ABN Amro Bank NV

OTC:AAVMY

Earnings Call Transcript 2021-Q4

[Operator]

Good morning, and welcome to the ABN AMRO quarter 4 2021 analyst and investor call. [Operator Instructions] I would now like to hand the call over to the Chairman, Mr. Bob Swaak. Please go ahead, sir.

[Robert Swaak, CEO & Chairman of Management Board]

Thank you very much. Good morning, and welcome to ABN AMRO's Q4 results. As always, I'm joined by Lars Kramer, our CFO; and Tanja Cuppen, our CRO. I'll update you on the progress of our strategic agenda and the share buyback that we announced today. Lars will go through our fourth quarter results in more detail, and then Tanja will update you on impairment developments in our loan portfolio and on capital. So let's turn to our fourth quarter results on Slide 2. Our Q4 results do reflect the underlying economic recovery, which was really gathering steam until December when lockdown measures were reimposed. Now during the fourth quarter, the corporate loan book of the core bank increased by over $5 billion. And as a result, we met the TLTRO thresholds, and we booked the additional funding advantage for 2021. We saw strong fee income with our Clearing bank again turning in a good result. Our Q4 result was further boosted by the sale and leaseback of our head office. Combined, this led to a net profit of EUR 552 million for the fourth quarter. Now over the full year, costs were in line with guidance at EUR 5.3 billion, excluding the AML settlement. So in effect, we managed to absorb an increase of AML costs as well as handling costs for the variable interest compensation scheme. Loan impairments showed a strong reversal from previous year, and we ended with a net release of EUR 46 million over the year. We proposed a dividend of EUR 0.61 per share, and I will later elaborate on the share buyback program of EUR 500 million we announced today. Turning to Slide 3. I want to look back on what we achieved in 2021. The wind down of CIB noncore, which we talked about quite a bit, has been largely completed, well ahead of schedule, and our attention is now turning to closing locations. We settled the AML investigation and progress on remediation is good. In terms of our growth agenda, we had a successful start of MoneYou mortgages and enterprise and entrepreneurs are live in Germany and Belgium. We further strengthened our digital and data capabilities and continue to further simplify our organizational structure. We introduced new payment packages for SMEs with a successful uptake. And last, but not least, we resumed dividend payments, and today, we also announced a share buyback program of EUR 500 million. So looking forward to 2022 and beyond, we are, for the time being, still faced with continued pressure from low rates. For next year, our expected net interest income of EUR 5.0 billion to about EUR 5.1 billion. I do expect NII to bottom out sometime during the second half of 2023. Our strategic agenda defines a comprehensive approach to deal with the impact of negative rates. Growth in fee income helps the top line and leads to income diversification. And I expect we can deliver a compound annual growth rate between 5% and 7% on fee income up and until 2024. We continue to execute on our well substantiated cost-saving plans, which will bring cost below EUR 4.7 billion by 2024. We will benefit from the derisking of our balance sheet as we now expect a through-the-cycle cost of risk of 20 basis points going forward. Of course, it's not all about financials. We will not lose sight of our clients. We will continue to work on putting into practice a personal bank in a digital age. I expect the full range of banking services to be available remote or digitally as of Q3. We're mindful that not everyone is able to switch to online channels, and therefore, we want to continue to ensure digital inclusivity for all of our clients. We are doubling the number of financial coaches our clients can turn to for help. Also, we will continuously focus on AML going forward as this is our license to operate and also, at the same time, our license to grow. Turning to Slide 4, I'll update you on ESG. As you know, sustainability is core to our purpose, and we firmly support the goal of limiting global warming to 1.5 degrees Celsius. To reduce our own carbon footprint, we are developing a Paris proof campus, which will become our main office building. Through our clients, we can leverage our influence greater to drive the energy transition. For example, we incentivize our mortgage clients to improve the energy rating of their property by offering discounts as well as energy savings check. To support corporate clients achieving their sustainability targets, we can offer them sustainability-linked loans. Now these tailor-made loans linked the margin to improvements in the ESG rating or specifically sustainability-related performance indicator. We have developed a standardized version of the sustainability link loan, the transition loan, which is specifically tailored to SME clients. Turning to our sustainability targets. We've made quite a lot of progress over the last year, and in many cases, we're already achieving our longer-term targets. Now in order for us to maintain momentum, we've raised our target of sustainable client loans and investments from 30% to 36% in 2024. Now if you allow me a few words on the Dutch economy, which you'll see on Slide 5. As we begin to emerge from the pandemic, the economy has proven remarkably resilient, reflecting healthy economic fundamentals and effective government support. For 2022, Omicron and high inflation will have an impact on GDP growth, and yes, inflation is a source of concern. However, we expect it to start coming down to closer to the second half of this year as supply disruptions are resolved. Bankruptcies were historically low in 2021, but are expecting to rise steadily again as government support measures are phased out. Meanwhile, house prices in the Netherlands will continue to rise mainly due to the low mortgage interest rates and declining supply. So we expect the price increase to continue, though at a lower rate. The number of transactions will, therefore, come down, however. We expect the new government to implement measures to increase housing supply and curve demand. Now turning to Slide 6 on capital. We announced a EUR 500 million buyback program, which will start tomorrow. Now let me talk you through our rationale behind this share buyback. The choice we made was for a gradual release of capital, potentially resulting in multiple buybacks over a period of time rather than a large buyback without follow-up. Going forward, share buybacks will be an integral part of our capital management practice and a tool to optimize our capital position. Our current capital ratio puts us in a good position to discuss a subsequent share buyback with our regulator in due course. Now given a gradual release of capital, the threshold is, for the time being, not constraining. For share buybacks further up, we will evaluate the uncertainties we face at that point in time and reassess the appropriate size for our strategic M&A butter. In dialogue with our regulator, we will then decide on the amount of capital we should prudently preserve and if there's room for a further share buyback. Over time, I expect the amount of capital we preserve over and above our target to gradually decrease as we work through our regulatory changes and uncertainties are resolved. And so, therefore, I trust this framework would lead to more predictable capital distributions going forward. So let me now hand it over to Lars to discuss fourth quarter results. Lars?

[Lars Kramer, CFO & Member of Executive Board]

Thanks, Robert. I'll briefly highlight the full year developments. Last year's net interest income, excluding incidentals, but including the TLTRO amounted to EUR 5.5 billion. The beat versus our NII guidance is mainly due to the higher-than-expected mortgage prepayment penalties. And comparing NII to 2020, the decline is mainly due to the noncore wind down, the effect of margin pressure on deposits and also the mix between margin and volume pressure on our lending products. The fee income rose year-on-year, driven by good results from clearing as well as private banking. And excluding incidentals, expenses amounted to EUR 5.3 billion, as previously guided. In stark contrast to 2020, we booked a net release on impairments in 2021. I'm pleased with the good profit through 2021 and despite the impact of the settlement of the compensation schemes. Moving to Page 8, we can have some of the loan volume developments. Over the year, our mortgage portfolio grew by EUR 700 million, which reflects a stable market share of around 15%. Mortgage prepayments are generally higher towards year-end, and this led to a small decline in volume during the final quarter. The corporate lending increased in Q4, supported by the TLTRO incentives that we were able to offer our clients. And consumer lending was actually stable this quarter. Looking at interest income on Page 9. As I've just mentioned, last year's net interest income on a clean basis amounted to EUR 5.5 billion. From this base, we estimate NII to decline between EUR 400 million to EUR 500 million in the coming year. There are 4 components to this decline. One is the rapid wind down, which means that limited NII will come from the noncore activities going forward. We also expect further margin pressure on deposits, though to a lesser extent than last year. The margins on our lending business have declined, and this could continue during 2022. Treasury results include mortgage prepayment penalties as well as interest income on our duration and hedging positions. Now we expect the treasury results to partly reverse the good result of last year, as we expect mortgage prepayment penalties to be lower in 2022. So we estimate that these 4 components will decline around EUR 100 million each. But looking further ahead, we expect NII may bottom out towards the latter half of 2023, though treasury results may decline further, the noncore will only have a minimal effect in 2023. And a gradual rise in interest rates and growth in our corporate book should help to turn NII around. Moving to fees on Slide 10 and other income. Here, we delivered another strong quarter in fee income, reflecting particularly good results in our clearing bank as well as in asset management fees. Our strategic initiatives are starting to materialize. For example, the new SME packages, which have kicked in. Going forward, I expect fees to grow on average between 5% to 7% through to 2024. And our other income, of course, was boosted by the sale and leaseback of our headquarters in Q4. And excluding the sale, other income improved from higher trading results as well as strong private equity gains. It's worth noting that we don't expect the private equity to repeat the strong performance, so the income in this level will be lower in 2022. Moving to costs on Slide 11. So excluding the incidentals, the total cost of 2021 amounted to EUR 5.3 billion as we guided. Over the year, the cost of AML increased and the regulatory levies were higher due to the AT1 tax clawback. And we expect our cost base to start declining during 2022 and end below a level of EUR 5.2 billion. The clawback will drop off this year, so regulatory levies will decline by around EUR 50 million. And also operating expenses in CIB noncore will come down further. Furthermore, strategic cost-saving programs will broadly offset cost increases, and we do remain firmly on track to drive our costs below the EUR 4.7 billion level in 2024. At this point, I'll hand over to Tanja.

[Tanja J. A. M. Cuppen]

Thank you, Lars. So on impairments, in Q4, we booked impairments of EUR 121 million. These impairments are largely related to corporate loans, reflecting a management overlay for Stage III loans in Commercial Banking and a limited increase on existing Stage III files for both CIB noncore and commercial banking. The total management overlay now amounts to around EUR 424 million. Around half of the overlay is COVID related, reflecting ongoing uncertainty as most government support measures are being terminated now. The remainder is mainly related to portfolios in wind down. For the full year, our cost of risk ended slightly below 0, reflecting the strong credit quality of the loan book and economic recovery after easing of COVID-19 restrictions. It's too early to guide -- to give any guidance for this year, but I expect a more normal picture again, so without releases. As Robert mentioned, we have adjusted our through-the-cycle cost of risk guidance to around 20 basis points from previously 25 to 30 basis points. This is mainly driven by the derisking of our balance sheet from the wind down of CIB noncore and the tightening of our risk appetite, as we communicated in 2020 at our [indiscernible] review. Now turning to Slide 13 on capital position. We remain very well capitalized with a Basel III capital ratio of 16.3%. This includes a EUR 500 million capital reduction for the announced share buyback. The decline versus previous quarter reflects a strong RWA increase largely related to credit and operational risks. We implemented the D&B mortgage floor this quarter and have done some additional loan reviews. The wind down of CIB noncore, combined with seasonal balance sheet reduction, more than offset the growth in our corporate loan book this quarter. For operational risk, we have updated our scenarios for revolving consumer credits with floating interest rates. As you can see in the chart on the right-hand side, the difference between Basel III and Basel IV RWAs has become limited. The add-ons we have taken in Basel III, combined with the accelerated CIB noncore wind down and a more positive Basel IV proposal from the EU are the main reasons for this. With that, I want to hand back to Robert.

[Robert Swaak, CEO & Chairman of Management Board]

Thanks, Tanja. Now then turning to our long-term targets on Slide 14. We managed to grow our mortgage portfolio over the year, and we remain well placed in this competitive market. On cost, we hit our interim goal of EUR 5.3 billion for this year, and I am confident we can get our cost base below EUR 4.7 billion by 2024. A new through-the-cycle cost of risk of 20 basis points reflects the derisked balance sheet following the accelerated wind down of our noncore loan portfolio. We announced a EUR 500 million share buyback program today. Share buybacks are an additional tool to manage our capital position, while we aim for a gradual decrease of capital over time. And then finally, we proposed a dividend of EUR 0.61 per share based on our 50% of our full year profit. So with that, I'd like to ask the operator to open the call for questions.

[Operator]

[Operator Instructions] Our first question is from Mr. Farquhar Murray, Autonomous.

[Farquhar Charles Murray, Partner, Insurance and Banks]

Apologies, I've actually got a slight chest infection. Two questions from me, if it's possible. Just coming back to the capital generation. Well, just coming back to the kind of 200 bps that you're applying between the 13% target and the 15% threshold, can you just explain to us what that now represents? I mean, is that kind of still an M&A buffer that can be fully deployed? Or is it really building in some degree of gradualness in the convergence towards the target over time from here? And when might you be able to revisit that? And then more generally, is it plausible that we would be looking at a sequential buyback in the second half of the year? And what really are the kind of criteria for being able to do that? And then finally, just on the fee guidance, what gives you the confidence that you'll be able to do 5% to 7% growth there? What are the kind of key elements behind that?

[Robert Swaak, CEO & Chairman of Management Board]

Yes. So on your question on the share buyback and the threshold, let me just start with the decision that we got to in determining what the share buyback should actually look like. What was the amount that we needed in order to ensure a gradual release of capital, as we talked about, but also to ensure that this is a gradual lease that is applicable for multiple years. So in other words, getting to a share capital, which is cognizant of the fact that this has to be a gradual release of capital, but also making it possible to do this more than once. So that analysis got us to a number of EUR 500 million. Now particularly around that EUR 500 million, if we then say that will allow us to do multiple of capital returns or share buybacks, I should say, that gives us sufficient flexibility for the purposes, as I've just stated. And so therefore, the threshold, as we have it, is not relevant because it's not really getting close to the levels of our threshold at this point. So there was no need for us to adjust any further -- anything further on the threshold. Now as to your question, absolutely. We talked about some of the components of that threshold. Some of the risk has gone indeed out of the bank as you can see in our through-the-cycle cost of risk adjustments that we've made. We settled AML. We still have a number of uncertainties related to COVID as we navigate coming out of COVID. There's regulatory pressure will continue. And we have AML -- sorry, M&A as part of our strategy. So that really hasn't changed. But the most important consideration here is by applying the EUR 500 million, by allowing ourselves the flexibility to do multiple share buybacks, we did not get close to the threshold levels, and therefore, there is no need to adjust the threshold.

[Farquhar Charles Murray, Partner, Insurance and Banks]

Okay...

[Robert Swaak, CEO & Chairman of Management Board]

And maybe on fees. So maybe on fees, we guided to a 5% to 7% CAGR to 2024. What we're actually seeing, I think, Lars indicated that in our results in Q4, but that actually started to -- also to kick in Q3. Some of the measures that we've taken to affect a change away from NII to fees are actually coming to fruition. So whether it's the payment packages that we've introduced, whether it's the ongoing strong performance that we're seeing in clearing, whether it's the continued strong performance on our wealth management side, these are all bases for -- and extrapolating what that could actually do in terms of opportunity. So we think the 5% to 7% CAGR based on what we're actually seeing over these last few quarters is a good indication, a good proxy, and therefore, good guidance for our fee development.

[Operator]

Our next question is from Mr. Benoit Petrarque of Kepler Cheuvreux.

[Benoit Petrarque, Head of Benelux Equity Research]

Yes. So the first 1 will be, again, on the share buyback. Just to ask the first question on slightly differently. Could you update us on the next round of share buyback already in 2022? I'm thinking, for example, during the second quarter reporting or will that be an update, let's say, next year in the fourth quarter 2022, so in February 2023? So what is the kind of timing of a new potential round of share buyback -- and did you add any discussion with your regulator on the total payout ratio. So now you have the 94% level at EUR 500 million. Was that part of the discussion or not at all? Just could you push it above 100% potentially? The second question was on NII. Well, I don't think the guidance are very useful in a way because I think you used the scenario end of November, I think, 5-year swap rate at minus 10 bps. In your statement that the NI will bottom out in H2 2023 at current level of rates, so probably around 50 bps around the 5 year. When will that bottom out, could you be a bit more specific, please? And also, where could you maybe surprise us a bit on the positive side because you've put a lot of negatives on the moving parts. Where do you think you've been maybe a bit too conservative on the NII guidance? And just maybe briefly, if I may, on the EUR 4.7 billion cost guidance, how much SRS and DGS did you put in your figure? I think you have EUR [ 300 ] million total. I was just wondering if you have adjusted slightly for the regulatory cost there?

[Robert Swaak, CEO & Chairman of Management Board]

Thanks for the question. So I'll ask Lars to comment on the NII guidance and then on your question on DGS. Just maybe, again, going back to the share buybacks. So just let me reiterate. It is our intention to use share buybacks on a regular basis. So -- and for very obvious reasons because we want to continue to optimize our capital position. And also, and I will continue to repeat that. It adds and it helps the predictability of how we manage our capital distribution, and that doesn't necessarily have to be limited to an annual share buyback. Now on the situation as it is today, let's get through the execution of the share buyback now. And then we will reassess when and if we can get to a potential second round. So again, just to emphasize, we -- this is a regular part of our optimization of capital position. It is something that we envisage that we would do multiple times, but I'd like to get through our first share buyback program first, and then we'll take the next steps. In terms of your question on the regulator, I would just say they were very constructive. You know we need to get permission from the regulator on the EUR 500 million. That was a good constructive dialogue. And so, therefore, you see the results today. As to your question on whether we're limited on a payout above 100%? I'm not aware of any limitations at this point. And maybe, Lars?

[Lars Kramer, CFO & Member of Executive Board]

Yes. And let me take your question on the NII and the November scenario. I would say here that if you were to take rates as of today, there would be a little bit of an upside that you could factor in. But bearing in mind that we are not as sensitive to the rate movements, and we do have quite a long duration book on the mortgage side and also in our replicating portfolio. But I would expect maybe the upside for this year, and I'm talking 2022, which is what we're guiding on, to be maybe around EUR 25 million if the rates continue at this level. So of course, surprising on the up, I would say, the drivers there would be -- if the rates go even higher, if we are able to drive more volume in terms of our various products. I mean these are all factors that help in terms of the NII. We'd also have to see a little bit how prepayment fees evolve on mortgages because, here, we definitely do anticipate some reduction versus last year. So if refinancing's continue, that could provide some support. On the cost front, in terms of DGS, I mean the 1 clear step down is the EUR 50 million in terms of the bank taxes. So that's a structural step down because that was a one-off in 2021. The other area we do expect some step down is on the DGS. So there's maybe a EUR 20 million step down on the 2021 levels. But then on the other hand, we are seeing an increase in our contribution to SRF. So overall, it's -- apart from the EUR 50 million, I would expect it to be roughly flat. And I mean, here, I would also caution a bit in terms of what happens on deposit volumes because we saw a strong inflow again of deposit volumes, and that obviously impacts contributions to DGS as well. So we are sensitive to that.

[Benoit Petrarque, Head of Benelux Equity Research]

Sorry, on 2024, I think the contribution to the SRF will decline substantially. [indiscernible] on the DGS, I think? Is that in your EUR 4.7 billion target?

[Lars Kramer, CFO & Member of Executive Board]

There is a partial step down built in, but there's definitely -- we are being on the cautious side of that. So let's see how that evolves in terms of where the regulator puts the levels.

[Operator]

Our next question is from Mr. Tarik Mejjad of Bank of America.

[Tarik El Mejjad, Equity Analyst]

Two questions, please. First 1 on capital return. I mean, thank you for explaining your buyback strategy. I was just wondering why you wouldn't step up a bit the cash payout components if there is no limitation of 100% payout over the years so you can return the capital a bit faster? So the second question is on the -- on your operating jaws. And so I was surprised you still stick to an absolute number in terms of cost given the inflationary environment where we are. So if you assume there is squeeze on the revenue side from what you described and then the costs, do you think there's a risk that the cost comes slightly higher than your estimate given the environment? Or you you're actually working on extra measures to offset the inflation and deliver on your guidance? And maybe I was squeezing last question on other income. What's the new run rate? In the past you're giving EUR 125 million per quarter. Should we come back to that kind of level?

[Robert Swaak, CEO & Chairman of Management Board]

And thanks for the questions. And maybe on cost, Lars, you can take those 2 questions. Yes. Let me just confirm the -- our thinking around the cash buyback was very much around the number that we would get to in terms of allowing us to gradually release capital. And so by, again, coming to the number that we now have, the EUR 500 million, the -- that release can be consistent. It's a number that we can manage, and therefore, it does increase the predictability. So I would choose a bit of a longer-term optionality in terms of the rounds of buybacks that we can do rather than a short-term optimizing because I do think it is very consistent with our capital policy, and that is something that we continue to be very predictable and consistent about. So that is why we came to the -- to our choices as we're discussing today. On cost, maybe, Lars?

[Lars Kramer, CFO & Member of Executive Board]

Yes, I would say in terms of guiding the absolute number for costs, I find that, that provides very good discipline for the organization and a very clear target to go after. In terms of -- of course, with all the inflationary pressures and so on, there are continuously efforts being made to absorb that, and that is also what we are guiding for the longer term that we are, in fact, trying to come out at even lower than the EUR 4.7 billion that we previously guided. So that I think should tell you that we are making every effort also to address the operating jaws. The other income, I would say, clearly, we've got quite a few incidentals in there this year. So strip to those out, than it was a particularly good year in terms of our ventures and our equity participation. And I think that it's not necessarily repeatable in the new year. So we don't really give guidance on this line, but I would really say that if you were to look at what we achieved in 2021, we won't necessarily get the same tailwind from our ventures and high equity participations in 2022.

[Tarik El Mejjad, Equity Analyst]

Okay. I mean, actually, my question on capital return was really focused on the payout, the cash payout, so your 50% policy. I guess it's -- I mean when you get approved by the SSM, it was on the buyback size, I guess. But the payout of 50%, some banks increased it to somewhere 60%, 70%. And then on top, you could do the EUR 500 million, which could be as well predictable. That was really my question was more on the cash payout components.

[Robert Swaak, CEO & Chairman of Management Board]

Yes. And as I understand your question, it is a choice that we have made to stick to the 50% dividend policy. As you recall, we've confirmed -- well, actually, we communicated that dividend policy. We intend to stick to that dividend policy to not make changes along the way. Again, all in a continued effort to be predictable and to be consistent. So it is absolutely my preference to hold on to a dividend policy, we all know, and then we will design and we determine our share buyback, starting with the EUR 500 million that we communicated today. And when the opportunity arises for additional share buybacks, we know, again, that this EUR 500 million gives us a good starting point.

[Operator]

Next question is from Mr. Stefan Nedialkov from Citi.

[Stefan Rosenov Nedialkov, Research Analyst]

It's Stefan Nedialkov from Citi. I've got questions around 2 topics on NII and the buyback and surprisingly. On NII, I wanted to understand from you. Obviously, you have done a lot of management actions on the cost side. We have done some on the deposit side, especially when it comes to negative deposit charging. What else are you doing when it comes to managing your deposit inflow in terms of conversion into fee-producing assets or discouraging people from holding unprofitable checking/savings accounts, et cetera? Should we expect anything more in 2022? And is that included in your guidance potentially? And related to that NII question, I'm really trying to understand what is going to be the exit rate for NII in the second half of '23? Obviously, you're guiding to a bottoming out at that time. If I just do some simple math, the exit rate potentially suggests quite a low level of NII into 2023 overall and the beginning of '24. And on the buyback, 2, hopefully, very short questions. Is the EUR 500 million structured as part of an official ECB authorization? How big is that authorization? What's the time line overall? Or is it just like a stand-alone EUR 500 million one-off, and then you have to go back to ECB for the second one? And if I may, on the NFI ownership, have you considered a targeted buyback as part of the EUR 500 million more in the future?

[Robert Swaak, CEO & Chairman of Management Board]

Thanks for the question. So yes, let me take -- let me take the share buyback and Lars will expand on costs a bit more. The share buyback that we have today is a program that we agree with the ECB on a per program basis. So the next time we -- the term we want to do an additional round, we would have another dialogue with the JSP, with ECB, and we would consider the circumstances at that time. So this is not part of an overall discussion with the ECB. This is very much targeted at the individual share buybacks that we intend to do. On your question as it relates to the NLFI it clearly is up to the NLFI to take a point of view as to and how they want to participate in the share buyback. And right now, we've gotten to the result of a very pro rata participation. But clearly, that is at the prerogative of the NLFI.

[Lars Kramer, CFO & Member of Executive Board]

Yes. And on the NII, in terms of -- we've now pretty much introduced our negative rate threshold all the way down to [ EUR 100,000 ]. So that is effective as of January. And in terms of the balance of the book, we now have a -- it's roughly half, half of the deposit book that's being charged and that's not being charged. So I think opportunities here become politically very sensitive in terms of going below the EUR 100,000 threshold. There's a lot of resistance there. The opportunities we still have, though, are opportunities in terms of, it's a high net worth individuals in the corporate space in terms of the level of the rate that we charge. So that is clearly an opportunity. I mean, to some extent, we have anticipated for that looking into the evolution. The other area that is something that we are really also looking at in terms of building out the business is very much on the wealth side is also trying to see people transition from cash into more of an investment portfolio. Now here, again, this is also a bit timing of the markets. I mean, people are looking at where the levels of the markets are, and they obviously also want to see the right time to enter next into those markets. So -- but this is definitely a strategic evolution for us as well. The 2023 sort of exit level, I mean, we really are guiding now for 2022. So as I said, the potential upside for 2022 is maybe another EUR 25 million from current rates. And we'll just have to see how things evolve before we get into specific 2023 guidance.

[Operator]

Our next question is from Ms. Giulia Miotto of Morgan Stanley.

[Giulia Aurora Miotto, Vice President and Equity Analyst]

Yes, a follow-up question on capital from me as well. If we think about M&A buffer, how has your thinking evolved around this? So are you still very much looking at private banking opportunities ? Or could it be also commercial banking or retail banking in the Netherlands, for example, so any color there? And then my second question is on NII. And my question is about front-end rate. So following the ECB on Thursday, many economists are now expecting actually the ECB to hike rates back to 0 by beginning of '23. And I understand ABN is more sensitive maybe to the long end of the curve because of the replicating portfolio, but what would be the impact of that potential 50 basis points hike, please?

[Robert Swaak, CEO & Chairman of Management Board]

Thanks for your questions. Yes, on M&A, let me just reconfirm what I've said all along is that we continue to be -- we will continue to review opportunities on M&A. Any M&A has should be accretive to the strategy, and therefore, yes, wealth management has certainly been an area, but then again, we would also look at opportunities that are potentially working into the feeder function of wealth management. And by that, I mean, 1 of the proposals that we've -- 1 of the propositions that we've also started, and in a way, that also helps our work and our transition to a more fee, our related business model is the enterprise and entrepreneur concepts that we've begun to introduce in Northwest Europe. So I would say everything that I've said in the past on M&A still holds. And we will continue to review the opportunities. NII, Lars?

[Lars Kramer, CFO & Member of Executive Board]

And then in terms of the NII, I mean, again, modeling out to the end of the year, as I've said, with current rates, we get to this EUR 25 million potential pickup. If you want to sort of start adding 50 basis point increases, then we'd also have to look a bit at the impact on our deposits where we have the big negative rates. Because, at some point, you would have to start following that up as well. So it could be quite dependent on the pace of tracking on the deposit side as well as, of course, the potential impact of an increase like that being passed on into the mortgage markets and how that affects the mortgage behavior. So it really is, I would say, -- it could be quite a marginal impact for us initially.

[Giulia Aurora Miotto, Vice President and Equity Analyst]

So -- sorry, just to make sure I understand. So if the ECB hikes 50 basis points, let's say, tomorrow, just for simplicity, that does not have any impact on your deposits? Is that because everything is replicated? Or why is that? Because I would have thought that the balances with the ECB would see a positive impact? And then offset by the fact that you can't charge deposits anymore, fair enough. But the move to 0 should have some small impact.

[Lars Kramer, CFO & Member of Executive Board]

Yes. But that's exactly it. It's the small impact. So it's not going to be a very material impact. And I still say in terms of the tracking speed where you now have sort of half your deposits at negative and half not, that's really where there'll be a balancing factor.

[Operator]

Our next questions are from Mr. Kiri Vijayarajah of HSBC.

[Kirishanthan Vijayarajah, Analyst]

Firstly, coming back to the share buyback and that pro rata participation by NLFI. I was wondering if the underlying thinking from the Dutch state is that they want to preserve that majority stake at least in the short term, in which case do you think this whole sort of pro rata participation thing is going to be just a repeat feature for the next few buybacks? And whether that's already been agreed upfront with the NLFI. I don't know if you can share some of those details. And then secondly, coming back to your new fee growth ambitions, the 5% to 7% fee growth. I wondered how does that stack up by division between retail, the private bank, the corporate bank, all 3 divisions kind of expected to be in that 5% to 7% range? And also, is the clearing business expected to deliver that 5% to 7% fee growth as well? So just some color on divisionally where that 5% to 7% fee growth comes from?

[Robert Swaak, CEO & Chairman of Management Board]

Yes. Thanks for the questions. I'll take the -- your question on NLFI and, Lars, if you could then take the questions on fees. So on the decision by NLFI clearly, that is a decision by NLFI. I would call your attention to the fact that the Minister of Finance to the -- in a statement to parliament has said that they remain committed to reduce their shareholding as and when appropriate. And in effect, that is a repeat of what the government, 4 years ago, had included in their statements. So that statement has been made. Now clearly, it is then up to the Minister of Finance and NLFI, obviously, to take a decision at whatever point in time they decide to do so. For now, the share buyback is a pro rata share buyback.

[Lars Kramer, CFO & Member of Executive Board]

And I would say in terms of the fees by division, I'm really looking at this as an overall fee increase for the bank. And I think there are potentially very many sort of different moving parts, and you pointed to one, which is the clearing another 1 is really where the markets are in terms of assets under management. And those are quite tightly connected to sort of market volatility and price movement. So it's very difficult to try and pinpoint and say that every single division will be at 5% to 7%. But we certainly do expect fee increases across all of our divisions because we have got initiatives on the go in every single one of them. So living personal and business banking in terms of fee packages on the wealth side, clearly in terms of trying to get more movement from cash into securities. And on the corporate side, apart from the clearing, we also have the corporate finance activities. And we're hoping to do more customer focused and broader business with customers, which will have a fee component. So it will be broad-based, but I can't say that it's going to be 5% to 7% per individual unit.

[Operator]

Following question is from Mr. Robin van den Broek, Mediobanca.

[Robin van den Broek, Research Analyst]

First 1 is again around NII. I mean I'm a little bit confused with the EUR 25 million guidance on today's rate. I mean, is that EUR 25 million specifically for Q4? Or is it for the whole year? Because I took some time modeling your replicating portfolio presentation, I think from was in September 2018. And that would suggest that the upside from the curve movement would be a bit more material than what you're saying just now. So I'm just wondering whether the conservatism on the rate situation is also driven by maybe more fluid movements in other pockets that you're highlighting. And when I look at the mortgage margin, for example, on repricing for the 5- to 10-year bucket maturity, it seems that pressure there could be substantially more than EUR 100 million per annum. So is this also part of your overall guidance to get to that EUR 5.0 billion to EUR 5.1 billion level for the year? And in connection to that, given that you're still benefiting from TLTRO in H1. I was just wondering the exit rate for 2022 specifically, is it fair to conclude that, that is closer to EUR 1.2 billion in the fourth quarter of the year? And maybe if you can then also give the upside from rates for 2023 on the back of today's swap curve. I think that would be helpful. And then on -- I'm not recalibrating the CET1 target. I mean you have been talking about that throughout last year. And now you're not doing so because it's not really a constraint. But I mean that probably was not the case given these outcomes earlier in the year as well. So I'm just wondering, to what extent should we see any reluctance from the regulator to basically due to change that capital target?

[Robert Swaak, CEO & Chairman of Management Board]

Yes. Let me take that last question, and then, Lars, you can answer the other questions. Again, what we did was -- and that is our initiative, we determined the amount of share buybacks given the considerations that I talked to you about before. So I'll go back to a gradual release of the capital, being predictable, being able to do multiple rounds, and then have the conversation with the regulator. As we came up with the conclusion that a EUR 500 million share buyback would actually allow us to fulfill all those obligations, or all those criteria, there really was not a reason to recalibrate the threshold. Now I did say that we would consider recalibration. And so this is part of a consideration that you do at the time that you determine what your buyback is actually going to be. So if you then determine there is no -- there is no, at this point, limiting factor from the threshold, there is then no reason to actually adjust that threshold. Now clearly, as we move into subsequent rounds, and we will then take the circumstances into consideration at that time, clearly, we'll have that conversation. So it has to be part of any ongoing conversation in terms of determining share buybacks. But at this point, in the way we've designed our share buyback program, it is not a constraint, and therefore, there was no need to adjust. Does that answer your question?

[Robin van den Broek, Research Analyst]

Yes. I mean I think it would have been helpful to give more transparency for the next few years crystallize that little bit of extra excess capital that could be there. I think that's what's helping, I think, other banks in the space as well. So you just have the clarity on the go-to level and now that remains a little bit up in India, I think, but we'll see as it comes back.

[Robert Swaak, CEO & Chairman of Management Board]

Went the other way, [indiscernible] but thank you. Lars?

[Lars Kramer, CFO & Member of Executive Board]

Yes. I think further in terms of NII, I mean, really, what we are trying to do here is give you a full year guidance that we stop the dance of trying to reconcile very detailed numbers every quarter. So in terms of that broad-based guidance, there are a lot of moving parts, and you pick up on the mortgages. For sure, there is pressure on mortgages. And we've seen that in terms of the new production that the front book margin is lower than the back book margin. We've Been starting to see some ability to pass on pricing in terms of also the cost of funding going up. The biggest part of the impact there remains on the deposit side. So in terms of where the pressure is the most, it stays with the deposit margin. We've tried to offset that as much as possible with the drop in the thresholds to EUR 100,000 and that offsets about half of the expected impact this year. And then the other big step down that you have to factor in is the fact that we've now unwound the noncore activities, and that really does take almost EUR 100 million out of the -- out of that line item on an annual basis. So the other impact of mortgages really manifest itself in the treasury line item where, again, as I said earlier, we've had some very healthy prepayment fees for the last -- the whole of last year. And I do expect some more normalization in that space going forward so that's -- those prepenalties benefits should be coming down.

[Robin van den Broek, Research Analyst]

Okay. That's helpful. And then maybe 1 more on ECB rate hikes. It was my impression that you basically have a net deposit exposure that would mean that a rate hike would initially be a negative element for NII. And I think, in an earlier question, you indicated that it's just a small positive. Could you maybe elaborate a little bit on that as well?

[Lars Kramer, CFO & Member of Executive Board]

What we're saying is it really depends very much on how we track up whether we follow a 50 basis points up immediately on the negative rates. I mean bearing in mind [ EUR 80 billion ] priced at on average negative [ EUR 50 billion ] mean that's EUR 400 million just there on a per annum basis. So the question is, do we track that immediately? Or do we -- as we did on the way down, have a bit of a slower tracking on the way up to protect some of that income.

[Robin van den Broek, Research Analyst]

But presumably, it's a hard sell to clients do not track the ECB rate -- the rate hike up to 0 at least not that that's probably easy to have a software deposit...

[Lars Kramer, CFO & Member of Executive Board]

This is always the thing we have to manage in terms of what's available for our funding. And if you really look at where this funding is, it's in the corporate space and in the high net worth space, and, ultimately, high-quality funding is in the retail space, and they are not being charged negative at the moment.

[Operator]

Our following question is from Mr. Omar Fall of Barclays.

[Omar Fall, Analyst]

Sorry to belabor the Robin's and your questions, but we know that the sensitivity to rate changes is pretty minimal over 1 year because of replication portfolio as per all your peers. I think it would just be helpful to everyone is what the sensitivity looks like to 50 or 100 bps changes over a 3-year view? Because I know that this wasn't the current management's guidance, but you used to have a deposit margin guidance of minus EUR 20 million per quarter when 5-year swap rates were at minus 40 basis points, which implies a lot of exponentiality on the downside. So I don't think it's unfair for shareholders to ask why that doesn't apply on the upside? Then the second question would just be, if you could update us on the core cost base, please? I see there wasn't much movement in Q4, which is as guided. But you previously said the licenses would start to be handed in, I believe, in Singapore, Hong Kong, et cetera. as of last quarter. So just wondering what the progress is there and the plans into for this year? And then lastly, I noticed, and it was obviously in the press last year, the Dutch Public Prosecutors investigation on dividend, withholding, tax credits, if you have any updates on that? If that's something that you're thinking about in terms of potential litigation charges and the materiality of that, that would be helpful?

[Robert Swaak, CEO & Chairman of Management Board]

Yes. So let me take the last question. The settlement with the Dutch Public Prosecutor is completed. And this is -- I'm just listening now to -- I think you're asking a different question than what I assumed. So I thought you were asking the question on the Dutch Public Prosecutor settlement that we concluded?

[Omar Fall, Analyst]

No, I'm asking about I do recall that one. I'm asking about the investigation into the withholding tax credits, the one -- it's is in your -- it's in your quarterly reports in the other risk developments?

[Robert Swaak, CEO & Chairman of Management Board]

Yes. There's no further developments in that at all. So things are still what they are. Sorry for misunderstanding your question. Lars?

[Lars Kramer, CFO & Member of Executive Board]

Yes, on the noncore costs, I think we are running at about EUR 278 million in the year of 2021. And we are expecting to see a step down of that, let's say, by about EUR 60 million in the year of -- well, in this year. So again, as I've talked about this in the past, even though the size of the book has come down materially, and that clearly helps us in terms of better asset quality and lower loan losses. But it still takes us time to shut the business down and to exit locations. And that is the clear focus now. But there is still the tail expected there, which takes us through late into 2023, maybe even some into 2024. I appreciate also on the NII that you'd like more and more sensitivity and more and more detail, but we really have tried to now keep the guidance at this level on an annual basis. So you'd see a little bit how things evolve and how we expand that going forward. But I've told you the major moving parts. And I mean those are the ones that we are tracking and try to work on.

[Operator]

Our following question is from Mr. Guillaume Tiberghien of BNP Pariba.

[Guillaume Tiberghien]

The 1 I had was on cost. The question earlier on resolution fund. So you said it would go up a little bit in '22. So my question is, by how much, please? To what level, because I can't remember the level? And in 24, do you assume that just for the resolution fund, specifically, this goes to 0? And the second question relates to your coverage ratio of NPL being quite low compared with quite a few European banks. I was wondering whether there's a risk that's either you or the ECB decides that raising the coverage level is appropriate to a much more significant level, let's say, I don't know, 40% or 50%, for example. Is that a risk that this may happen?

[Robert Swaak, CEO & Chairman of Management Board]

Tanja, could you take the question on coverage ratio and then maybe, Lars, on resolution?

[Lars Kramer, CFO & Member of Executive Board]

Yes. So on the resolution funds, you're saying going up in '22, I think it's going down in '22 in terms of Well, in terms of the overall contribution. But yes, in terms of Single Resolution Fund, there will be a bit of a step-up in '22. The overall contributions of bank levies and bank taxes and DGS should be net down by the EUR 50 million the one-off taxes we paid in '21. Going forward into '24, no, we have not assumed going down to 0. We are taking a cautious approach there. So let's see how that communication comes from the regulatory environment as to contributions. But as of now, we certainly aren't being that bullish, if you want to call it that, to measure it down to 0.

[Guillaume Tiberghien]

Sorry, the resolution fund specifically, what is the contribution?

[Lars Kramer, CFO & Member of Executive Board]

Well, we were contributing about EUR 160 million this year. And next year, we expect it to be around EUR 180 million mark -- well next year 2022.

[Guillaume Tiberghien]

I don't understand why you assume that it stays in '24 because the low sales that we should finish after '23?

[Lars Kramer, CFO & Member of Executive Board]

Yes. And we have to see if it is fully funded. So I'll come back to that one.

[Robert Swaak, CEO & Chairman of Management Board]

Tanja?

[Tanja J. A. M. Cuppen]

Yes. Maybe your question on coverage ratio for our NPL book. Well, of course, it's -- well, important to compare ourselves to peers. On the other hand, then we need to look at the actual composition of the balance sheet as well and our balance sheet, one, has a significant part in mortgages, as you are well aware, with a much lower -- well, coverage ratio and of course, very well collateralized. And also our corporate book is mainly collateralized lending more than what you would see at peers. And we have a relatively small consumer lending book. So that explains some of the -- well, that's the background of the lower coverage ratio. On your question with respect to the regulator, the regulator has imposed this prudential backstop regulation, basically meaning that for all the assets, all the NPL assets, a potential backstop needs to be applied. And in that way, there is also a deduction in capital for -- well, to add up to this minimum percentages that are set in the potential backstop. So in that way, the regulator does play a role in the overall level of provisioning be it not to our IFRS 9 provisioning but in capital.

[Operator]

Our following question is from Mr. Jon Peace of Credit Suisse.

[Karl Jonathan Peace, Managing Director]

Sorry for 1 more clarification on the buyback. I appreciate NLFI is making their own decisions in terms of what they do. But was there any sense, Robert, in how you're thinking about the pace of buybacks that you would want to leave some flexibility to accommodate them if they were to decide to sell in the future that you wanted to have some dry powder? And then my second question is on the cost of risk. Tanja said earlier that it was a bit early to give guidance on 2022, but it should be a more normalized year. But you are still sitting on those [ 400 ] order overlays, half of which have COVID? I mean assuming that the economy is reasonable and Omicron is not too problematic, is it a reasonable expectation that those COVID overlays could get released this year so that you could come in still decently below the 20 basis points through the cycle rate in 2022?

[Robert Swaak, CEO & Chairman of Management Board]

Thanks, Jon, for the questions. Look, I appreciate you wanting to -- to get a bit more information as to the thinking of NFI. And certainly, the way the dialogue goes, we'll determine how we want to construct a share buyback program. And we then engage with NLFI, as you'd expect us to do. For this round, it was -- it's clear the outcome is a pro rata on any subsequent rounds. We'll have the next run of the conversations, I would say. It really is a decision that the NLFI needs to take again. And I would just point you to the statement that the new Minister of Finance has made, and in effect, she reconfirmed the government's intention. So I don't -- I just leave it at that.

[Tanja J. A. M. Cuppen]

Okay. And shall I take the question on the overlays and whether they would be released this year? Well, the reason that we put in place overlay this because of the fact that our models -- well, didn't capture the risks well from COVID. You've seen that as well with historically low bankruptcy rates, that's still the case. We do expect that this will go up, again, but the question is, will that normalize during 2022? Or will that take a bit longer? And that will also determine how we will address these overlays so that can go into 2023 as well. And I do expect that these overlays will -- you could say, well -- are they released? I do expect that they will be absorbed by the models once they start performing again. So this is our best estimate what the outcomes of the model should be once the situation has normalized.

[Operator]

Our following question is from Ms. Anke Reingen of RBC Capital Markets.

[Anke Reingen, European Banks Analyst]

The first is just on, I would like to confirm that your 13% core Tier 1 ratio target incorporates the potential [indiscernible] buffer in the [indiscernible] in case it gets reactivated at the similar level to reduction in domestic buffer last year? And then I guess it's right to assume you will resume the interim dividend this year? And then secondly, just on your sustainability targets. You show us the targeted split in the loan book, for example, with sustainable mortgages. Would that lead to like margin pressure as sustainable mortgages or other sustainable products come at lower margins than the non-sustainable part?

[Robert Swaak, CEO & Chairman of Management Board]

Tanja, do you want to take that first question on the countercyclical?

[Tanja J. A. M. Cuppen]

Yes. So I can confirm that is included.

[Anke Reingen, European Banks Analyst]

Okay.

[Robert Swaak, CEO & Chairman of Management Board]

And also on the interim dividend that will be resumed.

[Anke Reingen, European Banks Analyst]

Okay.

[Robert Swaak, CEO & Chairman of Management Board]

And then on the sustainable loans that we continue to make available that the pricing thereof is really depending on the customer segments that we deal with. So those are assessments that we make at the time that we extend the mortgage offers. So clearly, we are, in terms of our own sustainability goal sets and having -- by 2030 have all of the homes that we fund to be fully -- to have a, what we call a Type A rating in terms of sustainability, that is our overall objective. And then our pricing will be on a per individual case as we would always do.

[Operator]

Our following question is from Mr. Johan Ekblom of UBS.

[Johan Ekblom]

I can just come back to the revenue outlook for a second. So on the NII, you're saying that you're estimating you lose about EUR 100 million on kind of volumes versus price on the lending side. Is that largely driven by front book pricing of mortgages? Or is there anything else? Because I guess the impact of refinancing and prepayments that is captured in the treasury, and you're clearly...

[Robert Swaak, CEO & Chairman of Management Board]

We lost you, Johan.

[Operator]

We'll continue with the other people. And I have a follow-up question from Stefan Nedialkov from Citi.

[Stefan Rosenov Nedialkov, Research Analyst]

It's Stefan again. Just to follow up on a couple of points from our discussion this morning. On cost, I'm just trying to understand the resilience of the EUR 4.7 billion target in the face of higher inflation. You've obviously signed the short-term CLA for 6 months. Is it fair to assume that, that's going to be sort of more in line with the current inflation once the longer-term negotiations are concluded? And what sort of management actions over and above are you able to take to contain this higher inflation this year and potentially next year? Related to the cost, you had guided to, I believe, EUR 150 million of restructuring costs as part of the program. If you can update us how much has already been taken out of the EUR 150 million? And how much is left that could potentially come this year? The second question on Basel IV. Now that you've put in the mortgage add-on buffer and your -- another 1 of your competitors is likely to be doing it with 1Q results, are you starting to see a bit more resilience in terms of the mortgage lending spreads? You did mention you're able to pass higher funding costs, a bit more effectively. But are you maybe potentially optimistic that Basel IV is going to be a positive overall for mortgage pricing in the Netherlands this year and next year? And lastly, if I may sneak one last one in. Your long-term ROT target of 10%, what level of rate do we need to have for you to reach that in '24, let's say?

[Robert Swaak, CEO & Chairman of Management Board]

Yes. So let me take your last question and the -- and I'll take your question on CLA. And then maybe, Tanja, you can take the question on the on Basel IV, and Lars can take the remaining questions on the cost. So in terms of the CLA, look, we concluded a CLA to ensure we safeguard a social plan, which is what we did, and then subsequently agreed with the unions that we would revisit the CLA towards the latter half -- the second half of this year. And the reason we did that is we wanted to get more sight on what the longer-term inflation outlook would look like. At this point, we're still penciling in from our own economic forecast that there will be a reduction on inflation. But, to be fair, we're going to have that conversation during the second half of this year. So that's when we will reconvene with the unions.

[Tanja J. A. M. Cuppen]

Can I take the question on Basel IV and the effect on mortgages? And well, it's maybe unrelated. We have taken the D&B floor already in our Q4 results. And it's uncertain how that floor will relate to Basel IV, so that is not clear yet from the regulation. On Basel IV for mortgages and pricing, we have already included Basel IV implications in pricing for some time because we knew it was coming. And I don't expect that the Basel IV results land more or less in the area where we expected it, especially in the area of operational risk, the impact has been a bit lower than we had anticipated. So I don't expect any significant changes in our strategies with respect to mortgages.

[Robert Swaak, CEO & Chairman of Management Board]

Thank you, Tanja? Lars?

[Lars Kramer, CFO & Member of Executive Board]

So in terms of cost levers, I mean, we have a lot of programs on the go. And I would say that the most powerful levers in all of those is to try and get some acceleration. And obviously, as we implement these and we go along, whether it is product rationalization or sort of process automation or centralization, I mean there are always opportunities that we continue to find. So I think that is -- that's where we will continue looking. In terms of the restructuring costs, I would say we have about $150 million to go between now and 2024. So that's roughly a number that you can use. And then on -- if I understood the question correctly, it was what sort of level of interest rates would we need to get to an ROE of 10%? And I think, here, we previously said, look, we need to see interest rates sort of normalize. Now as to put a sort of number on normalization, probably 100 basis points or so parallel shift in the curve would be for me some sort of level of normalization.

[Stefan Rosenov Nedialkov, Research Analyst]

Just to clarify, this 100 bps gets from here? Or is it the time you gave the long-term ambition?

[Lars Kramer, CFO & Member of Executive Board]

Yes. I think it take it back to when we gave it.

[Stefan Rosenov Nedialkov, Research Analyst]

So as of then add 100 bps across the whole curve? Okay.

[Operator]

We have Johan Ekblom of UBS on the line again.

[Johan Ekblom]

Apologies for that, and hopefully, it works better this time. Otherwise, I'll give you a ring afterwards. But I just wanted to touch a little bit on the revenue outlook. I mean you're entering 2022 with 2.5% larger loan book than you had on average last year that should be around EUR 100 million or so in revenues at constant margins. Is there anything on the margin side, apart from what we're seeing on mortgage pricing?

[Lars Kramer, CFO & Member of Executive Board]

You've gone again, Johan.

[Robert Swaak, CEO & Chairman of Management Board]

Yes.

[Lars Kramer, CFO & Member of Executive Board]

So I can maybe just take the question in terms of the makeup. For sure, in terms of margins and mortgages, that is 1 of the bigger contributors on the asset volume to a decline. We, of course, also have the consumer loan book which has seen both volume and margin pressure and continues to do so. I mean people sitting on excess cash are repaying their consumer loans faster. I'd expect a little bit of offset on the positive side from corporate loans. So I think that's a bit the interplay on the lending side.

[Robert Swaak, CEO & Chairman of Management Board]

We're not sure whether Johan has actually heard the answer.

[Operator]

No, he hasn't. I think his line has gone altogether now. I'll continue with -- I'll continue with Mr. Farquhar Murray with the follow-up question.

[Farquhar Charles Murray, Partner, Insurance and Banks]

Just 2 quick follow-ups, if I may, both on NII. Firstly, that EUR 25 million extra curves stay as they are at the moment. Can you just confirm that's full year '22, and presumably that incorporates replicating portfolio impact plus ECB rate rises and deposit pass-through. Is that right? And are there any other assumptions built into that they are worth flagging? And then secondly, and I'm sorry, my voice is terrible. If we go back to the old NII commentary approach, you would have previously indicated, say, a EUR 20 million Q-on-Q negative on -- from the replicating portfolio on NII each quarter. Could I ask what that would be now and given where swap curves are?

[Lars Kramer, CFO & Member of Executive Board]

Yes. So I think the EUR 25 million number is really -- is probably a low number for the year. So there's a full year effect. And in terms of the previous guidance, which was the EUR 20 million on pretty much deposit margins, there, we would see that, that number is probably, at the moment, down to about EUR 15 million a quarter sequential.

[Farquhar Charles Murray, Partner, Insurance and Banks]

On the current curve?

[Lars Kramer, CFO & Member of Executive Board]

Yes. Well, and then you take away the EUR 25 million effect, so...

[Operator]

Next question is from Mr. Raul Sinha of JPMorgan.

[Raul Sinha, Analyst]

Sorry to keep you so late, but I've still got a couple of areas to ask about. So the first question is on the contribution to NII of negative rate charging currently. If you could perhaps give us the number? If you disclose that, I'm sorry if I missed it. And also, what you expect it to be before further changes that are coming in on 1st of Jan this year for '22? And then the second question is on the operational risk add-on that you've taken. I think you've taken EUR 2 billion add-on on operational risk for the evolving consumer credit issue. Can you give us a little bit more color on what you're assuming in terms of the changes in assumptions? And is there any further risk from this issue going forward, please?

[Tanja J. A. M. Cuppen]

Shall I take the second question on the operational risk?

[Robert Swaak, CEO & Chairman of Management Board]

Yes.

[Tanja J. A. M. Cuppen]

You know that the model that we have for operational risk is on Basel III. It's an advanced model using our scenarios. And we have indeed -- we update our scenarios periodically. And -- well, think of scenarios what could happen and translate that into capital indeed. We are not disclosing our assumptions in these scenarios. And if we would expect that things are, well, likely to happen or will they meet the requirements to take a provision, then of course, we take a provision. So this is for all the uncertainty that is out there based on developments that we see in the market. So yes, that's all, what I can say about it. I cannot be specific in the actual assumptions.

[Raul Sinha, Analyst]

Can I ask if the assumption change was internal driven? Or was that driven by dialogue with your regulator?

[Tanja J. A. M. Cuppen]

No, it's our own assessment.

[Lars Kramer, CFO & Member of Executive Board]

And then in terms of the level of negative rate income, let's say, as of the beginning of January, we've got EUR 83 billion of deposits being charged negative rates. So it's about EUR 400 million of negative rate income built into the NII for this year.

[Operator]

Following question is from Giulia Miotto of Morgan Stanley.

[Giulia Aurora Miotto, Vice President and Equity Analyst]

I have a follow-up question on that 100 basis points that could lift the ROTE from 8% to 10%. And basically, that guidance was given in November 2020. And effectively, if I look at the curve, everything is 100 basis points higher today except the front end. So I'm talking about 5 years swap, 10 years swap, et cetera, and yet, we are not getting anywhere close to that 100 basis points uplift in guidance. So I'm having a very hard time essentially squaring how you can say that 25 basis points -- sorry, EUR 25 million more in NII for this year from November to now, which is about a 60 basis point move and also in light of the fact that when the curve is 100 basis points higher as you had indicated in November, that doesn't seem to have much impact. So any more color you can give on the NII point would be very helpful.

[Lars Kramer, CFO & Member of Executive Board]

Yes. I think the point there is the, as you said, the 100 basis points has come at the long end of the curve. And really here, for us, we need to see the parallel shift and with it the short end that will give us the most benefit. And I think that is what we have yet to see happen.

[Giulia Aurora Miotto, Vice President and Equity Analyst]

But I thought you said previously that the short end would be a minor impact to NII?

[Lars Kramer, CFO & Member of Executive Board]

Yes, but 100 basis points is -- that becomes more significant. And then you start also getting into, again, in terms of deposit pricing and getting into a more normalized environment also from the funding side.

[Giulia Aurora Miotto, Vice President and Equity Analyst]

Okay. So basically, you're saying that the first 50 basis points of the front-end curve is not meaningful, but the further 50 basis points is what really makes a difference?

[Lars Kramer, CFO & Member of Executive Board]

I think really then you start getting more, again. Once you get above 0, you start getting more normal funding dynamics and customer behavior dynamics and also where deposit flows go. So yes, that could be -- in terms of a summary, it's getting back to normal to me as a 0, and then you start seeing dynamics that are easier to model.

[Operator]

We have no further questions, sir, please continue.

[Robert Swaak, CEO & Chairman of Management Board]

Okay. Well, thank you very much. That would then conclude the today's analyst call. Thank you so much for the questions, as always, and look forward to speaking soon. Thank you.

[Operator]

This concludes ABN AMRO Quarter 4 2021 Analyst and Investor Call. Thank you for your attention. You may now disconnect your lines.