May 8, 2013
Executives
Jan H. M.
Hommen - Chairman of the Executive Board, Chief Executive Officer, Member of Management Board of Insurance & Banking, Chief Executive Officer of Ing Bank and Chief Executive Officer of Ing Insurance Wilfred F. Nagel - Chief Risk Officer, Member of the Executive Board, Chief Risk Officer - ING Bank, Chief Risk Officer - ING Insurance, Member of the Management Board - Banking and Member of the Management Board - Insurance Patrick G.
Flynn - Chief Financial Officer, Member of the Executive Board, Chief Financial Officer of Ing Bank, Chief Financial Officer of Ing Insurance, Member of Management Board - Insurance and Member of Management Board - Banking
Analysts
Andrew P. Coombs - Citigroup Inc, Research Division Francesca Tondi - Morgan Stanley, Research Division Francois Boissin - Exane BNP Paribas, Research Division William Hawkins - Keefe, Bruyette & Woods Limited, Research Division Farooq Hanif - Citigroup Inc, Research Division David T.
Andrich - Morgan Stanley, Research Division Martin Leitgeb - Goldman Sachs Group Inc., Research Division Michael Igor Huttner - JP Morgan Chase & Co, Research Division Benoit Petrarque - Kepler Capital Markets, Research Division Matthias De Wit - Petercam S.A., Research Division Steven Haywood - HSBC, Research Division
Operator
Ladies and gentlemen, thank you for holding. Good morning.
This is Yvonne, welcoming you to ING's Q1 2013 conference call. Before handing this conference call over to Mr.
Jan Hommen, Chief Executive Officer of ING Group, let me first say that today's comments may include forward-looking statements, such as statements regarding future developments in our business, expectations for our future financial performance and any statement not involving a historical fact. Actual results may differ materially from those projected in any forward-looking statement.
A discussion of factors that may cause actual results to differ from those in any forward-looking statement is contained in our public filing, including our most recent annual report on Form 20-F filed with the United States Securities and Exchange Commission and our earnings press release as posted on our website today. Furthermore, nothing in today's comments constitute an offer to sell or a solicitation to offer to buy any securities.
Good morning, Jan, over to you.
Jan H. M. Hommen
Thank you. Welcome, everyone.
We are here with Patrick Flynn, our CFO; Wilfred Nagel, our Chief Risk Officer. We will answer the questions.
And we also have here Delfin Rueda and Doug Caldwell, our Chief Financial Officer and Chief Risk Officer from EurAsia available in case we need any help with questions. Let me go to Slide 2.
And you see that we have made steady progress on restructuring. We have launched the successful IPO in the U.S.
Our results in the group are up to EUR 800 million, up on both quarters. The Bank profit rebounded from Q4.
It was supported by improvements in the net interest margin. I think we had good cost control, and we had a slight improvement in our risk cost.
Insurance EurAsia did better on an underlying basis mainly due to lower market-related impacts. And operating results were lower, reflecting that investment margins are under pressure as a result of the low interest rates.
Also, Non-life was not coming in at a positive number here. But we have taken steps to cure that.
Solid results from the ongoing businesses in the U.S. supported by higher fees on growth and assets under management and a resilient investment margin.
You see that the good progress reflected on Slide #3, of course, the launch of the IPO in the U.S. We closed the sales of our Insurance activities in Hong Kong and Thailand, as well as our ING Vysya Life business.
The sales process for Korea and Japan is ongoing. And the aim to have our European operation is ready for the base [ph] case of an IPO in 2014.
The launch of the U.S. IPO was successful.
Shares began trading on the New York Stock Exchange on May 2. It is pretty clear that we see this as a major step in the journey towards the stand-alone future for the U.S.
but also for the restructuring of the ING Group. We're getting into a new phase now.
You can say we are getting into the final phase of the restructuring here. The proceeds from the U.S.
to the group is about EUR 500 million. That will be upstream to the group.
And we plan to get almost EUR 1.5 billion, again upstreamed from the Bank as dividends, to reduce the double leverage by EUR 2 billion. And the reduction will take place in the second quarter.
And so that will bring the double leverage down to EUR 5 billion. We have tried to help you here on a look-through basis, including the valuation of the remaining 75% of ING U.S.
and the stake we still have in SulAmerica. That will leave us with about EUR 1.5 billion of double leverage to go.
Now then when you look at the leverage in the Insurance holding company, that currently stands at EUR 5.6 billion. If you take in the proceeds that we have on the sale of CMF and KB Life, as well as the replacement of intercompany debt by own issuance in U.S.
and Europe, that would reduce that to EUR 1.5 billion. The reduction of leverage increases flexibility as we prepare our European Insurance business for a base [ph] case IPO.
But we need to come back on what type of target capital and leverage ratios we still need to determine, and we will come back on that, hopefully, in the second quarter so that we can help you with that effect as well. So we clearly need to do that before you can get the full picture here of our capital position.
On Slide 6, you see that the core Tier 1 has improved to 12.3% in Q1. And if we include the upstream of the EUR 1.5 billion, it will come down to 11.8%.
Still, if you go convert that into Basel III full implementation, the ratio will come down to 10.4%, well above our target of 10%. In Q1, we also applied IAS 19R for employee benefits, and that came into effect on the 1st of January 2013.
We had to adjust the equity at the 1st of January. There is a reduction of EUR 2.6 billion.
And this application will increase the volatility of equity going forward. As far as the pension cost are concerned, a high-quality corporate bond rate is now used to set the assumed return on pension assets and is locked in each year at the end of the year on December 31, which is not, I think, an ideal date if you look at the liquidity that we have in the market at the time.
The AA bond curve declined to 3.7% versus 5.5% a year earlier, leading to a material increase in the pension cost for 2013. And you can see here that the curve has already picked up another 40 basis points if you compare that at the end of March of 2013.
We also have given you a slide where you can compare the cost of the restatement we did in 2012 and compare that with the actual numbers for pension costs in 2013, and you see that we have an increase of EUR 59 million mainly as a result of that. Looking at the underlying profit, it was EUR 800 million but it was better than Q1 and Q4 last year.
The net profit came in at EUR 1.8 billion, but that included the gain, mainly, of the sale that was closed on Insurance Hong Kong, Macau and Thailand. And of course, it had some other effects as well of divested units and some special items mainly related to the cost-reduction programs we have in the Netherlands and other places in Commercial Bank, as well as in Insurance.
Let me go to the Bank. A strong recovery from the fourth quarter supported by an increase in the net interest margin to 138 basis points and the impact of cost savings really becomes now clear.
Risk cost remained elevated amid weak economic climate in Europe but improved slightly compared to Q4. Net interest margin was supported by higher financial market results and a lower average balance sheet.
Also, we saw a moderate increase of the loan book at higher margins, particularly in our Structured Finance business. Savings margins started to stabilize as the impact of the low investment rate environment was largely offset by lowering of the client rates.
The balance sheet optimization program that we started in 2011 and, in particular, 2012, I think, has worked well and has positioned our Bank for selective growth in our loan book. Net funds entrusted came in an impressive EUR 16.5 billion in Q1 and that, of course, helped to further improve our funding profile.
The net loan growth was EUR 2.5 billion and was mainly driven by Retail Belgium and by our Structured Finance business. Expenses were flat compared to a year ago, reflecting the impact of cost-saving initiatives which offset significantly the higher pension cost that we have.
Excluding the EUR 59 million higher pension cost from IAS 19, operating expense declined by 2.5%. And our cost-to-income ratio improved to 55.2%, and we're getting closer to a range of 50% to 53% that we have set for 2015.
On Slide 15, you see that our cost saving programs are tracking well, that annual expenses will be reduced by EUR 800 million by 2015. And so far, we have realized EUR 216 million of cost savings, of which EUR 54 million took place in Q1.
Risk costs remain elevated amid a weak climate in Europe, but we saw an improvement compared to the fourth quarter to 81 basis points of average risk-weighted assets. For the coming quarters, our risk costs are expected to remain elevated at around the same levels here.
And through the cycle, we expect the risk costs will come down to between 40 and 45 basis points on average risk-weighted assets. Risk costs declined by EUR 28 million if you compare that with Q4, and the improvement is mainly from Structured Finance and General Lending, but the risk costs in Dutch mortgages increased.
NPLs increased slightly to 2.6%. Risk costs from business lending in the Netherlands were down versus Q4, which included some very large files.
So we are roughly in line with the past quarters here. And risk costs of Real Estate Finance remained elevated by relatively -- remained relatively stable compared to the last few quarters, but elevated at EUR 111 million.
And they are expected to remain at around these levels for the quarters to come. Turning to the Dutch mortgage book.
Risk costs increased to EUR 82 million that came from EUR 33 million last quarter, reflecting recent declines in house prices, rising unemployment levels and a lower cure rate. The NPL ratio increased marginally as unemployment remains relatively low at 6.4% in March.
Given the continuing weakness in the housing market and the broader Dutch economy, loan loss provisions on mortgage portfolio are expected to remain at around this level for the coming quarters. Slide 21, you'll see that house prices have declined on average about 18% since the peak in June 2008.
And that leads to an average loan-to-value of about 90%. But if you look at that, the loan-to-values do not include additional collateral that we have built up by savings or via investments or life insurance mortgages.
While about 52% of our portfolio are interest-only mortgages, most of these are interest-only combined with other types of mortgages. Therefore, 78% of mortgages are accumulating additional covers for at least partial repayment.
Then we have a slide on tax reform. As of January 2013, we have seen important housing market reforms, including a gradual reduction of tax deductibility for both existing and new mortgages.
Furthermore, interest on new mortgages is only tax-deductible for mortgages that fully amortize over 30 years, which will impact affordability. House prices are already down 18% from the peak, and low interest rates have brought affordability to levels that we have last seen in 2000.
So the move to a fully amortizing mortgage will further impact affordability by about a negative 5 percentage point, likely to lead to further declines in house prices in 2013. However, certainty about future tax treatment and economic recovery should help to stabilize the market going forward, and we believe we have seen most of the decline in the housing market already.
Underlying result before tax from Insurance -- and I'll turn to the Insurance section, rose from the first quarter of 2012 and the previous quarter due to lower impact of market-related items. However, operating result continued to be affected by the low yield environment that had an impact on investment margin and by the economic downturn in the Netherlands, which was driving Non-life results lower.
Sales were flat compared with a year ago but up strongly compared to the previous quarter. Income came down from Q1, driven by the investment margin which was impacted by lower yields on new investments.
And Life and administrative expense declined by 3.3% compared to Q1 last year, reflecting that we have continued good cost control, as well as lower expenses for preparation on Solvency II. Turning to Insurance U.S.
The ongoing business in the U.S. posted a solid quarter, supported by a resilient investment margin.
Sales rose on Q1 and Q4, mainly driven by, respectively, strong retirement sales and also seasonality had an impact here as well. Underlying results from the U.S.
Closed Block continued to reflect market volatility as hedges are focused on protecting regulatory and rating agency capital rather than mitigating IFRS earnings volatility. Reserve adequacy has improved to the 73% confidence level.
And as a result, reserves are projected to remain adequate even then we would see a 25% shock scenario in the equity markets. So to wrap it up, we have demonstrated steady progress on our restructuring.
We launched a successful IPO for our U.S. Insurance business.
We posted EUR 800 million of profits underlying, up from both Q1 and Q4, mainly driven by the Bank. And I think we would like to now open it up for your questions.
Operator
[Operator Instructions] The first question is from Andrew Coombs from Citi.
Andrew P. Coombs - Citigroup Inc, Research Division
If I could ask one question on the Bank and on Insurance, please. On the Bank, I mean, you clearly had a decent result from the impairment side, down 6% Q-on-Q and it's the best decline we've seen some time.
I'm just interested on the wording you've used in the presentation. You talk about commercial real estate and Dutch mortgages staying elevated, but you used the specific word "at these levels."
Whereas I note the Dutch SMEs, you talk about the impairments remained elevated but there's no specific mention of at these levels on that slide. Perhaps I'm reading too much into the wording there, but I'd be grateful if you could just elaborate a bit on those trends and what you're expecting in terms of group impairments or Bank impairments as a whole for the remainder of the year.
That's my first question. The second question, I was hoping -- I'm on Page 10 of the quarterly report.
You helpfully provided a breakdown now between Insurance business. Could -- is it possible to go one step further and break down the revaluation reserve in Insurance EurAsia between Europe and Asia?
I don't know if that's possible.
Jan H. M. Hommen
Okay. Andrew, I think Wilfred will take your first question and Patrick will take the second one.
Wilfred F. Nagel
Yes, on the impairments, I think you're indeed reading maybe a little bit too much into the exact wording there. What happened in the business lending between Q4 and the first quarter of this year is really the difference between a couple of larger files being provisioned traditionally in Q4, and we had a bit less of that in Q1.
I don't think you should read that as a trend. We do expect the provisioning levels to stay around where they've been for the past few quarters.
Patrick G. Flynn
In respect to the split of the revaluation reserves, we give it for EurAsia and the U.S. We don't split it between Europe and EurAsia.
It's on Page 10, as you say. We'll have to come back to you with a drill down of the splits between Asia and Europe.
Andrew P. Coombs - Citigroup Inc, Research Division
Okay, that's fine. Just coming back to the point of impairment.
I mean, when you look at the NPL increase, it's most prominent in this quarter with respect to finance. But perhaps, if you could just elaborate on where you think the biggest risks align in the book going forward through the remainder of the year.
I mean, is it that Real Estate Finance book you're most concerned about? Or would it be that business lending segment?
Wilfred F. Nagel
Well, we're indicating that we're expecting both to stay at roughly the levels where we are. So there is no particular choice between the 2, if that's your question.
Operator
The next question is from Francesca Tondi from Morgan Stanley.
Francesca Tondi - Morgan Stanley, Research Division
And I'm sorry. I may -- I'm going back also a little bit to NPLs and risk costs.
On the NPLs on Dutch mortgages, on the cost of, effectively, provisioning, you indicate it should be staying at this level. However, we've seen it in sort of a consistent NPL increase of about at least 10 basis points each quarter.
You're also flagging -- this quarter, you're obviously -- you're adjusting provisioning as house prices are coming down. You flagged that you expect given the trends, that affordability has progressed to come down again.
How can you see that provisions stable at this level? And how does this look in the context of the stress test that you gave indication of?
I think, in the last Investor Day, you were talking about EUR 250 million more or less additional provisions. We are already running above that.
If you could comment a little bit. And on Real Estate Finance, could you add a little bit of the real -- the NPL's increase has been due to which kind of positions effectively going wrong?
And how do you see that also, again, in the context of, potentially, pricing coming down especially in the Netherlands?
Wilfred F. Nagel
Okay. On the Dutch mortgages, the way to think about these provisions is that they -- the addition to the provisions is linked to the base of deterioration of the portfolio quality.
And so that means as long as the pace stays the same, you can expect to see similar levels of addition to the provisions. What you saw in the second half of last year was that for a while, while the pace of deterioration slowed down somewhat, the drop in the indexes of the house values in the Netherlands was much less in the second half of the year than it was in the first half.
Consequently, we also saw our provisioning levels come down. The pace -- the deterioration picked up again in the first quarter, and that's why you see these slightly higher levels.
We expect that pace to continue roughly at the same level. And therefore, we expect roughly the same level of provisions.
Francesca Tondi - Morgan Stanley, Research Division
What do you think actually caused this increased pace or deterioration in the first quarter?
Wilfred F. Nagel
Sorry. Could you repeat the question?
Francesca Tondi - Morgan Stanley, Research Division
What was the reason for the increased pace or deterioration in the first quarter?
Wilfred F. Nagel
Well, there's 2 things going on. One is that we see unemployment in the Netherlands going up faster.
And secondly, we see also an acceleration in the drop-off of house prices. And the 2, of course, are the main drivers for this.
With regard to your question about the stress test, we are approaching the levels in terms of unemployment, at least, that we stressed at. So it is logical that the provisioning numbers that you're seeing are also approaching the outcome there.
Francesca Tondi - Morgan Stanley, Research Division
And on the Real Estate Finance, what actually caused that increase in the NPL ratio?
Wilfred F. Nagel
Well, it's not a huge increase as you have seen. But looking at the underlying numbers, we saw a bit of an uptick in the Netherlands.
We saw a bit of an uptick in Spain and a little bit in the U.K. But nothing really stands out there.
If you look at the risk cost, there was one existing big file in the U.K. that we did additional provision and there are 2 new ones there.
If you look at Spain, there aren't really any new defaults in that book since about a year. So all we're seeing there is a bit of incremental provisioning on existing files.
And then the market in the Netherlands continues to weaken. So we have some inflow of new problem loans there as well.
Francesca Tondi - Morgan Stanley, Research Division
And as a last question, would you be able to give us the coverage for these NPLs as you normally are able to do every quarter?
Wilfred F. Nagel
I think you can get those details from our Investor Relations team.
Operator
The next question is from Francois Boissin from Exane.
Francois Boissin - Exane BNP Paribas, Research Division
A few questions, please. Can you get a bit -- can you give a bit of outlook interest, of net interest income going forward and maybe a split impact of low interest rates, I mean, lower reinvestment rates and the impact of lower credited rates or your savings books?
And 2 other points on Insurance. Can you comment on where you spend on upcoming disposals, Korea and Japan, mainly in Japan, what you intend to do with the VA book?
And finally, on Insurance, can you give a guidance maybe on the Insurance investment margin or the investment spread margin that we can expect from -- for EurAsia, given the current low interest rate environment?
Patrick G. Flynn
On the net interest margin in the Bank, as you see, it has improved to 138 from 134. That's because we're focusing on 3 things that we said we would do.
We are repricing the loan book. We are also -- we've got some moderate lending growth this quarter, EUR 2.5 billion, as Jan pointed out, which is healthy margins in places like Structured Finance.
And savings margins have stabilized somewhat. We've seen reductions in the deposit rates in the Netherlands, about 30 basis points in the quarter; Belgium, 20; in Germany, 25.
Now going forward, we intend to keep to the same recipe. So we will continue to focus on repricing.
We think the savings margins should stabilize. There's been a further 10 basis points cost in deposit rates in the Netherlands.
And hopefully, we can continue to see some moderate loan growth again as healthy margins, so stabilizing around the current level.
Jan H. M. Hommen
With respect to the disposals in Japan, we're working actively with a number of interested parties. The problem here is that we do have a VA block and we have a COLI business that are basically run in the same organization and with the same systems.
And splitting them is not easy and certainly not the preferred route by the regulator in Japan. So we are looking at some alternatives here as well, how that can be put together.
It's not an easy one, I must say, but we're hopeful that we can find a solution. And then the investment margin, Patrick?
Patrick G. Flynn
Yes. In respect to the investment margin in Europe, it has come down somewhat.
We are looking to see can we re-risk? We have deliberately reduced the -- and de-risked to protect capital, as we've pointed out before.
That has led to a significant amount of German or Dutch government bonds, which are roughly low yield. So we are looking at options to replace these, but this will be gradual.
We're looking at asset classes that provide greater spread, including loan programs, private placements, government-related loans, perhaps mortgages, high-quality corporate bonds. Now this will be a gradual process.
We will take our time, and we'll do this selectively over the course of 2013 and '14. So we'll take some time for this to start to feed in.
We'll do it in a prudent manner. As Jan mentioned earlier in the call, we are due to come back to you when we set our capital ratios.
And we will also then come back with more detail about our expectations in respect of interest spread for Insurance at the same time.
Francois Boissin - Exane BNP Paribas, Research Division
Okay. But I understand that repricing the investment book is going to be tough.
But can you do something on the guarantees on the liability side? Can you try to reduce credited rates or guarantees to a certain extent?
Or is this largely fixed and a big constraint for you guys?
Patrick G. Flynn
I think -- as I said, I think the best thing is we well wrap this up in one package and come back to you in more detail on the outlook for EurAsia.
Operator
[Operator Instructions] The next question is from William Hawkins from KBW.
William Hawkins - Keefe, Bruyette & Woods Limited, Research Division
First, just a small question of detail. Your pie chart for the breakdown of the loan portfolio is now showing 52% of interest-only mortgages.
I think the last time you gave this data was at the Morgan Stanley presentation. And there, it's showing 60%.
So it's quite a big change. I'm assuming it's just a restatement.
But if you could help me understand that, that would be kind. And then secondly, could you talk a little bit more about the issues going on in the disability market in the Netherlands?
I think you've been precise that the negative development has shifted from group to individual. And so I'd just like to understand that a bit more, please.
Wilfred F. Nagel
On your question regarding the interest only, the difference between the 2 is the inclusion of the WestlandUtrecht Bank portfolio in the numbers.
Patrick G. Flynn
Yes. In respect of the Non-life in the Netherlands, you're right.
It was in group disability, previously. There has been a migration into individual disability claims as well.
And we are taking several measures to rectify this, including premium increases and resetting the parameters around these policies. This will take some time to flow through.
The corrective measures will take some time to come through.
Jan H. M. Hommen
I think we need to take this also on a longer-term basis. This has been a very good business over time, and we're sitting now in a downcycle.
But with the steps taken, we believe the long-term cycle will be still quite an attractive one. So it is a dip, but the long term is still a viable business.
Operator
The next question is from Farooq Hanif from Citigroup.
Farooq Hanif - Citigroup Inc, Research Division
Just a quick question on Insurance. Just one very brief follow-up.
The Dutch regulator for Life insurers is moving to a model of looking at economic capital when it decides whether you're well capitalized or not and deciding how much dividend you can pay up. Is this something that worries you?
Are you very happy with your economic capital position in your Dutch Life book? That's the only question.
Patrick G. Flynn
Yes. We do have both the regulatory capital and, of course, we have an economic capital model as well, which we are continuing to refine, aligning that with both Solvency II and MCEV guidance.
So this is something that we evolve and keep current. With respect to what the Dutch regulators are doing, I think they've announced principles around how they tend to go forward.
I think it's a form of stress test to accompany the existing regulatory framework. The parameters of that stress test haven't been defined yet.
So we will have to wait and see how that stress test detail comes about. I think it will complement our existing regulatory and economic capital framework.
Operator
The next question is from David Andrich from Morgan Stanley.
David T. Andrich - Morgan Stanley, Research Division
My first question, I guess, is mostly related to the Bank, but I was noticing on Slide 34 of your presentation that there's a note saying that DNB has allowed Dutch banks to apply regulatory adjustment in terms of the impact of IAS 19 on available capital. And I was just wondering what's the -- if you could describe what the regulatory adjustment was, what the impact was around that and just whether that was only for the Bank or whether that -- there was something with the Insurance business as well?
So that's my, I guess, the first question related to that. And then second of all, I was just wondering in terms of discussions you're having with DMB around the European IGD ratio, I was just wondering what are kind of the topics that are involved in that?
Patrick G. Flynn
In respect of the pension change, it impacts the Bank regulatory capital. And what the Dutch regulator has done is said that you can save in that change over time.
So it moves from a spot to a phased-in basis. It's EUR 2.5 billion.
And you could see that on Slide 34.
Jan H. M. Hommen
With the Dutch regulator, we are in constant discussion on the capital framework that -- those discussions have not resulted yet in, let's say, firm positions. We are in very close contact with them, and we have presented ideas that they are studying.
So we'll come back on that as soon as we have more information on this. But we're still in dialogue with the Dutch regulator here.
Operator
The next question is from Martin Leitgeb from Goldman Sachs.
Martin Leitgeb - Goldman Sachs Group Inc., Research Division
Just 2 questions, please. The first one on loan loss provisions.
You mentioned that you expect the provisions to normalize to a level of 40 to 45 basis points. I think that's equivalent to what we have seen back in 2011.
And you also mentioned that we might have seen the worst with regard to a reduction in house prices. So I'm just wondering what might be a fair assumption when we might see loan loss provisions normalizing.
Would 2015 or something like that be a fair estimate? And the second question with regard to the outstanding development date, given the progress now made on reducing double leverage, is there any change with regards to your planned repayment for the outstanding EUR 2.25 billion, I think, here -- there?
Did you date at the moment this for the last tranche, May 2015? Are you more comfortable now that you might be able to repay earlier?
Patrick G. Flynn
Okay, on the first question about provisions. I don't think we said that we believe we've seen the worst with the house price declines.
What we said was we're seeing an acceleration in the pace of deterioration between Q4 and Q1, specifically, that related to the level of provisioning that we expect for the Dutch mortgage book, which, as we said, we expect to stay at the levels where we are for now. As to when we expect to see a normalization of provisions, we may see a bit of decline in 2014.
But we don't, obviously, know at this point. So your estimate that, that might become a bit more clear in 2015 is probably not unreasonable.
Jan H. M. Hommen
With respect to the repayment of the Dutch State, we still have to repay them, indeed, EUR 2.2 billion. And on the one hand, we like to do that as quickly as possible.
On the other hand, we need to do it in a prudent way so that by the time we pay, we don't have to come back and regret that we did that because we have some other things still to be done. So we're working on a very detailed plan, both on the Bank side as well as on the Insurance side, on how to generate capital.
We have a very detailed plan on how we can bring Insurance to the markets. And that all has to fit together.
And if the result is that we do have excess funding and excess capital, we certainly will put the Dutch State at the top of our list. But at this moment, we'll want to be a bit careful and stay with the schedule that we have.
Operator
The next question is from Michael Huttner from JPMorgan.
Michael Igor Huttner - JP Morgan Chase & Co, Research Division
Just on the core Tier 1, the 10.4%, what will it be after the EUR 1.1 billion Dutch State repayment in November? And the other question is on the -- is there any particular condition so that it's worth to resume the dividend?
Do you have to ask permission of the Dutch State first? Or do you have to have repaid all of the Dutch State aid first?
How does that work?
Patrick G. Flynn
Well, in respect to the impact of the repayment, that's little less than 40 basis points. But of course, between now and then, we would hopefully make some profits as well.
Michael Igor Huttner - JP Morgan Chase & Co, Research Division
And on the dividend?
Jan H. M. Hommen
The dividend. Yes, you're right.
We'll have to pay the Dutch State before we are in a position to pay dividends. So we have an interest to make sure that we pay them quick, as quick as we can, but at the same time to do it in a prudent fashion.
Operator
The next question is from Benoit Petrarque from Kepler.
Benoit Petrarque - Kepler Capital Markets, Research Division
First of all, on the Dutch mortgage book, yes, you mentioned the higher unemployment rate and falling housing price, but it's also the number of mortgages underwater currently in the Netherlands. So how do you see the NPL coverage ratio moving in the coming quarters?
And could you actually give us the level of kind of NPL coverage ratio on the Dutch mortgage book at the end of Q1? That would be useful.
And again, on Dutch mortgages, it seems that Dutch households are kind of deleveraging, repaying the mortgage much more than they have done in the past. I think you have flagged that also in Q1 on your -- in press releases.
But what should we expect in terms of decrease of the mortgage book outstanding per year in the current environment? What is your assumption there?
And then the second question is on the core Tier 1 ratio, you were 10.4% last quarter. You are again at 10.4% this quarter on the Basel III basis.
So is 10.4% kind of level at which you think you can upstream -- is that to upstream capital to the holding? And then on IAS 19, I mean, you get this regulatory approval.
I don't think that's what I've seen at all the banks in Europe so far. They have taken the 18 this quarter.
So how long do you get this approval? Because that was also clearly a big reason for you to have some capital over this quarter and not wait at the end of the year?
And I see in the quarterly report that it's a positive EUR 800 million from remeasurement of net defined benefit liabilities in Q1. So I was wondering if your IAS 19 adjustment has actually been lowered in Q1 significantly.
Patrick G. Flynn
In respect to the dividend, yes, the 10.4% in both quarters is a bit of a coincidence. It's not as if we're planning to maintain it permanently at that level, and we'll always upstream above it.
And we're very pleased that we have the capital strength to push the dividend up. But in terms of the future, we've evaluated on a case-by-case basis.
Wilfred F. Nagel
Okay. On the mortgages, your question, I think, was with regard to the number of mortgages underwater and how do we see the coverage ratio.
The coverage ratio is stable at about between 10% and 11%. We're comfortable with that.
The outcomes of the actual foreclosures that we have do not suggest that we're insufficiently covered there at all. Obviously, what we try to do is make sure that our provisions are ahead of our write-offs, and they are.
They have been consistently and they still are at this point. So we're not, at this point, concerned about that cover ratio also because we know that the way we define our NPLs is quite conservative compared to a lot of our peers.
And you asked about the reductions in the book. What we are seeing is an acceleration of prepayments.
And obviously, the new production is fairly limited. So overall, we expect the book to come slightly down in this year.
Patrick G. Flynn
Sorry, could you repeat your last question?
Benoit Petrarque - Kepler Capital Markets, Research Division
No, that was on IAS 19. So basically, I think in the quarterly report, EUR 800 million remeasurement on net defined benefit liabilities in your Bank equity, that's a positive adjustment.
So I was wondering, is that relating to the IAS 19 adjustment? And then linked to that, you get the approval from the Dutch Central Bank while most of the banks in Europe are actually taking the hit already in Q1 on IAS 19.
And avoiding date on IAS 19 is kind of allowing you to have some capital to the holdings. So I was wondering for how long you get this approval from the Dutch regulator, basically.
Patrick G. Flynn
I think there is 2 separate things here. The accounting is the accounting, and we have to rebase equity for the change and the discount rate every quarter.
And that's what we're doing. And you see the credit of EUR 1.1 billion in the equity account.
In respect of our capital ratios, I think the important point is that on a spot basis, we're over 10% now. Even after paying the dividend, we're over 10% spot.
So it's not a question of playing with spot implementation here. We have the capacity even on a spot basis to pay this dividend up.
Operator
The next question is from Matthias De Wit from Petercam.
Matthias De Wit - Petercam S.A., Research Division
I have 2 questions, please. First, on Insurance U.S., you mentioned that your capital targets were met.
Does this imply that all incremental IPO proceeds could be fully upstreamed to the holding? And could you also provide some color on how the contingent capital facility has been -- or will be replaced over there?
And then second, on Japan, could you shed some light on how the reserve inadequacy developed in the first quarter considering that equity market performance has been quite strong?
Jan H. M. Hommen
Okay. On the U.S.
proceeds going forward, yes, from now on, all proceeds will come to the group. So the remaining 75% will be to the benefit of the group.
And we showed that already in the slide that you could see that we have allocated them to repaying for the double leverage. Contingent capital, same thing.
That will be -- they do have the ability now in the capital base to reduce the contingent capital supported that they got from ING. And we are planning to eliminate that same in Q2.
And then on Japan, Patrick?
Patrick G. Flynn
Yes, the -- we mentioned before that there was a reserve inadequacy in Japan. That has improved.
It is now down to EUR 0.3 billion. And that's a consequence of the improving equity markets, and their falling yen has led to that improvement.
And of course, that is the computation of the net of the COLI business, which is positive, and the Japan VA. So the net position is down to minus EUR 300 million.
Matthias De Wit - Petercam S.A., Research Division
Okay. And just to come back on the contingent capital facility, you mentioned that you would eliminate it, but this will not require any injection from the holding then, if I understand it correctly.
Jan H. M. Hommen
That's correct. No injections from the holding.
Operator
The final question is from Steven Haywood from HSBC.
Steven Haywood - HSBC, Research Division
Can you just tell us what the current plan is for your old tape portfolio, whether it's just continued runoff or you're looking at other options here? And also, could you tell us what the deadline date is for the overallotment on the U.S.
IPO, please?
Jan H. M. Hommen
The overallotment date, I have not here with me. I'm looking around whether anybody knows here, but maybe you can ask Investor Relations.
30 days, I'm sorry. Okay, it was 30 days.
Thank you very much. And then with respect to the old tape -- yes, the old tape at this moment, as you can see from the slide, creates a positive number for the government.
And it's up to them to decide what they want to do. And we have had good discussions with them with the Minister, and we'll wait his decision there.
Operator
Sir, there are no further questions.
Jan H. M. Hommen
Okay. Then I'd like to thank everyone for being on the call and wish you all a great day.
Thank you.
Operator
Thank you, sir. Thank you, ladies and gentlemen.
This does conclude today's presentation. Thank you for participating.
You may now disconnect.