May 7, 2015
Executives
Ralph A. J.
G. Hamers - Chairman of Executive Board, Chief Executive Officer, Chair of the Management Board Banking and Chief Executive Officer of Management Board Insurance Eurasia Patrick G.
Flynn - Chief Financial Officer and Member of Executive Board Willem F. Nagel - Chief Risk Officer and Member of Executive Board
Analysts
Martin Leitgeb - Goldman Sachs Group Inc., Research Division David Lock - Deutsche Bank AG, Research Division Jean-Pierre Lambert - Keefe, Bruyette & Woods Limited, Research Division Tarik El Mejjad - BofA Merrill Lynch, Research Division Andrew P. Coombs - Citigroup Inc, Research Division Ashik Musaddi - JP Morgan Chase & Co, Research Division Anton Kryachok - UBS Investment Bank, Research Division Farquhar Murray - Autonomous Research LLP Matthew Clark - Nomura Securities Co.
Ltd., Research Division Kiri Vijayarajah - Barclays Capital, Research Division Anke Reingen - RBC Capital Markets, LLC, Research Division Paul Fenner-Leitao - Societe Generale Cross Asset Research Cor Kluis - Rabobank Equity Research Omar Fall - Jefferies LLC, Research Division
Operator
Good morning. This is Jillian.
Welcome to the ING 1Q 2015 Conference Call. Before handing this conference call over to Ralph Hamers, Chief Executive Officer of ING Group, let me first say that today's conference may include forward-looking statements such as statements regarding future developments in our business, expectations for our future financial performance and any statements not involving a historical fact.
Actual results may differ materially from those projected in any forward-looking statements. A discussion of factors that may cause actual results to differ from those in any forward-looking statements is contained in our public filings, including our most recent annual report on Form 20-F filed with the United States Securities and Exchange Commission, and our earnings press release as posted on our website today.
Furthermore, nothing in today's comments constitute an offer to sell or a solicitation of an offer to buy any securities. Good morning, Ralph.
Over to you.
Ralph A. J. G. Hamers
Good morning. Welcome, everyone, to ING's First Quarter 2015 Results Conference Call.
So I'll walk you through today's presentation. With me are Patrick Flynn and Wilfred Nagel from the Executive Board to answer further questions as well.
Turning to Page 2. ING posted a very strong set of results in the first quarter of 2015.
The underlying net profit was EUR 1,187,000,000, up 43% from the first quarter of 2014 and more than double that of the fourth quarter 2014. Income generation was robust, reflecting the positive momentum in our business.
Bank capital generation remains strong at 40 basis points, offset by a 33 basis point upstream to group. The fully loaded core Tier 1 ratio increased 110 basis points for the group to 11.6%.
So in the first quarter, we also continued to make progress on our Think Forward strategy. And just to give you some highlights there, and we turn to Page 3.
In March 2014, we launched a strategy with one clear purpose, empowering people to stay a step ahead in life and in business. And the core to strategy, and I keep repeating that, is to create a differentiating customer experience to -- and that is all about our customers.
And that's why the Net Promoter Score, as you can see in this slide, is so important for us. In most countries, we're #1.
But not in all. So there's absolutely room for improvement.
But I'm also happy to say that we welcomed more than 350,000 new customers also in the first quarter of 2015 and almost 100,000 new primary bank relationships. As you know, that's real core to our strategy and with particular strong growth in the countries that we call challenges in growth countries, fully in line with our strategy.
So our customer focus contributed to good commercial growth through -- during the first quarter of this year and that was reflected in strong deposit growth, but also strong lending growth. Now over the last couple of quarters, I've mentioned to you examples on the Retail Banking side as to how we use technology and innovation to improve the customer experience.
And I'd like to talk about innovation that we have tested with our Commercial Banking customers. So we have made progress on the development of a Commercial Banking platform, a digital platform called InsideBusiness.
We have run a pilot over the last 6 months. And this InsideBusiness will provide clients with a single point of access to all of their Commercial Banking products and services such as payments and cash management, trade finance, lending, provides realtime information.
It gives customized reporting. It can be accessed 24/7 and from any mobile device.
It gives multi-country, multiproduct and multi-device information. And I think that's another prime example of how we are pioneering technologies that keep us at the forefront of modern banking and basically for us to set the bench in customer experience in the digital area.
Now turning to the first quarter results, Slide 6. ING's first quarter results were very strong, I said before.
The underlying profit before tax was EUR 1,661,000,000, up 41.2% from the first quarter of 2014 and more than double the pretax result in the fourth quarter of 2014. Strong results were supported by some volatile items such as positive results from hedge ineffectiveness and capital gains.
But even excluding these and all the volatile items in previous quarters, and you can see that in this paragraph, the pretax result increased by 28.3% if you compare it to the first quarter of last year. An 11.9%, if you compare it to the fourth quarter of last year.
And that is clearly reflecting the positive momentum in our business that I was mentioning. Customer lending in our core lending franchises increased by EUR 6.9 billion or on an annualized basis, 5.3%.
And the pretax results of financial markets were seasonally strong. Now looking at the income side of the result.
Income growth was robust in the first quarter. While I think is particularly encouraging is the positive trend in net interest income.
The net interest income, excluding Vysya, increased 7.2% from the first quarter 2014. And it was slightly down for the fourth quarter 2014, but that was due to lower interest results for Financial Markets.
I will get back into more details on that one. Financial Markets performed very well in the first quarter and this was mainly visible in order income, but not so much in net interest income.
If we exclude Financial Markets, however, the net interest income increased 9% from the first quarter 2014 and 1% from the fourth quarter 2014. So it's continuing its upward trend, driven by solid lending growth.
So if we then turn to the lending growth at the -- on Page 8, you see that the core lending businesses increased by EUR 6.9 billion or, as indicated, 5.3% annualized with healthy growth in most geographies in which we are present. Net production in Germany was only marginally up as the positive growth in consumer lending and Commercial Banking loans were offset by small reduction in mortgage loans, and that was caused by high prepayments in the German mortgage book.
Turning to the net interest margin. The net interest margin decreased by 6 basis points from the fourth quarter.
If you go deeper into this, you see that 3 basis points were attributable to the lower net interest results at Financial Markets. This is an item that we report on, on a quarterly basis, and you see that there was volatility on this quarter-on-quarter.
You see that, on this slide, a 2 basis points decrease in net interest margin was due to an increase of the average balance sheet and that increase was driven by foreign exchange, Financial Markets and bank treasury. If we then look at the underlying business.
You see that the lending margins have increased from the last quarter in 2014, and that is because of higher margins in retail in most of the countries and higher margins on the Commercial Banking lending as well. And they partly offset the lower margins that we see on deposits in the first quarter.
Turning to Slide 10. Talking about the margins on deposits.
We see that the margin has declined versus last quarter. That is because of the lower reinvestment yields, but it's partly offset by a decline in savings rate that we have reduced in some of the countries in the first quarter.
Now this may reverse in the second quarter 2015, as we have further reduced our savings rate in the second quarter already in the countries where we have our largest deposits base like the Netherlands and Belgium. But also, our reduction in Germany that you see here in the first quarter was more at the end of the first quarter, so the benefits of this further decrease will come through in the second quarter.
And as said, we will continue to review our client rate proposition, given the unprecedented low interest rates that we see. But if you take a good look at the slide, you also see that there is scope for further reduction going forward in order to manage that margin for the foreseeable quarters.
And then if we turn from interest income to noninterest income, Slide 11. You see that the commission income rose 8.2% from the first quarter 2014 and 9% in the fourth quarter in 2014, and that is mainly due to a higher Industry Lending fees, that's Commercial Banking, which is basically fees that we collect when we close new deals as well as higher fees in Retail Benelux and Retail Germany.
And that's more on the sale of asset management products, which is also a kind of a seasonal phenomenon, people moving to asset management products in the first quarter. Investment income was 7.6% higher than a year ago, and you see that, also in this slide, at EUR 113 million.
And that includes EUR 75 million of gains on the sale of debt securities and EUR 36 million on the sale of an equity investment in the real estate runoff portfolio. Other income rose strongly in the first quarter of 2015, mainly because of 3 items: First, bank treasury benefited from positive results from hedge ineffectiveness, and that is in the mortgage hedge accounting and mainly related to the introduction of quantitative easing.
Secondly, Financial Markets posted a seasonally strong quarter. And finally, we had a quarter without CVA/DVA.
Basically it was very low at minus EUR 1 million versus minus EUR 66 million for the same quarter last year, so the first quarter last year. So that's why you see the other income going up.
These are the 3 reasons for that. Then looking closer at Financial Markets.
Financial Markets really posted a seasonally strong quarter. As you can see in the graph on the right-hand side, the quarter trends to be -- tends to be relatively strong in the first quarter, always seasonally strong, with the exception of the first quarter of 2014.
And you may remember that your volatility in the market, that moment was relatively low. We now have seen a first quarter with higher volatility in the markets.
And while the Financial Markets performance in the first quarter of 2015 was relatively strong compared to last year, it was not exceptional if you compare it to the first quarter performance in 2011, 2012 and 2013. So it's quite normal that the first quarter is strong.
And given the volatility that we have seen in the market, this is a good result. And -- so going then from income to cost, Slide 13.
You see that in the first quarter of this year that the expenses have mainly been impacted by regulatory cost in Belgium, Poland and Germany. If you adjust for these impacts, and you adjust also for Vysya and FX, the expenses increased by 2.4% from the first quarter last year and 2.2% from the fourth quarter.
And that reflects the earlier-announced investments for future growth in the challengers and growth markets, where we have a disciplined problem as to cost growth only allowed if the income growth is twice as high. And it is also has to do with the announcement of additional investments in Retail Netherlands, moving to an omni-channel environment, investing heavily in IT, but with cost savings attached to it later on as you can see also on this slide.
So first quarter included on the regulatory side, the German contribution to the resolution fund, the contribution from other countries as well as the Dutch DGS and other additional regulatory expenses are expected to be implemented later this year. In total, we expect regulatory cost to be up by EUR 200 million to EUR 250 million versus 2014, and that will weigh heavily on our expense base this year.
And then if you go to the other component of costs, the risk costs. Risk costs were at EUR 432 million in the first quarter of this year, down EUR 36 million from the first quarter last year, but up EUR 32 million from the fourth quarter, mainly due to higher risk cost in Commercial Banking and Retail Belgium.
The NPL ratio remained stable at 3%. Retail Banking showed improved results in most of the segments.
If you now go to the more segment analysis into -- on Slide 15, we see that most of the countries and segments we see improved results apart from Retail Belgium. The decrease in Retail Belgium versus the first quarter last year is fully explained by the fact that we had gains on sale of bonds in the first quarter last year in Belgium.
If we would exclude these capital gains, the pretax result actually rose 8.5%, also in Belgium. The decrease in the first quarter in Belgium versus the fourth quarter in Belgium can be explained by the annual Belgian bank tax that we booked fully in the first quarter.
Last quarter, we took you through the case of Spain and how the strategy is working out in Spain. This quarter, we want to take you through the case of Germany and how the strategy is working out in Germany.
Basically, you see that, in Germany, we continue to be the #1 in Net Promoter Score. And for the ninth consecutive year, we have been called the most preferred consumer bank in the German market.
And that results in a continuing growth in savings and a continuing growth in the loan book as well. However, we have also decided, as part of the strategy, to grow our Commercial Banking business in Germany, and that's what you see here as well.
So we see strong volume growth in deposits and consumer loans, but you see also now the success of the Commercial Banking strategy coming into the German results. If we put it into numbers, we see consumer lending up 15% per annum in the period of 2011, 2014 and another 14% if you compare it first quarter this year versus first quarter last year.
So we see a continuing growth in consumer lending there at the annual rate of 14% to 15%. The Commercial Banking loans have grown 39% per annum in the same period 2011, 2014.
And if you do that on a year-on-year basis, so the first quarter of this year versus first quarter last year, we actually see acceleration of that growth because it was at 66%. We expect that trend to continue.
This is not only Commercial Banking exposure generated in the German market, this is also Commercial Banking exposure that is part of the global strategy of Commercial Banking. And as you know, some of our Centers of Excellence and expertise are now in Germany, and we book International business also in Germany.
That's the case in Germany. If we then turn to the Commercial Banking results for this quarter, we see that Commercial Banking delivered improved results in most segments.
We see the Industry Lending results continuing to be strong. The Financial Markets results, we have already discussed.
Then we see the pretax results on General Lending & Transaction Services. That doubled from a year ago, but declined from the fourth quarter.
And the volatility that you actually see in this picture is all caused by risk cost and was the gross results is up quarter-on-quarter and year-on-year. And the risk costs that always make the difference in this one.
And then if we turn to Structured Finance, Slide 18. Service finance, which is part of the Industry Lending segment within Commercial Banking, continued its strong performance.
The underlying income grew by 42.1% from the first quarter last year and 8.5% from the fourth quarter in 2014, and that was due to ongoing loan growth and that was reflected again in higher interest income, higher commission income. The net lending growth in Structured Finance, if you exclude the impact of foreign exchange, was EUR 2.2 billion in the first quarter of 2015.
And the lending margins actually have increased from -- if you compare them to the first quarter of last year, and they have remained stable if you compare them to the fourth quarter of last year. And hence, the return on equity is also stable around a very attractive level of 20%.
So the franchise is doing really good. All of that leads to a strong bank profit, as said.
But we've also booked contributions from both NN Group and Voya this quarter, and that takes the results of the bank, the 1 point -- EUR 1,187,000,000 up to EUR 1,769,000,000 for the group. And you see the result on NN Group of EUR 276 million and the result of Voya of EUR 323 million.
So as you know, the result of the group is even better because of the results on the Insurance stakes. And regarding dividends, our intentions remain unchanged.
We pay at least 40% of the annual profit each year, and there's a willingness to return to shareholders the net proceeds of our Insurance divestments. But we have dividends over time, but simply 2 developments on the regulatory front.
Looking at the capital position at the bank and the group level. ING Bank capital generation remains strong at 40 basis points, but that was offset by 30 basis points upstream to the group.
We managed a surplus capital at the group level and we managed the core Tier 1 at the bank level, around 11% level. So here, again, you see that the bank core Tier 1 ratio, even after the payment of the dividends, is stable at 11.4%.
So it does cover the growth and it covers the dividend payment and still, we have a very strong core Tier 1 on bank level. Now on the group core Tier 1 level, that increased by EUR 4.2 billion.
That's supported by the sale of Voya. It's supported by the stake that we sold in NN Group.
And it was supported by the capital generated at the bank. But it was also partly offset by the first quarter 2015 dividend deduction of EUR 700 million.
And that's basically the regulators warned us to basically deduct for the dividend accrual at the rate at which we want to pay dividends. The group core Tier 1 ratio increased 110 basis points to 11.6%.
Now following the sale of Voya last year and our only remaining insurance asset now is NN Group, and we hold a 54.6% stake in that group. Our base case scenario for the divestment of NN Group is a sell-down, sell-downs or a series of follow-on offerings over the next 12 to 18 months.
And that will result then in a pro forma core Tier 1 ratio of 13.5% of the group. Now if you take the good results of the bank, and you take the good results on group level and the improvements of capital levels, both on the bank level and the group level, then you see and you can conclude that we are on track to deliver our ambitions for 2017, and that is Page 21.
If you look at this slide, we say -- we see that we have reached most of our goals, but I think it's early -- it's too early to be happy with this. The first quarter is always the best quarter of the year.
Furthermore, we have to absorb a significant amount of additional regulatory costs, as I mentioned already. That will be booked in the P&L later this year.
And in addition to that, we have to work in an environment with unprecedented low interest rates. There's also the ongoing regulatory uncertainty about required capital levels, risk rates and leverage ratios.
Despite these challenges, I'm very pleased on the progress we're making. I think that these results show, both on the commercial side as well as on the financial side, that the beginning of the execution of the Think Forward strategy is successful.
It shows we're on the right track. We're doing the right things.
And I'm confident that we will be able to continue to deliver on our ambition 2017. Now to wrap it up.
Good first quarter results for the bank. Good first quarter result for the group.
Stronger capital position for the bank and the group overall and a real progress on the execution of our Think Forward strategy focusing on the clients, going for digital interactions with our clients, getting more clients, so momentum on many sides. And with that, I'd like to open the call for questions.
Operator
[Operator Instructions] We will now take our first question from Martin Leitgeb from Goldman Sachs.
Martin Leitgeb - Goldman Sachs Group Inc., Research Division
Just 2 quick questions, and I think both related to interest margin, which obviously was down this quarter. And I remember from the Investor Day, the guidance of 150 to 155.
And I was just wondering if you can shed a little bit of light on how we think in terms of the transition from where we are now, 147 to, what's this, 150 to 155 because I'm particularly interested in how quickly obviously the deposit rate cuts speaks [ph] for the liability side, whilst probably the press [ph] on the asset side is coming through more gradually, so all else equal. Should we think that margin is likely to stay below 150 for the next couple of quarters before the asset mix shifts as you plan and then margin increases again?
Or how should we think here in terms of progression? And the second question is specifically with regards to Dutch deposits.
And I know you're still paying around 1%. And I think, if I'm not mistaken, one of your competitors there has cut its rate to below 1% now.
Do you see that further opportunity to cut rates further? And is that the opportunity that you close or that you represent part of that funding in Netherlands with German deposits, which I think are roughly 40 basis points cheaper compared to Dutch deposits?
So is that a full opportunity for you to stabilize margins?
Ralph A. J. G. Hamers
Okay. I'll take the questions and Patrick will fill in on the margin range and net income margin range going forward.
You've seen that in this quarter. You've seeing some volatility from the Financial Market side on it as well as the bank -- as the balance sheet increase.
The underlying business actually on the lending side, we see margins holding up. We see, in the first quarter, a bit of pressure in the savings rates.
And as I already said, we feel that we have sufficient room to maneuver on the savings rate in the countries in which we are active, assuming also given this continued inflow of savings in order to manage the margin around the 150 level in the foreseeable quarters. And then turning to the Netherlands, specifically.
Yes, you see in this picture, you see the 1%. But we also have saving products, which pay lower.
And one of those larger savings products that we have is also paying 90 basis points. So it's not like we're holding back on further reduction there.
It's more how you move tactically in the market and how do you time your decreases. But there's nothing holding us back from further decreases there.
I'm looking at Patrick.
Patrick G. Flynn
Yes. I mean, in terms of our target range, 150, 155, I see no reason whatsoever to change that or challenge that.
In fact, if we look at interest earnings in euro terms and exclude Financial Markets, which we know is a volatile item, the increase, as Ralph mentioned in this slide, up EUR 30 million and 1% quarter-on-quarter. What I think is particularly impressive in that is we have lending growth of EUR 6.9 billion, EUR 4 billion all of that is Commercial Banking.
And that growth is coming at stable and healthy margins. So the commercial growth we're getting is still very good margins.
So excluding Financial Markets interest, we see progressive increase in euro and in earnings. Okay, the balance sheet was volatile.
It's always volatile in the first quarter with inflow, particularly accentuated with the FX and the moves in interest rates from [indiscernible]. But that's just noise.
So the fundamental point is we're still on track. We're delivering growth and interest earnings and 150, 155, stays as our target.
Operator
We will now take our next question from David Lock from Deutsche Bank.
David Lock - Deutsche Bank AG, Research Division
So my first question is on costs. I know you're flagging the additional regulatory cost this year.
I just wondered how we should think about this being phased over the course of the year? So is there a particular lumpiness in the quarters with how that comes through and if there's anything you're expecting to offset through savings through the course of the year?
And also, just wanted to confirm. Are you expecting any additional costs next year?
So is this it in terms of regulatory costs, in terms of the Dutch and German DGS charges? Or should we expect even more next year?
And then my second one is on tax rate. I think it was 28% in the first quarter.
Historically, this has been about 25%, 26%, I think. I just wondered what the guidance for this was going forward and whether this is impacted by the regulatory costs that you've already mentioned.
I don't know whether these are tax-deductible items, some of the ones that you flagged on the cost line.
Ralph A. J. G. Hamers
Yes, Patrick.
Patrick G. Flynn
So our tax guidance is -- remains the same. And I think we are at 27%, was it, in the middle of the range.
So no change there. In terms of lumpiness of the regulatory costs, yes, it is lumpy.
What we've seen in Q1 is that, in Belgium, it came upfront at around EUR 90 million, which is the same as last quarter last year. The Dutch levy is back-ended in the fourth quarter, as you remember.
We will see an increase of somewhere between 200 and 250 from DGS schemes coming in this year. Not totally clear when that will be reflected in legislation.
It's only going to reflect in legislation that we will see it. Now probably the earliest is in the third quarter, but may -- that may come in the fourth quarter as well.
Ralph A. J. G. Hamers
And as to whether our regulatory cost will further increase, who knows? We don't hope so.
But we see a steep increase this year because of the combination of bank taxes, DGS being introduced in some countries, but also the contribution to the single regulatory resolution mechanism. So we see basically a no different kind of levees coming at us.
Clearly, we hope that this is it because it's a high -- it's already at a high level. This year, it's around 650 -- 640 to 650.
In total, we expect that, yes -- we -- you'll never know. But hopefully, this is where it stays.
David Lock - Deutsche Bank AG, Research Division
I guess, what I was thinking at was -- is if DGS comes in the first half, does that -- the 200 to 250, is that 1/2 cost? Or is it for the full year?
Patrick G. Flynn
It's probably half.
David Lock - Deutsche Bank AG, Research Division
So we should assume that it is double the regulatory costs that you flagged?
Ralph A. J. G. Hamers
If they move -- if it comes in half year, it will be half. And if it went in full year, it would be higher in next year.
So annualizing regulatory costs, like we said, we think it's around 650 total, going up to by 200, 250 this year for regulatory costs and the annualization effect means in '17, it will be higher again.
Operator
We will now take our next question from JP Lambert from KBW.
Jean-Pierre Lambert - Keefe, Bruyette & Woods Limited, Research Division
First question is on your view on dividend going forward above the 40%. There are 2 issues.
The first one is, how much capital do you think should be earmarked for changing the risk weights potentially and also the location where this capital could be earmarked, apparently not at the bank because you upstream dividend this quarter? And also the spreading over time, at what pace you see the excess capital generated by the insurance sales spread in terms of the dividend distribution?
The second question is on the leverage. There are discussions involving the Ministry of Finance in the Netherlands interested in 4%, but they're not the regulator.
So I'm not sure if the Central Bank would be neutral on this with the view as ECB. Is there a possibility of a local higher leverage?
These are the 2 questions.
Ralph A. J. G. Hamers
Well, on leverage, we -- the question seems to be whether it will be at 4% in the Netherlands and we are at around that level, a little above it on an IFRS basis. So we don't see that the 4% leverage ratio will be a constraint for us going forward.
In terms of dividend, you had a number of questions there. We said before that we have a willingness to return the net proceeds of insurance divestments to shareholders over time, and this will be part of a regular annual dividend discussion.
As you recall, we've said before that the minimum is 40%. But at the end of the year, we'll look to see the lay of the land in terms of profit, economic development and also regulatory developments.
But assuming on the basis that they are benign, we have a willingness to pay more than the 40% and return the churn surplus to shareholders over time. The -- and the timescale that we'll take, we're not going to be too prescriptive about it.
The payout ratio would be somewhere between 40%, but not exceeding 100% of net profits, including the gains we currently see in the first quarter. Why not 100%?
It could be 100%, because that's the point where you need to go to regulatory approval, and we refer to not have to do that. Although, with 100%, that gets quite a lot of fire burns, I mentioned already.
So this will take a number of years to return this surplus to shareholders. We believe that a prolonged -- sustained, I should say, elevated dividend payout ratio is a better value proposition than potentially [ph] returning capital over a shorter timescale.
And also, importantly, it does give us some protection in the event that the uncertain regulatory environment does change adversely, if you ask about the our target moving which, frankly, we don't know exactly how that [indiscernible]. It's still too much of a moving target to be prescriptive.
But we have a significant capital surplus [ph] of the group. We would say, we are suppose to return the insurance surplus over time, but we want to keep an eye on how regulatory developments come.
Obviously, you don't want to end up returning capital to shareholders and funding those regulatory change that was adverse. So we're going to be prudent in the return and keeping an eye on the regulatory capital developments.
Jean-Pierre Lambert - Keefe, Bruyette & Woods Limited, Research Division
And would you earmark some capital at the level of the bank going forward, surrender them, the upstreaming dividends, to the group?
Patrick G. Flynn
I mean, the group and the bank are one and the same now, virtually. We will mostly exit -- we've exited Voya completely.
Once we exit NN, they're just 2 companies as part of our group. So our policy is will be around trying to maintain excess capital at the holding company.
We did that this quarter. There's a strong capital generation in the bank, which I think is very positive, notwithstanding EUR 6 billion of lending growth.
We increased our capital ratio by 40 basis points in the bank. So we can do, support both growth and increase capital at the same time.
It's very strong. But we were -- our target is to keep the bank capital ratio at around -- somewhere around 11% mark, as we've said our objective.
And as it was higher, we moved EUR 1 billion up to the holding company. We have total flexibility.
We can put the capital back down every day if needed. So it's just a policy and a discipline thing to keep capital at the holding company, but it's available to ING for supporting dividends to shareholders, as I talked about earlier.
And the event, if needed for regulatory change, we can use it there as well.
Operator
We will now take our next question from Tarik El Mejjad from Bank of America Merrill Lynch.
Tarik El Mejjad - BofA Merrill Lynch, Research Division
A couple of questions, please. First of all, on your quite a good performance in Structured Finance lending growth.
EUR 2.2 billion in the quarter is quite good compared to the last 2 quarters. I just want to understand what's the source of that by sector and if you can also help by geography.
I mean, would that be that you're more comfortable about your oil and gas or Russia exposure, and then you -- I mean, you open the pipes again? Or if you can clarify that.
And secondly, on the asset quality. Part of the iteration came from Ukraine, but the rest is from some ties in commercial lending.
Can you please specify in which geographies?
Ralph A. J. G. Hamers
On your first question in terms of the growth in Structured Finance, EUR 2.2 billion, that's basically across the board. It's -- globally, and it's also across different sectors.
If you -- so in the areas of energy, transfer and infrastructure, that's where we see a growth, 5% in the area of international trade. In export finance, we see growth of 1.3%.
In some areas, we see a bit of a decrease, which we are more to specialized financing groups. But if it comes to the sectors like oil and gas, metals and mining, infrastructure, all that, it's really across.
So it's not dependent on one particular sector. So it's driven by our sector activities.
It's driven by our core relationships that we have in those businesses. And yes, we're happy with that growth.
In terms of risk cost and how we see Russia and oil and gas developing -- the oil and gas exposure developing, I'd like to give the word to Wilfred.
Willem F. Nagel
Yes. So on oil and gas, I think it was an important part of your question.
And are we more relaxed? Well, I wouldn't say more relaxed.
We've seen what looks like a stabilization of the oil price and a bit of an uptick from the lows. That is good news.
And frankly, the low oil price as such is good news for a big part of our portfolio. So we focus on just one thing, oil price is higher.
It's a little bit too narrow. I think, overall, we're benefiting from the fact that energy has become cheaper.
And yes, it puts a bit more pressure on some of the book, but less on other parts. Having said that, we've always been open for business in the oil and gas sphere.
You see at the back of Ralph's presentation on Page 34, a breakdown of the portfolio in terms of how sensitive these exposures are to the oil price movements. And as you can see, not a lot of the book is directly linked into performance to the oil prices.
And indeed, we are doing business also in that sphere. And you may notice, for example, compared to last quarter, that in reserve base lending, there have been a few new deals and that is simply because the current oil prices and the buffers below them, that does look like a solid business despite all the nervousness around this.
And then on risk cost, more in general, indeed, there was some related to Ukraine. Russia is actually quite stable in terms of the NPL and provisioning.
No new issues there. And the main uptick in Commercial Banking was simply in General Lending.
As always, a little bit lumpy, a few bigger files in Continental Europe.
Operator
We will now take our next question from Andrew Coombs from Citigroup.
Andrew P. Coombs - Citigroup Inc, Research Division
Two questions, please. Firstly, just to retain the net interest margin.
You talked about a reversal in the second quarter following the deposit cut in Germany in the end of March and Belgium and Netherlands in April. So perhaps you could just quantify, all else held equal, what the boost to manage margin would be from this deposit cuts or failing that, perhaps you could just provide the absolute amount of deposits that are impacted by those rate cuts in each of these 3 regions?
And then the second question, which is still on hedging effectiveness and the capital gains that you booked during the quarter. Perhaps, you could just elaborate on that, provide a bit more color and also whether you expect those to repeat as the year progresses.
Patrick G. Flynn
In terms of the latter 2, in term of capital gains, EUR 70-odd million of bond gains. We've invested in building out our bank treasury, and they're looking far more closely at how we manage in a low rate environment.
We were cautious about bond gains because there's a question about taking an upfront gain and then having a negative impact on future NII. But what we found, a number of these bonds were swapped, so you had asset swap structures, whereby unwinding the asset swap structure and releasing the cash could actually lead to an accretive situation where the cash can be deployed at a better yield than in the asset swap.
So this was a net win-win effect. And I would've said, mainly 2 weeks ago, that we would continue to do this, but we had to be very careful about how -- where interest rates are now going, given it's quite volatile.
But it does goes to show that we are actively managing our positions and looking to do the -- economically, what the right thing is. So if rates go back down again or if they -- this volatility eases off, we may even see further such moves on the gains on the bond front.
In terms of hedging effectiveness, I mean, this, I think, was a function arising from the volatility in market rates. And we do see -- you have seen losses, hedging effectiveness losses in previous quarters.
I think about EUR 26 million last quarter. Yet there's quite a significant gain this quarter that we saw flattening of the curve, which led to some ineffectiveness on the designation of floating rate swaps against the underlying hedge item.
I won't go into too much detail on that. But as they say, that partially covers a loss in the previous quarter, and it is primarily accounting, not economics.
To the extent that there's an economic element to it, we've looked to lock out that piece. So we have actually locked out a piece of that, a smallish piece of that gain.
But it -- this is more a function of volatility in markets, and it can give noise in the accounting, which we cannot rule out in the future and we've had it before. So in terms of savings rates, yes.
I don't want to be too precise on which books are impacted. In each of our markets, we will have a number of different deposit-type propositions.
They don't all get changed at the same time, so this is not something I'll give a precise monetary answer. But this is directionally positive for interest margin on deposits in Q2.
Operator
We will now take our next question from Ashik Musaddi from JPMorgan.
Ashik Musaddi - JP Morgan Chase & Co, Research Division
So a couple of questions. First of all, can you give us some thoughts on around your 11% capital ratio?
I mean, what are the recent debate there you have with the ECB on the capital? So any color on that and both on the group level and the bank level, i.e., do you think that both will merge sooner or later?
So any thought on that. Secondly, any thoughts on risk-weight harmonization?
What's going on? Because one of your German peer has come out and said that they expect this capital allocation towards more risk-weight harmonization thing.
So what sort of risk do you see from that? So yes, that would be fine.
Patrick G. Flynn
In terms of capital ratio and discussion with the ECB, I mean, the short answer is none. The ECB has given us frameworks on dividends.
They've given the market a framework around how you pay dividends, and they are so far sticking to that framework. So obviously, we informed them about the dividend upstream to the bank.
There was no real discussion arising from that. And our dividend policy, according to the payout in the fourth quarter, likewise.
So it's not really a subject of much discussion.
Ashik Musaddi - JP Morgan Chase & Co, Research Division
No. I mean, I want to check on this 11% target you have.
I mean, is it still a fixed target at the moment? Or is it still an uncertain moving target, i.e., could be 12%, 13%, 14%, going forward?
Any thought on that.
Ralph A. J. G. Hamers
Well, the 11% of favorable cost we have indicated before, that we want to manage at a comfortable buffer above 10%. That's what we're doing, and that's where we are, 11%, 11.4%.
If we're a little bit higher, we upstream it. If we need it back in the bank, we'll downstream it.
That's the way we manage it. If requirements, regulatory requirements change, yes, then we'll have to take a view as to how we manage that.
And then going to your -- the second part of your question as to whether there are changes foreseeable, not so much in the percentage. But at least in the risk weighting, for that, I'd like to give the floor to Wilfred.
Willem F. Nagel
Yes. So obviously, the discussion about the BIS consultation is one that we're following very closely, and it could have significant impact, for sure.
But at this point, it is very, very much work in progress. There's so many variations and combinations possible here.
And what is obvious is that the calibration of the floors, the exact drivers that are going to be used in the models, at this point, are going to really determine the outcome more than the concepts that are being discussed. So the actual implementation will only make it possible to understand what the impact is.
And the general observation you can make is that portfolios that have advanced internal ratings-based modeling and very strong collateral are likely to be the most sensitive to these developments. And obviously, Dutch banks, including ING, do have these portfolios.
And the relative position of ING in -- among the Dutch peers is that our risk weights tend to be higher than the average, so we would be relatively less impacted. And I think it's -- all in all, it's too early to comment on the actual impact.
What I would say, though, is that the strong capital generation that Ralph talked about and the current comfortable position with regard to capital that Patrick mentioned gives a very good basis to deal with whatever comes.
Ashik Musaddi - JP Morgan Chase & Co, Research Division
All right. That's really very clear and very helpful.
Just to follow up. I mean, would you try to run ahead of the final rules on these things, especially on the risk-weight of mortgages?
I mean, a remember 1 year or 2 back, you increased the risk-weight on mortgages from 10%, 12% or 13% to around 18%, 19%. But you do really want to move ahead of the final regulation in terms of moving towards a 25% or 30% risk-weight on your mortgages?
Willem F. Nagel
No, not really. The increases that you referred to were all driven by our own modeling and the actual experience and the adjustment following from that.
We believe in our models. If you look back, we've been, certainly with the Dutch mortgage book, through really -- have the real live tests.
And through that test, it never consumed more than 1/3 of its operating profits in terms of risk costs. So there is nothing in the recent history or, indeed, in the longer-time history that suggests that our risk-weights and our capital for this book is too low.
And I'd also note that the ECB still claims to be in favor of a risk-based approach and does not want to discard models, just wants to check them, make them more transparent and refine them. And we support that effort.
Operator
We will now take our next question from Anton Kryachok from UBS.
Anton Kryachok - UBS Investment Bank, Research Division
I just have 2 follow-ups, please. Firstly, on capital.
Now the group level, you seem to have EUR 2.4 billion of excess cash sitting on the balance sheet. And I was just wondering what prevents you from distributing those EUR 2.4 billion earlier than the end of this year or early 2016.
And then also, it seems that now you're more likely to use the gradual sell-down of finance stake as your main exit option rather than doing a spin-out. I was wondering what is the rationale behind the decision.
And the second question, please, on Russia. It seems that the rate of the decline in the loan book have slowed in Q1.
Have you reached a level at which you're happy with your overall exposure there? Or shall we expect you to continue managing that down?
Patrick G. Flynn
Well, yes. You note, in the slides, we point out that the group now has a capital surplus.
In the past, we used to talk about double leverage, but that's gone. So we're in surplus position, healthy surplus position.
And that's available for dividends. Our policy is for both an interim and a final.
I'm not sure if you remember that. So we're -- we will pay an interim -- dividend of a minimum of 40%, the first half profits pro rata, probably based on underlying results.
And then at the year-end, we have the, as mentioned -- I mentioned earlier, we will pay a minimum of 40% of the group. And we'll look to see, given that I mentioned earlier, profit outlook, regulatory outlook, actual results, holistic view of where we're at.
And it's somewhere between 40% and 100% of net underlying -- or sorry, net group results. And that EUR 2.4 billion, plus future profits we make, will be available to support the dividends, both interim and final.
Ralph A. J. G. Hamers
Just maybe to add. I think what we are indicating is that there's a willingness to dispute the insurance divestments and the proceeds of that back to the shareholders over time and the reason why we're going for a different divestments of NN than the spin itself.
The spin is still there. There's a fallback option.
Don't get me wrong. But we have seen that liquidity in the NN share was not where it should be yet.
We have promised the market all their -- an orderly sell-down. That's why we're following that route.
We have good experience with that route as well on Voya. That's why we are spreading it out.
But the spin is still there as a fallback option. So this is just the new base case scenario, paying out insurance surplus.
Over the years, we basically see that we want to make sure that we manage a buffer on the group level for regulatory shocks that could come. Maybe they don't come.
Hopefully, they don't come. And it will be regrettable if we were to pay the insurance brokers quickly and then find that because of changes in regulatory requirements, we end up with capital constraints and can't really build on the bank strategy in order to generate a sustainable dividend going forward.
So it's basically, those kind of dilemmas that we're weighing as to how we go out -- go about distributing the insurance surplus. But the presumption is that the insurance surplus will go back to the shareholders, and that's basically, what you have seen already.
Our fourth quarter dividend announcement for 2014 actually was in advance and is an advance against insurance surplus. So -- and that shows the intention and the willingness.
Then I'll give the word to Wilfred, I think, on the second part of the question.
Willem F. Nagel
Yes. So on Russia -- and you're right.
If you look at the numbers, the pace of the reduction of exposure dropped in Q1. I assume you've seen Page 32 of the presentation, which describes that in a bit more detail and shows you that actual drop in exposure in euro terms was around EUR 260 million, EUR 270 million.
However, in constant FX, it was more like EUR 760 million negative. In other words, a big impact came from the rise of the dollar in Q1.
Now that, of course, has since then partially reversed. So that effect alone will give us a bit of a drop in Q2.
But also, we still continue to look at the exposures and bring them down where we can. Stepping back, looking at the big picture, and we have consistently said that our strategy in Russia is to protect the franchise whilst reducing risk.
Both remain unchanged. In other words, we still intend to protect the franchise, and we still intend to reduce our risk.
In 2014, the main focus was on simply reducing overall exposure because that was the most effective way to deal with the reduction that we wanted. And that meant both shedding exposures that were nonessential to our clients as well as shedding clients that were nonessential to the franchise, frankly.
Now that has happened. Where we are now is at the core of what we believe the franchise should be.
And we're now working on improving the risk profile of what we have with these clients, and that ranges from doing more extra credit agency business to more mitigated, commercial transactions like trading commodity finance, pre-export finance and things like that. On top of that, we continue also to move more exposure onshore, which is also locally funded at the moment, pretty much for 100%, although that tends to be a bit volatile because a lot of it comes from a corporate deposit base.
But nonetheless, it improves the quality, and therefore, it lowers the risk profile of what we have. And that continues to be the strategy.
Operator
We will now take our next question from Farquhar Murray from Autonomous.
Farquhar Murray - Autonomous Research LLP
Just one question for me, really going back to the leverage ratio. Now I appreciate that this is not really a near-term issue, and there's usually a lot of flex within the exposure figure.
But if we look at the Delegated Acts number of 3.7%, and we say, well, that's not fully loaded in the sense they include grandfathered Tier 1, but obviously, we can offset that with AT1 over time, we still end up being slightly short of the 4% level as being discussed in the Netherlands. And I just wondered if you'd give a sense of how you might ultimately intend to reach that 4% level over time, in particular, what options might be available to moderate the exposure number if you have to go down that route.
Patrick G. Flynn
We just issued hybrid Tier 1. We hadn't been able to deduct till now the highly successful transaction.
I think we're 24x oversubscribed. And if we did that every month, so -- I mean, it's important that avenue is now open.
We were comfortably able to move our manager balance sheet to get to the 4% on an IFRS basis, and we have a number of levers we can apply on -- in terms of managing how the Delegated Acts is calculated. And we're looking at doing that, but that's something we will sort of do first and talk about later.
So we're comfortable that -- I'm comfortable that by the time the Delegated Acts bites, that we'll be able to move so close -- or to the required level.
Farquhar Murray - Autonomous Research LLP
Can you give just some color on what those levers are? I mean, presumably, it's some kind of form of netting within the accounts or something.
Patrick G. Flynn
That's one avenue potentially that we can look at. And we just look more closely at the users of the balance sheet under the Delegated Act definition and optimize how we want to allocate that usage across our businesses.
We're trying to do so, and we're -- actually, we're doing it already. But like I said, prefer to talk about what we've done after we've done it.
But I do not -- I'm not concerned about achieving this target.
Farquhar Murray - Autonomous Research LLP
Perfect. And then just more generally.
I mean, the 4% number has been discussed in the Netherlands. Is that on the Delegated Acts basis or the IFRS basis or it's frankly still not really particularly clear?
Patrick G. Flynn
It's not particularly clear.
Operator
We will now take our next question from Matthew Clark from Nomura.
Matthew Clark - Nomura Securities Co. Ltd., Research Division
A couple of questions on your comments around this potential spinoff of NN Group. I guess firstly, I struggle a bit to reconcile you saying that it's still there as a fallback option, but that the reason you can't pursue it is because there's not enough liquidity in NN Group.
I mean, if you got obligations to ensure sufficient liquidity, then presumably, it isn't there as a fallback option if the liquidity isn't there. So maybe if you could just clarify that firstly.
And then secondly, on the 100% ceiling on payout ratio. Is it your interpretation that, that would include a spinoff as being within the payout ratio for the purposes of that ceiling, so with regard to spinoff as being a dividend in kind and treat it the same as a cash dividend?
Ralph A. J. G. Hamers
Yes, thanks for the questions. So what we've done over the last 6 months in meetings with shareholders, we have asked them how they look at -- how we should go about monetizing the insurance shares going forward.
And basically, we've got a range of answers. We got answers saying, "Well, okay, I'd like a spin."
Many of them don't like a spin because they are bank investors. Some argue monetize it and invest it back in the business at these high-return equities that you are actually generating and other banks are only talking about.
So there is a diverse -- we get diverse answers on the preference of our shareholders as to how to go about it. And that's input into our decision to make the base case, one in which we sell out over time.
And in that base case, there is certainly still -- the spin is still a fallback. And why is it a fallback?
Because as we have promised an orderly exit and orderly -- and doing it in orderly markets, that we also have to adhere to some deadlines that are still valid on the timing of the divestments. And that's why, in the end, it's still a fallback option.
So that..
Matthew Clark - Nomura Securities Co. Ltd., Research Division
You don't see liquidity as a constraint that would prevent a spin.
Patrick G. Flynn
Sorry?
Matthew Clark - Nomura Securities Co. Ltd., Research Division
You don't see liquidity as being a constraint that would prevent a spin then?
Ralph A. J. G. Hamers
Well -- and yet you can always spin. That is so, but...
{^}
Matthew Clark - Nomura Securities Co. Ltd., Research Division
You thought you're going to get sued for not meeting the liquidity obligations.
Ralph A. J. G. Hamers
Sorry?
Matthew Clark - Nomura Securities Co. Ltd., Research Division
If you've got an obligation to maintain liquidity from the IPO agreement, then presumably you can't just benefit if that would disrupt the market. What have I missed?
Patrick G. Flynn
We were -- we need all the ammunition, all the alternatives, and we have them, to exit NN. We need to deconsolidate by the end of this year.
Like we did with Voya, we got very -- we got ahead of the game. So this can pump potential constraint on orderly market.
We pushed away by being proactive. We said before, we will continue that the next step, which is deconsolidation, which is what we need to do by the end of this year, willing to do by an orderly sell-down for cash.
The next deadline would be full exit by the end of 2016. That's 18 months away.
So whilst -- if we had to, in extremis, that to prioritize our constraints, the ultimate exit or -- in -- we would -- we could potentially think about using spin if we have to in an extreme scenario. However, I don't think we will need to because we've been successful and are ahead of track in terms of orderly sell-down.
So the spin is a fallback option that in extremis, unlikely event, we need to, we would use. That's why we ask for shareholder approval and obtained it.
But it's more in our back pocket from an exit scenario. So in context of shareholder return, as a tool in shareholder return, we think there is -- it's a better proposition, given what Ralph said about the diverse views and some of them very strong held on both sides.
We think on balance, listening to shareholders, it's a -- on balance, a better route to take to return the surplus and capital to shareholders by monetizing it initially and then a -- through time, return in cash dividends. We think that, on balance, is the better approach to -- for capital return.
So there's 2 elements. One is a tool for exit.
Don't think we need it, but we'll keep it in a back pocket. Then secondly as the tool for returning capital to shareholders.
We think that cash dividends, through time, are a better alternative. And then also the other point was made earlier, spin is an upfront large chunk, comes in one go.
And then -- that's not consistent with the -- our preference to keep our powder dry in case of regulatory change. And it also would require regulatory approval, the spin option, and that would not be a foregone conclusion to get it.
So there's multiple reasons for both in terms of the techniques we use to exit NN and then also the preferred option in terms of how we turn capital to shareholders, why we think it still is more of a back pocket tool rather than a primary tool.
Matthew Clark - Nomura Securities Co. Ltd., Research Division
Okay. And in terms of whether a spin would be viewed as part of the payout by the ECB, albeit it seems somewhat academic, given what you just said.
Patrick G. Flynn
I don't know, but don't ask them.
Operator
We will now take our next question from Kiri Vijayarajah from Barclays.
Kiri Vijayarajah - Barclays Capital, Research Division
A couple of questions. Firstly, on Germany.
You've got an excellent cost performance there, the cost income ratio down to 43%. But of course, a lot of the competition in German retail are running with cost incomes in the 70% or 80% range.
So I forget -- I guess my question is, at what point do you think you might need to -- or see an opportunity maybe ramp up investments there and make a bigger push for market share there? Or am I thinking about sort of your business plan in Germany in the wrong way there?
And then turning more generally to the fee and commission performance. Group level looks pretty good, but a lot of that driven by the commercial bank.
And actually, in the retail bank, it's kind of okay. And I guess the question is, are you kind of happy with what you're seeing in terms of retail fee and commission?
And what's your outlook for the rest of the year? Are you seeing your retail clients getting a little bit more active on the fee and commissions side of things?
Ralph A. J. G. Hamers
Yes, thanks for the questions. So on Germany, yes, thanks for the compliment.
It's good that you noted that. We're very proud, of course, of the performance of Germany.
But it can also tell you it's not unlike most of the other banks that we have in the challenger markets, where we see that our model is favored by clients, and hence, they grow very fast. And given the fact that we're working with a much lower efficiency curve, that we can outperform our peers in these markets in terms of cost income.
Now in Germany, if you look at the strategic challenges there, it is really how can we continue the growth momentum, which, in terms of getting more clients, is not necessarily the issue because we still are getting between 700 and 1,000 new clients a day in Germany. So it's -- we don't have to accelerate that action.
We find that there's still a good momentum that we have there. The challenge in Germany is on the asset side, as we have indicated before.
The savings keep coming in. The liquidity is there.
Some of that, we are used -- that we're allowed to use for group funding, but only to a certain limit. So we're looking as to -- at how can we basically grow on the asset side.
Now what we've done so far is we are growing on the mortgage side. We're growing on the consumer lending side.
We have started the Commercial Banking strategy for local German businesses, like the larger German corporates that we already have a relationship with on the back of our global network. But we now also do more and more business within Germany itself.
And then we have set up a specific expertise centers as part of our Industry Lending and Structured Finance franchise globally that work out of Germany. And so a lot of the -- of that work is performed in Frankfurt, and therefore, we use that balance sheet in Germany.
So that basically gives us the diversification on the asset side. There's still room, so the ramping up of the strategy from that perspective.
If it is kind of assets or if it is teams that can generate assets, that's what we would be interested in looking at in terms of making sure that the success of Germany continues in a very balanced way going forward. Then your next question on the retail commissions.
And the point about the retail commissions is basically that is part of the success of our model. So our model is really one in which we want to be very transparent to our clients and not so much charge commissions for charging commissions.
I mean, you need to have a real reason to charge a commission or fee to your customer. And it's basically why clients like us.
So that's why we get so many new clients. As I said, 350,000 -- more than 350,000 just in this quarter.
It is because they like the transparency in our services and the transparency in the cost of our services. So we charge commissions for what we feel we can charge commissions for.
But we don't charge commissions for what we think we can charge commissions for. So -- and that is basically the difference between ING and any other bank out there.
Operator
We will now take our next question from Anke Reingen from Royal Bank of Canada.
Anke Reingen - RBC Capital Markets, LLC, Research Division
Two questions, please. First, on net interest income in absolute terms.
I just wanted to confirm that Q1 was basically that you expect to be the lowest level for the year and we should see an improvement from the current level. And then secondly, just on net interest income in Financial Markets.
Could you expand a bit what was -- why it was so weak? And is there any correlation with the strong trading result?
Patrick G. Flynn
In terms of the outlook for net interest margin -- and Ralph's mentioned already that we had rate cuts in the end of -- beginning of this quarter, which will help offset the impact of low rate environment. And you see that the -- when you look into the numbers, you'll see that the Netherlands retail margin dropped, and that was because there was no rate cuts in Q1.
There are rate cuts in Q2. So I think that should help stability of retail margins, deposit margins.
The positive pieces that we are getting good margins on lending, both retail lending and also Commercial Banking they're holding up well. That's a positive.
And this is the same recipe we've been trying to apply for the past year or so. And that's behind why we think we will be up to stay in the 1.50%, 1.55% is offsetting low rate effects from deposits, complemented with higher volume, so a change in mix, so higher volume, good yielding commercial and retail assets generation.
And as I said, the positive thing in Q1 is that the Commercial Banking and the loan production in retail was at good margins. So we're not seeing them eroding, and that's the healthy piece.
So that, I think, sustains us in terms of how we will deliver -- continues to deliver on -- and meeting the 1.50%, 1.55% and we have to look again at balance sheet utilization. Although as I said already, that was somewhat extreme scenarios in Q1 with a huge dollar moves and the volatility in rates.
And so that may be a one-off piece, the huge balance sheet volatility, balance sheet expansion. Now in terms of Financial Markets, results were very good.
Overall, big increase in profitability, as you see on the slide. You really have to look at this in its totality.
We do not manage Financial Markets on the relative -- a part of their results have come from dealing profits or from -- sorry, trading of -- or -- and net interest income. They manage on the total, and the element that turns out to be NII or dealing profits is a second-order effect.
So you really need to disregard the interest movements quarter-on-quarter for the Financial Markets. The main point is that the results were up.
As I it happened, more of it was in dealing profit this quarter than NII, and that's second-order outcome. And if you exclude Financial Markets from overall NII, it was up 1% quarter-on-quarter.
So the euro earnings from the managed NII part of our balance sheet increased 1%. So there's continued NII improvement, notwithstanding little bit weaker margins in retail.
Anke Reingen - RBC Capital Markets, LLC, Research Division
I wondered about net interest income in absolute terms. So you think your Q1 is a drop as well and we should see growth going forward.
Patrick G. Flynn
Well, excluding Financial Markets, it was not a drop. It increased.
That's my key point. Excluding Financial Markets, net interest income increased quarter-on-quarter.
So that's why there's still positive momentum in interest margin.
Operator
We will now take our next question from Paul Fenner from SocGen.
Paul Fenner-Leitao - Societe Generale Cross Asset Research
On TLAC, can you just give us an update on thoughts domestically around whether or not the Dutch regulator, whether you are lobbying for something similar to the German solution in the sense of statutorily subordinating senior creditors in order to make senior unsecured out of the bank's TLAC-eligible? And allied to that whole TLAC issue, I wonder if you can just give us an update on what it is that you're intending to do around funding in terms of the group holdco versus bank and whether you're going to pursue a U.K.-style shift out of bank funding at the senior as well as the subordinated level into holdco, now that you've given up getting rid of the holdco.
Ralph A. J. G. Hamers
On TLAC, basically, if you go to Slide 30 of the presentation, you'll see where we are as ING, and we feel that -- basically, you see where we expect the TLAC requirements should come out. Let's see, assume TLAC requirements and then you see our situation and what we would need to do.
Now clearly, what Germany is going through, the good thing about that is that you have the senior creditors' treatment on a statutory basis as part of the bail-in, so that you don't have to go to a more structured or a more contractual way of attracting this debt. And the good thing there is that it is also consistent with the way MREL applies to most of the -- in the European area.
So I think that's the good thing about the way the Germans go about it. Now clearly, if we can, across Europe, come to a consistent solution, and this one is the solution, then it will be good for the Dutch government to follow that one, and we would certainly support that.
But we have different ways to go about TLAC solution, and that's also why we still have, as you have indicated also, the holdco. So we have that in the back pocket if it is necessary as a solution.
But as a preferred scenario, it is how do we get consistency across Europe and how do we get consistency between TLAC and MREL. And for that, the German solution is a good solution, and we would support that.
Operator
We will now take our next question from Cor Kluis from Rabobank.
Cor Kluis - Rabobank Equity Research
Cor Kluis, Rabobank. I got 2 questions.
First of all, on the risk-weighting of mortgages. Can you indicate what the risk-weighting of mortgages is at this moment for both the Netherlands as well as for Germany and Belgium?
And my second question is more strategic. You mentioned during the call that the presumption is that the excess capital will go back to the shareholders over time.
Could you -- could this capital also be used for acquisitions? Say, you've got EUR 2.4 billion cash in the holding, probably that the rise positively by around EUR 5 billion from the NN stake going forward.
It's a big amount of money. Do you exclude acquisitions with that money?
And could you give your idea about that?
Ralph A. J. G. Hamers
Wilfred first.
Willem F. Nagel
Yes. On the risk-weights, Netherlands we have at 18, Belgium at 15, Germany at 24.
Average of the 3, just below 20.
Ralph A. J. G. Hamers
Yes. Cor, thanks for asking the question on the strategic side there as well.
As you know, we're still subject to an acquisition ban until we deconsolidate. And then -- or the November 18 of this year.
And as a consequence of that, our strategy, the way we have developed it, it does not include acquisitions. But the strategy is built on what we call a sustainable share framework.
And in that framework, we know which areas we can improve and which areas we can accelerate. And we have organic growth programs for improvements for all of the activity that we have, whether from a business line perspective or a geographic perspective.
In that sense, we are looking at opportunities as well. And we had a very strong organic improvement plan for India.
But nevertheless, when the opportunity came by to merge with Kotak Mahindra, we basically followed an opportunity there that accelerated the value creation for shareholders by 5 years. And it's good for our clients.
It's good for shareholders. So basically -- clearly, we jumped at that opportunity because it fit the sustainable share framework and it fit the strategic direction.
Now I got asked the question on acquisitions more and more. What you can expect from us is that the acquisitions that we would consider would very much be in the -- within the line of the strategic framework, being more in terms of acquisitions of asset portfolios, teams, technology, which is very important for us as well.
And we will certainly monitor what's going on if it comes to in-country consolidation, because that can specifically impact our own situation in specific countries as well. But we don't have any specific plans for acquisitions in new geographies or transformational ones.
And I think in the total, and now I've come to this to basically answering your question, if you look at the way we want to go about this, we feel that the capital generation of the bank is sufficient to support any of these improvements that we would foresee as part of our strategy and getting to our plans that we have to improve the sustainable share positions that we have in the business lines and the countries in which we're active.
Operator
We will now take our final question from Omar Fall from Jefferies.
Omar Fall - Jefferies LLC, Research Division
Two small questions, please. Just looking at the split of loan growth this quarter.
It seems as if we're now seeing material signs of acceleration in non-mortgage loan growth in retail, so SME and consumer credit, which I guess is key part of the strategy. It's still early days.
But can you help us get a sense of timing in terms of when we can get some NIM benefit from this mix shift? Is it kind of next year?
Is it very much a multiyear period? Because I guess you can't really rely on savings deposit rate cuts to base your NIM forever.
Secondly, from what I can see, risk-weighted assets were flat when excluding FX. You highlight in the report that there was some positive risk migration.
Can you just give some more color on that, please?
Ralph A. J. G. Hamers
Yes, thanks for the question. So in terms of -- basically, you're referring to the change in asset composition as a consequence of the success of the engines to generate SME in consumer finance, consumer lending.
What we see for example in Germany is that the consumer lending business develops quite well. We see the same in Belgium and Poland and Turkey.
So we see growth there. We see growth in the SME business in Belgium, in Poland, in Turkey and also in Spain, where we're also starting the SME business.
But before you -- before that really starts to shift the needle on NIM, it's more back-ended in our strategy. So towards the end of 2016 and beginning and then -- and throughout 2017, you can expect some real influence on the NIM from the change in asset composition.
So I give the floor to Wilfred for the answer to the final question.
Willem F. Nagel
Yes. Indeed, there were quite some moving parts underneath that are the number that you're seeing.
On the risk migration, this is spread fairly broadly over the various book geographically, some of it in the Netherlands. That's a good chunk.
Some in Germany and then the other challengers and also about slightly less than half of it was in Commercial Banking rest of the world. I mean, generally, they seem to reflect the gradual economic improvement and the reaction of our models to that.
Omar Fall - Jefferies LLC, Research Division
Okay, got it. Sorry, just a very quick follow-up.
And in the corporate center, you talked about a substantial positive one-off from the release of a legal provision. How much was that?
Patrick G. Flynn
Yes. That's about EUR 40 million, EUR 50 million.
Omar Fall - Jefferies LLC, Research Division
EUR 40 million, EUR 50 million.
Patrick G. Flynn
With nothing to do with the capital ratings, obviously.
Ralph A. J. G. Hamers
Okay. We have to end this session.
Thanks for your availability and patience to stay in this call. I really thank you for all the questions and the interest that you've taken in ING.
I think that the first quarter proves once again that the Think Forward strategy that we have announced a year ago, that the success is really showing. It's showing in terms of what we do in the clients' relationships, it's showing in the number of clients that we get onboard, it's showing in the growth on the lending side and the saving side and it's showing in the performance of the results as well as the capital improvements.
So we're quite happy with the results this quarter. And thanks for your interest, and -- well, I'll talk to you next time.
Thank you. Bye.
Operator
That will conclude today's conference call. Thank you for your participation, ladies and gentlemen.
You may now disconnect.