ABN Amro Bank NV

OTC:AAVMY

Earnings Call Transcript 2020-Q1

[Operator]

The conference is now being recorded. Good morning, ladies and gentlemen. Welcome to the ABN AMRO Quarter 1 2020 Analyst and Investor Call. [Operator Instructions] I would now like to hand the call over to Mr. Robert Swaak, CEO of ABN AMRO. Please go ahead, sir.

[Robert Swaak, CEO & Chairman of Management Board]

Thank you so much. And good morning, and welcome to ABN AMRO's Q1 results. I'm joined by Clifford Abrahams, our CFO, who is dialing in from London; and Tanja Cuppen, our CRO, who has joined me for the call here in Amsterdam. Even though these are challenging times to be doing my first analyst call, I have been looking forward to sharing my initial thoughts and views with you. Of course, I'm looking forward to meeting you when possible, which I do sincerely hope will be soon, depending clearly on how the crisis and our -- corona crisis will continue to evolve in terms of travel restrictions. After I've shared some of my first observations on ABN AMRO, I will talk about our response to COVID-19 and my key priorities for the next few months as well as the outlook for the year. Clifford will go through the details of the first quarter results and run you through capital. Tanja will then update you on developments in our loan portfolio including impairments. Also, Tanja will give more insight into the resilience of our loan book.So let me start with the results in the last quarter on Slide 2. The first quarter results were significantly impacted by the COVID-19 crisis. We realized a loss of EUR 395 million, predominantly because of EUR 1.1 billion impairments booked this quarter. These impairments reflect 2 exceptional client files in CIB and a significant collective provision upfront for sectors most impacted by COVID-19 and the oil price. Regular impairments were relatively modest. And impairments for the remainder of the year are expected to be significantly lower than the Q1 run rate. Underlying operational performance was good. Both net interest income and fees held up well and costs are well controlled. With a well-diversified portfolio and a very strong capital position, we do indeed have a good starting point going into COVID-19. I will now share my first observations and key priorities as CEO of ABN AMRO. It is a challenging yet exciting time to start as CEO of ABN AMRO. In the last few weeks, I spoke to many colleagues and various stakeholders outside of the bank. And all of these conversations helped me to further deepen my vision but also understanding of the bank. ABN AMRO is a bank with strong fundamentals, such as our attractive market positions in the Dutch mortgage and SME markets and a strong private bank with scalable onshore franchise in northwestern Europe. Our solid capital and liquidity positions are an important asset in navigating through current circumstances and are fundamental to our ability to pay dividends. Although some progress has been made in the CIB refocus, the profitability remains too low and the risk profile of certain parts of CIB are not fully aligned with that of the bank. We will share the outcome of the CIB review we started earlier this year with you in August. Now let me be clear. I am indeed disappointed by the 2 exceptional client cases in CIB, which explain a significant part of the impairments this quarter. So the CIB review is a key short-term priority for me. Other priorities in the coming period are to navigate the bank through the COVID-19 crisis, as you would expect, and to make progress on AML activities. I am very pleased with the strong digital capabilities of the bank, a result of continuous investments made in the past few years and we will accelerate this. In addition, we will review the strategy to ensure we deliver on our 3 strategic pillars going forward, and we'll update you on that after the summer. Also at that time, we will be addressing operational efficiency, financial targets and capital. To reiterate, the bank has strong fundamentals and the priorities are clear to me. I'm determined to deliver results in the years to come. So let me update you now on strategy execution on Slide 4. I'm proud of the bank's responses to COVID-19. It's been very clear that we support our clients wherever possible in line with our purpose, Banking for better, for generations to come, a purpose I passionately believe in and indeed is our compass for taking action on COVID-19. As a bank, we aim to support our clients in a responsible way as is part of the sustainability pillar. The automatic payment holidays we announced provide additional liquidity, giving clients time to get back on their feet. We also support senior clients and clients with payment arrears with coaches and helplines to weather the current situation. Customer experience, our second pillar, is reflected in easy digital delivery, such as video banking, rewarded with high Net Promoter Scores by client. The recently announced government guarantee scheme for small loans will be executed by New10. And this means that we can give clarity to clients in 15 minutes while safeguarding KYC and customer care and the money will be in their accounts within 48 hours. In the commercial bank, the introduction of digital signatures has been accelerated in response to COVID-19, clearly demonstrating the agility of the bank. Our significant IT investments in the past years have resulted in strong digital capabilities, part of the future-proof bank pillar. Over 90% of our employees today currently work from home effectively. In March, we were also able to quickly leverage the capacity for video banking and virtual call centers, continuing our services while working from home. We now onboard new colleagues at a distance, which is indeed important to keep AML activities on track, one of my priorities. Let me give a bit more background on our digital response. Our strong digital proposition, combined with the dedication of all of our people, enabled us to serve clients without interruptions in the last 2 months. And as you can see, the far majority of our clients bank with us digitally, online and increasingly mobile. We were able to swiftly leverage our platforms, so we would continue to service our clients while working from home. This is also demonstrated by the strong increase in video banking in all segments during the lockdown. In the retail bank, interaction with clients to video banking was even well above 90% in April. We also see a strong increase in the onboarding of new retail clients through the mobile app. Clients had a lot of questions and a smart mix of communication channels, including chatbots and virtual call centers, enabled us to respond to this need very fast. We were the only Dutch bank capable of offering an automatic payment holiday due to the system and process flexibility. The digital acceleration enables us to further improve customer experience and operational efficiency going forward. So on Slide 6, I'll give a bit more detail on the response on COVID-19 by the Dutch government as well as our own support measures. The solidity of the Dutch economy, often talked about, and government finances make it possible for the government to free up around EUR 100 billion to support the economy. Measures already announced include government guarantees for companies, tax relief, labor retention and furlough compensation. The government is also working on compensation schemes for sectors suffering the most. And in addition, large-scale income support measures were started by the government, for example, salary compensation for the self-employed. This will make it easier for clients to continue to service their mortgage. These targeted measures aim to minimize the impact on the Dutch economy, which should reflect on the credit quality of the Dutch clients going forward. Now after the intelligent lockdown of 2 months in the Netherlands, shops could, for example, stay open, the government is now working towards a gradual return to a new normal, whatever that new normal may be. Continued support from the government will be necessary though to support the economy, and it is indeed currently contemplated. We have contributed by offering well over 100,000 clients immediately impacted by COVID-19 a payment holiday and provide government-guaranteed loans to bridge a drop in income. Now let me give you a bit more insight into the resilience of our loan book on Slide 7. On Slide 7, as you can see on the left-hand side, most of our loan book is now in low-risk Dutch mortgages, which continue to perform well. The corporate loan book is diversified and largely comprises collateralized lending. The far majority of loans is to Dutch clients, most of whom have access to the government support measures I just talked about. And on the right-hand side, you can see that 8% of loans is in sectors immediately impacted. That is around 20% of loans within the commercial bank and about 10% of loans in CIB, which, by the way, includes oil and gas. Exposures to high-risk sectors, such as offshore, diamonds and traded commodity finance, have been reduced in recent years, resulting in a modest additional impact in these sectors. Clearly, more derisking in CIB is necessary, as mentioned before. Tanja will now run you through impairments and asset quality in more detail. So with that, I'd like to turn it over -- actually, you know what, we'll change that. We're going to have Clifford talk first, as you're used to. And so I'll hand it over to Clifford to talk you through our first quarter results.

[Clifford J. Abrahams, Vice]

Thank you, Robert. So turning to Slide 8. You can see the effects of COVID-19 have unfortunately led to our first quarterly loss since the IPO. The loss of EUR 395 million was due to impairments of EUR 1.1 billion for the quarter. Alongside that, interest income held up well in our client business and fees gained on increased trading flows. Expenses continued to decline, thanks to our cost efforts, all the more impressive considering the increased spend on KYC. As Robert mentioned, Tanja will run through impairments and asset quality later, and I'll pick up the key elements of the P&L over the next few minutes. On Slide 9, we've set out client lending. And you can see, overall, client lending remains stable. On mortgages, we remain disciplined whilst facing slightly increasing competition, primarily from nonbanks. Looking ahead, we expect a modest slowdown in the housing market in the Netherlands in reaction to COVID-19, though encouragingly, the month of April has held up reasonably well. Commercial Banking book remained flat. I expect volumes here to pick up as clients use the headroom on current accounts and state guarantee facilities come through. Within CIB, loans increased as some clients drew on committed lines and placed their cash on deposits to ensure they've got access to sufficient liquidity at all times. We're pleased with modest drawdown so far. And during the month of April, this effect has moderated. Turning now to NII on Slide 10. Our NII remains resilient and within our guidance that we set out in February. Overall, lower margins have led to a modest decline of EUR 20 million in the quarter, half of which is due to deposit margins and the other half from slightly lower margins on corporate loans. Mortgage prepayment penalties came down by EUR 25 million in the quarter from seasonally high levels in Q4. And that accounts for the drop in NII sequentially that you see on Slide 9. Robert described the payment holidays we are giving our clients. These won't materially impact NII. Let me explain why. The payment holiday does not alter the accumulation of interest owed by the clients over time and accounting follows the accrual of our interest, which will be paid later. But because we do not judge compounding interest with delay in impairments, we booked an amortization loss of EUR 35 million, and you'll see that under impairments. Looking ahead, as of April 1, we started charging 50 basis points on deposits over EUR 2.5 million, which will have the effect of raising NII by around EUR 30 million in the next quarter. However, low rates will continue to pressure deposit margins overall for accounts below EUR 2.5 million, where client rates are 0 currently. Overall, the volume outlook is stable with corporate loan growth from drawdowns and guaranteed loans offsetting mortgages and consumer loans reductions. And pulling this together, I expect our NII to remain in the range of EUR 1.5 billion to EUR 1.6 billion per quarter, although trending towards the lower end of this range at the back end of the year. Turning now to fees and other income on Slide 11. I'm pleased with fees in Q1, which increased strongly to EUR 438 million. Clearing benefited most, but we also saw increased fees in Private Banking. On the other hand, other income was lower and reflected tough markets. This was primarily driven by increased credit value adjustments, CVA, which measures the risk of non-collateralized exposures we run on swap contracts with clients. Private equity investments were also revalued lower, reflecting the current economic outlook. So looking ahead, I expect other income to average the 1 million -- EUR 100 million per quarter guidance we've traditionally given but perhaps a little bit lower in coming quarters from weaker private equity results. Now moving to costs on the next slide. I continue to be pleased with our cost development. The immediate impact of COVID-19 on costs turned out to be slightly positive. This was due to, for example, lower travel expenses, vendor rebates, lower expense on events and the like. Our existing cost-saving programs achieved another EUR 50 million in cost savings in the quarter, lowering both personnel costs as well as other expenses. You can see personnel costs further declining, also reflecting lower pension costs due to our new collective labor agreement. We're making good progress on AML remediation programs and boosting the business-as-usual activities here. And this has resulted in increased costs of around EUR 40 million in the quarter, all according to our plan. We're currently on track with our cost-saving programs, having delivered EUR 950 million so far out of a total of EUR 1.1 billion targeted by full year 2020. For the remainder of 2020 and a result of COVID-19, I do see some risk to the timing of delivery of our structural cost-saving programs, that EUR 1.1 billion, but also we see opportunities for shorter-term cost savings. So overall, we're comfortable with our guidance of EUR 5.1 billion of costs this year. I'll now hand over to Tanja to pick up impairments on Slide 13.

[Tanja J. A. M. Cuppen]

Thank you, Clifford. Let me start with saying that I'm very disappointed with the significant impairments of EUR 1.1 billion this quarter. Let me talk you through the components. The amount can be split in 3 categories. First, EUR 460 million related to 2 exceptional client files. One case was within our Clearing subsidiary relating to a client trading volatility in the U.S. as announced as well in the press release we issued in March. The trading strategy failed during extremely volatile markets in March, and we had to close out the position of the client, which led to a significant loss. The other file is related to a potential fraud case in trade and commodity finance. We have been working with this client for over 2 decades, so this case was also really exceptional. Unfortunately, fraud does tend to emerge in times of stress. We are taking lessons from these cases and have taken measures to prevent this from happening again. The second category in impairment is related to the COVID-19 pandemic and oil price developments. This totals to around EUR 500 million. We booked impairments for all clients directly impacted by the lockdown, for example, leisure, nonfood retail and transportation. Most of these clients, in fact, are performing but have a significant increase in credit risk, which means that we need to book a provision. Impairments in the oil and gas sector were raised by over EUR 200 million, predominantly related to nonperforming clients. Downward revisions of our macroeconomic assumptions added another EUR 100 million. The third category is our regular impairment, which with 16 basis points were, in fact, below our through-the-cycle run rate. On the next slide, I explain how this translates into the different business lines and guidance for the full year. On Slide 14, I'd like to start with a word on our Q1 cost of risk of 132 basis points. This is an on-balance sheet metric. However, this quarter, we had an exceptional off-balance sheet loss of EUR 215 million. If we include this loss, the cost of risk would amount to 164 basis points. Now looking at our business segments, you can see the COVID-19 and oil-related impairments predominantly impacted our corporate loan books. In terms of cost of risk, the impact amounts to around 150 to 170 basis points. Turning to the full year. We expect an increasing number of clients to become nonperforming over the year, leading to an increase in stage 3 impairments. For next quarters, I expect less inflow in stage 2. We modeled the expected impairments for the year using the base scenario of our Group Economics department published in April, which assumes a decline in GDP for the Netherlands of 3.8% this year and 2.2% recovery in 2021. This scenario is based on an assumption of a 2-month lockdown and considers the intelligent lockdown measures of the Dutch government. Under this scenario, we expect a full year cost of risk of around 90 basis points or approximately EUR 2.5 billion for the full year, including both exceptional files. Recently, the government presented a road map towards a gradually lifting of the lockdown measures, which is not far from our base case assumptions.I'd now like to turn to [ Slide 15 ], showing the industry breakdown of our loan book. Robert already mentioned the resilience of our loan book. As you can see, our loan book is diversified with only a few corporate sectors touching 50% -- 5% of total. 45% of total exposure is related to Dutch mortgages and some consumer loans. Public administration relates to mainly government exposures with our liquidity buffer. Of the corporate exposures, the immediately impacted sectors are highlighted on the slide. In these sectors, not all clients are affected equally. This is shown on the right, where we break out affected subsectors. With the transfer of EUR 17 billion in loans to stage 2, these sectors now have a higher coverage ratio, which serves as a buffer in case of further deterioration. The corporate loan book consists predominantly of collateralized lending. And for each sector, we have risk appetite limits in place, which are tightly managed. And with the impairments taken, we are well covered in the affected sectors. I now hand back to Clifford to discuss capital developments on Slide 16.

[Clifford J. Abrahams, Vice]

Thank you, Tanja. Starting with liquidity on the right-hand side, you can see the LCR dipped modestly during Q1 but overall remains robust. We're keeping a close eye on deposits and drawdowns of committed credit lines. Overall, we're comfortable with what we've seen so far. As you can see on the left, our capital position remains strong at 17.3% common equity Tier 1 ratio under Basel III. This ratio excludes the 2019 full year dividend that we have reserved and which equates to an additional 60 basis points in capital at Q1. We stand ready to pay our 2019 dividend after October 1, subject, of course, to the regulatory position as well as economic conditions and the outlook at the time. Our Q1 result led to a 40 basis points decrease in CET1 and regulators have temporarily lowered capital requirements, which translates into a potential buffer available to deal with COVID-19. In our case, the SREP requirement went down to 9.7% from 12.1%, implying a buffer equivalent to a substantial 7.5% in our CET1 ratio. So overall, we're feeling very comfortable. I do still expect TRIM to take place later this year and the add-on for mortgages from the DNB possibly next year. We want to remain well capitalized coming out of the crisis as regulatory easing is likely to be temporary and that strong capital position will underpin our dividends going forward coming out of COVID-19. As Robert mentioned, we will give a capital update after the summer. I'll now hand back to Robert.

[Robert Swaak, CEO & Chairman of Management Board]

Thank you, Clifford. Because of -- before I recap the highlights of our first quarter results, I'd like to say a few words on our financial targets. I absolutely want to be held accountable for targets we set. However, it is clear that we will not meet the existing ROE or the CI targets this year. Also, we decided to postpone any dividend payments until October 1, following the request from the ECB. As mentioned at the start of the call, I will review the CIB, together with the team, the strategy and the financial targets in the coming months and share the outcome after this summer. This brings us to the end of our presentation on the first quarter results, a quarter which was significantly impacted by the COVID-19 crisis. The underlying operational performance was good and costs are under control. We served our clients without interruption, thanks to our state-of-the-art digital channels and the unrelenting efforts of all of our colleagues. I take comfort from our strong capital position and a diversified loan book. Now I'd like to ask the operator to open the call for questions.

[Operator]

[Operator Instructions]

[Robert Swaak, CEO & Chairman of Management Board]

Yes. Maybe to -- before we get into the questions, operator, one comment from my side. I am happy to respond to any questions clearly. You'll appreciate that having formally taken up my role just after the quarter end, I'll ask Cliff and Tanja to take any detailed questions on the quarter. So let me just turn it right back to you, operator.

[Operator]

Thank you, sir. [Operator Instructions] Our first question is from Benoit Petrarque of Kepler Cheuvreux.

[Benoit Petrarque, Head of Benelux Equity Research]

Benoit Petrarque from Kepler Cheuvreux. Well, good luck, Robert, with your new challenge. Just on the risk, so I'm looking at the stage 2 ratio, which doubled to 12%, almost 13%. I was wondering, all you have done this assessment of stage 2 transfers from stage 1, whether you have any, well, quantitative data or it was more just your own feeling about specific sectors? And on your Slide 15, on the right side, you mentioned that, well, exposed sector to COVID-19 will get support from the Dutch government. So I think those loans are -- well, could get guaranteed loans basically from the state. So I was wondering how much roughly from your kind of risk exposure in stage 2 could actually get support from the Dutch government support. So that's the first question. And then the second one is on dividends. It's quite clear that 2020 will be close to breakeven. Obviously, you will start also a CIB review, which might also cost money basically. So I was wondering why you decided to...

[Robert Swaak, CEO & Chairman of Management Board]

Okay. Well, let me -- I think I was counting three questions there. But we'll count out those first two as one. Tanja, could I ask you to take on the first two?

[Tanja J. A. M. Cuppen]

Yes. So Benoit, thank you for your questions. The first one was in relation to our stage 2 provisioning and the clients that we moved to stage 2. We indeed did that based on an analysis of sectors and subsectors that were impacted by the lockdown measures. And as you can imagine, our models don't capture this impact because they rely on historic data. So we really did an assessment where -- for the sectors where we saw a significant increase in risk. And as mentioned, that relates to sectors like leisure, nonfood retail, transportation but also the oil and gas sector. So that was, I think, the first part of your first question. The second part with respect to the guaranteed loans and these other guarantees by the government. And these guarantees apply to new loans provided by banks to clients that are impacted. So it does not apply to our existing loans on the books.

[Robert Swaak, CEO & Chairman of Management Board]

Thank you, Tanja. And in terms of dividend, just let me reiterate that we will take a decision after October 1. Clearly, that decision will be subject to regulatory approval and circumstances. And as we -- well, when we know them, we will communicate that.

[Operator]

[Operator Instructions] Our next question is from Giulia Aurora Miotto, Morgan Stanley.

[Giulia Aurora Miotto, Vice President and Equity Analyst]

I'm sorry, I was on mute. Two questions from me. So the first one is on GDP estimates on your provisions guidance. So your estimate is for minus 3.8% for 2020, which may be seen by some as perhaps optimistic. So I was wondering if you could share with us some sensitivity as to what guidance you would see, for example, a 1% worse GDP. So any sensitivity or any range would be very useful. So this is the first question. And then the second one, more strategic, maybe, Robert, if you can share any thoughts on the CIB as a business in ABN business portfolio. So does it still make sense to have that business? Or would you consider closing it down and getting out of, for example, oil and gas altogether?

[Robert Swaak, CEO & Chairman of Management Board]

Well, maybe let me take that second question and then for the first question on GDP estimates, hand it over to Tanja. We've announced a CIB review. The reasons for announcing that review is because we've noticed over time that CIB did not meet the return requirements. We've also noticed that in parts of CIB, there is risk profiles that are not always consistent with that of the bank's. That was the reason to start the review. I come in as a new CEO. And I do put a high priority on the review. We're expecting to complete the review around Q2. And so I would also propose that I then come back to all of you what that means for CIB, what the results of the review means for CIB. And with that, Tanja, maybe a question on GDP estimates?

[Tanja J. A. M. Cuppen]

Yes. Thank you. And thank you, Giulia, for the question. And yes, indeed, we have used the economic scenarios that were published half April. And that indeed assumes a decline of 3.8% this year but a recovery of 2.2% next year. So towards the end of 2021, a decline of minus 1.6%, and for Europe, the European economy actually combined, a 2.7% decline, so also to give you a bit more background. And I mentioned this because the impact on the portfolio and the impairment levels is dependent also on longer-term economic developments and not so much on how deep the V is in this case. And in terms of sensitivities, I'm not able to provide you sensitivities because GDP is, of course, only one measure that goes into our economic scenarios, unemployment and oil price developments are other ones. And yes, there's a lot of uncertainty in the market, also how the government support measures are basically, well, effective in terms of supporting companies. I think we see some positive signals there. But I think it's not possible to give sensitivities as you were asking for.

[Operator]

[Operator Instructions] Our next question is from Johan Ekblom of UBS.

[Johan Ekblom]

Just two questions on asset quality, please. I mean I think you rightly highlighted that it's not only the GDP numbers that drive the provisioning. So can you maybe highlight as well what you've assumed -- or roughly sketch out how we should think about the unemployment, house price levels that are implied by your guidance? Because I would assume that with a longer but maybe not as deep recession, that could potentially be worse for both of those. So that's the first question. And the second question is just so I can try and understand your provisioning guidance. So you're saying that you don't expect to see material increases in...

[Robert Swaak, CEO & Chairman of Management Board]

Are you still on?

[Operator]

No. We're having a technical problem. Just one moment, please.

[Robert Swaak, CEO & Chairman of Management Board]

Okay.

[Operator]

I think his line has been dropped from the call.

[Robert Swaak, CEO & Chairman of Management Board]

Johan, we seemed to have lost you. If you want to come back at a later time, so we can answer your questions...

[Operator]

We can continue at Tarik El Mejjad of Bank of America.

[Tarik El Mejjad, Equity Analyst]

Just two questions for me. First, on the cost of risk, could you please give some indication on the level of provisions in 2021? Should we expect an elevated level of provisions or you think you will front-load most of the provisioning in 2020? And second question is on costs. You've mentioned, Clifford, that it was quite tough to implement the 2020 savings understandably, given the social and political pressure, I guess, to rationalize costs. But equally, you mentioned that there are some savings that actually came from the COVID. So could you probably price -- quantify how much of this savings you get from -- thanks to the COVID from less events and so on in 2020? And how much of these are recurrent into 2021? And still on costs, maybe some indications on the remediation programs and how much more cost we should expect from these?

[Robert Swaak, CEO & Chairman of Management Board]

Thanks for your question. Tanja, could I ask you to take the first on provisioning?

[Tanja J. A. M. Cuppen]

Yes. And I understand your question about, well, guidance for 2021. But that's really too far out to come up with guidance. As said already for 2020, the situation is uncertain, and we try to give you insight in our thinking and in our assumptions, well, underlying, underpinning this forecast. But I don't have a crystal ball and -- yes, so 2021 is really not something we can provide guidance for.

[Robert Swaak, CEO & Chairman of Management Board]

Thank you, Tanja. Clifford, on the cost?

[Clifford J. Abrahams, Vice]

Yes. I think on costs, on DFC, our spend on DFC is in line with the plan that we set out in February. So you'll recall the little chart we provided at this time in February, which showed we expected to spend a little under EUR 400 million during 2020. So that's very much on track. And the step-up in costs reflects Q1-to-Q1. So that ramp-up is still ongoing actually, but we're very much on track. As Robert indicated, that work is ongoing. I think around the 2020 outcome, I don't want to give some precise figures on COVID savings. I was just, if you like, indicating how we're feeling about costs more generally. Our cost-saving programs are currently on track, the EUR 950 million I indicated. But some of the remainder of the EUR 1.1 billion involves material IT change, whilst the bank actually is operating remarkably well under lockdown with everyone at home, an area that is more exposed to substantial change. So it's more about the practicalities of IT change that's on our mind rather than government pressure or some of the other indications that you'd -- that you talked about in your question. So it's really more practical issues. We do see some savings in COVID. And if you put it all together, I think the numbers I'm talking about are pretty modest, the pluses and minuses, but overall, gives us comfort that we'll deliver on the EUR 5.1 billion that we indicated in February.

[Operator]

Our next question is from Mr. Johan Ekblom of UBS again.

[Johan Ekblom]

Apologies for dropping off there. Just very, very quickly, I mean, so I just -- I guess the first thing is when we think about the scenarios, you clearly pointed out that it's not only GDP that matters. So can you at least give us some indication as to what impact you're forecasting on unemployment and house prices and oil price? That will be very helpful. And then the second one also for Tanja, I guess, is just when we think about provisioning for the rest of the year, do I understand it correctly that you think that stage 2 migration is -- the bulk of that is done and what we should expect in the coming quarters is mainly some of the stage 3?

[Tanja J. A. M. Cuppen]

Yes. Well, thank you, Johan. It's good that you are back in. Yes, on the scenarios, to give some further feeling on the different assumptions -- and the full numbers will be in the long presentation that will be on our website later today. But we assume for unemployment, that will go up to 5% next year. And house prices this year will still increase also on the back of, well, the impact of the first quarter. But for next year, we assume a drop in house prices of 4%. So that's on assumption. And on oil price, well, it's more or less -- well, we have assumed Brent, but of course, WTI had some more struggles, around $30, $35, but also taking into -- have also taken into consideration the recent developments around oil price in the U.S. and what that would mean for oil production as well. So that's what I can say about the scenarios. On your question on provisioning and inflow into stage 2, well, this quarter, we had EUR 17 billion in assets in inflow in stage 2. And I do expect not, well, a similar move in subsequent quarters. So there will be still some inflow. But I also do expect outflows of some clients. Well, we see quite some clients that are, even though they are impacted by the crisis, being innovative and finding new ways of generating income. We see, on the other hand, also clients that will really run into problems and move to stage 3. I hope that answers...

[Johan Ekblom]

Perfect.

[Operator]

Our next question is from Martina Matouskova of Jefferies.

[Martina Matouskova, Equity Analyst]

I want to just follow up on two small points. And I'm very sorry if I am repeating Benoit's question on dividend. I was just kind of interested in your outlook. When -- so many of your peers said that 2020 dividend would be difficult, not because of capital levels but more of a political challenge because the government has supported the economy at the banks particularly. So I was just thinking, your focus in 2020 will be on helping customers with COVID-19. And then you have another strategic review. All this comes at a certain cost. I was just wondering when you start on this with your outlook on that 2020 distribution, just kind of high-level thoughts, if you could. And the second question is just wondering what you expect from the ECB -- or on the ECL impact when you give more guidance and advise on them in the summer.

[Robert Swaak, CEO & Chairman of Management Board]

Yes. So thank you on your question on dividends. Look, I know we've talked about it before and we've mentioned it before. Determining on dividend will be a decision that we need to take as of October 1. The ECB has clearly issued guidance in this and it's the guidance that we follow. Now of course, that means that as of October 1, we will reassess the situation. We will look at the COVID-19 implications. We will also look at the regulatory approval. And then subject to all of that, we will come to a decision. I really don't want to get ahead of that decision at this point in time. So whilst I appreciate the question, we're not going to be able to get back on that until we've done that assessment that I've just mentioned.

[Tanja J. A. M. Cuppen]

Okay. Shall I take the second question?

[Robert Swaak, CEO & Chairman of Management Board]

Yes.

[Tanja J. A. M. Cuppen]

On the -- you asked about the ECB and giving guidance on expected credit loss. And I think it's important to understand that for our impairments, we follow IFRS 9. So that's determined by accounting standards and not by the ECB. And this is an expected -- indeed expected credit list -- credit loss approach, which includes the, well, economic conditions. The ECB does, with its guidance and its additional measures, have an impact, for example, on capital, which I think was touched upon by Clifford and on RWA calculations, for example, but not on expected credit loss. Does that answer your question?

[Martina Matouskova, Equity Analyst]

Yes, it does.

[Operator]

Our next question is from Anke Reingen of RBC.

[Anke Reingen, European Banks Analyst]

I just had some questions on net interest income, please. Thank you for the detail on the deposit base you are charging. I'm just wondering, in the current environment, is it really possible or can you really continue to charge for deposits? And do you still think it's realistic that you will roll out the base on the deposits you're going to charge? And then I was wondering on the new TLTRO offer in June, are you considering potentially taking up some of the funds at the minus 100 basis points? And would that be included in your NII guidance for the rest of the year? And then -- sorry, that's three questions. Sorry, that's the two questions...

[Robert Swaak, CEO & Chairman of Management Board]

Clifford, could you...

[Clifford J. Abrahams, Vice]

Yes. I think on charging negative rates, so we've already started to charge negative rates from April 1 on balances of EUR 2.5 million and above, so -- and you've seen other competitors in the market charging on negative rates at thresholds below that. So we've taken that step. We don't comment on future price action, as you'd expect. But that, I think, negative rates is a fact, not a plan. On TLTROs, I note the attractive terms on TLTRO III. I think it's quite possible we would participate in that facility, alongside our normal market activity. And we've taken all elements into account in our guidance. That guidance obviously reflects a view on interest rates, which can move up and down. But based on current rates, we feel comfortable reconfirming our guidance of EUR 1.5 billion to EUR 1.6 billion per quarter, albeit trending towards the lower part of that range later in the year.

[Operator]

Our next question is from Benjamin Goy of Deutsche Bank.

[Benjamin Goy, Research Analyst]

Two questions, please. First, on your stage 3 exposures, correct me if I'm wrong, I think they went up roughly EUR 1 billion quarter-on-quarter. Maybe you can shed some more light why it has moved up so quickly, maybe with only 2, 3 weeks of lockdown really impacting the quarter? And then a follow-up on your net interest income, which is, Clifford, you mentioned, later in the year going towards the lower end of the range. So should it mean Q2 is still flat to slightly up, helped by the deposit pricing or call it a straight line towards the lower end of the range from here?

[Robert Swaak, CEO & Chairman of Management Board]

Thank you, Benjamin. Tanja, you could take the stage 3 exposure question and then we'll turn it over to Clifford.

[Tanja J. A. M. Cuppen]

Yes. Thank you. Yes. So the inflow that we have seen in stage 3 is indeed only, well, partially -- actually, a real small part related to COVID-19. But of course, the drop in oil price, we saw already earlier on. So there's some impact of that as well and then the incident that we have seen in TCF is also included in there.

[Robert Swaak, CEO & Chairman of Management Board]

Clifford?

[Clifford J. Abrahams, Vice]

Yes. I think, Ben, I think your summary was right. I indicated an amount of around EUR 30 million per quarter in respect of the charging of negative rates. So we'll see the benefit of that in Q2. So that will help NII in Q2. But then the ongoing grind on margins from low rates will continue after that. So I think your summary was right and there's a bit of color to help guide.

[Operator]

Next question is from Kiri Vijayarajah of HSBC.

[Kirishanthan Vijayarajah, Analyst]

Just a couple of questions from my side. So firstly, going back to the EUR 35 million amortization loss you've taken on the payment holidays. I know it's not a big number in this grand scheme of things, given the EUR 1.1 billion you're taking. But I'm just really curious what assumptions you've made there. Because a lot of your peers haven't really taken anything yet for the impact of payment holidays on the loan loss line. So just your thinking on that. And then on the second question, coming back to the review of CIB activities. Actually, just a very simple question really, is the derivatives clearing business actually on the table as part of that review? Because it sounds like, from your comments, the focus is kind of elsewhere on the CIB loan book and segments within that rather than derivatives clearing. So just really clarify what is and what isn't on the table as part of that CIB review.

[Robert Swaak, CEO & Chairman of Management Board]

Okay. Clifford, you take the first part.

[Clifford J. Abrahams, Vice]

Yes. So I mean we thought it was helpful to indicate that figure. We have given payment holidays to a big chunk of our SME portfolio, so around half, because we've chosen to do it in the way we call it an opt-out. So we've given it to everybody. And if they don't take it, then we don't give it to them. So rather than the other way around, I think it's common across the sector, people have got an opt-in-type approach, we think opt-out is the way to go. And ultimately, I think they'll end up in the same place. But operationally, we think it's easier to do what we've done and fairer to clients. So we know upfront who's getting the payment holiday and if it's a substantial chunk. Many of those clients, as Tanja indicated, are good credits and will be good credits. We will get that money eventually. But what we're not doing is charging interest on interest. And I think that there may be some differences among banks. But we think it's just not right to, on one hand, offer a payment holiday and, on the other hand, charge interest on that. So that EUR 35 million is the effect of not charging interest on interest in respect primarily of that SME portfolio. And I would expect other banks to perhaps disclose these figures over time as they get a clearer sense of what the figures are.

[Robert Swaak, CEO & Chairman of Management Board]

Thanks, Clifford. And then as to your second question, just let me reiterate what we've communicated before, and certainly as I came in as CEO, I've made it a priority, we are reviewing CIB. So that means that all the activities of CIB are on the table.

[Operator]

Our next question is from Pawel Dziedzic of Goldman Sachs.

[Pawel Dziedzic, Equity Analyst]

I have just a follow-up question on your cost of risk guidance. Because you guide for 90 basis points, and this is EUR 2.5 billion, it strikes me as a quite precise guidance, given that there is a lot of uncertainty. It's not necessarily something that is easy to understand why so precise. So you've been asked before about sensitivity to GDP. And I understand that you cannot answer to single variable and so on. But can you maybe talk a little bit how much uncertainty is there around this EUR 2.5 billion number, how it can change, let's say, in a downside scenario or if things go slightly better, so we get slightly where you're coming from? And the second question is actually within that same thinking is can you talk a little bit about the charges going forward and the mix between CIB and the rest of the bank? Because in Q1, obviously, over 70% was purely CIB. But how do you think that will change as we go through the next quarter? And in particular, I'm interested how will the charge change the moment some of your clients or SME or retail start basically going out of these payment holidays?

[Robert Swaak, CEO & Chairman of Management Board]

Tanja, would you like to...

[Tanja J. A. M. Cuppen]

Yes. So thank you. This is not an easy question to answer. And well, by choice, we have not come with a range, but with a number of around 90 basis points or EUR 2.5 billion based on heavy assumptions that we share with you. So on one hand, it's quite precise. On the other hand, we all know that there is a lot of uncertainty. And you ask again indeed about sensitivity, but it's -- that's very difficult to give that, of course, well, upside in a sense that, well, this is more effectiveness than anticipated from all the government measures than what is definitely upside in the number but as also downsides if, well, there's no recovery into 2021 and we would see a further GDP decline into 2021. But I cannot give guidance on numbers there or provide ranges at this stage. There's just too much uncertainty around it. If I look further into the numbers for -- and the forecast for the full year of the 90 basis points for the rest of -- or for the full year, then I would say about half of the additional impairments is related to CIB and the other half to the rest of the bank. So that gives you a bit of a feel for how it's spread. And it definitely depends indeed on how clients come out of this period with this payment holiday and how that will -- well, how the economy picks up in the coming months.

[Operator]

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

[Stefan Rosenov Nedialkov, Director]

It's Stefan Nedialkov from Citigroup. Welcome, Robert, to ABN.

[Robert Swaak, CEO & Chairman of Management Board]

Thank you.

[Stefan Rosenov Nedialkov, Director]

A couple of questions on my side. You guys used to do a stress test on the oil price. Obviously, the current levels are pretty stressed. But have you done anything in terms of looking at maybe $15 to $20 per barrel on Brent? And what are the results of that? The second question, again on asset quality, or I guess related to the first question. Within CIB, when you say that the risk appetite has been historically quite different to that of the bank, yes, we can see that CIB margins have historically been quite rich, but also provisions have been very high. Can you just describe to us generally why CIB is different from the rest of the bank in terms of maybe seniority of lending, collateralization, terms, geographical reach, et cetera? And how is that risk appetite going to be put more into line with that of the larger group? And if I may add a third asset quality question here, when I look at your mortgages, the stage 2 ratio has increased quite dramatically, especially compared to 3Q '19. It's gone from around 2% stage 2 ratio on the residential mortgages to around 7%. So that's around EUR 7.5 billion of inflows into stage 2 residential mortgages. And Q-on-Q, it's around EUR 3.5 billion. You've given payment holidays, from what I understand, to around EUR 1.5 billion. So there's a lot more than just payment holidays going in here. Can you elaborate, please, and just give us some more color?

[Tanja J. A. M. Cuppen]

Okay. Well, I think I'll take all three questions.

[Robert Swaak, CEO & Chairman of Management Board]

Go ahead.

[Tanja J. A. M. Cuppen]

Yes. So first, on your question on the stress test for the oil price, we didn't re-perform a stress test as of yet. But maybe I can talk to you to our oil and gas exposure a little bit. Because what you saw in our presentation is, I think it was on Page 15, that we have around 4% of our total portfolio in oil and gas and about -- well, half of that is related to TCF, so no direct exposure to the oil price. And EUR 6.4 billion in outstanding is actually oil and gas, of which EUR 1.7 billion is related to offshore and offshore supply. And we talked about it before, we have been derisking very actively in this sector. Also, a significant part is currently impaired with -- it's over 40%, also with a 40% coverage ratio. And for the remaining part on oil and gas, the portfolio that we feel is most exposed, we have moved to stage 2 and have booked an additional provision in stage 2 of over EUR 30 million. So in that sense, we feel that we have taken the right measures there also to sustain a lower oil price of $20 to $25 for the coming period. You also need to understand that a significant part of this portfolio is reserve-based lending and quite a few of these clients are hedged against the oil price. So there's no immediate impact for them, but the longer-term outlook will play a role there. And of course, we will do further analysis there, but we -- I feel very comfortable with the provisioning level that we have taken there. Your second question was on risk appetite. And yes, we do have a very explicit and tight risk appetite for the whole bank, also for CIB on different subsegments. And as said, we are reviewing also our risk appetite in relation to the broader strategic question. But I can assure you that, for example, on leveraged finance, we have kept in place to deal with risk there. And you've seen as well that, for example, for trading commodity finance, we have drawdown exposure over the years as well. I think your last question was on the stage 2 ratio for mortgages, that have gone up. And indeed, you've seen that, that happened since Q3. And what happened since Q3 is that we introduced a new unlikely-to-pay triggers. And that means as well is that we have more triggers in place that caused a move from stage 1 to 2 and from stage 2 to stage 3. So you see that reflected in our numbers. So this is not related to COVID-19 but very much related to tighter definitions.

[Stefan Rosenov Nedialkov, Director]

And Tanja, just to follow-up on the last question, the Q-on-Q movement in stage 2 mortgages, was that mostly COVID, the EUR 3.5 billion increase? Or was part of that related to the unlikely-to-pay additional triggers you introduced?

[Tanja J. A. M. Cuppen]

No. So it was mostly related to the stage 2 triggers. There has been some impact for a certain group of clients that, well, are self-employed and have really saw an immediate impact. But I think Clifford mentioned it already, this pickup by our mortgage clients on the opt-in approach that we offered was actually quite small. But with the clients that we feel that are directly impacted, we moved to stage 2, so based on their self-employment.

[Clifford J. Abrahams, Vice]

Yes. That's right, Tanja. It's an automatic process. So those that have opted in for the payment holiday, we've switched to stage 2. And those in, call it, vulnerable sectors, sort of dentists, pilots, we've taken a view across the sector, so in the same way we had for SME. So it's -- that gives you a feel for that process as a top-down adjustment.

[Stefan Rosenov Nedialkov, Director]

So roughly EUR 1.5 billion on the payment holidays and around EUR 2 billion inflow from the vulnerable self-employed?

[Robert Swaak, CEO & Chairman of Management Board]

Okay.

[Clifford J. Abrahams, Vice]

Yes, of that order.

[Robert Swaak, CEO & Chairman of Management Board]

All right. So thanks for the question then. [Operator Instructions] I know we stand ready to answer, but I do want to give everyone a fair chance on this as well. So thanks for the question.

[Operator]

Our next question is from Robin van den Broek of Mediobanca.

[Robin van den Broek, Research Analyst]

Yes. I'm not sure to what extent you can answer my questions, but I'm going to ask them anyway. Maybe in relation to the strategy going forward, I think the ECT angle within the IPO equity story was that, that could bring some growth. So maybe more generally speaking, how important is growth going forward? Because if you prune your CIB or maybe exit it entirely, you are left with a pretty solid Dutch business, I would say. But the issue there could be that the mortgage book, especially with stagnating or dropping house prices, could decline because your annuity framework is still increasing presence in your back room. So that's my first question. And the second question relates to capital. I mean your buffer to the revised MDA trigger point is over 8 percentage points if I add back the final dividend on '19. So that's pretty high, probably best in the sector, I would almost say. But how relevant is that? I mean how are you going to -- how are you thinking about your buffer basically also seeing that regulatory overhang is probably still going to come through in later years? So how do you look at that buffer at the moment?

[Robert Swaak, CEO & Chairman of Management Board]

Yes. So let me take that first question. Clifford, maybe you can take the second one.

[Clifford J. Abrahams, Vice]

Yes.

[Robert Swaak, CEO & Chairman of Management Board]

So on your first question, just generically, let me just reiterate that the strategy of the bank as it has been around sustainability, customer-centricity and future-proofing the bank. It's been really interesting to see how in times of crisis, the bank has evolved very, very quickly. So it is acting very much upon its strategy consistent with the purpose. And why do I say that? Because I think the digital acceleration has actually proven what we've talked about for quite a few years, that the investments that we're currently doing in our entire digital infrastructure is setting us up very nicely for further progress on -- in terms of growth. So I don't want to get ahead of the strategic review. So we need to go through every single step. But as a general rule, I am very sensitive to the overall business models that we currently have. And so we'll have that front and center certainly as we carry out the review. Clifford?

[Clifford J. Abrahams, Vice]

Yes. I think on -- I'll give you some feel on capital but won't stray into the guidance that we intend to do after the summer that we'd expect. I think on capital and as it relates to dividend, we -- I think it's highly relevant that our buffer is 7.5%-plus, right? That means that we're well placed to run the bank through this challenging period. But importantly, coming out of the challenging period, we're in a position to safeguard healthy dividends going forward, right? And so now it's a balance through the crisis, which is to support our clients, but we do -- we are committed to a solid balance sheet, a solid capital position. And I think you and others should take comfort from that 7.5%. I think there are clearly a number of factors that we'll be thinking about, the whole sector will be thinking about. The regulator will have a point of view. And that may be a binary matter for the whole sector. I think the environment is relevant. If it's extremely uncertain, I think it's hard for any company, including banks, to pay out big dividends. But in due course, the environment will normalize. And at that point, what will be important is profitability, ongoing profitability, but also solvency. And our expectation is that TRIM has been delayed, Basel IV has been delayed. And we need to demonstrate that those requirements are well met in order to safeguard dividends going forward. And no one has asked about Basel IV on this call yet. But I'm pleased to confirm our Basel IV number is around 14%. So we're still in excess of our prudent target early in the phasing, although that has, of course, been delayed. So that should give comfort that we're well placed on dividends once the situation starts to normalize, and we'll clearly update more on this after the summer.

[Operator]

The next question is from Albert Ploegh, ING Bank.

[Albert Ploegh, Research Analyst]

I will stick myself to two questions. First, to come back on the CIB review, yes, you mentioned all options are on the table. But maybe to frame this statement a little bit, you clearly have some activities that have high cost but low capital intensity and on the risk profile. So maybe can you give a little bit feeling, I know it's very early days, on the roughly EUR 40 billion RWAs? What kind of percentage you feel is now not meeting that risk profile, just to have a bit of an idea of the scope of the review? And the second question is on the drawdowns. I saw something like EUR 3.1 billion near the end of the quarter in March, obviously. Can you tell a little bit on what you see in client behavior so far in April and early May? Is some of that already paid back? And can you talk a bit about, let's say, what kind of margin uplift that could give then on the second quarter NII?

[Robert Swaak, CEO & Chairman of Management Board]

Thank you, Albert. I'll take the first question. And Clifford, if you can talk on that second part.

[Clifford J. Abrahams, Vice]

Yes.

[Robert Swaak, CEO & Chairman of Management Board]

I totally understand the question. But let me repeat what I've said before. All CIB activities are currently in the scope of the review. I don't want to get ahead of that, the outcome of the review, don't want to prejudge it either. So I ask a bit of patience, and we'll come back to you on our findings as we communicate on the results of the review during Q2.

[Clifford J. Abrahams, Vice]

And on those committed lines, I mean, it's very much stabilized through April and early May. By stabilized, I mean, in some weeks, it's -- you've seen committed lines coming back into the bank. In other cases, a modest drawing, but it's very much stabilized. And I think if you'll recall, markets were very difficult at the end of March and companies concerned about access to debt markets. So they're drawing down on their committed lines and actually putting the money on deposit with us, generally speaking, so neutral from a liquidity perspective. That's very much stabilized during a period since as you see debt capital market conditions normalized, not completely, but considerably. So I think on terms, I mean, those committed facilities are generally -- reflect terms agreed in the past. So they're not opportunities for widening spreads. I mean we do see scope while we help clients, we want to support our clients. We also need to reflect the current cost of funding and the constraints on balance sheets generally. So you'd expect in the current environment, opportunities to safeguard margins are there. And we're taking that whilst obviously being fair to our clients during this difficult period.

[Operator]

Our next question is from Bart Jooris of Degroof Petercam.

[Bart Jooris, Analyst]

Also two questions from my side. First of all, on the measures Tanja mentioned on the -- that you have taken so that those large individual cases will not repeat themselves, could you give some more color on that? And how confident are you? Because that threatens to become as a little bit of a trust issue in your investment case.And then secondly, if I understood it well, in CIB, you -- that your stage 2 provisioning mostly on the whole sectors and subsectors, is there a chance that you might fine-tune this in the coming quarters, where you're really going to look at line-by-line? Or is that too large to do? And could we see some effect of this if you fine-tune that?

[Robert Swaak, CEO & Chairman of Management Board]

Tanja?

[Tanja J. A. M. Cuppen]

Yes. Thank you. Yes. And indeed, I think these were significant incidents. But I think it's also good to understand these were very unusual circumstances that we've seen. And well, in these circumstances, you see also that risks crystallize in this type of situation, especially fraud and TCF is such an example. Still, we always wonder losses we take, lessons learned and also see whether we can take additional measures to strengthen our risk management, which we have done in this case as well. We have reviewed our trade and commodity finance portfolio to see whether there are any positions that we would be concerned about, also taking into consideration these type of developments. And the same for Clearing, we have gone through the portfolio, through the client base and looked carefully as well to see if we would run into very extreme situations again, that we are sufficiently protected. So I'm comfortable with the measures that we have taken. So that's on your first question. On your second question, the answer is yes. Yes, we will further fine-tune in the coming period, dependent on actual developments with clients. At the end of March, this was our best estimate in terms of the clients that were significantly impacted by COVID-19. But by now also, you start to see developments there, which clients run into further problems and which clients also are able to sustain a longer period of stress. So the answer is yes.

[Operator]

Our next question is from Daphne Tsang of Redburn (Europe) Limited.

[Daphne Tsang, Research Analyst]

It's Daphne. Just two questions, please. First, on dividend, so you currently have dividend policy of at least 50% sustainable profit, appreciate that you will give us an update. But probably, you will still be limited by ECB's suggestion before October to do anything about dividend. But just based on your current existing policy, would you classify the COVID-related losses led by impairments as unsustainable profit and hence you would probably add back to the profit base when considering dividends? By doing so, obviously, you probably may be paying out your capital. But you seem to have a large surplus capital to weather that anyway. So if you can share some color on that and whether latest conversation banks have with regulator would suggest any lifting on the restriction before the government's guarantee scheme ends, that would be really helpful. And my second question is on your loan guarantee scheme. Just wondering, how is the uptake in April or early May, even? And what is the impact you would expect on NII and NIM from the mix shift from retail, which you currently are seeing relatively stable volume, towards the corporate and SME lending, where you are seeing some volume because of the drawdown but probably the NIM pressure would be higher, especially due to the guarantee schemes?

[Robert Swaak, CEO & Chairman of Management Board]

Well, thank you so much for your question. Clifford, you can take the second, I'll answer the first one on dividend. Look, as I'm sure you'll appreciate, I know that dividend is important to your considerations and it has a high priority, certainly as incoming CEO, being very respectful of returns to shareholders. Let me, at the same time, also say that we're in Q1. We're in a changing circumstances. And that means it's just simply too early to give any kind of guidance. I also think in terms of the considerations we need to do, which includes a well-respected ECB view, I think now is not the time for me to begin to articulate any additional considerations in terms of dividend. But again, let me just reiterate that I totally understand the importance of the question and also the relevance of returns to shareholders. So with that, maybe, Clifford, if you can take the second question?

[Clifford J. Abrahams, Vice]

Yes. I think on government guaranteed loans and margins, I think it's a fair question. But I think the flows are still quite modest relative to our lending book of a little over EUR 250 billion. So I think we do expect perhaps a stable or perhaps modestly slowing mortgage book. I think the growth we do expect is in the commercial and the corporate side. That growth would be underpinned actually by the payment holidays because they're accruing. And that's a sizable amount in the case of the SME book. The government's amount that they've indicated to support the whole sector is quite material. It's billions for all banks. My expectation is if more is needed, more would be made available. I think the lending we have seen to date has been fairly modest in terms of new lending. And look, it's uncertain how that will build going forward. But whether it's government guaranteed funding or more general funding, we will support our clients. And in general terms, whilst that lending will give, call it, an adequate return to the bank, I mean we won't make money on the guaranteed part. But equally, we don't hold capital for the guaranteed part. But on our residual risk, there will be a respectable return commensurate with the risk. And that's one of the principles underpinning the government's approach. So that gives you a feel. So I don't see dramatic changes in margins for the book as a whole and the principal drivers are the ones I discussed earlier in the context of the presentation.

[Operator]

Our next question is from Ms. Alicia Chung of Exane BNP Paribas.

[Alicia Chung, Analyst on the Pan]

Just one question for me. When I look at the coverage ratios on your corporate loans as of today, you have a coverage ratio of 1% for stage 2 loans and 34% for stage 3 loans, both of which scream quite low. Will the EUR 2.5 billion of provisions for 2020 include some allocation to increasing coverage ratios on both of these? Or will it be simply used to fund provisions for stage migration and new NPEs?

[Robert Swaak, CEO & Chairman of Management Board]

Clifford?

[Clifford J. Abrahams, Vice]

I think it's also for Tanja as well.

[Tanja J. A. M. Cuppen]

Happy to take that question. And Alicia, it will go to both. So it will be both new inflow, new defaulted assets as well as adding to the coverage ratio in case, well, restructurings are more difficult than currently anticipated. And you see that also in this quarter's provisioning level is that part of the impairments are related to existing stage 3 files and part of them are related to new ones.

[Alicia Chung, Analyst on the Pan]

Okay. And so on that basis, what coverage ratios are you aiming for on the corporate stage 2 and stage 3 loans?

[Tanja J. A. M. Cuppen]

Yes. So we don't have a target in terms of coverage ratio, and it's -- the type of exposure -- different types of exposures have also -- different coverage ratio is also dependent on the, well, the level of collateral. And as you are aware, we do a lot of collateralized lending. So for example, in trade and commodity finance, we -- a significant part is collateralized lending, whereas, for example, the leveraged finance portfolio has less collateral, and you would see, on average, higher coverage ratios on defaulted assets in that portfolio.

[Operator]

And we have a follow-up question from Benoit Petrarque of Kepler Cheuvreux.

[Benoit Petrarque, Head of Benelux Equity Research]

Yes. Just sorry, what would be the impact of the SME support factor and also the intangible deduction on capital, please?

[Clifford J. Abrahams, Vice]

Yes. I think these -- I've seen that in the context of other banks. I think the -- it's fairly small in the context of our 17.5%. I think we're looking at both actually the SME support factors as upside of positive development. I think on the capitalization of IT, as you know, we don't generally do that. I think if there are capital benefits, we will explore it. But I don't expect to see a wholesale change in our approach to IT capitalization. So I see those benefit the margin but quite small, given other things going on. You see, for example, we've maintained our TRIM add-on this quarter. That's a material amount. And we think that's sensible, given the -- our view is that TRIM will be delayed but will happen. So happy to take offline the pluses and minuses. But those two, I think, are fairly modest in the scheme of things.

[Operator]

We have no further questions, please continue.

[Robert Swaak, CEO & Chairman of Management Board]

Okay. Well, thank you, operator. And as it indeed appears that there is no more questions, let me also thank you for your questions. This does conclude my first analyst call as CEO of ABN AMRO. As I said during the introduction, I really look forward to meeting all of you in person as soon as I can. But for now, thanks, goodbye, and can -- take good take of care of yourselves.

[Operator]

Ladies and gentlemen, this concludes the ABN AMRO Quarter 1 2020 Analyst and Investor Call. Thank you for your attention. You may now disconnect your lines.