need to make massive investments, and elsewhere by the way, to go through that transition and also that will be a positive stimulus for demand. So in that sense, that we're optimistic, but not a particular impact currently on pricing. On costs, first of all, in the end, we focus on growing our customer experience. And if we are increasing and improving our customer experience, we will get more primary clients, we will get more traffic, and we will then also do more transactions and business with those clients. That's what we believe in, and that's what we are very successful in. In that if you then can do it in a better digitalized way that will both improve the customer experience, it will improve the colleague experience, but it will also impact our cost to serve. And therefore, in building that more personalized smart and instant customer experience, digital is the key. And you see a way that over 50% of our retail customers are mobile only. And over 90% of our contacts are digital. So basically, we will pull also the digital lever to and improve the customer experience and by end-to-end digitalization and use scalable technology and operations to further improve our cost income levels as part of the overall equation. So that's what we do structurally. And then what we also do and that we have been doing that over the past 1.5 years, and I think one of your fellow colleagues was asking about that. We have -- we are now again reviewing our businesses. We will continue to review business as always, to see if the long-term at sufficient scale, talking about retail in shorter markets or as sufficient individual deliverables also for other markets, so we can make applicable return in that regard and the return targets are clear. And if that -- through the cycle is not the case, then we take our conclusions to deploy that capital elsewhere where we do have sufficient client business and scale in such particular market. Now I will never run ahead of myself in announcing these things or what I will announce. But the first lever we pull is digitalization that is structural. And the second one, which is business reviews, that is more, I would say, one-off depending on where we operate and how successful we are.

[Jean-Francois Neuez]

Okay. So just to clarify in another word, you're not you're not combating inflation by freezing investments or delaying things that you would otherwise have done that we could then have to kind of see a payback further than the year?

[Steven J. A. van Rijswijk]

No. Because in the end, you always need to focus on continuously improving your client experience. That's the only way that you can compete long term? And if you...

[Operator]

Next question is from Mr. Guillaume Tiberghien, Exane BNP Paribas.

[Guillaume Tiberghien]

I've got two questions -- sorry, two clarifications -- sorry, two questions. Could you provide the fees that you generated from international payments in '19 and in '21 because you highlight that as a source of growth. So I wanted to see what the base was and what it is now? And secondly, could you give us a flavor about how your commercial estate portfolio is developing in a changing world with people working less from the office and going less to shops. The two clarification are, number one on the Belgium EUR 23 million NII transfer to other income. Does that represent a new normal, a new run rate for NII? Or is it just a one-off movement and we go back to previous level? And the second clarification is about the cost of risk. The question earlier was, is 22 basis points a good reflection of what you would expect for 2022? And I think the answer was, no, it's not because we had some provisions that were one-off in nature, but your usual guidance is 25. So actually, the Q4 number is very close to that. So is the Q4 number, actually a number, we could annualize for '22?

[Steven J. A. van Rijswijk]

Right. I will answer a couple of the questions and Ljiljana is deliberating on the real estate portfolio. So if you look at the level of fees from international payments in 2019 and 2020, we don't disclose it as such. And if you look at our payment fees, they consist of two parts: The first part is the monthly package fees that people pay. And secondly, depending on the type of package that you get, you also pay for transactions. Now on the second part, and it depends per package and it depends per country. The international payments of that second part is the lion's share of the second element of daily banking fees. So not of the monthly packages as such. But on the transaction payments, then international banking and international payments are very important, especially in the Netherlands and Belgium, which is largely a debit cards -- which are largely debit card-driven markets. And that's what I want to say on the first one. If you look at the minus EUR 23 million, so that came from other income to interest income and therefore was minus EUR 23 million. That was a one-off. So you can ignore that going forward for blocks. Then on cost of risk, if you look at the guidance and if you look at the real estate portfolio, I will give the floor to Ljiljana.

[Ljiljana Cortan]

Thank you, Steven. Thank you, Guillaume. As we said, 25 bps is a through the cycle average, not necessarily for the year. So we do believe that what we've done in the fourth quarter was one-off through the management overlay. -- however, 25 bps should be looked as a longer-term average and through the cycle. We remain confident on the quality of our book and the level of provisioning. And when it comes to the commercial real estate portfolio, I think it's important to say that over the 4 years, we have kept the growth in that area in order to, I would say, manage the concentration risk and specifically with COVID coming in place. we have revised as well some strategies in the office and retail space. However, in terms of the overall outstanding, they are very stable. They are approximately at EUR 49 billion, quite low and even decreasing clearly LTVs of approximately 48%. Also, with respect to the asset quality in that area, we are at a very low and lower than average NPE ratio of 1.2%. So we do remain cautious, but we do remain as well monitoring our portfolio. And so far, no even ember flags, I would say, in that area.

[Operator]

Next question is from Anke Reingen of RBC.

[Anke Reingen, European Banks Analyst]

The first one is on cost of risk as well. I just try to -- I want to understand the EUR 124 million management overlay related to residential mortgages. I understand the Stage 2 and Stage 3. But I mean trying to understand how EUR 124 million doesn't seem a large number if you really concerned about customer ability to pay and changing property valuation. So how much of a risk is it that number keeps on going up in the next quarter? And then just on the capital return. I mean, I guess that could have been an expectation you announced a special dividend and a new buyback program today. Is that basically -- it's not happening because the discussions are still ongoing. I mean I understand, I saw that the buyback program significantly slowed down, so it's not completed. But at some point, it looked as if you were done today. So this is really just because the discussions are still ongoing. And then just a special dividend, is that just a full year event? Or would you potentially consider also a special dividend with half year new results at the half year or interim dividend.

[Steven J. A. van Rijswijk]

Okay. First, we go to the EUR 124 million overlay. Ljiljana?

[Ljiljana Cortan]

And as correctly, you mentioned. It does not seem large. It's also, as I said, because we haven't taken the overlay on the overall portfolio. We have -- with combination of deteriorating some of the macro indicators taken that overlay predominantly on the significantly increased credit risks in the portfolio, meaning it's Stage 3 and somewhat Stage 2. That's why the amount is as well as not big as if it would be if we would be really looking at the overall mortgage portfolio. I hope this answers your question.

[Anke Reingen, European Banks Analyst]

Yes. But does that then provide comfort? I mean, I guess if you review that over the -- overall portfolio and the potential risk from higher rates and inflation, should you then not expect to come?

[Ljiljana Cortan]

Well, we do not see that risk for the whole portfolio, as we said, because our underwriting principles and our originating LTVs are very low. So I would say the worry is not on the overall level. It's more on the combination of the credit repayment capabilities of the more, I would say, worrying part of the portfolio or lower income part of the portfolio and combination development on inflation and housing prices.

[Steven J. A. van Rijswijk]

And Tanate, on dividends?

[Tanate Phutrakul]

Yes, Anke. So we have three touch points with respect to capital returns, right? The first, clearly, we have a policy of having an interim dividend payment. So that happens at the end of the Q2 results. We now have, of course, the final year dividend that we just announced. And in terms of the further capital returns, we have done the share buyback. We're still doing the share buyback to finish it and that we have indicated to you that the discussion with the ECB is constructive, and we will give you some messages on that by the end of the Q1 results.

[Anke Reingen, European Banks Analyst]

But the special potential -- special dividend or extra dividend, that would be a full year consideration?

[Tanate Phutrakul]

No. So we have announced a cash dividend for the full year. Any further capital returns it may -- if it's approved, it may come in the form of cash, it may come in the form of share buyback. That's something to be decided later.

[Operator]

Next question is from Ms. Flora Bocahut of Jefferies.

[Flora A. Benhakoun Bocahut, Equity Analyst]

I have two questions I wanted to ask you more specifically on your Belgium business. First of all, on the NII, even if we adjust for the EUR 23 million reclassification this quarter in Belgium NII, we still have the NII down high single digit versus Q3 and that's despite loans that were roughly flat. So that implies actually that there has been quite a deterioration in the NIM in Belgium this quarter. Just wanted to understand maybe what happened there? And if you could elaborate on this. And then on Belgium, but this time on the cost side, if I look at the cost -- ex-regulatory costs, they were actually down 2% year-on-year and that's despite inflation of this year reaching very high levels in a country where core inflation gets passed directly to wage inflation. So that's a strong performance. I just wanted to understand to what extent this is because you've managed to offset the wage inflation with savings elsewhere. Or is it just that there's a delay and we should expect actually the wage inflation to kick off more likely in Q1?

[Steven J. A. van Rijswijk]

If you look at -- thank you very much for -- if you look at the NII down in Belgium, if you look at what the -- that was the EUR 23 million. If you look at the production in Belgium, then you see actually a positive lending margin in our new production compared to what we saw in the previous quarter. So in that sense, we -- and that is largely due to also a lower cost of funds, but also the price to the street has been going up. So the biggest impact that we currently see on our portfolio in Belgium has to do with the EUR 20 million reclassification, not with the pricing that we currently level to the street. And then we talk about the Belgium costs are okay, but there is, of course, wage inflation. Tanate?

[Tanate Phutrakul]

We have plans in Belgium with respect to what we call our Route 24, which is the digitization and the efficiencies program in Belgium. That program is on track, and we expect that despite the inflation that we see in terms of wages, we expect that through branch rationalization, reductions in staff over the coming period that we're able to offset that wage inflation in Belgium. But of course, the situation becomes somewhat more challenging with expected wage bill in Belgium to be somewhat higher than what we planned in our budgetary process.

[Operator]

Next question is from Mr. Robin van den Broek of Mediobanca.

[Robin van den Broek, Research Analyst]

First of all, on the buyback, it was my understanding that you've outsourced that. So can I -- I don't know if you know the answer to this question, but how come the pace of the buyback has slowed down materially since mid to end December? And I was also wondering to what extent does that -- what kind of liquidity do you think your shares offer to do buybacks in general? You mentioned EUR 10 billion of excess capital how much can your liquidity absorb in a 1-year window? That's the first question. And the second one is a bit more about the Netherlands. I mean the timing of the CLA was quite fortunate before the inflation pickup started to happen. But do you think there's any risk of a catch-up when this CLA ends that you basically have has to catch up on the inflation we've seen in the intermediate period.

[Steven J. A. van Rijswijk]

Okay. I mean for the questions. I mean in terms of the slowdown of the buyback, I mean, yes, we did outsource it. And there is, of course, market abuse regulation, so that's not for us to interfere with. But it is not helpful, let me put it this way. Then on -- then the related question was on that EUR 10 billion excess capital and how much liquidity we can absorb? I'm not sure I understand your question. If you look about overall equity, of course, we have very strong liquidity, but I'm not sure -- but I don't think that that's your question. Maybe it has to do with the liquidity in shares. But there, we have not really taken any decision as to the future, how we would distribute excess capital 2 or 4 shareholders. So in that sense, we still need to wait for the further announcement that we would intend to make either at or before the first quarter figures. But if you then would look at -- if you can really say I would do EUR 10 billion all in shares. I mean this is a very theoretical example. And you would not want to move the share price, then it would take us approximately up to 2 years to do that. But let me put it this way, it's quite unlikely that we would do EUR 10 billion in share buybacks. So let me put it this way. So the ways that we distribute capital can be different. And we've said previously, it will be largely in cash and maybe depending on the share price, partially by means of capital distribution. Then is there a risk of cash up inflation when the [indiscernible] the Netherlands ends? Well, since the 1980s of the last century, many European countries decoupled inflation growth with CLA growth. By the way, that's not completely the case in Belgium that the previous question ask that was stipulating. So in Belgium, that is different. What you do see is a bit increasing pressure given the high level of inflation end of the last year and early this year to couple that a bit more. So there is inflationary risk in that regard, not only in the Netherlands, but also in countries outside of the Eurozone, where the inflation rates are a lot higher, but it also comes with higher growth and also increase comes with higher interest rates. So you need to look at it in conjunction. But from what we see now for 2022, we are -- should be able to absorb the CLA and inflation levels in our cost and keep it flat or lower.

[Operator]

Next question from Mr. Raul Sinha of JPMorgan.

[Raul Sinha, Analyst]

I got two, please. The first one is just on the RWA efficiency of new lending. I think 2020 was quite a good year for you. Loans were up almost 5% and RWA was only up 3%. I think that was also the case in Q4 where your RWAs actually went down on the credit side. Should we expect some of this to reverse next year as you kind of do 3% to 4% loan growth? Or do you think you can still maintain this gap between loan book and RWA growth, I guess, mix will probably to an effect? And then the second question I've got is on just the structure of ING, steven since you've obviously taken over, there's been quite a few market exits you've obviously taken a few decisions around what used to be the Mike program. You talked about the nodes of the cost bring heading downwards. So I guess my question is, are you done with market exits? Or do you think there's still more to go in terms of reshaping the sort of profile of ING? And I see you're guiding to sort of where you've had cost for '22 and inflation is obviously different. Are you sort of no longer thinking about getting the nodes of the plane down more medium term in terms of cost?

[Steven J. A. van Rijswijk]

Thank you very much, and thank you also for referring to the nodes of the plane role. Talking first about RWA efficient lending. I mean, if you look at the loan growth RWA in '21, you are correct. That from an RWA perspective, that was quite efficient loan growth, which also had to do with that most of the loan growth was in mortgages and in investment grade, shorter-term corporate facilities or trade facilities in Wholesale Banking. And typically, for those sectors or segments, the RWA density is low. Now that may not necessarily continue. We do see, of course, that the markets are improving. We see that the economic growth is growing, and we see that for -- if the supply chains are getting less and less disrupted, there will also be growth in things like project finance or sustainable finance, especially for which many companies need to make many investments as well. And that then could then also increase the risk weights on certain of these financings because they those different segments. What you should not forget is that regardless in which sectors it takes place, we will continue to price the deal against the return and the return is partially dependent on the revenues, the cost, but also the risk weights and the capital that we have to put against it. So that we will always take in the mix. And then clearly, we continue to work on the efficiency of our capital. You've seen us also despite the regulatory increases on our models under Basel IV, we have been able to quite -- keep it quite well under control. So we're working on our capital efficiency as much as we can. And the third lever that we pull, of course, is capital velocity, can we also underwrite and then sell things to the market so we can optimally use our capital. So that's maybe one. Then if you look at the excess of the market, and again, I would like to reiterate, we're not just exiting for the sake of exiting. In retail, we -- the belief that has not changed is that we want to create a differentiating customer experience by having a superior digital offering, and we're good at it. And we will keep to work on it. And as part of it, part of the benefit of being so digital is that you can also scale that more and that you can also be -- that you also are able to influence your cost income with that. So we focus on cost income. The second element that we have said what we believe in is that we need to have local scale in retail, not necessarily in wholesale but on retail. And if the retail -- if the scale is sufficient and you can see it in some of the markets, you make through the cycle adequate returns, you continue to invest to grow and broaden the customer franchise and broaden also the offering that we make in wider customer franchise. And in some markets, but again, it's not a goal it's an input to the goal. That has not been the case. And then you choose to redirect your capital and your investments to markets where you do make the applicable return. Now in that total mix, like I said to one of the previous colleagues, decisions or footprint decisions are more aprotic and more one-off, but we will continue to work on improving our customer experience by end-to-end digitalization and by our scalable technology and operations platforms, and that is going to help us to keep the cost under control and what I said for '22 is that we at least wanted to keep the nodes of the plane flat despite all the CLA and inflationary pressures.

[Operator]

Next question is from Mr. Stefan Nedialkov of Citi.

[Stefan Rosenov Nedialkov, Research Analyst]

Yes. It's me again. I just had a couple of quick follow-ups. Sorry for coming back. Number one, could you please tell us a little bit on your ECB discussions as much as you can, obviously. As far as I know, there is no official limit on the buyback in terms of -- or any capital distribution really in terms of payout ratio. So you could theoretically return 100%. But in reality or discussing your capital return levels with ECB, is there a soft feeling that you are noticing in your discussions with the ECB? Or is there much more of a push by the regulator to limit overall distribution ordinary special dividends and buybacks at 100%. So hard versus soft or none at all. Those would be my three options here. The second question is on fees. One thing I don't fully understand in your wholesale lending business. So new production was really strong around EUR 6 billion, which was close to half of your overall net production. So really, really good. But when I look at fees, they were actually down sequentially and quite a bit below where I would have expected them to be. I'm assuming most fees within wholesale lending or lending-related fees. Lending volumes -- new lending volumes are up significantly, [indiscernible] is not tracking that?

[Steven J. A. van Rijswijk]

Thank you, Stefan. I will answer the question on fees and Wholesale Banking. And then Tanate will give you his views on the ECB discussions. Then when we talk about fees and lending it's a good observation you make because indeed, you would expect if we make good lending growth and we did good make lending growth that you would also see the fees going up. That did not take place because many of these lendings were focused on short-term financial markets, short-term investment grade, short-term trade and the number of the TLTRO facilities. So these are not the typical big underwritings, big loans that you then syndicate out to the market, and that's where you make the fees. These are more one-to-one relationships that we have with our clients and we benefit from these good relationships, that's also a benefit of having these long-term relationships that you can call on each other to help each other, but it also means that when we -- when the market is now increasing on short-term trade that we greatly see or short-term working capital that these companies gradually want that these are not so much syndicated facilities but much more one-on-one facilities, and therefore, there's no syndication fees. I do, however, expect if the economies return the growth part that we currently see, that also the syndication market will then return and that can then have a benefit on our fees and lending.

[Tanate Phutrakul]

Stefan, just to give you a bit of color on capital returns and capital management. I think if we go back, it seems a long time ago. But when we were looking at November, December, we really didn't know how the whole Omicron situation would pan out, right? Things have turned out well. But things could have turned out quite differently as well. So that's part of our capital management prudency. But having said that, our discussion with ECB, as we mentioned, is constructive. They do recognize that for us to converge on 12.5%, that would mean more than 100% capital return per annum to make that number. So that is well informed by us to the ECB. And as we mentioned, these discussions are ongoing, and we will give you an answer before the end of Q1 this year, results time.

[Operator]

There are no further questions, sir, please continue.

[Steven J. A. van Rijswijk]

Thank you very much and thank you very much for your time. And I'm sure that we'll speak again in 3 months' time. Have a great day.

[Operator]

Ladies and gentlemen, this concludes the ING Fourth Quarter 2021 Analyst Call. Thank you for your attention. You may now disconnect your lines.