Nov 2, 2017
Executives
Koos Timmermans - CFO Ralph Hamers - Chairman and CEO Steven van Rijswijk - Chief Risk Officer
Analysts
Tarik El Mejjad - Bank of America Merrill Lynch Benoit Petrarque - Kepler Cheuvreux Bruce Hamilton - Morgan Stanley Alex Koagne - Natixis Pawel Dziedzic - Goldman Sachs JP Lambert - KBW Alicia Chung - Exane BNP Paribas Stefan Nedialkov - Citi Bart Jooris - Degroof Petercam Kiri Vijayarajah - HSBC Benjamin Goy - Deutsche Bank Matthew Clark - MainFirst Sofie Peterzens - JP Morgan Rajesh Kumar - Société Générale Credit Research Marcell Houben - Credit Suisse
Operator
Good morning. This is Patricia speaking, welcoming you to ING's Third 2017 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 as statements regarding future developments in our business, expectations for our future financial performance and any statement not evolving a historical fact. Actual results may differ materially from those projected in any forward-looking statement.
A discussion of factors that may cause actual results to differ from those in any forward-looking statement is contained in our public filings, including our most recent Annual Report on Form 20-F filed with the United States Securities and Exchange Commission, and our earnings press release as posted on our website today. Furthermore, nothing in today's comments constitutes an offer to sell or a solicitation of an offer to buy any securities.
Good morning, Ralph, over to you.
Ralph Hamers
Well, thank you. Good morning, everyone.
Welcome to the third quarter's results conference call. As you're used to, we will talk you through today's presentation.
With me are CFO, Koos Timmermans, and CRO, Steven van Rijswijk. Let's turn to the key points, the presentation today.
We posted a net profit of nearly EUR 1.4 billion for the quarter which marks 2% increase year-on-year. On the retail side we reached 10.5 million primary customers which shows that we're well on our way to achieve our Ambition 2020 level.
As you know we recorded lending growth of EUR 8 billion this quarter at resilient margins net deposit growth stood at just over EUR 4.2 billion. It probably shows how well diversified we are from a geographical and product perspective that really provides for a strong foundation for this growth.
We continue to invest in our digital transformation underlying operating expenses remain under control. I'd like to highlight the success of early transformation programs in region Netherlands where cost actually came down significantly.
Furthermore, risk cost remained well below our through-the-cycle average as you've probably seen already we'll go into that later and this all growth on one side, stable cost and the low risk cost contributed to a healthy four-quarter rolling average return on equity of 11%. While our CET 1 capital position remain stable in the quarter at 14.5%, that's the short summary.
Now the long summary. Turning to Slide 3 in the third quarter.
Clearly the think forward strategy is basing away for strong commercial performance given the pressure from the low rate on savings I'm happy to see the lending growth is outpacing deposit growth yet again. We see the mobile device becoming ever more important as a channel for our customers, so we're heading in the right direction in terms of where we want to invest and how we want to improve our customer experience.
This helps us not only to grow in the number of customers and primary relationships, but also in improving the cross-buy ratio for those primary customers in the markets in which we operate that's what you see there as well. Every region we see an improvement there and in the third quarter we made significant progress in the intended digital transformation.
In the Benelux amongst other staffs decisions that we made on the rationalizing and or merging the local products into what we call single shared future product catalog, which is a starting point in order to simplify everything that is, that comes from there. So overall we also increased our digital investment spends in the third quarter.
To accelerate the pace of innovation, we announced recently to increase our investments in fintechs through EUR 300 million, we launched a EUR 300 million investment fund, venture fund in order to support our strategy there in collaborating with fintechs over the next four years at the central focus on investments in both start-ups as well as companies that have gained already some market traction and the venture fund will build on the success that the current approach has brought us in the past three years. In fact our current 115 strategic fintech partnerships and the investments in order to keep improving the customer experience.
As one of those examples in our new partnerships, we have scalable capital which is a partnership with robo-adviser. Since the start of the collaboration we have onboarded more than 1,000 customers every week in this new approach.
Part of helping the people in business to stay ahead is also to make sure that we prepare them for the world of tomorrow and that is generally resembled in our, at first on the sustainability side of the business I'm now on Slide 5 and we've joined Madaster. And what Madaster does, they provide so called digital material passport for buildings and that stimulates the construction with recyclable materials, it stimulates the rejection of waste and then encourages the investment in smart designs.
In the quarter, we were also involved with some ground breaking sustainable finance transactions like for example the green bond that we did for the public utility Anglian Water in the UK as well project finance deal for one of the largest solar plants in Australia. I'm particularly proud of our strong sustainability ratings and we once again, are included in Dow Jones Sustainability Index both the World Index as well as the European Index.
For banks and also CDP awarded ING position in its climate A List again. So, proud, progress all the transactions that we're doing, the collaboration we're doing in this field in order to ensure that we truly prepare our customers for the world of tomorrow.
Allow me to take your through some of the results. Slide 5, these are the year-to-date results the first nine months.
Underlying that results was nearly at EUR 4 billion in the first nine months of the year which marks 10% improvement over the same period of last year. Even through the group common equity Tier 1 ratio has increased to 14.5%, we managed to achieve an attractive return equity of 11% on a four quarter rolling average.
So higher capital ratios and higher return on equity, that's a healthy picture, that's a good picture. On the next slide you can see some of the key drivers of these underlying results.
Firstly, would like to highlight the net interest income which showed if we exclude financial markets and increase of 4% year-on-year and that's despite the continued pressure from the low rate environment and there's increase in NIIs very much result of the continued lending growth that we report you on every quarter and another supported by relatively stable margins on the lending side. So that's what you see over the first nine months.
Of growth in fee income of 12% year-on-year was broad based and reflects an improvement in almost all segments and products which with the relatively strong as increased in the retail, Challengers and Growth Markets but you will see that later on as well. On the expense side, again you know the first nine months of the year picture excluding the regulatory cost, that the underlying expense base increased only slightly as the ongoing cost savings initiatives largely offset our digital investments and higher marketing and start expenses to support the business growth.
Also very low risk cost, at this moment we support the underlying result, risk cost came in for the first nine months at 21 base points over average risk weighted assets and if you combine all this add a revenue picture, the cost picture, the cost income ratio is established at 53.8% on four quarter rolling average basis and that's an improvement as we move towards our 50% to 52% target range. So much for the first nine months, let's dive into the quarter specifically Slide 10.
On Slide 10, we see that the underlying pre-tax result was up 6.2% year-on-year, it's nearly EUR 2 billion on the back of the robust net interest income. Also healthy commission income growth and the annual dividend from Bank of Beijing.
And the lower risk cost, low if you compare to the through-the-cycle average. In the quarter we continue to grow both our retail and wholesale loan books year-on-year we do see some modest pressure on the lending margins.
It's stabilizing. And the pressure on the savings margin is alleviated to somewhat by further cost core savings rate adjustments that we did in the quarter or just before.
Net interest income was partly distorted by our decision and some hedge relationships that's where you see uptick on the net interest income of EUR 91 million in the chart it's a positive impact on NII, but this is fully offset by similar decline in order income, so the net, net effect of the ending some of these hedge relationships is zero. Turning to Slide 11 then for you.
The net interest margin was up 6 basis points for the quarter, but 157. But the quarter-on-quarter move is largely explained by the technicalities of the earlier mentioned decision to add some off the hedge relationships and that is contributing 4 basis points to the NIM, but again from a line-by-line perspective that is offset in order income but it distorts the NIM picture by 4 basis points it's not structural, we can go into that later as well and then we add the 2 base points uptick from the higher interest result in financial markets that we kind of show you every quarter as well because that is somehow volatile as well.
So overall a good picture stable NIM, if not increasing NIM. It's a good picture here.
Correct [ph] [indiscernible] forwarded to other items as I said, we would have come out at 151 basis points and that's at the higher end of the range that we guide you for which is the high 140s to low 150s. Turning to core lending Slide 12, third quarter we grew core lending at EUR 8 billion this is actually above the 3% to 4% loan growth guidance on an annual basis.
As you're used to this growth comes at good returns, it meets our current risk appetite framework and while we face tough competition so we're not changing our risk appetite and we're not changing our return hurdles, but we do see that the broad footprint that we have for product and geography perspective it gives us ample opportunity to find right commercial opportunities. This quarter, we saw the strongest contribution from the wholesale bank again particularly in general lending and working capital solutions to a lesser extent the real estate finance business but it's doing as well, the growth of the wholesale bank on this course strengthen the franchise and the benefits of diversification across the geographies and specifically in the wholesale bank the diversification across different industries and sectors.
Except for the Netherlands there was also strong growth in all of our retail segments and you see retail Belgium growing, you see retail Germany growing, you see the other C&G markets growing as well. If you deep a bit deeper this is more skewed towards more which is on the retail side.
And just like in the second quarter it's important to point that there is again quite a meaningful foreign change effect which we exclude from the core lending numbers to show you what is really happening from a balance sheet effect perspective though you have to correct this for the FX effect which is a clearly dollar weakening against the Euro and which we report and that has a negative EUR 3.8 billion effect you see in the chart as well. Another way to look at our commercial growth is to compare the customer lending and the customer deposit growth and also tells you something about how effective we are in further optimizing our balance sheet.
So you see then in two charts now on Slide 13, now one of the main levers as you know to offset pressures from the low rate environment is to make our country balance sheets more efficient originating lending to partly replace low yielding liquid investments in our Challengers and Growth Markets as the pic you see on the right hand side. You see that is really happening, we're the gray bar to the extent you have a color copy but this is tall bar, the 33% you see going down to 22% that is the investment portfolio so we're basically using those balance sheets more and more for lending which helps us in optimizing the balance sheet.
On top of that in our Challengers and Growth Markets and as the left-hand side of the slide we see that the customer lending is significantly outpacing customer deposits in the last two quarters. And that is positive enough because it kind of shows that on one side we are able to stand the positive inflow in order to ensure that we don't attract savings that maybe lost generating on one side, but in the other side we see that the commercial management terms of attracting new customers is not dependent on savings anymore because the commercial management on customer growth just continues both in number of customers as well as primary relationships.
So it kind of shows that we really have terms the savings franchises over the last four, five years into digital universal banks and that's what you see here when from a commercial momentum we're not dependent on it and from a balance sheet management perspective, we're not dependent on investment portfolio and increasing the, we have the right assets in the places where we have the funding. All that helps clearly to protect the NIM.
Now we move to Slide 14, which goes a little bit deeper into the commission income. The commission income rose 6.3% year-on-year through EUR 643 million.
And again that kind of shows that our bank wide focus on primary relationships through which the cross by increases leads to fee income growing faster than NII. The increase in commission income was visible in all segments and nearly all products with relatively strongest growth in Retail Challengers and Growth Markets and Retail Netherlands.
In Challengers and Growth Markets commission growth is driven by the increase in the number of primary relationships as I said, they buy more products. We're increasing the first five from a product range that we offer through our digital channels, so that really helps.
And the Netherlands is mostly attributable to the higher fee income on current accounts. Quarter-on-quarter the fees are down, wholesale banking fees in the second quarter benefited from some large deals and increase M&A activity which partly explains the drop here as well as there is a modest impact from foreign exchange to explain the drop.
Retail Belgium also had an exceptional strong second quarter due to mutual fund inflow which was not repeated in third quarter and if you remember correctly, when answering your questions last quarter on which percentage the fees was structural as an increase, we already indicated some of this, but we do see a structural increase year-on-year on the back of the change in our model to an increasing primary client focused bank which presents cross buy opportunities through digital offering and with that an opportunity to further increase the commission income and that's what you see as an underlying picture here and that's the good movement. Turning to the underlying expenses in Slide 15.
We showed a good improvement quarter-on-quarter as particularly the ongoing cost savings initiatives in the Netherlands are setting digital investments as well as higher cost to support to business growth. You see more or less flat picture here from a quarter-to-quarter basis on the underlying operating expenses.
Regulatory cost picked up a little and that if you compare it to last year as the previous year quarter you may remember that included a lower DGS contribution in Germany and that's what stores this picture from a year-on-year basis for this third quarter. As our expense base remains impacted by regulatory cost, we prefer to look at the fourth quarter rolling average cost/income ratio.
When the regulatory costs are just too volatile to have any meaningful cost/income picture derived from on a quarterly basis. So that's why we've gone to four quarter rolling average and you see that is slight uptick here at 53.8%.
The benefit from the digital transformation programs will be back end loaded and we stay committed though to our ambition to have the cost/income ratio to be between 50% to 52% by 2020. Turning to risk cost, the risk environment remains benign very benign with the overall NPL ratio for the bank at favorably low at 2%, now clearly that is because of effective risk management in one side, but in the other side we just see that the economic circumstances help us as well, so this is why they are much lower than the below, than the through-the-cycle average of 40 to 45 basis points.
In fact risk costs in the Netherlands were negative this quarter as you can see due to release on the back further improving macroeconomic and housing market conditions in the country. Similar pattern is visible in the wholesale bank, where risk costs came in at EUR 46 million only 12 basis points over risk weighted assets and also supported by net releases for larger clients in Asia and the UK combined with some limited new additions during the quarter.
So yes, its healthy picture it shows as a good picture and it is far lower than through-the-cycle average of 40 to 45 basis points. This is cyclical, so let's not fool ourselves.
Now we turn to ING's capital position. The CET 1 capital ratio was stable at 14.5%, the capital position benefited on one side from the inclusion of the EUR 500 million net profits for the quarter and positive risk migration and on the other side that was offset by modest increase in risk weighted assets due to the lending growth as well as higher operational risk weighted assets.
Again we decided to reserve an amount equal to one third of 2016 total dividend in the quarter which leads to a total dividend reserve after paying the interim dividend of EUR 0.24 in August of EUR 1.6 billion. Just to kind of remind you, last year we decided that every quarter we would reserve the dividend from our profit at and for three quarters of one-third of the previous year dividend in order to ensure that we would have built a reserve to meet the same dividend payment and in the last quarter depending on how the development is, we will decide on the progressiveness of the dividend.
And if you look at the total capital stack [ph], this is a strong position at 19.8% it's supplemented more than EUR 5 billion Group Senior debt issuance during 2017 and that lately foundation for rating uplifts at bank level for both S&P as well as Moody's just this quarter. Now finally looking out where we are versus our 2020 financial targets, first of all CET 1 leverage ratio well ahead of minimal regulatory requirements happy with the progress of cost efficiency we will keep doing more in order to reach our cost income range to make our cost income target to meet the range in 2020.
We have again reached important milestones with respect to the transformation programs which will help us in that regard. Finally on a four quarter rolling average basis, the group return on equity improved to an attractive 11% while we keep growing the lending book and face pressure from a low rate environment.
With that I would want to open the floor to questions and but not unless I have actually expressed my gratitude to our staff and the reason for that being is that. You see a consistent focus on the implementation of the strategy, we see recognition in the market for this, we see recognition like being Best Bank in World and we can't do this without all of the 52,000 staff working for ING being committed to delivering on the strategy every day.
So with that I turn to the questions.
Operator
[Operator Instructions] our first question is from Mr. Tarik El Mejjad from Bank of America Merrill Lynch.
Go ahead sir your line is open.
Tarik El Mejjad
Just one question on your dividend policy because as you highlighted within nine months 2017 you've accrued your pay dividend in 2016, so if you look at on consensus numbers you have to accrue less than 10% of our Q4 numbers, to deliver the consensus dividend per share so what's your thinking about that? Are you looking to the go to CET 1 ratio to decide on the distribution of capital or you stick with your in like EPS growth kind of dividend per share growth?
So what's your updated thinking on that? And how do you square that with the regulation and model?
Thank you.
Ralph Hamers
I'll start answering the question and Koos will fill me for sure. And for the moment we want to be cautious on this.
We want to continue with our guidance that overtime we will pay progressive. We see a good operating environment for the moment.
We see that our strategy is working that capital is being generated. What we decided to do with the capital has generally three, we can use it for three sources.
The first one is, how can we build capital in the future. Second one is, how can we support growth in the future and the third one is, how do we pay dividend.
Now at this moment going by current regulatory environment we are well capitalized. But as you know there is discussions around changing capital requirements and we don't know exactly where this is going, I'm sure there is going to be follow-up questions on that as well and therefore we want to be careful in view of that.
So that is kind of our way of thinking around, how we will deal with the dividend. Maybe Koos you can fill in.
Koos Timmermans
Yes maybe so Tarik on other specific point to add, the way of accruing distinctive from a policy. And so what we do is, the way of accruing by accruing already the last year in the next three quarters that is basically to make sure we allocate some to our accrual reserve but also add something to our equity.
Our policy is basically something different and that is just we have a careful, progressive policy and that hasn't changed. So that means like yes, in Q4 we make up our mind but don't expect major surprises because otherwise we would have announced a different policy.
Tarik El Mejjad
Okay and thank you. I mean if I can just follow-up on that.
I mean that on the level of capital we will be comfortable. I know that you don't - you can't disclose that yet because you don't know the rules yet, but it seems that for the last two quarters you favored growing your balance sheet and capture volume growth rather than trying to build capital ahead of any announcements.
So that's fair to think a level of 14.5%, 14.8% in a level where you would feel comfortable this level has no need to Russian built capital ahead.
Koos Timmermans
Yes, I think overall you have it exactly right, that if we can grow whilst maintaining an ROE north of the 10% that is something which we clearly like and that is what we're doing. What we find difficult however right now is to say whether 14.5% is a good number because we don't know the rules of the game going forward with Basel but again at the first initial reaction internally as always, whatever new capital system we get, can we price new loans with an ROE of 10% against new rules and that's the first thing we have to answer, but before doing that we need to know the rules.
Tarik El Mejjad
Thank you very much for the clarification.
Operator
Our following question is from Benoit Petrarque from Kepler. Go ahead sir your line is open.
Benoit Petrarque
Benoit Petrarque from Kepler Cheuvreux. And the first question will be on the cost.
I mean clearly Q3 shows that, you get some impact from the transformation programs on the cost base. It will be clearly increasingly important going forward.
We are one year from your update in November 16, you've been gathered at that time EUR 200 million of benefits in 2017 and EUR 250 million for next year, so I would like to understand where you are now, I mean how much has been realized and where you're comfortable on realizing action increase of the cost cutting next year. And also on the digitalization cost I think you are on track to generate to post EUR 170 million investment in digitalization this year.
I think you were going for slight decrease next year to EUR 120 million, given what I've heard on the digitalization side, are you still comfortable that you will, your investment in IT will actually decrease in absolute term in 2018 versus 2017? That was the first question.
Second question will be on, in fact quite some undisclosed one of items which makes the analysis per division quite difficult especially on the Dutch retail, if see the Q-on-Q development of the NII, I see an increase of EUR 35 million. I was wondering how much is kind of underlying development if you strip out the one offs there.
If you got one offs on the [indiscernible] gain especially considering savings right down marginal percent in the Netherlands. I like to understand the Q-on-Q trend is and what your outlook is for next year in the current interest rate environment?
And then maybe final question will be on also on the cost side, in the Netherlands down EUR 75 million actually it linked to the first question, cost reduction program is clearly visible there, but how much is kind of the coming from the one-off provision release. I'd like to clarify that.
Thank you.
Ralph Hamers
Benoit, yes so from a cost perspective. The transformation program as announced a year ago from an investment perspective we're probably a bit behind in terms of the money that we are investing.
And that is because of the different programs that we have launched and we have to make sure that they land, that are they're all aligned and that is happening on one side and the other side in some scenarios we need regulatory approval which sometimes leads to a bit of delay as well. So in terms of the cash spent in these transformation as well as the for building the digital bank.
We're probably in the 2017 investment a little bit behind and that's one. Secondly we do feel very comfortable that will not lead to further delays in terms of the savings to be reaped because the total period in which we are to generate the savings to is the 2020, 2021 as we have indicated to you.
So the savings from debt transformation itself that we're going through the next couple of years will be a little bit more back ended. So that's for debt program.
Now what we see specifically coming in savings for this quarter and also for the year and why Q-on-Q and year-on-year you see that our operational costs are more or less flat, is that the savings from previously started programs specifically in the Netherlands but also some in the wholesale bank but specifically in the Netherlands on the IT side and the actual decrease on the IT spend analysis that that's what we actually see coming in, through the P&L and that's why overall you see a flattish picture from an operational expense perspective more or less. So that is what is happening there.
Now specifically on your next question on the NII, I'll give the floor to Koos.
Koos Timmermans
Yes I think overall if you look at the NII and your referred to the Netherlands there is some higher income related to mortgages and indeed it's a transfer to where you have, which we make a one-off profit, so if you look at the normal volumes and the normal lending since their volumes are not growing that is where you don't get the higher NII from. So we also had one other thing and that was related to company called [indiscernible] we made more incidental profit.
So overall I would say a part of the increase in NII was attributable to more one-off item, so underlying what was more or less stable and so that is in essence, what you've seen on that side. You also mentioned the Netherlands on the cost side, indeed we have a significant improvement there.
And part of it is indeed what Ralph alluded to, it's just programs which we've run in the past and they lead to lower expenses now and they lead to lower third-party staff right now and you don't need to take more provisions because of new programs announced, so that is a big part of it. And then of course, the other part was, what was mentioned the CLA provision and that contributed to it as well.
Benoit Petrarque
Great, thank you very much.
Operator
Your following question is from Mr. Bruce Hamilton of Morgan Stanley.
Go ahead sir your line is open.
Bruce Hamilton
Firstly, so just details on picking over the last question. Is it possible to actually size the benefits of the whatever with the mortgage book disposal in the top line in Netherlands and also the cost benefit from the provision release?
Then secondly I guess looking at the Belgium business clearly I understand the seasonality and fees to the NII dynamics down EUR 0.05 [ph] Q-on-Q look particularly tough is that simply function of no room to move on deposits and competitive dynamics on for the new business or is it that something else going on there. And then just finally on IFRS 9 you've given us a narrower sort of guidance range for the first time in banks, but if could maybe off carry you're thinking about the cross sort of cycle impacts on your, management buffer given the proceeds relative to the new rules whether that would be an addition to the management buffer use historically run with.
Ralph Hamers
Thank you Bruce. I'll take your question on Belgium and then Koos will fill you in on the IFRS 9.
And regarding Belgium, yes you do see here the impact on one side from the lower rate environment, the replicating portfolio that's producing lower returns versus a savings rate that you can't decrease further in order to offset the pressure coming from a low rate environment, that's one thing. In other side, we're growing in Belgium.
We have commercial momentum in Belgium, so on the lending side whether it is in mortgages, whether is it mezzanine or whether it's mid corporate, we actually see the book continuing to grow, at stable margins. So the margins Q-on-Q are rather stable and the combined effect of that leads to depression that you see on the NII at this moment in Belgium.
So there is no specific effects beyond that, its business, its pressure on the return on the savings business versus a continuous growth of the lending book at stable margins. So Koos?
Koos Timmermans
Yes Bruce, so sizing benefits and cost. Overall on the benefit if you look at the sale of the mortgages that low double-digit number which we had so, on that part we give you that benefit.
The one-off on the cost side we rather don't give on the CLAs. There is, we always have ongoing dialogs with our unions and everything and sometimes you gain some, sometimes you lose.
So we rather say like there is something incidental in there but we don't tell a lot about that further. If we talk about the pro-cyclicality of the new rules under IFRS 9 they're clearly you know now that the start of IFRS 9 is giving us and basically an impact in core tier one times of 10 to 30 basis points, the pro-cyclicality on how that will develop overtime, so if you have quarterly changes we do not have that yet, we have early indications but we find that too early to already test with you.
I mean we're working on the way right now to create structural scenarios because you don't provision on a base case but also on a worst case and a good case and we're still in a testing phase of this, so no doubt we will come back on that in the next quarter. Maybe one thing on the IFRS 9, so if you look at the impact of the 10 to 30 basis points.
In fact that is not because of higher provisioning it is because we are reclassifying part of the investment portfolio and in depth process of reclassification that is where you will find the impact. It will lead to a more stable reserve that you take a certain upfront capital hit.
Bruce Hamilton
Thanks that's helpful.
Operator
The following question is from Mr. Alex Koagne from Natixis.
Go ahead your line is open.
Alex Koagne
This is Alex from Natixis. Two question from my side as well.
Was just wondering on IFRS 9 just to come back on that. Thank you very much for the update, but what does it mean for your cost of rate going forward.
Should we expect the cost of risk to go up like in 2018 due to the implementation of that I don't know how we can read on the implementation of that above the first time application. Second question is more on the contribution of loan through your balance sheet.
I think that on your Slide 13, we see that's mortgage represent 45% of the balance sheet is that the number that you're pleased with, are you looking for this contribution decrease going forward and I mean, what is the optimum income of breakdown of the contribution of these type of - through your balance sheet. Thank you.
Koos Timmermans
Yes on the IFRS side, the question is are cost of risk going up. First of all we still make the same loans.
So and you know is the loan losing or not losing money that is the ultimate part and in that sense I would say that is not changing. So the question is, are now provisioning more and therefore releasing more in the end or are we provisioning earlier and then releasing that later, that is the real question around there.
I think the way how we look at it, is that probably due to what is called stage two migration and when you enter into a negative scenario, you start to take your provisions somewhat earlier but that will lead to reductions later on. And so you get a slight shift in the cycle and that is all what we see there, but we don't necessarily more provisioning because at a certain moment yes the loan is still a loan.
Alex Koagne
Okay.
Koos Timmermans
Okay then to your question on the percentage of the loan book that is made of mortgages, Alex. When we launched the four strategy 4.5 years ago, we put up a picture in which we indicated that 54% of our balance sheet was made of mortgages and we indicated at that moment, one of the things that we've learned from the crisis is that, you can good assets but if you have concentration risking good assets, it can still be seen something bad by the market and we wanted to move away from concentration risk in asset categories.
Over the last four years, we have moved from the 54% to almost 50% I'm talking ING overall, the picture that you're referring to on Slide 13 is the C&G numbers. But the overall picture for ING is moved from 54% to 50% in 2016 and in our Ambition 2020 we move the percentage on the mortgages down to 48% of our balance sheet, that is the way we think things will go, that is way we're managing the composition of our balance sheet.
On one side from a concentration risk perceptive on the other side from the perspective that as indicated we're seeking for higher NIM loans as part of our balance sheet and in order to ensure that we can do so, you reduce a little bit on the lower NIM percentage wise which is generally mortgages.
Alex Koagne
Okay, thank you very much. If I can have one last question on - for another based on nothing of yet at this point of time but I'm just wondering if you have any comment made on all the [indiscernible] segment that was on the market lately around the 22.5% output flow, what does that mean for you in terms of implication and so on?
Thank you.
Ralph Hamers
It's a good question. We get these questions all the time and my first line generally is that, predicting Basel has become an art.
And clearly at this moment what we hear back is there's momentum to do a deal. I don't think we're creating a lot of play field I've mentioned that before, what we should be trying to do is creating a lot of playing field ensuring that the same risk should be treated in the same way, rather than the same assets as they're called are treated in the same way.
Because you know mortgages in one country are completely different from mortgages in other country, bankruptcy laws are different. The roles that bank play in the continent versus the US are completely different.
However despite all these arguments one way or other there seems to be momentum to do a deal if and when, both sides of the ocean agree on the credit risk approach, the operational risk of approach but also the fundamental review of the trading book approach and that's basically where there is not an agreement yet and that is what makes that the Basel has not come to an agreement yet, that is one thing. The second thing is that indeed what we hear back is that, there is some discussion around settling from a credit risk weighted perspective a 72.5% floor of standard and we know and all of the European banks that for every bank leads to an outlier situation from the statement that this should not lead to more than significant increase in capital.
We haven't seen any bank where it would not lead to a more than significant from that perspective. So then we go back to the ECB and the SSM leaders indicating that, they would not allow Basel to lead to a more than significant capital increase for European banks because they're convinced that European banks are surface [indiscernible] capitalized, we can also refer to the statement of the EC Commissioner Dombrovskis who has said well we don't need higher capital for our banks in Europe and therefore we will not support that.
You should realize that everything that people agree in Basel is just an agreement in Basel, it is not law. It has then to go into European law, so that's where the next discussion will happen then.
So before all of this, will become something clear. It may still take some time and that's where we currently are.
Alex Koagne
Thank you. Very clear, appreciated.
Operator
[Operator Instructions] our following question is from Mr. Pawel Dziedzic from Goldman Sachs.
Go ahead sir your line is open.
Pawel Dziedzic
Can I just start with following on our Basel IV remarks, so obviously you said there is a lot of uncertainty as how the rules will be implemented and so on. Now most of the assessment started that has been done, has been done based on the consultation papers published by Basel back in I think 2015 and 2016.
And I was wondering as you look at the proposals or maybe the sensitivities of new rules that are being discussed have you seen any changes in the underlying framework when it comes to credit risk, operational risk, eligibility of IRB models and so on, that would make the potential impact much softer than implied by let's say over 70% output floor. And I think this is something that very recently was published by one of the Eurozone central bank but actually a lot of change has been done in the background.
And the second a follow-up on Basel IV is following. So the new Dutch government it seems listed 4% leverage requirement and I understand that this is not a constraint for ING, but do you view it as a perhaps a welcome signal, that should Basel IV be very harsh for yourself, the new government and new policymakers in the Netherlands much more willing to work and potentially lower your O-SII domestic buffer to account for that.
Thank you.
Koos Timmermans
Yes so on the Basel IV assessment output floors after being, we're sort of tooling around with that. The answer is yes particularly on the mortgage side overtime where you've seen is that the standardized approach has been changed somewhat in a sense, there is a form of smelting approach on mortgages.
So in other words, you have different brackets for LT fees and that gives somewhat relief on the output floor, that is what we've seen as a big picture over the last half year, so that is some relief nevertheless there are many open questions still around it, as what Ralph was saying, so I wouldn't know for instance if American banks are having a standardized approach included Op risk or not so there still quite some things whereas banks we're bit puzzled around. So still be to be answered further.
More going back to the question on the Dutch government, indeed what I've said is we want to move more towards European standards with regards to the leverage ratio. Now on the one hand, you can say that's a pretty - thing in a sense that you know capital standards are growing up potentially with Basel anyway, so if a leverage ratio standard goes down.
I mean that doesn't mean a lot but you can also interpret it slightly different and that is that, Netherlands might be converting somewhat more towards European standards and then obviously we're also looking at our D-SIB buffer and D-SIFI buffer and see whether there is room for a lowering debt somewhat overtime and moving more towards in level playing field on that element. So there is two ways how to interpret it, we tend to always look at it from the bright side of life so we hope that we're moving slightly more towards European standards.
Pawel Dziedzic
All right, thank you very much. And can I just maybe ask second question and it could be just on your results and a very quick one clarification.
Obviously your impairments have come below EUR 500 million for nine months so far and our previous guidance in the last call was for EUR 1 billion for the full year, can you give us some clarification as to what to expect in the fourth quarter? I understand there might be some pick up but perhaps quite modest.
Ralph Hamers
Thanks Pawel. Now clearly I mean risk cost in the first nine months have been relatively benign.
Basically you see that on all areas I suppose in the wholesale as in the retail bank. Of course we remain careful with industries such as oil and gas and real estate and acquisition finance and we carefully watch markets such as Turkey.
But at the same point in time we see generally across the board the risk of course being benign in all fronts and in that sense, we expect risk cost to end up well below what we have seen in 2016.
Pawel Dziedzic
Thank you.
Operator
Our following question is from Mr. JP Lambert of KBW.
Go ahead your line is open.
JP Lambert
Two questions, the first one is one the ending of the hedge relationships so we have a shift up of EUR 91 million for this quarter, how should we look at this going forward. Is this EUR 91 million going to remain stable or is that going to taper off?
Or is it one-off? Second question is regarding your fintech portfolio.
Can you explain a little bit, how you look at this and how you select the priorities? Is it based on return on investment?
Is it based on the acceleration of transformation? The impact on the customer journey.
You have a large portfolio I wonder how you cluster and organize these investments. Thank you very much.
Ralph Hamers
Koos you'll take the first one.
Koos Timmermans
Yes so on the hedges. Indeed what we do is, we have quite a lot of derivatives for hedging purposes and we do that mortgages, we do that for savings, so from time-to-time we do two things.
One is end hedged relationships and that is when you particularly when you have short data scopes and the other is, we try to from time-to-time reduce the amount of hedges as well. So that gives us room to clean up the portfolio.
In this case, what happened is this quarter is indeed, we de-designated some hedges and that means like you have a result of EUR 91 million and we expect that also in the next quarters to be there and that will only slowly start to taper off. What we will do is each quarter just tell you what the effect is and so that you can calculate your normal NIMs or where you talk about normal NIM and you always have this number in there in case that it is there, but expected to be there for the coming quarter.
JP Lambert
Thank you.
Ralph Hamers
Okay, then Jean-Pierre on question as to how do we deal with the different investment opportunity that we have and how do we prioritize. The highest priority is always everything that has to do with compliance.
There is - we don't need business cases for that. I mean these are you need your license operate, so everything that has to do with compliance always has the priority.
Then on the other categories whether it is from a foundational perspective, if you kind of take our strategy perspective or from a support function perspective, new business perspective, an improved within client experience perspective. All of those need to have business cases.
Business case in terms of improving the NAPA [ph] margin score business case in terms of increasing revenue or a business case in terms of decreasing cost. So all of those are subject to the same principles of business case, apart from the compliance one.
And that's the way we do that, we have a very strict governance around this in terms of you can't start a project without an approval from a central committee that reviews all of this, it has a same standards on every project, that compare these project that also checks the progress of these projects and then on the board, we are, we review this every month. That is on the change investment that we have.
Now on the investments that we do with fintechs, which is related to the EUR 300 million investment front. The way we look at that is that, everything that we do there and every collaboration that we enter into needs to be aligned with our strategy and we're not a venture capital front and I repeat that.
I think the story from our perspective is clear. We're not here in order to look for and find the best investment opportunity that makes the best return, but has nothing to do with our strategy.
No, we're looking at those fintechs that can help us improving the customer experience that's going to help us launching the new product like robo-advise or collaboration with Kabbage in entering into the SME markets in Spain, in Italy and France in a completely different way in a Challenger way, that is what we're looking at. And if in those cases it is better to take also an equity participation of some kind of risk participation in order to solidify that partnership and we do that through this funds and that is, this is how we work.
JP Lambert
Great, thank you. And on Germany the expansion of the SME program, do you have an idea of potential timing because this will be very attractive market here to make that lending?
Ralph Hamers
The expansion of what, of the?
JP Lambert
The SME lending.
Ralph Hamers
Yes, so we're not so in terms of going into the SME markets. We started to do that in the Challenger market in Spain first collaborating with Kabbage.
We've been working with them now for two years on the [indiscernible] experience getting [indiscernible] right, getting the customer experience right. We've now chosen that as a platform to also go into Italy and France.
We first want to see how it works there before we decide on other countries.
JP Lambert
Great thank you very much.
Ralph Hamers
But in Germany we are for example, in Germany we launched robo-advise and depending on the success that we have with that, we will then also go into different countries. So in every country we take kind of a different initiative and depending on the success that will then become the standard for other countries to follow-up.
JP Lambert
Thank you very much.
Operator
Our following question is from Alicia Chung of Exane. Go ahead your line is open.
Alicia Chung
Just a couple of questions from me. Firstly going back on the cost and I noticed that in the Challenger and Growth Markets it looks like cost have moved up quiet remarkably in the last quarter.
Just wondering, if this is the new run rate there given that there is higher investment spend there and also high growth or other also some one-off in there, that we should take into account the maintenance maybe going forward, it's a little bit lower. And then secondly, is it possible to give us an update on where we now stand with various litigation and investigation issues such as the Uzbekistan, the EC investigations into anti-competitive behavior across the Dutch banks.
And also can you quantify what the Spanish Litigation Provision is, thank you?
Ralph Hamers
Alicia, thanks for the questions. On the cost itself, the cost will grow in C&G.
we have always indicated that we have different recipes for different areas, so in market leaders we don't expect revenues to go up, but we expect cost to go down enhance improved return and improved cost income. In C&G we've also said, if it's for growth and it will grow the revenue we don't mind the cost go up.
So we're investing in C&G to grow, to reach more customers, launch new products and through that improved revenue both on the lending side, on the interest related side as well as on the commission, so the fact that you see in some parts of the C&G the cost go up, that is, that is what it is. Now clearly we see for this quarter, we see in C&G cost inflation coming from the provisioning in Spanish that we have indicated and Turkish foreign exchange rate.
So those are two one offs from that perspective but the trend in cost in C&G can be up as long as the revenues are up as well, if the revenues are not going up and the strategy is not working, we will also have to be much more stringent with cost growth in C&G. on the litigation is give that to Koos.
Koos Timmermans
Yes, thank you. I think if you look at the litigation we have the AML part, the anti-money laundering that investigation is about the onboarding of clients and the money laundering on that one, we have not taken a provision yet because we cannot decide at the moment on both the timing as well as the size of what a provision would be and since this investigation is ongoing we cannot comment further on how this is progressing.
If you look at the other part, the anti-competition investigation which happened or whether it's an investigation I don't know the rate which happened with our [indiscernible] officers as this is happening, we cannot comment on what is happening on their part, that is not necessarily in our institution, so we don't know what the consequences of that will be. And then if we look at the Spanish mortgages, maybe on the Spanish mortgages a couple of comments.
This is about origination costs, so with regards to the provision, we cannot disclose what we provide because we are appealing in some cases as well, so in that sense otherwise we're undermining our own position and we just have to await jurisdictional clarity going forward, in a sense we think we are provided adequately for what we know at this moment, but we have to await for it, how to go.
Alicia Chung
Okay, thank you very much.
Operator
Our following question is from Stefan Nedialkov of Citi. Go ahead sir your line is open.
Stefan Nedialkov
It's Stefan from Citi. Two questions, first one is on the fees and your strategy in that area.
And the second one unsurprisingly on Basel IV. On the fees, looking at the slides in your presentation where you talk about initiatives to drive fee income growth and something stood out, you say that you're selectively increasing the lending and payment fees to corporate clients and also you're reviewing the daily banking fees across your different markets.
Obviously your model, when you attract deposit relations has this really been a very low cost run. I was just wondering how increasing fees effectively without really adding value to the customer is helping you for philosophy?
How that is likely to affect your brand? In say Spain, France, Italy etc.
or are we basically talking about just a small catch up with the competition? Also on the fees side of things, could you just give some color on the proportion of fees that are derived from third parties in the various segments.
So Belgium, Netherlands and also CGM. On Basel IV I had a question on how the various buffers are likely to interact.
Is it your understanding that the P2R and P2G buffers already includes components for risk-weights, so that if Basel IV comes in, the ECB can effectively automatically reduce those buffers those. Or is it unclear whether risk-weights are basically unaccounted for in those pillars?
And also on the P2G versus the management buffer, what is your thinking if Basel IV comes on. Would you be willing to reduce your sort of undisclosed management buffer and make it coincide more or less with the P2G requirement or would you still be stacking a pretty significant management buffer on top of the P2G.
Thank you very much.
Ralph Hamers
Thank you Stefan. I'll answer the question on your fees and then I think Koos will go into the Basel IV questions.
Specifically on fees, let me be clear we're here to truly empower our customers and with that, we feel that investing in digital is the way to go in order to ensure that we do deliver a differentiating client experience. At the same time we have said that, while we're doing this we have to develop a primary relationship because we feel that primary relations at least we know from research they're eight times more loyal and four times more valuable than product relationships regardless of the product, regardless of the product and hence we're trying to develop relationships across the board both in the wholesale banking side as well as on the retail banking said.
Now if you develop these relationships across the board and you want to improve your cost by, and you need new products. And many of the new products come with fees rather than with interest income and therefore we do expect fee income to increase overtime.
Now whether this is fee income that we charge directly to our clients or whether it is fee income that we get from third parties in the back of that, it really depends on the offering on the product. It also sometimes depends on the local regulatory environment from their perspective, that's a one side.
Now your specific question on the introduction of daily banking fees. I think it's a good question.
It's one of the discussions that we've had. And clearly ING stands for an empowering brand, it stands for an efficient bank, it stands for a digital bank and then you have to make sure that if you do charge fees and clients are to be paying fees, now there's a reason for that, there's a value added for that.
And therefore before we introduce fees also on daily banking it really comes with the package that we then offer to our clients through which they can see the added value. If we don't see the added value, it's going to be difficult to charge fees for it.
And so we're very careful to do so because indeed it may impact on our brand and we have to be careful with that. With that I'll give the floor to Koos.
Koos Timmermans
Yes, so on the interaction of buffers and buffers on buffers, because we normally yes we have a 4.5 minimum buffer we have a 2.5 capital conversation buffer, then on top of that we need a buffer which is then called the our systemic risk buffer. So that brings us already at 10 and then we have our P2R, so that is a stress test buffer, on top of that buffer that brings us with counter cyclical around to the 11.8 and currently we're at 14.5.
so you might say there is a buffer between all the add up of these requirements, will that be reduced if Basel IV happens normally you hold a buffer because of uncertainty and if Basel IV is clear, then we start to determine what the buffer will be north of the P2R requirement and so we will determine the management buffer and that management buffer will include the P2G. but the size of it will be determined by a few things, number one volatility and that could be IFRS 9, number two volatility because that could be based on you know our revaluation reserve or our FX sensitivity and then third element is RWA migration which you might get because you know as you see we're living right now in a pretty benign environment at a certain moment if a market turns, you have both IFRS 9 against you as well as that you have negative credit migration, so for these kind of things you want to hold buffer as compared to your P2R, but let's first wait what the Basel requirement will be and from then on, we will say like what will be our buffer at that time.
Ralph Hamers
Stefan maybe to add, clearly as Koos is indicating we're making this case that if regulators think that we're sufficiently capitalized as we speak, with the CET 1 or EUR 45 billion because discussing buffers and percentages you know, this is all very interesting. Within the end do the EUR 45 billion of CET 1 capital is that sufficient for a bank with the risk that we have in our balance sheet.
Yes or no? At this moment it's saying yes it is.
So whichever way you want to calculate things through Basel changes whichever buffer you want to call or whichever percentage you want to determine because of whatever formula you think of, is EUR 45 billion enough yes or not? And at this moment it's saying, yes it is enough.
So if we go north from the 45 for whatever reason the question can certainly be, do you need all those other buffers whatever you call them and all those percentages in order to improve. And that the only way to have this discussion because otherwise we continue to trick ourselves into percentages that represent completely different numbers of the underlying risk and that is the only way to have a clear discussion around all these subjects.
I mean we confuse ourselves to debt as to how we want to calculate things and what kind of buffers and percentages we want to put on ourselves through, but in the end for bank like ING it's EUR 45 billion CET 1 enough yes or no? That is the question.
Stefan Nedialkov
Yes, Ralph just to follow-up on your observations. I completely agree with you.
I mean Basel IV is effectively a change in regulatory accounting at the end of the day. Some of the comments and some of this comments are coming from Central Banks is that capital requirements were not set in absolute Euro amounts, they were set in basically percentages.
In other four, the ECB to offset this regulatory inflation basically which is not necessarily based in any economic reality, you might have to basically bring your P2R and a lot of the P2G's down to zero. So at the end of the day in Europe you might have to have just 4.5 plus 2.5 as an overall capital requirement at the CET 1 level and that just looks bad from the point of view of the ECB.
So we as analyst are just and everybody is trying to square these two things off, with each other.
Ralph Hamers
Same goes for us.
Stefan Nedialkov
All right, thank you.
Operator
Our following question is from Mr. Bart Jooris of Degroof Petercam.
Go ahead your line is open.
Bart Jooris
Two questions on the results. What do you see on potential for further provision releases in the future?
I understand that maybe in retail Netherlands there may be more limited that in than wholesale banking. Could you give us some flavor on that?
And then second could you give us some more insight on your RWA growth could you elaborate on what cost the market RWA decrease and how that could evolve in the future and what will the FX effects on the RWA?
Koos Timmermans
Thank you Bart. With regarding to future provisions I mean.
Basically at least in the short-term what we see for this year, is that we believe that the risk cost will become well below what it was last year, but I mean that's only couple of months. Clearly, there are always volatile portfolios and especially in wholesale banking provisions can be relatively lumpy, so if you can further ahead and it becomes a bit more difficult to predict.
In the end and I think also Ralph said in the beginning through-the-cycle we look at a risk cost level of 40 to 45 basis points across a cycle and also in this cycle, we do not see that to be different at least for now. We do not see an immediate change in the economic environment, so for a short-term we continue to expect risk cost to be benign but again there are volatile sectors and [indiscernible] also banking books, so we need to be careful there.
When it comes to risk weighted assets basically this quarter there was an increase of EUR 0.7 billion which was comprised of volume elements which is growth in lending which cost an increase of 3.3 then it was operational risk increase of about 2.7, there were some risk migration in [indiscernible] on improving of the macroeconomic environment and there were decreases due to forex as well as the decrease in our market risk and that in the end made up, that combination made up the RWA rate or the relatively limited RWA increase of EUR 0.7 billion. And in the end then that's what you will also see when you look at the composition of RWA which is largely credited there's so much market and operational risk.
I mean in the end largest driver all things being equal will be the increase in our loan book.
Bart Jooris
Yes, but did you see more room for market risk decrease of RWAs.
Koos Timmermans
Actually, can you repeat the question?
Bart Jooris
Do you see more room for further market risk decrease of RWA?
Koos Timmermans
No basically that depends on our activities as you can see our CVA is relatively limited. We always link our market activities to our client activities.
When volatility is low, the risk rate in that regard are bit lower, but in the future of course and Ralph also talked about it, as FRTB [ph] will be coming and that in couple of years' time could have an increase in RWA as an effect.
Bart Jooris
Okay, thank you very much.
Operator
Our following question is from Kiri Vijayarajah of HSBC. Go ahead your line is open.
Kiri Vijayarajah
It's Kiri Vijayarajah here, from HSBC. I just wondered if you could share your thoughts on the impacts of potential Dutch tax reforms not just your kind of blended corporate tax rate, but also what it might mean for the Dutch mortgage market and is there a potential changes to mortgage interest deductibility and if there is a risk, you could see an acceleration in mortgage redemptions.
So just your thoughts on that will be helpful. Thanks.
Ralph Hamers
The proposals of tax reforms are on different fronts. On the income tax, it goes hand in hand indeed with the proposal to further decrease the mortgage tax deductibility overtime and yes it may mean that overtime you would see a further repayment of prepayment of Dutch mortgages if that is the case.
But we should all realize that you know these changes are happening over period of 20 years, so it is something that it goes gradually overtime and therefore we'll probably not necessarily disrupt the market themselves. And also certainly not the way we deal with our clients and the income profile of our business.
I mean it will just be a lengthy process, so that's the one on tax reform on the income tax and the tax deductibility of mortgages. On the corporate tax, there's going to be decrease at the sets of proposal of corporate tax on one side, on the other side there's this discussion about tax deductibility of leverage, on the other side we don't know the specific wording there and the - so we'll have to wait until we see that whether that's going to affect us or not.
And then the answer I think which is the news for investors is that, there's proposal to abolish dividend tax on the gutter [ph] which should I guess be a positive.
Kiri Vijayarajah
Thank you, that's very clear.
Operator
Our following question is from Mr. Benjamin Goy of Deutsche Bank.
Go ahead your line is open.
Benjamin Goy
Two questions on your loan growth, please. First on the Netherlands, it feels like your net production is getting incrementally negative, so wondering when we see a turnaround here and return to positive growth.
And then secondly on the wholesale bank, it feels like over the last three quarters you're moving away a bit from US dollar lending and doing more in the Eurozone and general lending in particular. So wondering about the rationale here, do you - are bit more worried about let's say US dollar exposed credit cycle or do you just see more opportunities in the Eurozone some more color will be appreciated.
Thank you.
Ralph Hamers
Okay, thank you Ben. Well specifically on the Netherlands.
We're increasing our market share and mortgages for example, it has to do with the fact that we have a little bit more appetite on the long run of the market of the back of the clarity that mortgage credit directive gave from a prepayments cost perspective, but also there as you are used to, we do prize a longer term assets both on the retail side as well on the wholesale bank side. And the different way from shorter in order to not to have a legacy book under whatever proposals come from Basel, but we do see that we're picking up on market share there, which is offsetting the automatic repayment that is under the portfolio as well as the - the transfer that we do.
That's on the mortgage side. On the SME side, we see the amount picking up which is almost equal to the current kind of level of repayments on that book.
So basically we see the market turning there and that's the positive effect there. On the wholesale banking side and Steven will fill me in.
it is not so much a worry, we see a lot of market activity in the US taking out bank loans, reprice at levels which are not sufficiently attractive for us. As you know we're very disciplined in the way we price our lending, we see actually more activity also in the general lending in the Eurozone and therefore we can shift our activities there and grow there.
And as said you know, we benefit from a diversification in product and geography, but we keep the same pricing hurdles irrespective of the activities also on the wholesale banking side. Steven?
Steven van Rijswijk
I mean if you look then over the past three quarters, you see every quarter in the wholesale bank it is something else, and so the first quarter was an increase in such as finance. Then there was an increase in Ref and working capital solution, now the third quarter doesn't in general lending and working capital solution, so there is not a particular concern about US versus Europe in that regard, you see still growth continue on both sides of the ocean, we have well spread portfolio and the reason why we grew faster this quarter in general lending and working capital solution was in one hand there were a number of larger corporate activities including M&A which then calls in terms big underwritings and loans, corporate underwritings and loan, it has increased general lending and moreover we're growing our working capital solutions business and that is our trade finance business you will, whereby on the one hand from supply chain finance we focus on the higher rated corporate for the unsecured loans and for the trade receivable portfolios which is the secured receivables, we grew across the board and when the trading activity is taking over Europe in the Eurozone that book is growing.
Benjamin Goy
All right. Thank you.
Operator
Our next question is from Mr. Matthew Clark of MainFirst.
Go ahead your line is open.
Matthew Clark
Two questions on net interest income, please. Firstly on the hedge treatment change in the accounting distortion, would you expect the impact to be at a similar level in coming quarters or is that a completely random kind of could be positive, could be negative depending on market moves and how about effect [indiscernible] etc.?
And could you if it's going to be persistent to obviously will distort the segment pull, revenue trends as well. So it will be profitable together the full breakdown of the segmental impact.
I think if any given the impact in Dutch retail and the corporate some rather than presumably there's a residue that's also effecting other divisions. And then second question also net interest income, should we be worried the kind of pressure we're seeing in Belgium this year we're going to see in Germany and the Netherlands next year, the year after as you ran after scope to cut deposits and deposits rates.
And maybe you could just give us some guidance on a medium term outlook for the I guess the saving margin there?
Ralph Hamers
Yes, so on the NII versus NIM because I think your last question is more on NIM versus NII. Also yes you can expect that from NIM perspective the income on the saving side of the business is under pressure, so the margin is under pressure.
I mean the replicating portfolio in the end get reinvested at lower rates and therefore, the margins that we make that we normally offset with decrease savings rates and at a certain moment you have reached the bottom, we're not there quite yet but there is margin pressure on that side. But from a NIM perspective there a couple of things we can do and still manage on NIM which we have indicated already in the presentation, one is for the balance sheet optimization.
Second one is to, change the composition of the asset side of the balance sheet by gradually, prudently but increasingly improving and are changing the increasing the percentage higher NIM assets. So those are two things to be that we do in order to offset the pressure that we see on the savings rate, that's the NIM.
Overtime given the fact that we're growing our book the NII should increase but that's a different factor. I mean we're growing the book and NII will increase, and NIM we feel, we can for the foreseeable quarters manage at the high 140s, low 150s.
But specifically on the effect of hedge relationship. I'll give the floor to Koos as well.
Koos Timmermans
Yes so on that hedge relationship. So again maybe to reiterate we have EUR 91 million which is basically now part of interest result and not part of other, so overall in all company its worst.
We expect that to be there in the next quarter as well, but later on we will guide for how long or when that will taper off, but expect it to be there next quarter if you ask a breakdown. It's 38 in the Netherlands, 23 in the wholesale bank, 27 in the corporate line and 3 in Belgium.
But again please remind that overall it's just a different categorization and so in that sense it's not a profit or a loss.
Matthew Clark
So just coming back to the NIM for a minute. I mean you've had flat net interest margin for a couple of years broadly and all the fact is, that you've mentioned the balance sheet optimization, the mix shift away from mortgages is just been present there and necessary to keep it flat, but I'm just wondering if we look beyond the next quarter or two, to the next year or two.
When you don't have that additional lever of following basing deposit rate, can you still maintain that high 140s, low 150s margin outlook or should we be more thinking in a mid to high 140s and wait and goodbye to the great low 150s because that we've seen this year when you still have that scope to cut savings deposit rates.
Koos Timmermans
Yes, I think - you have - I can see you have spent considerable time on analyzing this like we do in essence what you see is that, overall for the next half year the high 140s, low 150s we can guide. Also remind that we have kept our NIM flat despite the fact that in some of the countries say Belgium, we already have encountered that we hit a bottom in terms of what we can with savings rate.
So that means like it's not a matter of everything completely starts to change as of a certain date. This is already the case there, but you're right that both Netherlands as well as Germany you start to at a certain moment hit a bottom in terms of how low can you go, lower with your rates.
But we still have the other levers, we can still be smarter about the mix, we can still grow and we can still make sure that we reduce our investment portfolios some further, so there is room to do that. So that gives us some comfort over the next half year, how this goes.
If you talk about two years out, please also note there that if you look at the forward curve, you see interest rate at a certain moment increasing as well, so if then your reinvestment starts to be somewhat higher and you don't change your savings rate and you might get an uptick. So it's all in all, I would say for the next half year guidance it's still around similar, so the high 40s, low 150s and that is where we see it and again, we're also looking forward to [indiscernible] at a certain moment taking some actions but we haven't seen that yet, but a forward curve points to some alleviation there at a certain moment after a year.
Matthew Clark
Thanks very much.
Operator
Our following question is from Miss. Sofie Peterzens of JP Morgan.
Go ahead your line is open.
Sofie Peterzens
Sofie Peterzens from JP Morgan. I wanted to talk about your loan growth in the retail other and also loan growth in Challenger and Growth Markets.
It was too busy up these quarters, could you just give a little bit more details from which countries or in which countries that you're seeing the highest loan growth. And my second question is on TRIM do you have any update on TRIM?
What have your discussions were basically been stood for [ph] and when do you think you're thinking further details on TRIM? Thank you.
Ralph Hamers
Steven will answer the question on TRIM and I'll come back on the loan growth thereafter.
Steven van Rijswijk
Thank you, Sofie so until now and we've told before in September the on-site on TRIM started and the initial focus is on the mortgage books in the Netherlands and Belgium, then on the SME book in the Netherlands and then on the all the trading models and in 2018, the focus will be on the low defil [ph] portfolios which are the wholesale banking books. So until now, the initial focus has been on mortgages, I think the on-site in the Netherlands is largely done and the Belgium is still ongoing and as of early 2018, the SME portfolio dynamics will be reviewed, so those are the next steps, we've answered many questions, we've had lots of discussions.
But official feedback from the ECB are an outcome if that is what you're asking me, that will only come somewhere early 2018 at least from the initial part of the TRIM exercise.
Ralph Hamers
Then Sofie to come back on our loan growth and which countries contribute principal. They all contribute, but specifically for the quarter we've seen better performance in Poland, in Australia, in Spain and Romania, but then there's also we see growth across the different segment across the different asset categories.
So it is mortgages and specifically in countries like Romania and in Poland it is also SMEs and mid-corporates.
Sofie Peterzens
Thank you, that's very clear.
Operator
Our following question is from Mr. Rajesh Kumar of Société Générale.
Go ahead, please your line is open.
Rajesh Kumar
Rajesh Kumar from Soc Gen Credit Research. Can you please talk about your 2018 issuance plan, you have until over EUR 8 billion OpCo maturing in 2018.
Is it fair to assume you'd like to replace those with whole [indiscernible]? And what about whole cost update, any plans out there?
Thank you.
Koos Timmermans
Thanks for that question. If you look at issuance broadly speaking, what we're doing as we don't need any money, is making sure that when senior debt matures we'll replace it with OpCo Senior so then we can fulfil our TLAC/MREL requirements, so that is broadly speaking how 2018 would look like.
More specific plans on that side, we don't want to give if you look at the Tier 2 part, there what you've seen is, we're well and comfortable within our Tier 2 jacket at this moment, next year you will have some grandfathering and to be on so we already anticipated that, that is roughly speaking how our plan looks like. So lower on debt part a bit higher on the senior, but that is a recycling strategy.
Rajesh Kumar
Okay and again so you're done with your 2017 plans or is there some room out there?
Koos Timmermans
We don't comment on exact issuance now, but we're always looking at markets.
Rajesh Kumar
That's very clear. Thank you.
Operator
Our final question is from Mr. Marcell Houben of Credit Suisse.
Go ahead your line is open.
Marcell Houben
I've two last. The first one is on the hedging strategy towards the change the EUR 91 million in the NII.
Can you just explain to me little carefully what exactly means the end relationships? What were you hedged against and does it not increase your risk profile of the entire bank or volatility?
Can you just - just trying to explain what happened there, what was the reason for the ending of a relationship? The second one is on the Belgium, obviously we've seen the Netherlands quite a good performance on cost and I was just wondering when can we expect something similar for the Belgium market.
Thank you.
Koos Timmermans
Yes, maybe so on the hedge relationship. First and foremost it doesn't increase the real economic risk of a company if you relabel it from an accounting perspective, so hedge is still there.
It's only in another category and what we do again and what I said is like from time-to-time you want to change some - you relook at your hedges and you say like, can I do with bit less and can I use hedge accounting a bit less? So there what you can do say particularly short dated hedges which have low basis point value, any way you move them a bit out of your hedged relationship, so that's exactly what we've done.
But please note it's more an accounting reclassification what you do then to say that you lift the hedge or eliminate it.
Marcell Houben
Excellent. Thank you.
Ralph Hamers
Marcell on your last question. Specifically on Belgium, so we had a long negotiations with the unions, we changed some of the plans in the way that work out softening or reducing the impact of our own employees from a business case perspective, it doesn't really change.
We're currently going through - we just finished the process the way for one in the redeployment process which means that people working in specific areas have to reapply for their jobs, there is less jobs, we've realized that. But they reapply, so the first wave we've completed from that perspective, there's 2,000 roles impacted in that first wave and people on the other side are picking up the packages the redundancy packages that we're offering.
Wave two of the redeployment is ongoing as we speak, it has to do more with the branches and the client services at where 2,500 roles impacted in that and that is ongoing as we speak. So in terms of when you can actually see it in the cost numbers maybe Q4, but certainly Q1, Q2 next year you should see some of the effect going through the cost line.
Marcell Houben
Excellent. Thanks Ralph.
Ralph Hamers
Okay, I think those were all the questions then. I'd like to thank you first to - for calling in again and going with us through the quarter.
As always your questions, your preparations, the way you follow us truly help us to steer this company as effectively and efficiently as possible so, again my credit also to you, that you keep calling in, that you keep asking the questions and keep us sharp in the execution, of what is seen as a successful strategy, we retain strong commercial momentum in both retail and wholesale and as reflected in the growth of our customer numbers, the core lending numbers, the risk costs are low reflects the current were benign. Operating conditions that we see, and so we're happy with the quarter and we're working on a successful strategy and growing our customers and growing our customer experiences.
So thanks for now and for further and more detailed questions. You know that our team for Investor Relations is always happy to take your calls.
Thanks a lot. Bye.
Operator
Ladies and gentlemen, this concludes this conference call. On behalf of ING thank you for attending.
You may disconnect your line now.