May 7, 2014
Executives
R. A.
J. G.
Hamers - Chairman of Executive Board, Chief Executive Officer, Chief Executive Officer of Management Board Banking, Chief Executive Officer of Management Board Insurance EurAsia, Member of the Management Board Banking and Member of Management Board Insurance EurAsia Willem F. Nagel - Chief Risk Officer, Member of the Executive Board, Chief Risk Officer of ING Bank, Chief Risk Officer of 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 Delfin Rueda - Chief Financial Officer and Member of The Management Board
Analysts
Farquhar Murray - Autonomous Research LLP David Lock - Deutsche Bank AG, Research Division Omar Fall - Jefferies LLC, Research Division Kiri Vijayarajah - Barclays Capital, Research Division Matthias De Wit - KBC Securities NV, Research Division Anke Reingen - RBC Capital Markets, LLC, Research Division
Operator
Ladies and gentlemen, thank you for holding. This is Yvonne welcoming you to ING's Q1 2014 conference call.
Before handling this conference over to Ralph Hamers, 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 businesses, expectations for our future financial performance and any statement not involving a historical fact. Actual results may differ materially from those projected in any forward-looking statement.
A discussion of factors that may cause actual results to differ from those in any forward-looking statement is contained in our public filings, including our most recent annual report on Form 20-F filed with the United States Securities and Exchange Commission, and our earnings press release as posted on our website today. Furthermore, nothing in today's comments constitutes an offer to sell or a solicitation of an offer to buy any securities.
Good morning, Ralph. Over to you.
R. A. J. G. Hamers
Thanks very much. Good morning, all.
Welcome to ING's First Quarter 2014 Conference Call. As you are used to, I'll walk you through today's presentation.
Patrick Flynn and Wilfred Nagel are here from the Executive Board, and Delfin Rueda and Doug Caldwell, CFO and CRO of NN Group, are here with us as well to answer specific questions on NN Group as well. Let's go through the presentation.
And I think it's about a month ago, March 31, that we hosted our Investor Day on the Bank side, where we basically laid out our Bank strategy, as well as the financial ambitions 2015. The foundation for improving the client experience and achieving our target is clearly there.
We have to deliver. I've traveled around both talking to you and investors, as well as internally, and specifically, talking to many of the people in the organization in the past few weeks, I'm confident that we will be delivering.
In the meantime, we've made a lot of progress on the group restructuring to become a pure bank. And furthermore, the underlying businesses, both on the Insurance and the Bank side, have a good set of quarter results.
So the summary is, ING Group posted another -- posted an underlying net profit of EUR 988 million, driven by good results, both on the Bank side, as well as the Insurance side. Turning to Slide 3, the update on the group restructuring, many things that you have known already, but we've made a lot of progress in the first quarter.
And that's important in getting into the end phase of restructuring. We made penult with payment to the Dutch State.
Voya has been de-consolidated and NN Group is now fully on track in its preparations on the intended -- for the intended IPO 2014. NN Group has finalized its capital structure.
And as of today, we have secured an investment of EUR 1,275,000,000 in NN Group by 3 cornerstone investments -- investors, which can clearly be seen as a confidence in the prospects of NN Group as an independent company going forward. So let me go through some of these developments in more detail.
Turning to Page 4, last week, we announced this transaction with the 3 investors, that will invest ahead of the IPO. We will issue a EUR 1,125,000,000 of subordinated notes for these investors and these will be mandatorily exchangeable into NN Group shares in 3 tranches through 2016.
We will also sell shares in NN Group to each investor at the intended IPO, totaling another amount of EUR 150 million. Now today, we announced that ING Group will inject a EUR 850 million of capital into NN Group prior to its IPO.
And we have agreed with the Dutch Central Bank that we can proceed with the base case IPO, although formal approval will only be given upon pricing. Now NN Group will use these proceeds for reducing its leverage by EUR 200 million, increasing capital position -- the cash position by another EUR 200 million and improving the NN Life solvency by another EUR 450 million.
But I will come back to that further on in the presentation. If we then go to the group situation in the double leverage.
So what's the impact of all these announcements on the double leverage. Starting point.
The fourth quarter 2013, the double leverage was at EUR 4.9 billion. The sale of the 14% in Voya, decreased that by another EUR 0.9 billion and a sale of 11% in Sul America brought it down by another EUR 200 million, decreasing with that the double leverage to EUR 3.8 billion at the end of the first quarter.
Now following the capital injection of EUR 850 million in NN Group, the core debt would increase, but this would be more offset -- more than offset by the investors coming in. Then the remaining piece of leverage is then comfortably covered by the value of Voya, 43%, the value of Sul America that we still hold and the remaining fees of NN Group.
As a consequence of all of this, basically, we expect the intended IPO will comprise only of secondary NN Group shares being sold by ING Group. If we then look at the capital position of NN Group, the IGD ratio of NN Group decreased slightly in the first quarter, but will be positively impacted by the successful issue of the external hybrids, the EUR 1 billion that we did in April and the capital injection of EUR 850 million, so you basically see the 9% increase of the hybrid issues, that is the net improvement of EUR 400 million, because of the repayment of senior debt by the hybrids.
And then you'd see the 19% improvement, which represents the EUR 850 million. And with that, the IGD comes to 277%.
Now as I said, EUR 450 billion out of the EUR 850 billion will be used for NN Life. Now with the first quarter, we have already seen the NN Life solvency ratio improving from 223% to 235%.
But that will then increase further ahead of the IPO because of the EUR 450 billion coming in, representing a 16% improvement, and therefore, the pro forma Solvency I ratio NN Life will then be at 251%. Then if we then take a look at the leverage side for NN Group and the cash capital, NN Group issued in April this EUR 1 billion subordinated bonds and EUR 600 million were repay -- were used to repay subordinated debt of the group and EUR 400 billion -- EUR 400 million were used to repay senior debt to NN Group.
So the first quarter pro forma gross, that will decrease ahead of the IPO. And also because of the use of EUR 200 million of the EUR 850 million in order to decrease the leverage to EUR 3.7 billion.
On the cash capital side, that's -- at the end of the first quarter, that was standing at EUR 600 million, but that will improve by the proceeds of the sale of Bank of Beijing-Life and IIM Taiwan, but also by using another EUR 200 million as part of the capital injection from ING Group to keep -- to be kept as cash. And therefore, the cash capital will increase in total from EUR 0.6 billion to EUR 0.9 billion pro forma end of first quarter.
Now let's take a look at the capital situation on the Bank side. I'm now on Slide 8.
The fully loaded CET 1 ratio remains strong at 10.1%. But the waterfall is shown on the phased core Tier 1 effect.
So here you see the CRD IV phased-in effect remains -- the phased-in remains strong at 10% and that is despite the implementation of CRD IV, it is despite the dividend upstream to the group in order to repay the state, it is despite the impact of the deal on the closed defined benefit pension agreement. And it is offset by solid profitability and risk-weighted assets reductions.
And therefore, you see it going down from 11.7% to 10% on a phased-in basis, but on a fully loaded basis, it is 10.1%. Last week, the Dutch Central Bank announced that it intends to impose an additional capital buffer and the systemic risk buffer will be 3% of risk-weighted assets for ING Bank, and that results in a minimum core Tier 1 requirement of 10% by the end of 2019.
And on the Investor Day, we already indicated that it is our ambition to be beyond 10%, actually growing to 11% over time. And at this moment, we're already meeting these new increased requirements because of fully loaded core Tier 1 is already at 10.1%.
On the leverage side, we see the leverage ratio at 3.7%, and that is also brought in line with our ambition, but also in this one, we are waiting for final regulations. Well, if we then turn to Page 10, we see that the strength of the Bank on the savings side continues with a net funds entrusted growing by another EUR 8.3 billion in the first quarter and that leads to further improvement of the funding profile of the Bank.
But we're also happy to see that on the loan growth side, we see a net loan growth of EUR 5.1 billion in the first quarter, which is a nice improvement, but it's too soon to say that this is a sustainable development. And I'll come back with more details on the development on the loan side later on in the presentation with a little bit more details.
So after all of this, and the impact on capital structures, let's take a look at the first quarter results. Turning to Page 12 now.
So for the first quarter of 2014, ING Group posted an underlying net result of EUR 988 million. The net result, however, was minus EUR 1.9 billion.
And that was due to the negative impact of the deconsolidation of Voya, that we have announced earlier already, of EUR 2 billion, almost EUR 2 billion. The pension agreement, also earlier announced, total effect of EUR 1.1 billion.
The levy -- the SNS levy, as we call it, EUR 100 million rounded. And all of this is a bit offset by the deconsolidation of Vysya, which has a positive effect of EUR 200 million.
So -- and the Vysya deconsolidation, we can go into later, but this phase is a step to further align with prevailing regulations and we have brought a number of directors down in line with the ownership percentage. And as a consequence of that, we needed to deconsolidate.
On the Bank side then, turning to Page 13, we see an underlying result before tax of EUR 1,176,000,000 in the first quarter, that's roughly flat from the first quarter 2013. It's up 30% from the fourth quarter of 2013.
Basically, if you exclude the swing on the CVA/DVA side of EUR 114 million versus the first quarter last year, the gross result was up as we had a higher result in retail banking, but a little bit lower results in commercial banking, mainly due in financials because of financial markets. So partially the CVA/DVA impact, but also some lower fixed income business volumes.
Risk costs on the Bank side were down from both the first quarter 2013 and the fourth quarter as we see that economic conditions are improving across. Then the net interest margin.
The net interest result increased versus both the first quarter of 2013 and the fourth quarter of 2013. The latter is only driven also by financial markets.
And net interest margin, actually, is increasing from 145 basis points in the fourth quarter to 150 basis points in the first quarter, and that's driven by financial markets and then lower average balance sheet. We see the savings margins and the impact of the reduction in client rates being offset by lower reinvestment yields as the higher-yielding assets and the replicating portfolios are running off.
So on the savings margins, we see a flat development. And so the improvement is really as a consequence of financial markets.
However, as a result of that, we expect that the interest margin will edge down in the coming quarters from the current level, because we know that the contribution to the net interest margin from the financial markets business is more volatile and seasonally high in the first quarter as it's also depicted in -- on Slide 14, for your information. If we then take a step and we look at the lending growth, the lending assets were slightly up, and that's despite the deconsolidation of Vysya, the transfers of some of the mortgage business to NN Group and negative currency impacts.
The waterfall, I think, speaks for itself and net lending in Retail Banking increased by EUR 2.6 billion. And because of higher net lending in Retail Belgium, that's both on the mortgages side, as well as on the business lending side, higher net lending in Retail Germany and Retail Rest of World and a bit lower net lending in the Netherlands.
The net lending in the Commercial Banking increased by EUR 2.4 billion, and that's driven by a higher net lending in Structured Finance and General Lending. Specifically on the latter 2, some of the lending increase is short-term related.
So the first quarter cannot fully be seen as a new trend, but we're happy that we see the growth and we have to work on seeing whether this is sustainable. If you go from the balance sheet and the income development to the cost development, on the operating expenses, I'm now on Slide 16, reported expenses were down from the fourth quarter but up from the first quarter 2013.
And that's particularly because of the Belgium bank taxes that we took fully in the first quarter, whereas these taxes have been largely spread over the 4 quarters in 2013. If you look at the real expenses, you see them going down from the first quarter 2013 to the first quarter of 2014, and also going down from the fourth quarter 2013 to the first quarter 2014.
And that is basically as a consequence of the successful implementation of the restructuring programs that we have announced in the past and that we basically ensure that, that implementation will continue. So costs down 0.7% against the first quarter 2013, 1.6% down versus the fourth quarter 2013, restructuring plans are on track and we expect them to deliver EUR 880 million of savings by 2015 and EUR 955 million of savings by 2017, fully on track, so we continue to focus on those.
Then we move to the risk costs. Risk costs was down both versus 2013 first quarter, as well as the fourth quarter of 2013.
In total, the risk costs decreased to EUR 468 million. And they were basically down in all product segments, except for General Lending.
The risk costs in General Lending were impacted by a few specific files. We'll come back to that later.
Now on the NPL ratio, Slide 18, we see that the NPL ratio has remained stable at 2.8% in the first quarter. The amount of NPL is increased by EUR 300 million, and that's mainly due by 2 higher NPLs in Retail Banking, and that's more specifically even in Dutch mortgages.
Then, if we then look at the risk costs in the Netherlands, Slide 19, you see that the risk costs in Retail Banking Netherlands have declined, both 2013 first quarter and the fourth quarter, but they remain at an elevated level, reflecting the relatively weak economic environment in the Netherlands still, so lower than 2013, but still at an elevated level. For the same reason, we see that the NPL ratio for both the business lending part, as well as the mortgages in the Netherlands are still increasing.
Although we do see signs of improvement in the economy in the Netherlands and the Dutch housing markets, we expect risk costs to remain at an elevated level, although slightly lower than last year, the Dutch situation. If we then go to the risk costs on the Commercial Banking, we see that risk costs on the Commercial Banking have continued on their downward trend, and that's driven by lower risk costs in the real estate finance.
But the downward trend, as you can see on this slide, can be lumpy. And quarter-on-quarter, you see real estate finance going down, but quarter-on-quarter, you see a bit of a lumpy development.
For example, in Structured Finance, the orange bars, in General Lending, the light blue bars. So trend is going down, but with a bit of shocks in that downward trend.
Then, if we take a look at the specific Retail Banking results, we see strong results, up from both the first quarter 2013, as well as the fourth quarter 2013. Underlying pre-tax results were strong at EUR 771 million.
And that's driven by higher income and lower risks cost. Underlying income rose 7.4% year-on-year, and that's driven by improved savings margins and lending, mainly in the Benelux and Germany.
As you know that in the strategy, that basically we focus on the further improvement of client experience and that we really want to deliver a different shade in client experience, then you realize that an important indicator for us to track and follow improvements is the ranking in terms of Net Promoter Score, and you see in the same slide, where we are on that one. So we remained #1 or #2 in Net Promoter Score across the countries in which we operate.
Still we see room for improvement because I think we should be #1, but the fact that we are at where we operate, either #1 or #2, is a very solid sign that we're doing it well and that we have the right client experience, and that is the starting point for improving our business and increasing our business, and this will better financial results. If we then go to Commercial Banking, I'm now on Slide 22.
Underlying results of Commercial Bank was EUR 471 million in the first quarter, that was down for the first -- from the first quarter in 2013 and that, as I've already indicated, was specifically as the consequence of lower results of financial markets, partly driven by negative CVA/DVA impacts. And it was also as a result of the lower results in General Lending and transaction services.
And that was more because of higher risk costs in the General Lending area. Now compared with the fourth quarter 2013, the underlying result was up as the negative CVA/DVA FX then were offset by higher results of financial markets and bank treasury.
So much for the banking result, let's now turn to the Insurance results. Now I think it's very strong results on the NN Group side.
We see the operating results for the ongoing business improved significantly to EUR 274 million, which is up 61% from the first quarter 2013, and up 28% from the fourth quarter 2013. The year-on-year improvement was driven mainly by higher disability and accident results in NN Non-life, a higher investment margin in NN Netherlands Life business and lower administrative expenses, which is kind of a key sign for the successful implementation of the transformation program on the Insurance side.
I will come back to that later. The result before tax, however, was a negative one, minus EUR 372 million, but that is basically reflecting the one-time impact of EUR 470 million, making ING's defined benefit pension plan in the Netherlands financially independent.
Further good news on the Insurance side is that the new sales, the annualized premium equivalent, the APE, rose 20.6% versus the fourth quarter 2013. And that was mainly driven by higher sales in Japan Life, Insurance Europe and Netherlands Life.
And for the fourth quarter, sales rose actually 53% at constant foreign exchange. And it's also driven by then seasonally higher sales in Japan and pension renewals in the Netherlands.
And if we then turn to Page 25, we will take a closer look at the different segments that we have started to report on. On the Insurance side, we see that in all of our segments, that almost all of our segments have improved the operating results versus the first quarter of 2013 and that basically shows that the improvement plans that we have developed and are implementing for all of these areas that they are working across these segments.
So good news there as well. If we again go one step deeper and we take a look at the administrative expenses, the administrative expenses for the ongoing business were EUR 437 million in the first quarter, down 5% a year ago, and that's despite higher NN Bank expenses as a result of the partial transfer of WestlandUtrecht to NN Bank.
If you would exclude this, then you see the real impact of the transformation program, that the Insurance management is implementing, then you see that the administrative expenses actually fell 7% from the first quarter 2013. And that shows that the transformation program is really successful and its strong cost control that is adhered to in all business lines on the Insurance side.
So good results here. Restructuring program, that is also delivering these cost savings in the Netherlands, specifically, is on track with an amount of EUR 163 million of savings achieved by the end of the first quarter.
And we expect by the end of this year to deliver EUR 200 million of savings, and this is specifically the restructuring program in the Netherlands. So both in financial results, as well -- and specifically costs and sales results, good performance on the Insurance side, so a very strong commercial and financial quarter there.
So if we then wrap up and we go to the final slide, on Page 28. I think on the strategic side, on the financial side and on the commercial side, we are making a lot of progress.
The first quarter shows that we're working on all of these elements and showing progress on all of these elements as expected. We're happy with the underlying results and you can -- we are working on the final steps of our restructuring plan.
So good first quarter on all accounts. And with that, I'd like to open the call for questions.
Operator
[Operator Instructions] The first question is from Farquhar Murray from Autonomous.
Farquhar Murray - Autonomous Research LLP
Two questions, if I may. Firstly, on the surprisingly strong Basel III ratio.
The EUR 8 billion reduction in RWA coming from the change in calculation method seems to be driving around by 30 bps of that. And I wondered whether you might give some more detail around what changed that specifically, which lending books were involved.
And was there a particular change in the risk weight there? Secondly, on NN Group, should we regard the 277% IGD ratio for the group as the kind of capital target for the future?
What specifically drove the change there versus what we were talking about at 4Q? And can we regard this is a level from which dividends can be paid in the future?
R. A. J. G. Hamers
Farquhar, the first question will be answered by Wilfred Nagel and the second one will be answered by Patrick.
Willem F. Nagel
Yes, so on the reduction in risk-weighted assets, the 30 basis points you're referring to, that is mainly comprised of 2 things: one is the next step in developing our master scale, which links BDs ultimately to risk weights, where we have extensively disclosed, actually, on Page 3 of the 95 of the annual report what we were planning to do there, and that is what we have executed on. So this is replacing essentially external data with our own internal data as per the Basel ambition.
That is about 12 basis points of the 30 that you're talking about. And then there's another 10 basis points linked to part of the law that puts CRD IV into implementation in Europe, which provides specific risk weight reductions for SME exposures.
And then there are some smaller things.
Patrick G. Flynn
On the capital EUR 450 billion that we've injected, that -- does boost the IGD ratio as well, but it also is primarily improving the NN Life solvency ratio up to 251%, which you see in Slide 6. And also increasing the cash buffer and reducing debt.
With this capital injection, we do obtain regulatory approval. The regulatory green light to go forward with the IPO.
We have approval for the capital structure, which is very significant, that means now that we're in to the end phase of preparation for the IPO and the remaining pieces are within our control. Obviously, we need to have a -- maintain and continue to have a receptive IPO market.
So dividends, I can't really talk about in too much detail about dividends or the lawyers will put me in jail. We are in the process of, as I say, preparing for the IPO and I think it's fair to say that dividends will be featured prominently in the IPO, on an equity story, but you'll hear more about that soon.
But in conclusion, yes, we have regulatory approval of the capital structure to go forward with the IPO.
Operator
The next question is from David Lock from Deutsche Bank.
David Lock - Deutsche Bank AG, Research Division
Two quick questions for me. First one is on your EM exposures.
I know in the back of the presentation book, you've given some helpful disclosure on Ukraine and Russia. I just wondered if you can give any color on what you're seeing there at the moment.
Obviously, it is a difficult time when we look at the news, but what are you really seeing in the exposures that you have there? Is there anything that really concerns you from your exposures?
And if could you also just update us on the goodwill balance in the Turkish business. And then my second question is on net lending reduction in the Netherlands.
Clearly, when you have the slide in the fourth quarter, the net lending reduction in slowing. I'm just wondering when you expect that kind of -- that change to really trough?
Is it going to be the next couple of quarters? Or could it be longer?
R. A. J. G. Hamers
David, let's first answer the last question, because I will take that one, the net lending reduction in the Netherlands. So basically on the mortgage side, we see a net production coming in on the mortgage side of EUR 1 billion, where we see a decrease on the portfolio of EUR 1.3 billion.
So you see that basically the engine is working, new mortgages are coming in and we see a transfer of mortgages from the Dutch Banking book on the Bank side to the NN Bank side. So you see a transfer from the bank to the insurance company there.
So net-net, you see the decrease, but you see that basically, the engine is running, the mortgage business is doing okay. And if you look at the business lending side in the Dutch market, you basically see that on the smaller SME businesses that you see that the repayments are still a little bit higher than in new production.
Although we see in new production, we see higher demands, but that's off by EUR 300 million for the first quarter, so a bit of a decrease. If you then look at the larger companies in the analysis, we actually see a growth in that lending.
So I think that most of these are now positive signals that demand is coming in. And in the end, that should increase the loan books, although on the mortgage side, we will continue with a transfer of some of the businesses at reset moment from the bank to the insurance company.
David Lock - Deutsche Bank AG, Research Division
How much remains of that to be transferred? Sorry to interrupt.
How much remains to be transferred to NN Group?
R. A. J. G. Hamers
That's EUR 7 billion? EUR 7 billion.
Then we go to emerging markets exposure. I'll refer -- I'll transfer to Wilfred for that.
Willem F. Nagel
Yes, obviously, Russia and Ukraine is a bit of a developing story. Maybe to dwell briefly on what our business is there, it is a pure Commercial Banking business.
We don't do retail or SME. And the focus is really on the top local names, mainly exporters of energy and essential metals for the world economy.
And we've been in both of these countries for over 20 years. We've got a long history with a number of our clients there.
And if you look at what at the moment is going on in terms of exposure, then the lending exposure, the breakdown indeed is at the back of the presentation, that is hovering between EUR 7 billion and EUR 7.5 billion. And we're obviously in daily contact with our clients there to keep track of what's happening and discuss their next steps and our next steps with them.
We try to continue to support our clients, to the extent, reasonably possible. Obviously, this is a balancing act between managing risk on one side and supporting the franchise in these longstanding relationships on the other side.
We have pruned our exposures where we can, both in coordination with our clients, as well as by reducing the number of counter parties on the financial institution side that we deal with. And we do feel that our clients are taking generally a very prudent approach.
They're hoarding cash, not our cash, but the cash that comes back because of a reduced business volume. And they're using that opportunities to strengthen their balance sheets.
So at this point, if you look at the qualities of the book in Russia, it is very good. We've got a 0.1% NPL ratio and virtually no provisioning there.
And Ukraine is a little bit weaker. There's a bit of detail on that in the presentation as well.
But there also, we've got a long history, it's mainly exporters that we're dealing with. And it is reasonable to expect some more provisioning, at some point there, I believe, but, at this point, there's not a lot of details to give you.
Patrick G. Flynn
Yes, the goodwill number of which we are very comfortable in Turkey is EUR 600 million, unchanged.
Operator
The next question is from Omar Fall from Jefferies.
Omar Fall - Jefferies LLC, Research Division
Two questions, please. Firstly, on the NIM.
Just on your comments around high-yielding assets maturing and that impacting the reinvestment income. I saw that most of that process was largely behind us in terms of the mix shift and the reinvestment portfolio, particularly on peripheral debt.
And given that financial market has boosted the NIM materially, I guess this mix shift had a pretty substantial effect, so could you give us an indication of how well -- how much more of this yield shift there is to come, please? Secondly, and I know it's just one quarter but the capital position seems to be ahead of most people's expectations.
And yes, you've been fitted for model updates, but are you tied to the guidance you gave at the Investor Day, around the pace of dividends on ordinary shares? Or if the capital position is ahead, as it seems to be frac-ing, you can revisit that pace of dividends?
R. A. J. G. Hamers
Hey, Patrick will answer the NIM, and I will take the one on dividends.
Patrick G. Flynn
So yes, in respect to the NIM, I think there's a couple of questions there, and I'll try to answer them. Yes, the NIM is up 250 basis points in the quarter, which is primarily due to financial markets, which is -- can be somewhat volatile.
Also with Vysya coming out which is 2 basis points. I think it's more likely to ease back towards the year end position of 145 basis points.
Interest margin on funding was increased marginally on the back of the modest base rate cuts we had in Q1, but was offset a bit by the lower rate environment, which you referred to. Yes, the lower rate environment, it's influenced by the duration of our reinvestment of deposits, which is around the 3-year piece, but it's a little bit more complex than that.
And I'll try not to get into too much complexity, but there's other factors at play. We also have our capital investments which are longer dated, 7 to 10 years, which is a drag effect.
And actually, the mechanics of how this works, which is a piece I don't want to dwell on too much, is that we actually use internal transfer rates to reflect the yield on deposits and they don't exactly link with the timing of the lower yield and reinvestments. So a bit of a complex answer, but it comes to the point we think that maybe 10 bps could be a drag in the Netherlands and maybe 20 bps in Belgium over the course of this year from a lower rate environment.
However, there is still scope on deposit rate reductions. So our guidance on this is, yes, it could drop back from the 150 to the 145 level about because of the volatility in FM, but longer term, we are still maintaining our ambition to get to the 150, 155, which we announced only a month ago.
And that's going to be on executing on what Ralph referred to, higher-yielding assets, deployment, SME, consumer finance, industry lending. This is an ambitious target, it's going to take time, so it will be gradual.
Omar Fall - Jefferies LLC, Research Division
So just a very quick follow-up to that. Have you cut any savings rates this quarter to date?
Patrick G. Flynn
No.
R. A. J. G. Hamers
Okay. Yes, so we did cut in Belgium for Record Bank.
But it's only in April, I think, we did only in April. So it's not in the first quarter results.
Now on the acceleration of the dividend payments. Clearly, that hinges first foremost on the repayment of the Dutch State, that's we've indicated at the Investor Day.
So if this year, we have a successful IPO of NN and we see the results of AQR stress test as I've indicated in the past, clearly, we will consider acceleration of the repayment of the state. But that one has to be -- if we can accelerate that one, then we can accelerate also dividend payments.
But -- so we'll see -- we will see it when we get there. So let's first focus us on the IPO of NN and then we'll take another look at that.
Operator
The next question is from Kiri Vijayarajah from Barclays.
Kiri Vijayarajah - Barclays Capital, Research Division
I'm just trying to reconcile flat '14 and '15 in terms of the balance sheet and loan books. Your loan book looks largely static, but you've added and EUR 17 billion to the balance sheet, so is it fair to say that it's financial markets that's driving the growth this quarter?
And related to that, is it fair to say that your risk-weighted ratio is potentially more of a constraint for you, shorter term than your leverage ratio, looking at where both those ratios are at the moment?
R. A. J. G. Hamers
Kiri, I'll give the answer -- the question to Wilfred. But could you repeat the second part of your question?
Kiri Vijayarajah - Barclays Capital, Research Division
Yes. In terms of, I guess a link to earlier questions about earlier accelerating repayment.
Is it fair to say that your -- the 10% stroke 11% risk-weighted requirements more of a constraint for you than your leverage ratio, which, when I compare it to a lot of your peers, when I look at other French banks, you're in the high 3s. Is it fair to say the leverage ratio is kind of pretty secondary in terms of your -- how you think about your capital and your constraints?
R. A. J. G. Hamers
Okay, well, I'll come back to that after Wilfred has given the question -- has given the answer on the first one.
Willem F. Nagel
Yes, I think the question on the loan book and the fact that the 2 don't immediately seem to reconcile although they do in the end. It's mainly related to 2 things.
One is the deconsolidation of Vysya Bank and the other one is the loan transfers that Ralph already mentioned that we're doing from the mortgage book in the Netherlands to -- and ING Bank to NN Bank.
R. A. J. G. Hamers
Then on the leverage ratio, first the core Tier 1, both are important, clearly. On the core Tier 1, you basically see that the capital generating capability of the bank, actually, can kind of support further growing core Tier 1 ratio to 11% and have growth and have dividend payment as we have shown to you on the -- and told you on the Investor Day.
Now on the leverage ratio itself, yes, on one side, you can come to the conclusion that since we are far ahead on the 3% itself as [indiscernible] you currently a European requirement that we are managing on, but which also debates in the Netherlands as to wanting to increase that to 2% -- 4% [ph] over time. So which one is more restrictive than the other?
We don't know yet. The core Tier 1 for the moment that we are able to make, we're able to grow it as well in line with our own ambition.
Leverage ratio for the moment is not a point. But we have indicated already, also in the Investor Day, that we want to manage that around 4%, anyway.
Operator
The next question is from Matthias De Wit from KBC Securities.
Matthias De Wit - KBC Securities NV, Research Division
Two questions, please. Just to come back on the leverage ratio of the Bank, just wondered whether you see a possibility to reach the 4% target by issuing EUR 81 million capital, now that the tax deductibility of coupon sales for these instruments has been confirmed in the Netherlands.
And then second question, on Insurance and NN Life investment margins are increasing despite the low-yield backdrop. It seems that you're re-risking the portfolio, but just wondered whether there is an -- whether you've seen ability to continue that re-risking process and whether or not we could expect any further increase in investment margins going forward in the quarters ahead?
R. A. J. G. Hamers
On the leverage ratio, Patrick. The second one, I'll take.
Patrick G. Flynn
Okay, the -- on the leverage ratio, yes, it's EUR 81 million, it does play a role in the leverage ratio and it's positive that the government has announced its intention to address the tax deductibility fees, but they haven't done it yet. So we want to see that actually commented first.
But yes, we do see a Tier 1 as a key piece in the leverage ratio computation and we'll be looking to use -- avail once of the tax deductibility once it is confirmed in legislation.
R. A. J. G. Hamers
Yes. On the second one, the investment margin.
Yes, so basically you see the increase now because of re-risking, specifically in this one. You see the income from the mortgage transfers now on the Insurance side.
And so therefore, you see that book building up so you can expect that to grow further. And the further re-risking beyond that depends on the capital buildup and clearly, when capital is being released and produced, we can further re-risk on the Insurance side.
Matthias De Wit - KBC Securities NV, Research Division
And what's currently the buying capital constraint for NN Life? Is it Solvency I, or is it a 1.5 or Solvency II or any other economic capital metric you're using?
Delfin Rueda
Yes, indeed that's -- as Ralph has mentioned, the explanation for the aggressive investment mortgages is related to a particularly increased mortgages that were performed during the last quarter or during the last quarter of last year. It is also due to increased volumes, also related to the capital increase in NN Group that was performed at the end of the year, approximate -- after EUR 1 billion.
In terms of the capital constraints, as Patrick has mentioned before, with the today's announcement of the additional EUR 850 million of capital injection, and also with the use of part of those proceeds in order to further capitalize NN Life, we don't believe that there is any significant constraint in terms of capital in order to proceed with our planned reinsurance. As a matter of fact, all the 3 metrics at the moment, they're for the capital position of the group, based on leverage, based on the cash buffer but also on the capitalization of our regulated entities.
All of them give us a comfortable position to look forward to our IPO.
Operator
[Operator Instructions] The next question is from Anke Reingen from Royal Bank of Canada.
Anke Reingen - RBC Capital Markets, LLC, Research Division
I'm calling you from RBC. I just have one follow-up question on the net interest margin.
I mean, if you say that the reinvestment portfolio drag could be about 30 basis points for this year, I just wondered if you -- not probably in terms of numbers, but just directionally, how much of the benefits do you expect from an improvement of the savings rate, as well as on the lending rate?
R. A. J. G. Hamers
It's not 30, it's the average of the 2. So it's 10 in the Netherlands, 20 in Belgium.
This is not additive. Yes, I mean, it is a bit of a drag.
And as I said, we have potential savings rate, there's headroom there, as I said before. And as we have reduced rates, this is something we look at very carefully, any further steps that we might take.
And if you were of competition, obviously, customers, so this is a potential that we have. But we will be careful on how we execute it and certainly, the pace of reduction that you've seen in the past will be slower in the future.
Anke Reingen - RBC Capital Markets, LLC, Research Division
And on the lending rate?
Patrick G. Flynn
And again, core to the -- to our strategy is to deploy customer deposits in higher-yielding assets, as I mentioned earlier. And our margins on lending have remained stable-ish, although there is plenty of competition out there for the growth.
But as Ralph said, we're pleased that we're able to achieve some growth. So it's yes, we'd like to see margin improvement but I think it's more about deploying customer deposits, which we have an excellent capability of generating another EUR 8.5 billion this quarter and higher-yielding assets is where the boost will come from.
Anke Reingen - RBC Capital Markets, LLC, Research Division
Just to clarify, so the drag from the reinvestment portfolio, the 10 and the 20 basis points, that's not at the group reinvestment portfolio, that's on the local level, so i.e., the impact on the group's net interest margin would not be the 10 and the 20 basis points? It would be much lower if I compare this with the group investment portfolio.
R. A. J. G. Hamers
I think that's right.
Operator
We have a follow-up question from Omar Fall from Jefferies.
Omar Fall - Jefferies LLC, Research Division
Just quick. You mentioned the AQR and the stress test.
Given where we are in that process, could you highlight any areas of concern that -- what remains? And then at this stage these particulars with regards to the Dutch mortgage portfolio?
R. A. J. G. Hamers
Wilfred will answer the question.
Willem F. Nagel
There's not a lot to say at this point, for 2 reasons. One is, if the stage of the process that we're in is that we're still delivering data.
We're working with DNB and ECB on putting together what we need to do in terms of executing the stress test. And it's a lot of work.
The progress is good. We've been able to deliver on time and completely what we needed to do, so we're pleased with that.
And it's much too early to speculate on any outcomes, also because, yes, we have seen of course, what the inputs for the stress test are going to look like. But one very important input, nobody knows yet, and that is the output of the AQR, which determines the starting position for each individual banks.
So and there's not a lot to say. We also have, clearly, an agreement with both the other banks, as well as ECB to not communicate about anything until we are there, which means until we have concrete results.
And what we can say is that, you ask specifically about Dutch mortgages, I think if you look at our quarterly numbers and this quarter is not an exception, they behave as predicted. We said before, it is a large book.
and -- but it's behaving fairly well. We're not overly concerned about it.
I think we've been able to also get that across to DNB. And DNB, by the way, has shown confidence in general about the ability of the Dutch banks to come through this whole process with a positive outcome.
And I'd like to leave it at that.
Operator
Thank you, gentlemen. There are no further questions.
R. A. J. G. Hamers
Okay. If there's no further questions, then I'd like to close this call.
Thanks for attending this morning, and thanks for sharing with us your questions and your queries. It's always appreciated to show the keen interest.
We have a good quarter. Good quarter on the strategic front, on the restructuring front, on the financial performance and the commercial performance.
So thanks for your attention, and have a good day. Bye.
Operator
Thank you, sir. Thank you, ladies and gentlemen.
This does conclude today's presentation. Thank you for participating.