Nov 4, 2015
Executives
Ralph Hamers - Chief Executive Officer Patrick Flynn - Chief Financial Officer Wilfred Nagel - Chief Risk Officer
Analysts
Ashik Musaddi - JPMorgan Anton Kryachok - UBS David Lock - Deutsche Bank Andrew Coombs - Citigroup Alex Koagne - Natixis Pawel Dziedzic - Goldman Sachs
Operator
Good morning. This is Alex, welcoming you to ING’s 3Q 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 comments may include forward-looking statements; such statements regarding future developments in our business, expectations for our future financial performance and any statement not involving a historical fact. Actual results may differ materially from those projected in any forward-looking statement.
A discussion of factors that may cause actual results to differ from those in any forward-looking statement is contained in our public filings, including our most recent annual report on Form 20F 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.
Ralph Hamers
Yes, thank you very much. Welcome everyone to ING’s third quarter 2015 results conference call.
I will take you through the presentation as normal. With me are, Patrick Flynn, our CFO; and Wilfred Nagel, our CRO.
So, let’s start, Page 2. Clearly I’m happy to present another good set of results today.
Our underlying net profit amounted to €1.92 billion in this quarter and that’s supported by lower risk cost, a continued low growth in our core lending franchises and improved margins. Our capital position remains strong, and we’re well placed to absorb regulatory impacts and to deliver attractive capital returns as we are currently doing.
We also continue to make progress on executing our Think Forward strategy. And that’s where I want to start the presentation.
As you know, financial results just don’t happen by itself, there is a lot of work there with our people, focusing on the client and making sure that we improve the way we do business. And that we’re successful and competitive.
And you all know that, in March 2014, we launched our Think Forward strategy. And that had one clear purpose, empowering people to stay a step ahead in life and in business.
And the core of our strategy was to create a differentiating customer experience. As you know, it’s all about the customer here in ING.
In the previous quarters, we have talked about some of the new innovations that we have developed internally. This quarter, I’d like to take you through some highlights of the innovation efforts that we have established in doing partnerships or actually acquiring Syntax.
And one of those I want to talk about includes Kabbage that will help us generating a new offer to our clients. At the same time and we are focusing on strengthening our sustainability.
And that was focused by leading external sustainability benchmarks in their annual reports. So whether we talk about it, Dow Jones’ sustainability index, where we have improved our score to 86 points out of 100, or Sustainalytics where we are the third best performer amongst nine reputed international banks.
Now, turning to innovation as specifically, turning to the partnerships there, in total we launched a strategic partnership with Kabbage, and it’s a leading U.S. based technology platform that provides automated lending to SMEs.
We will be INGing Kabbage together we’ll soon be launching a product in Spain to provide loans to small businesses. And the unification and full process has both accelerated and easy for our customers.
For example, it’s more business loan in this joint venture can be approved in less than 10 minutes, in a paperless process. So that’s on delivering the ING way.
And we go pilot in Spain is to learn more about better ways to serve small businesses with learning capacity. And clearly we’re excited to bring this technology to our customers here in Europe.
Spawning into new products like instant lending to small businesses, aligns with our strategy to diversify the balance sheet and but it also checkmarks the analytics folks that we have as well as delivering as much as possible in a digital and differentiating way. So, it is, it very much fits our strategic direction in this corporation.
Now, moving to the P&L, Slide 5. We posted strong results in the first nine months of 2015.
The underlying net result banking increased 18.1% from the first nine months in comparison to 2014 and the return on equity was 11.6%. Now if you would exclude CVA/DVA, which was positive for the first nine months in this year, and if we were to exclude the redundancy cost, the underlying result increased by 7.2% on a like-for-like basis.
So, it doesn’t really matter which comparison you make, you see progress on P&L. Turning to Page 6.
Then these results were supported by healthy income growth and lower risk costs. We see the underlying income increasing but specifically also the net interest result is increasing and excluding the financial markets that increased 5.7% from the first nine months of 2014 supported by strong volume growth.
The risk cost, during this period came out at 46 basis points. And 46 basis points brings us approximately in line with the longer term average of 40 basis points to 45 basis points of risk weighted assets that we have indicated.
Turning to the growth in the lending franchise, Slide 5. The core lending franchise grew by €17.2 billion or €0.045 annualized in the first nine months of 2015.
We’ve seen solid loan growth in Belgium, Germany, the other challenges in growth markets and CB, rest of the world. Net production in metals was down due to a lower retail business lending and high repayments on mortgages.
Turning to Slide 8, when we launched the strategy, we indicated that we want to further diversify the balance sheet away from mortgages into other asset categories, and preferably through our own asset generating capabilities. We have made steady progress on that.
So, you see that specifically also in the challenging growth markets that we are creating more sustainable sheet by diversifying away from mortgages into other high-yielding assets. And that is predominantly now through the growth of our commercial banking business in these countries but also our SME and consumer finance businesses has grown in those countries because the balance sheets have grown.
But as a percentage it has not increased. Then we turn to capital.
And ING Bank fully loaded Core Tier 1 ratio was stable at 11.3%. The positive net profit was offset by the net impact from the declining revaluation reserves, basically Bank of Beijing and foreign exchange as well as the negative impact from higher risk weighted assets.
The group capital ratio remained also stable as the positive impact of further reduction of our stake in NN to 25.8% was offset by an increase in risk weighted assets and negative foreign exchange impact. Similar to last quarter, ING has decided not to include any of the third quarter profit in the group Core Tier 1 capital, pending regulatory developments in response to the board’s decision on the year-end dividend payment.
The pro forma capital ratio of the group, after full assessment of NN Group, would come out to 12.8% at the end of the third quarter. And if we were to include the €2.2 billion of profits that is not included in the group capital, the group capital would come out at 13.5% at the end of the third quarter.
Now, with that turning to page 10, you probably see that in the first nine months of 2015, we basically reached most of our ambition 2017 targets and pleased that we’re making so much progress on all of these metrics. That’s, the first nine months and let’s look at the specific quarter now.
Turning to Page 12. So, ING’s third quarter in-line with pre-tax result was solid at €1.495 billion, that was positively impacted by CVA, DVA offset by net impact from the capital losses, and from capital losses and higher regulatory cost.
Net interest income excluding financial marks has increased by 4.8% over the past year and 2.2% from the previous quarter and that’s supported by ongoing volume growth. And basically we think that we showed the strength of our franchise that we continue to grow our net interest income here.
Looking at the margins and turning to Slide 13, the net interest margin increased by 3 basis points from the second quarter to 146 basis points and that was driven by retail Germany and retail other challenges and growth markets. The net interest margin itself is down 7 basis points from the third quarter of 2014 but as you can see in this picture, that was entirely due to the low interest results of financial markets.
So, if corrected, it would have been stable around 153 basis points, so basically the underlying NIM in our lending and savings business has remained remarkably stable over the last year. Giving you some more details on the higher net interest income that was driven by improvements in retail Germany, other challenging growth markets.
Commercial banking also delivered strong growth in net interest income on the back of volume growth in industry lending. Conversely, in the mature Benelux market, the net interest income is declining.
In the Netherlands the net interest income has declined from the same quarter last year due to lower volumes. While the net interest income in Belgium is down due to margin pressure.
Then, taking a look at the growth of our lending franchises, as you can see, the growth in our core lending business slowed from the first half of 2015 if you qualify it, if you basically look at this picture. But it’s still increased by €1.6 billion driven by healthy growth in the retail banking.
As far as commercial banking is concerned, we continue to see increasing the longer term industry lending and general lending assets but this was more than offset by declines in short-term lending and strict finance as a consequence of lower commodity prices at financial markets. So, basically we see a €1.6 billion of core lending growth net but if you would correct it for financial markets, €1.6 billion we would come to €3.2 billion.
And if you would correct it for the short term commodity based lending which was down because of lower commodity prices, you would have to add another €2.1 billion and then the lending would come - actually would go up to €5.3 billion, so that’s a better like-for-like comparison as to how do you underline commercial business is doing. Page 16, expenses, our expense base is more and more impacted by regulatory costs as you can see that these costs are booked at different moments through the year.
And that creates a lot of volatility in our results and we still have a lot of lighter mind of about €300 million to go in the fourth quarter. If we had just for the regulatory cost, the expense increase by 3.8% in the same quarter last year but declines 5.7% from the second quarter of 2015.
In comparison to last year, the increase is due to retail Netherlands as you know. Last year we announced an investment program in the IT side in the Netherlands and that’s what you see as an increase in expense base but also the expense growth in the Commercial Bank, as we have shown you in the previous quarter, we don’t mind in some of the franchises the expenses to grow as long as their income is growing faster so that the cost income ratio is improving.
And that is explained the quarter-on-quarter basically the comparison to 2014 expense growth. The decrease if you compare it to the second quarter of 2015, cost is driven by lower cost in commercial banking and retail Turkey.
Going to the risk costs, actually we have seen a material improvement this quarter on risk cost and risk costs were down from the third quarter of 2014 and the second quarter of 2015 to €261 million. And that’s driven by both retail banking and commercial banking.
The total risk cost now are at 34 basis points of average risk weighted assets this quarter and that’s below our over the cycle average with most of the businesses closed to longer term average as the overall economic environment gradually improves. Now the MPL ratio was also down to 2.6% and with improvements visible in both retail banking and commercial banking.
If we then focus more on retail Netherlands, the risk cost in retail Netherlands or in the Netherlands generally decreased sharply in the third quarter to €82 million which is now down to 55 basis points of risk weighted assets in the third quarter of 2015. And that basically reflects the recovery of the Dutch economy.
The MPL ratio has fallen to 3.2% with improvements in all segments including the business line segment by the way. And we have said there for several quarters that risk cost would lag the economic recovery.
And that’s what we’ve seen because the economic recovery already started earlier this year that we now feel comfortable that worst is behind us and as the risk cost may remain at a lower level going forward. Then, on the risk cost for commercial banking, those risk costs also continue toward downward trends.
They amounted to €97 million or 27 basis points of risk weighted assets for the quarter and that’s down from the previous quarter with up from last year. And last year is included the release of a larger file.
The non-performing loan ratio declined further 2.9% this quarter, and despite this positive trends, it’s important to know and we keep repeating this that the risk cost in commercial banking may remain volatile quarter-on-quarter as we can be affected by incidents in our lending franchise. These are large loans and we only need one or two cases for a real movement on the risk cost.
But the trend is down, it is 27 basis points for the quarter so it’s a healthy picture, but it could be volatile. Now, to wrap it up, I think we presented a modest set of strong results in the quarter underlying very healthy continuing developments both on lending growth, on costs under control except for the regulatory cost.
And return on capital, the growth of the lending franchise. So, I remain confident that our story is on track.
We continue to execute our strategy across our network and deliver the benefits to our customers and our shareholders. I’d like to open the call for questions now.
Operator
[Operator Instructions]. And we have a question queued from Ashik Musaddi of JPMorgan.
Please go ahead. Your line is open.
Ashik Musaddi
Yes, hi, good morning Ralph, good morning Wilfred and Patrick. So just a couple of questions.
First of all, how should we think about your NIM here? Because clearly, you had some negative impact on your NIM in second quarter, 143 basis points, and it looks like you had a negative impact on your NIM in third quarter as well.
i.e., is it fair to say that your underlying NIM has improved materially in this quarter? And is it just the dynamics of how you report your revenue on financial markets, i.e., it’s like one pocket to other, i.e.
sometimes it goes into NII; sometimes it goes into other income? So if you can explain that dynamic a bit, it would be very helpful.
Secondly is your risk cost has gone down materially and you mentioned that the risk cost in the retail business is expected to remain low, and the commercial business would be lumpy. But any sort of guidance as to how we should think about the overall risk cost; is the current level of retail risk cost absolute flat?
Is that the right number we should think about? These two questions would be great.
Thank you.
Ralph Hamers
On the NIM, I’ll give the word to Patrick, and the risk cost to Wilfred.
Patrick Flynn
Good morning, Ashik. Yes, I think you’re right in the, if you look at the NIM over the past year and excluding financial markets so that commercial NIM is very stable.
But we’ve managed to grow interest income so interest income was up nearly 6% as Ralph mentioned. Year-to-date 15% versus year-to-date 14% and this was 1.2% quarter-on-quarter.
So, if you look at the NIM in the quarter, it’s up 3 bps to 146 compared to prior quarter. We have real improvement in our growth areas, retail challenger and growth markets and a combination of lower savings rate and improving our asset mix again, executing on our strategy.
And as you pointed out, we did mention, last quarter was a couple of one-offs, 2 basis points that have reversed this quarter. So that’s close for.
And yes, as you point out, it’s a negative 1 from financial markets. During the quarter it’s plus 3 with a drive of minus 1 on financial markets but the commercial margin is very stable and it has been over the past year, basically that’s what we expect it be going forward this year and into the beginning of next year.
Ashik Musaddi
Yes, just to follow up on that, I mean, how should we think about the loss of revenues on financial market, is it like one thing offsetting other, i.e., your NII may be lower? But are you really losing the revenue from financial market, or is it just like, where is it getting recognized?
Ralph Hamers
If you go to slides 13, you see at the right hand bottom corner.
Ashik Musaddi
Yes, yes.
Ralph Hamers
You see the income, the underlying income financial markets, so there is two effects here. So, the first one is and in the financial markets area, the revenues, the income is actually holding up.
But it is less on the interest income it’s more on the non-interest income. There is two sides to this.
The first one is that in international markets area, also due to regulatory changes, we’re actually focusing more and more on the flow business and alignment of client business etcetera, etcetera, etcetera which brings a difference in income. And in the other side, it has to do with the accounting of some of the derivatives and sometimes that goes more into the income side, and sometimes it goes more into the other income side, but you see that over the year and quarter-on-quarter generally.
The overall income in the financial markets has been stable. And therefore that income has been more or less stable.
And if you then correct the NIM, you see that the underlying commercial NIM between lending and savings has been lot of stable over the last couple of quarters. So that’s the explanation there.
Ashik Musaddi
Okay.
Ralph Hamers
I’ll give it to Wilfred on the risk cost.
Ashik Musaddi
Thanks.
Wilfred Nagel
Yes, on the risk cost what we’re seeing is the typical pattern at the end of a recession on one hand, new provisions are lower. On the other hand the old problem loans get result one way or the other, and that means both write-offs as well as releases go up which then leads to a lower net addition to the provision.
It’s therefore likely that 2015 is going to be below 2014 by a more considerable margin than we had earlier guided on. At the same time, I would caution that uncertainty does remain, first of all, the general effects in commercial banking is that it tends to be lumpy as we always say.
And it is quarter-on-quarter in particular. You still have a lot of uncertainty around Ukraine, Russia, the energy markets.
So there is plenty scope for some noise in these numbers. And specifically your question about how should we look at the retail provisions is based the number, is it flat?
Well, it moves in the cycle with the economic pattern, so it’s never flat really. If I were to look at where we are today, I’d say there is probably a bit of scope for it to come down a bit further before we see it leveling off and potentially at some point going up again.
Ashik Musaddi
Okay, that’s very clear. Thanks a lot for this.
Operator
Our next question comes from Anton Kryachok of UBS. Please go ahead.
Your line is open.
Anton Kryachok
Good morning, and thank you for taking the questions. Just a couple of follow-ups please.
Firstly, on net interest margin outlook, I’ve noticed that you were able to re-price your deposit base in the Netherlands at the start of Q4. Can you please give us an update on the competitive dynamic that you’re seeing in the Netherlands around Dutch, around deposit re-pricing?
Can you do more in the future, and is it one of the main levers to go into a pool in order to keep your commercial margins broadly stable? And then the second question please around capital return, and your accumulated reserves.
Can you please indicate how much capital, have you set aside that will be available for the Q4 dividend distribution? I know that you have set aside Q2 and Q3 profits fully; but also, you had a payment of interim dividend after Q2 results.
So I’m just trying to understand how much cash have you set aside from this year earnings? And also, what’s your sort of total cash reserve at the Group level?
You used to disclose that number a couple of quarters ago, so maybe you can give us an update on that please?
Ralph Hamers
Okay, Anton, its Ralph. I will take the question on the NIM and the Dutch market.
Patrick will take the second question. Now, on the first one, NIM outlook, clearly, we’re already in longer period of low interest rates and both on the shorter and of the curve in the longer another curve.
And that gives a bit of pressure. For the moment we have been able to manage that on both sides of the balance sheet.
There is scope to manage that even more so going forward, going by the different savings rate that we have. And I can kind of feel, I can point you to the slides that we have included and that fact that you are used to having in the package 26.
You basically see where we are in terms of savings rates in the different markets. Now, that’s one side of the NIM development going forward.
So, we feel we can still manage it for a couple of quarters. And the other side as you know, as part of our ambition 2017, we were also to make progress to generating more higher yielding assets, it has to do with changing the composition of the balance sheet that we updated you on, in this presentation as well.
And that will continue. So you will see in our balance sheet a further growth of higher yielding assets.
And that will have its effect on NIM going forward by strategy as well. Now, then zooming in on the Netherlands and the situation in the Dutch market, well, going by page 26 you see that the interest, the savings rates in the Netherlands are still somewhat higher there than in the surrounding countries.
So from that perspective we are paying a very competitive rate to our clients. And I think that’s also the way you should see it.
In the end, savings rate is one that you have to connect to the earnings on savings, which given the fact that the replicating portfolio and the yield on that is decreasing. It will have a downward effect on savings rate in general.
But insetting the savings place, it’s always a discussion as to how do you make sure that you take the interest of your clients into accounts. And how do you, basically how do you develop that relationship.
And that’s secure for balance that we are managing.
Patrick Flynn
Okay, good morning. First thing to say about dividends is that there isn’t an awful lot we can tell you that’s new.
We are applying the same approach, of the same view as we did at half year. In terms of the mechanics, I think the numbers perhaps are on slide 23 and I’m happy to take you through them.
So, in terms of how much capital, have we set aside, €2.2 billion year-to-date ‘15 has not been included in regulatory capital at the group level. We have kept that to one side, our year markets so that we can maximize subject to the regulatory environment, our flexibility for dividends.
Now, deciding how much that will be remains more than half year decision we have to take at the full year, year-end in February. We’re going back for the €2.2 billion that’s the competition of that is the €708 million in Q1 which was 40%, 100% of Q2 which was €1.3 billion, 100% of Q3 is just under €1.1 billion minus obviously we have paid an interim dividend of €929 million it gives you the net €2.2 billion.
And in terms of the aggregate number, if you think of a total effective economic buffer on the slides you see 4.8, and if you were to add back if you choose to the 2.2 that we have set aside for dividend flexibility, you get to a total of 7, I think, that’s the number you were thinking of and that’s referred to the final bonus in albeit small fund.
Anton Kryachok
Excellent. Thank you very much.
This is very clear. So just to simplify this further, if you were to keep the capital ratio of ING Bank stable, you can pay out €7 billion.
And the capital ratio of the Bank will not change if you fully divest your insurance operations.
Ralph Hamers
I think in terms of actually what we are paying and I don’t want to mislead anybody, on terms of what we do pay that’s the decision you have to take at the year-end. We do pay a minimum of 40% and I’m repeating the first half.
And we are, predisposed to return the insurance if you want to corner that surface and progressive overtime to shareholders, we have to be cognizant of the regulatory environment and how that evolves. And we’re going to take a balanced view of both of those, both our ambition and the regulatory environment at year-end.
So, that is how we look at it. Mechanically you’re correct but I don’t apply that we won’t actually do that.
Anton Kryachok
Of course. Thank you very much.
This is very helpful.
Operator
Our next question comes from David Lock of Deutsche Bank. Please go ahead.
Your line is open.
David Lock
Good morning everyone. And I’ve got a couple of questions from me please.
The first one is on risk-weighted assets. I note there’s been a reduction in retail Netherlands quarter-on-quarter, which is quite big.
I just wondered, what was the driver of that? I think it says it was better quality book but modestly, can you give some update on what the risk weighting of your mortgages in retail Netherlands or might we should expect any other kind of model changes or further decline, is that risk-weighting going forward?
And then my second question, I mean, you referenced the lower, the impact on your lending volumes from the oil trade finance book being low than what you expected. Is it fair to say that the effective low prices now kind of baked into them is, and I mean, that from impairment side there is on the volume side?
Do you feel that really this is the base that is being reset after that oil price change? And therefore volumes should grow from here.
Was there still kind of a headwind from the volume side that we could expect in future quarters? Thank you.
Ralph Hamers
Wilfred take the first question, I’ll take the second one, David.
Wilfred Nagel
So, on retail Netherlands, obviously this is mainly about mortgages risk weights have moved from 18% to 16%. That is driven by the improvement in the portfolio and the one that you can also see in the markets, predominantly at this point driven by BDs coming down as well as the cure rates improving on these loans.
So, it is the typical mechanical factor of their trends into an old rating based model that is in action here reflecting the loss experience and the LT fees that we’re seeing in the portfolio. If you look at reporting on mortgages, in a bit more detail you would also see that the average loan to value and book for example has come down from 88% in the previous quarter to 83% now.
And obviously that number alone has quite a significant impact particularly at these pure rates that helps quite a bit but the BDs are also coming down as you think reflected in NBLs.
David Lock
Okay.
Ralph Hamers
Okay, and just on your second question, on TCF. Yes, it is a reflection of lower commodity prices, oil, there is also some other commodities there.
That’s not necessarily a reflection of lower volumes, actually the volumes is lower, actually tend to go up because there is more demand and because of the overall oil price. The volumes are actually up, the value of those volumes actually is influenced by the commodity price.
Now, we saw a bit of a reset, the third and fourth quarter last year, when the oil price was dropping €110, €122 to more €60 environment. And then we saw another drop then this quarter going down to lowest even like the €40 level and it’s back up a bit again.
But yes, I mean, we can talk about volumes because we can influence that ourselves, it’s declined relationships, it’s about pricing it’s about your franchise. But the value as you influence by the world markets and that’s something we commonly influence.
So, as to the outlook on this one, yes, if the oil price goes down further to maybe more demands, but it’s depending on the price, it will hit our books with a lower uses of our book. If the oil price goes up, it will be up, so.
David Lock
Thank you. Can I just ask one follow-up on the risk weights?
Ralph Hamers
Sure.
David Lock
Clearly, an 18% to 16% move that feels quite big for a quarter-on-quarter move, I appreciate the advanced model feeds into that but given the overall debate that’s raging about Basel IV and the potential indications there, is there any presumably this model change would have been signed off by your regulator and you would have looked ahead to potential regulatory change in the future when making decisions like this. So, was it purely just an algorithmic arithmetic change from the model that directly feeds into this; there’s no additional change that’s been made by management or by the regulator on the outlook for risk weightings here?
Thank you.
Patrick Flynn
Thank you for making the question so long that you answered it. And it is the second part of what you said.
It’s not a model change, it’s simply mechanical update of the inputs here which is how this process works and it works also in order to keep in mind a little bit of delay so we’re seeing our things reflected at our two three quarters ago. But this does not in any way try to anticipate what might change into regulation, and it is also not the kind of update that is subject to a specific discussion with the regulator.
David Lock
Thank you.
Operator
Our next question comes from Andrew Coombs of Citigroup. Please go ahead.
Your line is open.
Andrew Coombs
Good morning, just a couple of follow-ups, especially on the dividends. You’re obviously accruing at around about an 80% payout ratio for the full year, but you still need to make the final decision at the end of the year, and you say, subject to regulatory developments.
And given that it doesn’t look like we’re going to get any better clout in Basel IV before the year end, can you please clarify exactly what regulatory developments you are waiting upon? And I’m just keen to get a bit more clarity on exactly how you will decide upon that dividend decision?
And then second, coming back to loan growth on slide 15, you talked about the trade finance side of things, but when I look at the other commercial banking divisions, the volume growth there also seems to have shrunk somewhat Q-on-Q. And also Belgium, you’ve seen a contraction there.
So perhaps you could elaborate on the drivers for those particular areas? Thank you.
Ralph Hamers
Yes, Patrick will answer the first one.
Patrick Flynn
I mean, in terms of dividend decisions again, we have to see how much clarity we do get. I think hopefully the SREP process will be clear between now and the year-end in the ECB dividend guidelines which relates to 2014, we expect them to be updated.
And we have a date now, so we do expect bit more clarity on that front. You may be right in terms of Basel IV, it may be that there isn’t lot of more clarity.
And but in the last quarter, there has been, certainly in terms of toll, there has been some more color at least on how European regulations speak about that, I would hope that firms up little further. So, all of these things matter.
So, who we will incorporate, everything we see and know at that point, it may not be perfect I doubt it will. But we have to make a best guess at that time in February of what we do know and what we don’t know and then form a judgment.
Ralph Hamers
And on the lending growth, page 15, starting with retail Belgium, yes, this is a quarter view, and quarter view it tends to be a bit volatile given one particular client that we have in the books there which is basically that the Flemish government actually we do all their payment business and their financing and these are big amounts. And it can actually show quite some volatility.
But the underlying in Belgium is actually growth, both in mortgages as well as in the business lending. Now then turning to the commercial bank industry lending, it’s the same thing here.
On the industry lending, it’s specifically the long-term side is actually growing. We see that continuing.
But these are large deals that take quite some time to work on before they are agreed documented before the draw-downs happen. And then they will show up at our group sell.
You can’t really come to a conclusion on a quarter to quarter comparison here. And that’s why we continue to refer to an analyzed figure in terms of call any growth next to quarter-to-quarter comparison.
And the analyzed figure over the first nine months actually shows that we’re growing by 4.5% which is little bit beyond what we had indicated when we launched this strategy. So, on all of those with all of that input, we still feel comfortable that it grows like we have indicated.
Andrew Coombs
Thank you. It’s all very clear.
Operator
Our next question comes from Alex Koagne of Natixis. Please go ahead.
Your line is open.
Alex Koagne
Yes, hi, this is Alex Koagne from Natixis, just two follow-up questions from my side. The first one is on the revenue in the financial markets.
Should we expect the contribution of net interest income to continue to decrease going forward? This is the kind of trend that we have seen for the last quarter.
And one last question is again on the dividend policy. I do understand your point of view, but I’m still trying to understand.
I mean as of today, the consensus is expecting you to offer a 70% payout ratio, which is significantly higher than the 40% that you are guiding. How comfortable are you with the consensus number as of today?
Thank you.
Ralph Hamers
Well, I’ll take the second question Patrick will take the first question. So, on dividends, we haven’t changed our guidance and we’re not changing our guidance on this one.
We have been very consistent in saying that when we launched this strategy and all the quarters they’re after that we pay a minimum 40%. And then, at the year-end, when we have to establish the total payout, we will look at where we are on strategy commercial development, that’s particularly also the regulatory environment.
And that’s when we will make up our mind. And so, whatever estimates that are out there, whatever expectations are out there, this is the guidance that we have been giving.
And so, you have to wait for another quarter, be patient.
Patrick Flynn
In terms of financial markets, I’ll be a brave man to try and predict the competition of FM revenues. As Ralph said, and he’s looking at me here now, as Ralph said, if you look at it year-to-date it’s up in aggregate versus year-to-date last year, that’s the important thing.
One thing I will tell you that typically the fourth quarter in financial markets year-over-year is lower than in previous quarters for the Christmas effects markets close down and shut up shop typically in early December season. We got a full three months activity that I expect to continue, that seasonal aspect.
But as to the competition of revenues between the two, we don’t manage it so it would be silly of me to talk about it and we don’t manage it, we don’t target them on any competition, we target them under total revenue, so yes, we should add more but that’s it.
Alex Koagne
Thank you.
Operator
We will take our next question from Pawel Dziedzic of Goldman Sachs. Please go ahead.
Your line is open.
Pawel Dziedzic
Good morning and thank you for the presentation. I only have one question from my side and it’s on your fee income.
Can you perhaps comment on the drivers behind the decline this quarter? I was wondering how much of that could be attributed to just seasonal factors?
How much of that is driven perhaps by the lower lending volumes this quarter and should we extrapolate it going forward? And how generally careful we should be into looking into those trends as something of a more permanent nature.
Thank you.
Ralph Hamers
Yes, I think that’s a good question. So, basically on the commissions’ income you see a decrease there.
Partially that is seasonality for example in Belgium, in terms of the influence in mutual funds. That seasonality on the DCS side with a lower value of the activity, underlying activity, we also get lower commission income.
So, there is a direct relationship there. And then, on the other structured finance business, yes, if you close last deals in specific quarter and you close more in the next quarter, then fees coming through these structures then it fluctuates just like your lending growth fluctuates one quarter to the other.
But underlying is the positive trend with the growth of the balance sheet and closing new deals. So that’s a little bit how you have to look at it.
So, partially it’s seasonality, if it comes to the weaker side, then mutual funds, partially it’s the shorter term side of TCF with a lower value of the transactions in the hands and lower commission. And then on the longer term side of structured finance is just when do you close these deals and when do, commissions become payable.
Pawel Dziedzic
Very clear. Thank you.
Operator
Our next question comes from Guillaume Tiberghien of Exane. Please go ahead.
Your line is open.
Ralph Hamers
Guillaume, you could be on mute maybe?
Operator
Guillaume has withdrawn their question. Perhaps we have no further questions in queue.
I would like to turn the floor back to the speakers for any additional or closing remarks.
Ralph Hamers
As said, there were no questions? No, okay good.
Well, thanks ladies and gentlemen for being on this call. Just to sum it up, I think that we’ve had a very good quarter showing that the underlying strategy is working whether we talk about sustainability, whether we talk about interfacing, whether we talk about the improvement of these differentiating experience for our clients or whether we talk about the actual result that comes from this, which is a commercial success across the different activities that we have leading into a profit of €1.92 billion, and a growth in the underlying lending portfolio will lower risk cost, stable capital and we are delivering on return on equity.
Thanks for the call. And we’ll talk to you later.
There are more questions, okay, well, then the summary we keep that for later. So, we’ll go back to the questions.
Operator
[Operator Instructions].
Ralph Hamers
Okay. Apparently there is a technical issue here that we don’t get the questions through.
You know that our team of, investor relations are open 24 hours, seven days a week. So, to the extent you did not have the, you were not able to ask the question, I really apologize.
But let’s make sure we get your questions answered by the investor relations team. Thanks a lot.
As said, we’re happy with this quarter, it shows a strong underlying trend and to continue. And with that, have a nice day.
Thanks a lot. Bye.
Operator
Thank you. That concludes ING’s 3Q 2015 conference call.
Thank you for your participation. You may now disconnect.