Feb 6, 2019
Operator
This is the operator. Welcome to the ING's Fourth Quarter 2018 Conference Call.
Before handing this conference call over to Ralph Hamers, Chief Executive Officer of ING Group, let me first say that today's comment may include forward-looking statements, such as statements regarding future developments in our business, expectations for our future financial performance and any statements not involving an historical fact. Actual results may differ materially from those projected in any forward-looking statements.
A discussion of factors that may cause actual results to differ from those in any forward-looking 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 to or a solicitation of an offer to buy any securities.
Good morning, Ralph. Over to you.
Ralph Hamers
Good morning, everyone. Welcome to the full year 2018 results call.
I'm here with CFO, Koos Timmermans, and CRO, and Steven van Rijswijk. So let's just go through the presentation that I hope you have in front of you.
ING Group posted a net profit of €4.7 billion. If we exclude the settlement with the Dutch authorities in the third quarter and net profit for 2018, that €45.4 billion, that translates into a healthy return equity of 11.2%.
Also, in the fourth quarter, we are continuing to work on the KYC enhancement program. As you know, we take this responsibility very seriously, regulatory compliance is the key priority not just for management but for the firm as a whole.
If we look at 2018 from a commercial perspective, things have really continued to progress. Our primary customer base grew further by around 10% to 12.5 million.
Core lending growth for 2018 came in at 6.4% in line -- in the of our continued growth in and clearly if you look at us nearly all markets while at the same time were able to keep the interest margins up [indiscernible]. The group CET1 ratio ended at a solid 14.5%.
And if you look at future continues to grow profitably within our range of risk appetites. Also, see some market dynamics through which we expect may be some lower Wholesale Banking growth.
From that perspective, some of the programs that we have running [indiscernible] operational leverage growth, so to look more on the cost side in order to ensure that we are to work within our cost income ratio. But we also see some regulatory expenses increasing, including a potential Romanian bank tax that may be introduced in 2019 For the year, we proposed an effective full year cash dividend €2,646 million or €0.68 per share, this obviously at the AGM in April.
Please then turn to Slide 3. This basically, sums up the commercial performance.
And you see the trajectory upward that we launched about 5, 5.5 years ago with a real focus on our client experience that we are on the right track here. Primary customers up €1.1 million in 2018 [indiscernible] in the fourth quarter alone.
So basically, a very good quarter we saw there as well. And a closer to our target of 14 million by the year 2020.
If you look at where this growth comes from, it's really coming from all of the different developments in which we play but specifically in both forward thinking strategy we have with continued growth in primary customers. Those are markets discipline growth have spread across all the markets with these customers coming in and also the primary customers coming in.
Translated into net core lending growth was at €36.6 billion for the year at a 6.4% increase. And also, a good customer deposit growth of €19.3 billion, a 3.6% increase year-on-year.
So again, in 2018, from a lending perspective [indiscernible] 3% to 4% loan growth to 14 million for our 2020 ambition. More specifically, in Retail Benelux, we have also basically returned to core lending growth in 2018, and we'll come back to that later.
In the fourth quarter, we were ranked number 1 in 6 of our retail -- out of 13 retail market in terms of Net Promoter Score. In another 3 markets, we were ranked in number 2.
Then turning to the transformation programs and where we are on these. Every quarter, we will give you a bit of an update here.
If you look at the program in Belgium and the milestones reached in fourth quarter, we migrated servicing of former Record Bank mortgages and consumer loans to starter, which is an important step to show that we can also start decommissioning now legacy Record Bank systems. And if we look at the Model Bank program, which is basically the program where we build one bank of 4 different -- or 5 different countries, we've reached a very important milestone.
We migrated all savings customers in the Czech Republic to the new retail platform. And as you know, this will be later used for the other Challenger countries.
That new platform makes use of the latest ING IT building blocks, like TouchPoint Architecture, our private cloud. And with that, we actually create scalability, flexibility towards building the one cross-border Retail platform.
On Welcome, this would be the program we have running in Germany, we continued our digitalization and operational excellence initiatives to build the leading digital bank for the future. We're getting closer to the end of this program.
It's basically kind of delivering everything that we had wanted and even more on some sites and some areas. So that's actually quite good as well.
And on the Wholesale Bank, we continue to streamline operations and further sharpen controls. We use a real time transaction monitoring.
So progress on all programs here. Turning the page, we get into an update on sustainability.
One thing that we're specifically very proud of is the Terra approach. As you know, we launched the Terra approach, which basically is a methodology through which we engage with our clients, see how we can decrease the footprint -- the interex footprint of our asset base in line with the Paris ambition, Paris Accord.
We came to a specific commitment and we launched that in Katowice, that together with 4 other European banks. And so we're happy with that because in the end, it's all about how do you create an industry standard.
We pledged our commitment to decrease our indirect footprint and we pledged our commitment to this methodology. And clearly, if there is better methodology in the future, we'll certainly adopt that as well.
But in the end, for you or for many other stakeholders, it's important that we do that in a standard way and that we agree on the standard and therefore having the other European banks on board kind of shows first, that this is an open approach and open force approach. Effectively that -- note that I think we can get going really influence a climate change.
Even more on this, we also issued the largest green bond today by a European bank and we got the IFR 2018 SRI Bond of the Year award for that. That also shows that we can become more sustainable.
It's not only our clients, but ourselves as well. And so this is another testimony to the fact that we take this very seriously.
In the Netherlands, we have agreed with the other large banks to put our ATMs together in one in the same company in order to better and give better customer service and at the same time, be able to save costs. That will happen over time with the Geldmaat initiative.
Now on the innovation side, we had 2 things that I wanted to specifically highlight. The first one is Cobase.
We invested through our ING Ventures firm. So more in Cobase.
Cobase is this multibank aggregation platform for the corporate market, and it's really successful. It's getting more and more clients.
It offers payments, cash management and treasury services all in one place. So for the average treasurer this is the real help in managing its -- the finances of the company.
On the other side, we also invested in a company called Axyon, together with an Italian bank. And Axyon delivers artificial intelligence to improve syndicated loan decisions.
So for our syndicated loan business, in which you know, we are one of the larger banks, typically in Europe. We are very happy that it gets worked through artificial intelligence to improve our distribution of our loans.
And that's the update on the innovation side. Now we turn to the year results.
I'm now at Slide 7 for you. Look at the underlying net results, it increased to €5.4 billion in 2018, which is an increase of 8.7%.
That's mainly supported by higher income and a lower effective tax rate. 2017 had a higher effective tax rate due to the one-time impact of deferred tax asset as a result of the corporate tax reduction in the U.S.
and also in Belgium for us. The full year, we managed to achieve an underlying return on equity of 11.2%, while at the same time, the group CET1 ratio remained solid and increased to 14.5% by achievement.
On Slide 8, we can see some of the key drivers underlying the income growth. The underlying income growth itself grew to 3% since 2015.
So annually, a CAGR of 3%. Despite the impact from the low rate environment and our liability income, the NII has grown over the past years, as you can see here as well and also the fee income has progressed well, in line with our ambition of growing this by 5% to 10% per annum.
So basically, you see the composition of the underlying income growth in net interest result as well as in net fee and commission income. Very solid picture here.
If you compare it to 2017, the underlying income grew 2.2% in 2018, and that's mostly because of the stronger NII in the Retail Challengers & Growth Markets and also banking except for Financial Markets as well as market improvement in the Corporate Line that we had. Lastly, in commission income, was up despite a more volatile equity markets backdrop in the fourth quarter.
As you know, that backdrop put some pressure on investment product fees. I think you kind of known and are familiar with that.
But we also see now that in the net fee and commission income we see that our acquisition of Payvision, which was completed in the second quarter of the year, is also contributing nicely to our fee line. So good movement in there as well.
Turning to the expense side. We exclude the regulatory costs.
You can actually see that the expenses have been well-controlled in the past years despite a substantial increase in digital investments following the decision to accelerate our Think Forward strategy in 2016, the CAGR there of 1.3% as the volume has really increased in there as we have truly invested in our offering to our customers, to improve the offering for which we actually get all these new clients. That has actually -- it's actually pretty well-balanced [indiscernible] investment operates average.A real improvement there.
And if you look at the risk costs, they remain broadly stable in 2018 at €656 million or translated, 21 basis points of average risk-weighted assets, which, as you know, is well below our through-the-cycle average of 40 to 45 basis points for the risk-weighted assets. As we guided, we expected that 2018 cost income ratio to come in and around 55%.
And due to the cost discipline, we managed to end up just below that number at 54.8%. And you see the picture on the right-hand side here that if you take out regulatory costs, ever-increasing regulatory costs, in fact in terms of cash regulatory cost, you'll see that we're actually running a very efficient operation with a cost income ratio of 54.8%, as we continue to work on becoming efficient [indiscernible] further [indiscernible] there we can commit further [indiscernible] .
You also see that regulatory costs a major influence in our cost income ratio here. Turning to financial ambitions as to where we are at [indiscernible], not quite [indiscernible] continue to perform well against nearly all of these stated financial ambitions.
Both the CET1 and leveraged remained well ahead of the minimum requirements [indiscernible]. If we look at operational leverage, we see that maybe the stricter approach to new business in terms of return and see where we are in the cycle, economic cycle, we could see lending growth in Wholesale Banking a little bit lower.
And the efficiency programs continue. The investments in digital continue.
So if the operational leverage that we achieved with that, we can't use to continue to grow, we will have to work it on the cost side through the same programs. So that's the discipline that we have.
In time, we are also confronted it with increasing regulatory cost as I just showed you in the previous page. That will have an influence as well, and so continued pressure are for low rates and ROE liability income.
And the operational leverage is certainly an important one for us to manage. In the end, it's an input factor into the key performance driver, which is the return of equity, which you see has increased a full percentage point in 2018 from 2017.
So there's many different drivers that support key performance indicator here. Return on equity, that's the one in the end that we all manage and that's increased by a full 1%.
On the dividend side, also there for 2019, our policy is to pay a progressive dividend. Let's just go briefly through the fourth quarter results and then open the call for questions.
I'm now on Page 12. The underlying pretax result was around €1.7 billion in the fourth quarter, and it marks an 8.5% improvement versus the same quarter last year.
This is largely caused by strong net interest income at resilient margins, which we will come back on later; solid fee income, and there is a higher profit for our stake in the Thai bank TMB, that came into the income. If you look at things sequentially, the underlying result before tax fell 20.3%.
That's mainly caused by higher expenses of which the largest part relates to the annual Dutch bank tax, which is not a surprise. But also due to lower Bank Treasury results related income [indiscernible] quarters, sequentially.
But then in third quarter, we had a Bank of Beijing dividend [indiscernible]. The underlying income quarter contained largely one-offs in the quarter.
We reached an agreement for the intended settlement of an Italian run-off portfolio [indiscernible] for a loss of €123 million in the special income line. At the same time, in order income, we recorded €101 million gain from the transaction of the equity-linked bonds from Belgium.
Turning to the NII excluding Financial Markets 3.6% year-on-year, and that's driven by higher interest results in customer lending. While the overall lending margin remained stable compared to the year-ago quarter.
This was a result related to customer deposits compressed a little bit to compare to the fourth quarter of 2017. Higher volumes that could not offset the pressure on savings from this one and current accounts as the reinvestment yields are lower in a replicating portfolio.
Group NIM was up at 156 basis points in the fourth quarter, which marks a 4 basis points improvement quarter-on-quarter, as fully explained by a higher interest result in Financial Markets. The NII results of Financial Market tend to be volatile as you know, and we report on that every quarter as to how we quantify or classify income on the Financial Markets side.
And in the Financial Markets side, there was an offset in the other income line, which you will see later. But from a margin perspective, you see that an improvement of 4 basis points on the back of Financial Markets.
If you then look at the 4 quarter rolling NIM, which – which just add some of these volatile items, NIM was stable at 153 basis points. Looking at core lending growth in the fourth quarter, we recorded €3.2 billion net core lending.
After in all quarters in 2018, we see a continuation on the Retail Bank of that growth. The bank actually increased by €4.7 billion, of which €3.5 billion was in mortgages in almost all countries.
All the lending growth of €1.2 billion mostly relates to the business lending in Belgium. You can see that here as well in this picture.
On the Wholesale Banking side, we have reported a decline of €1.5 billion, and that was predominantly in Trade & Commodity Finance. And it's largely as a consequence of a substantial drop in oil prices.
So that is really what has impacted this number. Because we have seen both in the transportation and logistics portfolio, but also the energy portfolio, that the drop in oil prices really impacted the TCF's volumes, and that's the resulting number that you see here.
Our focus on return as well as the appropriate risk as I've indicated to you earlier already may lead to some lower growth on the Wholesale Banking side going forward. See still a strong competition.
We still see looser credit soundness in the market. And as you know, as a general principle and as a sign of good credit risk culture, we are unwilling to compromise our structure or amend our risk and return standards.
That's how we've built the business over the last 25 years. And no matter what [indiscernible].
Now looking at the fee income. The fee income rose to €704 million from €674 million same quarter last year].
In the retail banking, this was mainly visible in the Netherlands and Germany and that's as a result of higher daily banking fees while we saw a decrease in Turkey and Belgium. Belgium, that's still related to lower investment productivity due to the volatile equity market.
Total fee income growth in Wholesale Banking rose by 4.5% [indiscernible]. As you know, that income in the Wholesale Banking side can be fluctuating, depending on when we close deals because that's how we make the fees [indiscernible] and this was a good quarter.
And then, as I mentioned, before already fee income on the Wholesale Banking side [indiscernible] now from inclusion of Payvision as of the second quarter in 2018. Financial Markets, total income, excluding CVA/DVA was down on both comparable quarters in line with with our peers.
You also see here [indiscernible] income to a net interest income [indiscernible] and that is [indiscernible] over time. And that is [indiscernible] for the end of the year, also on a 4 quarter rolling basis, really good [indiscernible].
Looking at Financial Markets specifically, impact over the [indiscernible] overall incomes active was visible, income corporate finance business [indiscernible] and that's one that -- which 4 of our peers, lower rate environment causes lower client activity to hedge the Challengers group in this [indiscernible] so that's an area, as we indicated last quarter where we [indiscernible] how we can [indiscernible]. As you are used to [indiscernible] us highlighting one of our businesses every quarter.
This time, I'd like to give you a peek at what we're doing in Spain. And actually, they had a phenomenal year.
It's got a strong commercial momentum across the board. I think the key to Spain's success is this model of having built a fully-fledged digital universe in their bank, increasing primary clients with [indiscernible] owning, by increasing cost side [indiscernible] as well in a digital bank owning on the back of additional product offerings, essential clients that have 2 or 3 products.
You actually, see that we can't go full-fledged digital universe [indiscernible] I believe [indiscernible] It's proof of our strategy. I think what is also clear from this state is the [indiscernible] the way for an actual bank to mobile banking, both in terms of contact that we have with our clients also in terms of sales, you see 8% of our total sales is made through digital, with mobile very [indiscernible] as you can see from [indiscernible].
One of the things that our Spanish colleagues have done really, really well is the focus on how we deliver on customer centricity and for many years in a row, we have won the Net Promoter Score in Spain with plus-27[ph] points versus the best competitor, and we compare ourselves with all the large banks in this market. It is the example how you challenge the market.
It is the example of how you win on superior client affairs with digital only, and you can really grow [indiscernible]. The Model Bank as we referred to earlier and [indiscernible], either for [indiscernible].
Looking at expenses. Expenses, excluding regulatory cost went down by 2.2% compared to the year ago quarter.
And that's [indiscernible] to continue that we have despite the inclusion of Payvision, a real accomplishment on this one. Fourth quarter last year included some additional restructuring costs, in addition to legal provisions.
Quarter-over-quarter, FX to regulatory costs were up 3.9%, that's Q3 to Q4. And that was visible, of course, except for Retail Germany.
And this quarter also included higher spend compliance and the KYC enhancement program. Regulatory cost remains at a high level, around 5% for the full year compared to 2017 as you can see.
Bank [indiscernible] meaningful regulatory costs, is expected to go up in the first quarter of '19 with the [indiscernible] as well. On a 4-quarter rolling average, the ratio improved to [indiscernible].
In the quarter itself, the cost/income ratio was actually 57.1%, and that's due to the higher regulatory costs, you saw regulatory costs, but then lower than the cost/income ratio in the third quarter of 2018. So it continues [indiscernible].
4Q '18 risk costs. Risk costs in the fourth quarter came in at €242 million or 31 basis points of average risk-weighted assets.
This compares to €215 million in the third quarter and €190 million in the same quarter of last year. We will never swing to a higher risk cost in the quarter that increases [indiscernible] by a more cautious approach for part of the mortgage portfolio.
In the Retail Challengers & Growth Market, risk costs almost fully related to [indiscernible] and not to [indiscernible]. Germany was at €45 million net release after [indiscernible].
Maybe to focus on [indiscernible] on this one. Turkey saw an increase in risk costs for the quarter, and that's [indiscernible] files in SME and the corporates, partly due to Stage 2 migration.
As you know, in the IFRS 9, that's a look at the macroeconomic scenarios and that has an influence on risk costs as well. Looking at the Stage 3 ratio for the country, it's still manageable, 2.7%.
As you know and as you are also familiar with -- in situation like this, monitoring situation on the ground closely. Wholesale Banking risk costs were low this quarter at €54 million with a few individual Stage 3 files in the Americas and Italy, but no trend detected with the individual files [indiscernible].
Turning to capital on Slide 19. Good progress on the CET1 ratio, rose meaningfully to 14.5% from 14% in the third quarter.
That was a result of the slightly lower risk-weighted assets, but for most -- the increase in capital was caused by retaining most of our fourth quarter net profit. But the net profit in the fourth quarter partly used to pay the dividend and also the progressiveness in the dividend, but the remainder is then put into capital.
Movement of risk-weighted assets. As I said, that's a slight movement there.
That mainly reflects another quarter with positive risk migration, lower operational risk-weighted assets. But we also have seen other model updates and higher market risk-weighted assets.
It's all small amounts and there is -- in the deck, in the appendix, there is more information on that. Conclusion here, though, is that we continue to be well positioned to achieve a Basel IV fully loaded CET1 ratio of around 13.5%.
We remain well ahead of our SREP requirement of 11.8% here as well. And for the full year 2018, I think this puts us in a very strong position to propose another attractive, progressive dividend of €0.68.
Looking at the debt issuance program 2019, Slide 20. We are well positioned for other regulatory requirements, most notably the buildup of our Berlin Basel IV, either TLAC and/or MREL.
Our pro forma TLAC ratio, which only includes eligible instruments issued from the holding company, was at a comfortable 24.5% at the end of 2018. We've been quite active in the last quarter, as you know, the last 4 months, as you know, in the markets to raise substantial amounts of wholesale debt, continue to have strong access to the main funding markets.
Most notably, we have been active in euro and dollar markets but also in a range of other currencies and different formats as well. In the years to come, we will continue to build our TLAC and MREL position.
We'll do this through refinancing Tier 2 instruments and grandfather 81 instruments with CDR IV -- CRD IV compliant bonds issued by the group. And in addition to that, we will keep recycling, as you know, our maturing OpCo senior debt as HoldCo senior debt, and that's in line with our strategy of having ING Group as the designated resolution entity.
So it's been quite a long introduction to having a set of Q&A. Just to wrap it up.
To summarize, the 2018 performance confirms that we continue on the right track with the execution of our Think Forward strategy. The direction that we took 5 years ago to build the digital bank of the Future, I think, is even more valid today as we see that the world around us is changing even faster.
We have laid a strong operational management foundation in the past few years. And you should expect us to continue to have a relentless focus on achieving operational excellence and operational leverage.
2018 certainly has had its challenges, which forced -- which has forced us to reprioritize. Regulatory compliance remains key priority for the firm for the years to come.
Maybe concluding. We've seen a year with 2 sides, very strong strategic and commercial and financial performance.
On the other side, the settlement, clearly, we will continue to work on that. But I think it's also good to start to take a look ahead, and I'm very happy to welcome many of you at our Investor Day in Frankfurt next month, give you more insight into our capability and digital leadership.
Lastly, and I know there's many fans on the line here. I wouldn't want to miss the opportunity to express my gratitude to Koos, our CFO, who has been with us for 20 years, of which 12 years in the management board.
And he has shown exemplary leadership, taking us through many challenges that we have had to face over the last 12 years, structuring from a bank insurance company into a bank, and from a bank into a digital bank with superior and knowledge in many areas. And Koos, and I think I'm going to -- I'm talking on behalf of many of the guys and the ladies on the other side of the line, thank you very much.
With that, I'd like to turn to the audience and some space for questions.
Operator
[Operator instructions] Our first question is from Mr. Benjamin Goy, Deutsche Bank.
Go ahead, your line is open.
Benjamin Goy
Yes, hi good morning. Two questions, please.
First on your Benelux transition, maybe you can give some more color how the IT migration is going, where you're standing on your risk costs and whether we are through, let's say, the most critical part of this journey. And the second one is on Industry Lending and General Lending revenue performance.
Thought it was strong across net interest income and fee income and particularly given the headwinds you highlighted, so some additional insights will be much appreciated. Thank you.
Ralph Hamers
On the Benelux, I'd say, I'll give you transformation update, and Steven can give you also maybe more an update from a risk perspective here. [Indiscernible] in 2018, we really made some major steps integrating the organization, using an actual way of working, integrating the Record Bank into ING, migrating 600,000 customers onto the ING platform in Belgium, closing 600 branches.
Now also migrating our portfolios in consumer lending and mortgage lending of Record Bank to an outside party so that we can start decommissioning. So from a strategic milestones perspective, absolutely on track.
Many challenges with these huge programs. As you know that during a transformation like this, you have to -- if you're looking at different indicators, do you keep your commercial momentum?
Are you still getting the right returns? Is the cost really decreasing?
Also, are -- is the risk within appetite? And for that, I'll give the word to Steven.
Steven Rijswijk
Thanks then. If you look at the operational risk and I also refer to, I think, the page that was once presented in the Financial Times, I mean, every quarter, and that goes for every country, we look at all kinds of operational metrics, both on the commercial side, the revenue side, client side but also the risk costs and also, let's say, the operational and IT risks.
We do it in every country to see what goes well and where do we need to improve. You can see these [indiscernible] as scorecards, if you will.
You already saw in that page back then that in terms of the score, where we want this score to be, it is in line with where we want to be in terms of it under control. [indiscernible] we continue to work every day on keeping our control risk and processing risk and our IT risk control, and the teams have done a good job in progressing further on this one.
Ralph Hamers
And then your second question on Industry Lending. Ben, this is -- last quarter, we already indicated that we felt we were kind of off the cycle.
We're looking at economic growth globally, Eurozone. We're looking at the development in the world.
And I think that we've already indicated that we'll work on to be much more cautious in the leverage finance area, in the real estate finance area. So we will continue to be cautious, and that may influence some of the growth there.
At the same time, you know that we are very disciplined in the way we price our business in Industry Lending activity, the global activity. And we have a Basel IV coming.
We are pricing at a higher CET1, but we just don't know whether competitors will follow suit. And if you comply in all of this, would expect lower growth over the last couple of years we've grown some years 6%, 7% in wholesale, and maybe it's going to be 2% to 3% going forward.
We'll have to see. I think what is important is that we're cautious here and at the same time, then look at how we ensure that the operational leverage stays intact.
So to the extent that some of these transformation programs increase the efficiency, if we can't translate it into more business, we may have to translate it into lower costs. So that's ongoing, but it's nothing new.
But you know that we are very cost disciplined and also cautious on the risk side and we will continue to do that.
Benjamin Goy
Thank you.
Operator
Our next question is from Mr. Robin van den Broek, Mediobanca.
Go ahead, your line is open.
Robin van den Broek
Yes, good morning everybody. My first question is on your ability to grow NII going forward.
It seems that if you listen to Ralph, that's -- and also banking, you sounded a little bit more cautious than before. Secondly, if I look at the Euro STOXX growth, obviously, the December move has increased pressure on the replicating liability portfolio quite significantly.
So I was just wondering how we should look at that from the Q4 level going forward. Second question is capital.
You're 14.5%, I guess, including your Basel IV guidance of before, which I'm assuming has not changed thus far, translate into a fully loaded Basel IV CET1 ratio of 30.1%, 30.2%, so that's fairly close to the 30.5% you target to go to. I was just wondering what your thinking was on the positive risk migration of 15 basis points over the quarters you've had as a tailwind.
And with IFRS 9 making things more cyclical as well, how comfortable are you on the progressive dividend policy from that perspective? Thank you.
Steven Rijswijk
Yes. Thank you.
I think, Robin, the first question, if you look at the interest margin overall, what you can say is you state the right points that on the wholesale side, we want to be a bit more cautious with growth. At the same time, the December move with the low interest rates, that doesn't help either from that angle.
So we see the 5 years hold rate right now at 15 basis points, whereas if you look at an average portfolio, yielded higher. So reinvestments don't help.
Having said that, there is still a few things what we can do to support our net interest margin. The one is, and that was what we have done over the last 4 years, is very carefully look at the composition of the balance sheet.
The second part is making sure that we manage the balance sheet a bit efficient in terms of the total size of it. And the third element, and that is also important as well, that is to look at the repricing.
I mean, if I read this morning elements like an ECB saying like TLT rose and don't take them for granted, then it could mean that credit spread go up, and we are -- for a €600 billion a credit spread receiver and we are €400 billion a credit spread payer because that's how our balance sheet look like. So those are sort of the offsetting things.
Nevertheless, we are always a bit cautious on the margin. So the low 150s, high 140s, that is what our guidance is to the second quarter '19.
But as you can see, various factors play a role there. Thanks, Robin.
So on your second question, that's a good question. And that's exactly the reason why we keep the buffer.
So if you look at positive risk migration, which you know and again, quarter-on-quarter, for example, due to lower unemployment or higher housing prices, that could also swing the other way around. So what we do in our stress testing, we look which sort of timing to [indiscernible].
What could that be in a dampen scenario. As you know, we have a SREP requirement of 11.8%, so that's why we say, if you look at swings that can go back and forth, including IFRS volatility, it brings us to an ambition of 13.5% Basel IV, and hence, we are building up capital to get to that level by 2022.
Robin van den Broek
And may be to be clear, the Basel IV guidance basically is still the same as when you came out with it, I think, exactly last year, that still stands?
Steven Rijswijk
I can repeat, yes. I mean, is there anything that you mean with that or that you...
Robin van den Broek
No. I mean, I know your Basel IV inflation is more driven by input factors which puts you in a different basket than your main competitor in the Netherlands.
But -- hey you're making better than Netherlands. Of course, it's sad that some of the capital accrual of 2018 that basically wasn't sticky on their Basel IV.
So we're just wondering if there are any moving parts in your capital position from that perspective.
Steven Rijswijk
No. That does not mean you are correct.
It's -- our Basel IV requirements are largely based on input factors. We've always said that the impact, the 15% to 18% of RWA averaging [indiscernible] is about 2%.
80% of that would be a result of the input factor or so i.e. Basel IV January 2024 -- '22, as we could mitigate approximately 1/3 of that.
That leaves us with an increase on capital of 1.2%, approximately, until that period and as we try to build up capital to get to that level by 2022.
Ralph Hamers
So basically, your calculation of 13.1%, 13.2% is conservative. And the calculation of Steven was just indicating you get to 13.2%, 13.3% there, which may -- makes us having to generate capital in order to stay around to 13.5% of 30 basis points over the next 3 years.
And on an average year, we generate 170 basis points of capital, we pay about a little bit more than the half of that. So we have plenty of room to build up capital and also to support growth.
Operator
Our next question is from Mr. Farquhar Murray, Autonomous.
Go ahead, your line is open.
Farquhar Murray
Good morning, gentlemen. Just 2 questions, if I may.
Firstly, on the outlook for capital, please, can you just outline whether there's anything we should anticipate with regards to TRIM kind of EBA guidelines and also IFRS 16. In addition, could you just perhaps talk through how that interacts with your Basel IV position.
And since I would say I think most of the TRIM impacts probably have no effect at all. And then finally, just on the hedge ineffectiveness number.
Again, it's quite a big swing factor this quarter. So I just wondered if you could explain the rationale both for the hedging approach and the swings we're seeing.
And also, is it is just fair to assume that, that volatile item is normally 0 in a given quarter, or is there any structural component to it at all? Thanks.
Koos Timmermans
Okay. Thanks for your question.
I'll turn it to Steven, I'll take question one. On the CET1 outlook regarding TRIM, like I said the previous quarters, we've had already the TRIM investigations on the mortgage portfolios in the Netherlands and Belgium as well as on the -- as an e-portfolio in the Netherlands.
The impacts on those portfolios, I expect to be limited, and we're currently in the closeout phase on these levers. And at the same point in time now, the TRIM exercises are starting on Wholesale Banking.
So we're in -- we're finalizing the first phase of the low default portfolio, so let's say the corporate portfolio part on TRIM and then a second phase will be there with the financial institutions and specialized lending portfolios. The impact of that, I do not know yet.
I mean, these exercises are just starting. So if there will be impact on that, I expect that coming later this year, most notably in the second half of this year or maybe even later.
And that may have an impact that may not. Hence again, why we cater for a room in our capital because part of the impact of Basel IV is the encounter wield by actually impact on TRIM.
So it may come a bit earlier, it may come a bit later that depends on the impact of TRIM. It is okay therefore, any ambition level that we currently have of 13.5%.
IFRS 16 is about the lease impact that we do -- currently do not see any impact in that regard.
Ralph Hamers
Okay, Farquhar, hedge ineffectiveness, maybe there's 2 things for which we use swaps. We use interest rates swaps to hedge our interest rate risk on the balance sheet.
And predominantly, if you look at that in combination of fair valuing some of our mortgages and swaps against it, that gives normally result number one. So that means like we have mortgages fair valued and they are discounted against a LIBOR curve.
And then we have swaps where we are payer swap, and they are discounted against an OIS curve. And if the LIBOR versus OIS as it starts to widen, you have a mark-to-market loss.
But that one didn't cause a lot. Maybe it's more the second one in this case and that is the basis swap.
So what we do in funding is we have dollar loan book, and the dollar loan book is basically funded for €25 billion with currency swaps. So that means like we are a lender of euros and we are a borrower of dollars.
Now, if you do that for €25 billion, then you can say roughly, if you have a basis point widening -- or narrowing of the basis spread there, then that causes some €10 million mark-to-markets. So in essence, on your funding side, you have a negative mark-to-market of €10 million and in your loan book you just booked that as accruals.
So what you normally see is and there 5 basis points movement you can easily have on that basis so that causes a €50 million result. So this is the most important explanation for that and that arises then in Germany where, as you know, we booked some U.S.
assets as well. So this is the one which is causing that result right now.
But indeed, all of that, what I'm saying right now and that is already in your last part of the question, is all averaged out to 0. So in that sense, you can forget about the elaborate answer.
Farquhar Murray
Great, thank you.
Operator
Our next question is from Nick Davey, Redburn. Go ahead please.
Nick Davey
Yes, good morning everyone. Two questions, please.
The first one just on the cost outlook for 2019, if you're happy to say anything about that. It does seem like ex-regulatory expense, you're running about flat year-on-year in 2018.
And if I remember well from the last Investor Day, this was the -- 2019 was the year where we should start to see that meaningful step up in savings and a step-down in investment costs. Though I know you don't like giving too much absolute cost guidance but can we dream of a declining cost base this year?
Second question sort of flavor of the day really, maybe just some comments on the funding plan for 2019. I can see the slide in your pack talking about €7 billion to €9 billion of HoldCo Senior issuance this year, seemingly above just the rolling over of existing senior debt.
So could you just talk a little bit about the overall, sort of TLAC funding plan? And whether there's anything in that new issuance, which you think will meaningfully impact margin this year or that sort of trajectory or momentum in an NII?
Thank you.
Ralph Hamers
Nick, it's Ralph. On the cost side, look, indeed, we don't give kind of a specific hint as to how the cost will develop.
As you know, we grow -- we gain market shares. Generally, we work more on operational leverage.
As you've seen in the presentation over the last 4 years, we've been able to keep cost increases limited to 1% to 1.3% per annum, which -- given the sheer growth that we have been able to get in and the investment program that we have shown, and that we're into, kind of shows that the underlying cost therefore, are decreasing in order to give room for investment. And if not, they are there to maintain in almost the same level in order to create operating leverage.
Now that's the one that we really look at, the last one, operating leverage. You can kind of -- I think, the summary of that is in a cost/income ratio.
Although I don't like the cost income ratio too much from that perspective because there's 2 components there, and it's very difficult to compare banks with banks. But for us, if the operating leverage that we are creating and the operational efficiencies that we are continuing to create through our transformation programs can be used for further growth and with that further income that will have to come from the cost side.
And that's what we always do, and that's what we will continue to do. So in this case, if one way or the other, the income components is not to our liking at a certain moment in time, yes, it will have to come from the cost.
If the income on the back of continued growth is good, then we don't mind having to grow -- the growth in cost itself. So therefore, we don't necessarily manage it perfectly flat cost line.
But we'll have to play it by ear, and we'll look at it quarter-by-quarter. And the good thing is we give you an update quarter-by-quarter anyway.
Koos Timmermans
Yes. On the funding plan, as you have seen this time, we have included a slide on the funding.
We didn't do that in the past because we always had the idea like there's not a lot of surprises on the funding part. Last year, of course, what we had is in order to avoid surprises, we didn't issue over the summer, which means that our issuer's issuance schedule in Q4 was a bit heavy.
Now we are again, back to normality. And normality, was does that mean?
It does mean that we are recycling OpCo debt into HoldCo debt. So -- and that has all to do with the MREL requirements.
If you say, is the HoldCo debt we are issue -- planning to issue a lot higher than OpCo maturities? The answer is, not really.
So in that sense, it's quite normalized. Does it impact the cost of funding?
To be honest, even if your HoldCo debt is 50 basis points higher than your OpCo debt, then you could say like that translates into 0.2 basis point of your net interest margin, not a lot. You can also ask the question, OpCo debt should get a lot cheaper because there's so much seniority, which is there on the HoldCo debt part already in.
So, no, I'm not too worried, too much on the cost of that.
Nick Davey
Very clear, thank you. Can I quickly follow up on the cost question then, just to ask you to maybe then talk to the cost income ratio because for most of this year, you've been saying, not likely to see much an improvement on the 55.5%.
So what should we expect into '19 if you're willing to talk about number because 50% to 52% range still look like distant? So do you think you'll be taking notable strides towards your target in 2019?
Ralph Hamers
Yes, I didn't say anything about the cost income there. I just say that we are -- we continuously look at operational leverage.
If it's -- if the operational efficiencies that we gained through the transformation programs can be used for growth, it will have to come from cost. On the cost income side, these transformation programs are delivering benefits as we go.
Some are a bit behind on plan, some are actually ahead of plan, so it's a mixed pack. And we do expect the cost income ratio to further decrease towards the ambition.
So we haven't left that off.
Nick Davey
Okay, thank you.
Operator
The next question is from Mr. Stefan Nedialkov, Citi.
Go ahead please.
Stefan Nedialkov
Hi, guys, good morning. It's Stefan from Citi.
A couple of questions on my side. You mentioned in terms of loan growth, 2% to 3% in the wholesale book.
Are you sticking with the official group loan growth guidance of 3% to 4%, or should we be thinking more like 3%, or 2% to 3%? And what's the implication for your outlook on the retail side of things in that regard?
And my second question has to do with the capital. Obviously, you've been benefiting from a fair amount of positive trade-risk migration in your RWAs over the past couple of years.
I'm just wondering, if we start getting a bit of a normalization in the credit cycle, are you expecting most of those gains to be reversed, or are we -- depending on your assumptions, are we looking more like half of those gains to be reversed? Or more than 100% to be reversed?
Thank you.
Ralph Hamers
Okay, Stephan. I'll take the first one.
Now in terms of loan growth, also on the Wholesale Banking side, it could be that it is lower as indicated before. The ambition from a lending assets perspective has been 3% to 4% overall.
On the retail side, we don't see any kind of reasons why we should expect lower growth honestly. Also, because we're in so many different markets, and we're growing the market share.
So we don't have to do specific things in order to get that growth in. But in the end also there, it's about strict pricing.
So all of the growth that we get in has to be profitable growth. So it's not like we only do stricter pricing in the Wholesale Banking, it's also on the retail bank.
And having said that, it's -- so many opportunities, we're gaining clients that I don't think is going to be a particular challenge on the retail growth side. The capital side and the risk migration, I'll give the word to Steven.
Steven Rijswijk
Yes, thanks, Stefan. What goes up must come down.
So at some point in time, when the cycle reverses, then you will see risk migration the other way around. And we have been benefiting over the last 5, 6 years from positive trade migration.
But at some point in time, if the GDP cycle turns than that positive migration will fade away again. That's exactly in our stress testing, in what we do to have a capital buffer over the requirement of 11.8%.
If you look at what we had under the current regime and in the previous regime and what we have another current/future regime, there will be 2 effects, which will be more volatility in the IFRS 9 and on the flip side, lower volatility in the Basel IV because a number of the input and output force will decrease the volatility. Now that has all been factored into our capital stack.
Stefan Nedialkov
Okay, fantastic. And then just to follow up on the loan growth guidance.
So you guys are sticking with the 3% to 4% at the group level?
Ralph Hamers
Well, it's the guidance. We have been guiding this for the last couple of years.
We came out higher, and so it could be at the 3% end, it could be at the 4% end. So yes.
Stefan Nedialkov
All right, thanks.
Operator
Next question is from Mr. Benoit Petrarque, Kepler Cheuvreux.
Go ahead please.
Benoit Petrarque
Yes, good morning. Two questions on my side.
The first one again, on capital and Basel IV. Again, coming back, sorry, for that on the positive risk migration we are seeing again, this quarter.
Though that shall all be a neutral from a Basel IV perspective. So I was wondering again, why are you keeping your Basel IV risk-weighted assets inflation guidance stable at 15%, 18%?
I think this was based on the 2017 CET1 ratio level. We had quite some migration in '18, so could you explain us again, why you keep this guidance on inflation stable?
And then the second one will be on the growth of the fee business. You're packaging a growth of fees higher than your net interest income.
I think this is working perfectly well. But what is your outlook in terms of growing the fee business in 2019?
We've seen a slowing down in PMIs across the board and was wondering on your fees, on the digital lending is sensitive to maybe slowing down in the macro? Thank you.
Ralph Hamers
Thank you, Benoit. On the fees side, as you know, over time, we are changing our model in most of the Challenger markets to a model that is universal, a direct bank with primary customers.
Now the reason why we are focusing on these primary customers is because they do current account business with us and through the current account business, we have more contacts with them. If we have more contacts with them, we know them better.
If we know them better, we think there's a better chance of us to be able to offer them the right products for their needs. So on one side, it's a focus on doing more current-account business in order to get to know a business better.
On the other side, we'll have to cater for more products to be offered. That's why, I think the example that we showed today in Spain, which is a full-fledged digital bank, selling products to -- more products to the same customer.
Now that is an example that will be followed by many. And with that, with the introduction of third-party products, and honestly, I think even for investment products, we have quite some room to grow because we, as a bank, are underpenetrated from that perspective with our customers.
But also from an insurance perspective, as you know, we have launched this Axyon joint venture, and we're very happy with that. That will also deliver third-party products against the fee.
So from that perspective, from a retail -- on the retail side, we do expect fee and commission income to continue to grow. On the Wholesale Banking side, yes, you have a point in terms of saying that if there is lower growth, maybe there's less deals coming through on the lending side and therefore, debt fee and commission income may decrease, true.
But on the other side, we are also increasing our efforts to cross-sell Financial Markets products specifically to the strong factor relationships that we have for which we are basically putting programs together as we speak. We also expect our capital markets business to further grow and therefore, add more fee income and commission income to come from that.
So all in all, this is all lot of color to confirm that we expect fee income and commission income to grow with the guidance that we have given 5% to 10%.
Steven Rijswijk
Benoit, with regards to Basel IV and capital, basically what we said is last year was that we based our 15% to 18% on the total RWA of the end of 2017. Then there was a [indiscernible] €311 billion, currently that sits at €314 billion, so the difference is negligible.
As the composition of our RWA has not also dramatically changed over different books. We are largely hit by input factors, and you're alluding to maybe -- and I believe that they are hit by output factor.
So we do not see a reason to change our guidance based on a slight difference in RWA at this point in time. The answer is, no.
Benoit Petrarque
Okay, thank you very much.
Operator
Next question is from Mr. Kiri Vijayarajah, HSBC.
Go ahead, your line is open.
Kiri Vijayarajah
Yes, good morning everyone. So firstly, on the Dutch mortgage margins.
I think going back to the last quarter, you were standing reasonably constructive there on the front book mortgage margin in the Netherlands. So is that outlook kind of still intact?
And could you just give us some color on how the competitive dynamic is shaping up there, going into 2019? And secondly, just on Romania.
Wonder if you could just give us a feel for where the ROE is before and after the bank tax, just to sort of for us to see here, scope the impact there. Thank you.
Ralph Hamers
Thanks Kiri. Well, on margins, I think on a quarterly basis, I'd give you a bit of an insight anyway as to what we see in the market happening.
On the Netherlands and in the mortgage business specifically, we see actually a continued improvement of margins. So that's actually confirming what we said last time.
So the margins are improving on the mortgage business, on the front book. Business lending is bit under pressure in the Netherlands from a margin perspective.
In Belgium, mortgages margins are okay, they're kind of similar. Business lending there, it has a bit of margin pressure, not too much.
Then in Challengers & Growth, overall, we see improving margins. And then in the Wholesale Banking side, we see a bit on the Industry Lending side, given the change of composition of the production -- the new production towards a lower risk-weighted asset [indiscernible] assets.
You see, actually, the new production coming in at lower margins. But it's just different business, so we can't really come to a conclusion there.
And lending and transaction services and BCM is all either similar margins or improving margins, PCM is improving margins. So that's kind of the tour of the world in terms of how we see things happening in the market.
Coming back to Romania. Honestly, the whole discussion around the bank tax, there's moving parts there.
We'll have to see how we deal with it, how it is exactly kind of -- whether it is going to be introduced, if it is introduced, how is it actually going to affect us? The dividend's going to affect is never good news, let's face it.
I can't give you the return specifically because we don't disclose those. It is a very healthy return business.
And specifically from a loan term perspective, we are very positive about the developments of Romania and how our bank is doing there.
Kiri Vijayarajah
Okay, great. Thank you so much guys.
Operator
Next question is from Mr. Adrian Cighi, RBC Capital Market.
Go ahead please sir.
Adrian Cighi
Thank you very much. Just 2 follow-up questions, please.
On impairments, can we confirm that the higher provision in Retail Netherlands is a one-off adjustment? And then one question on the Italian lease portfolio that you're in the process of disposing off.
Can you give us any indication of the contribution to NII on costs currently? And maybe once it comes off, we can remove that.
Thank you.
Steven Rijswijk
On the mortgage -- the impairment in the Netherlands. I mean from time and time, we review our portfolios and in this case, we found it necessary to make an adjustments towards a bullet loan portfolio, at least a specific part for that but from time to time, we do it.
But I do not expect that to be a recurring theme. Can you repeat the question on the lease portfolio, please?
Adrian Cighi
The Italian lease portfolio that you're in the process of disposing off. What was the contribution of that portfolio to NII in cost, just so we can may be remove that once you actually dispose of it?
Steven Rijswijk
I mean, the -- it was a portfolio in aggregate of a few billion. So if you look at it from a total balance sheet perspective, it is very benign.
And therefore, the capital impact will be benign. But if we sell it, there is a positive impact on RWA.
Adrian Cighi
Thank you.
Operator
Our next question is from Miss Alicia Chung, Exane. Go ahead please, your line is open.
Ms. Chung, please unmute your line, and ask your question.
Go ahead. We will continue.
The next question is from Mr. Bruce Hamilton, Morgan Stanley.
Go ahead, please sir.
Bruce Hamilton
Hi, good morning guys. Thank you for taking my questions.
Maybe just one on the, let's say, quality side, where clearly things still looks pretty good. What's the exposure though to the balance sheet as opposed to leverage finance?
What's your scenario in the last 6 months, you got a bit more cautious on it and hence the change into the gross expectations, which makes perfect sense. But what's the kind of balance sheet exposure?
Just give us some help there. And then are any other sort of geographies or sectors where you're getting a bit more concerns due to weaker macro or other that under an IFRS 9 format could mean a bit of a pickup as we walk through '19, so Turkey would be an obvious one but is there anywhere else that you're getting a little more nervous?
And then secondly, so just clarifying, so on the comments you made on the sort of NII in the Netherlands. I mean, it looks like that's still sort of drifting lower, though the loan book's just kind of stable.
So I was just trying to understand, I mean it still looks like there's some pressure on margins. So I wanted to make sure I understood the answer you gave earlier, which suggested things looking a little bit better as we go forward.
Ralph Hamers
So Bruce, on the second question, on the margins in Netherlands. No, I think you're right from that perspective.
If you look at all the different components that make the NIM than on the saving side, yes, there will still be a pressure on the margins with the lower-for-longer interest rate environment. The yield and replicating portfolio will decrease and with that, we'll have -- and deliver pressure on our savings margin in the Dutch savings books.
And there's may be some repricing to go but not a lot. So yes, that will certainly have an influence there.
On the other side, as I was just indicating, if you look at how our loan book is development on the business lending side, we've grown by €1.3 billion in the year with good margins and the mortgage business. And the new mortgage production is at healthy margins as well, so there is some composition there.
But yes, there is certainly pressure on the saving side of the Dutch business margin. For one of the questions, I'll give the word to Steven.
Steven Rijswijk
Yes, thanks, Bruce. So if you look at the total leverage finance portfolio, we have a cap of €9.6 billion globally.
You'll have to bear in mind that, that is a portfolio whereby we look at leverage over 4x. So that is a more generic book and within that book, part of that book is what we call structured acquisition finance.
So these are the loans that we disseminate, when a private equity company for example makes an acquisition, typically that part is a higher risk part of that book. But there I've already stated before, that we are limiting final takes to a couple of tens of millions.
We look at structures where's we kept the -- structures where you participate in terms of both senior and total leverage levels, and we will not participate as a single underwriter for a deal. And that's how we managed that book.
And we've done that over the past number of years, and we continue to do so. And if we get to let's say, the cap of the book, that basically means that we need to recycle some of it to be able to participate in new transactions.
As we will not deteriorate on these structures because that is something that the standby is an organization. With regards to particular concerns of books, I mean, obviously geopolitical issues remain top of mind.
And as a a result of it, we continue to look carefully at countries like Turkey. As you have seen also from the presentation, the total Turkish book went down from €13.3 billion in the previous quarter to €13.0 billion now.
At the same point in time, we're continuing to gradually decrease the intercompany funding, so that intercompany funding decreased with €300 million in the fourth quarter and we'll continue to have a similar pace in 2019. That's currently what we're looking at.
Bruce Hamilton
Thank you.
Operator
Our next question is from Mr. Jason Kalamboussis, KBC.
Go ahead, please sir.
Jason Kalamboussis
Just a couple of questions. The first one is trying to look at the costs again.
You have your guidance for 50% to 52% cost/income ratio, and if we see consensus, it has moved from 51.5% probably about a year ago to 53.5%, which means that consensus having doubts about the share gain to reach, eventually, with target. So if we can have your comments there.
And also looking more specifically on the cost ex-regulatory expense if I can look specifically at the staff cost. They have gone up by about 4% year-on-year.
And if you look at the FTEs, up by about 1.5%. So again, if I could have your thoughts and how we should look at it next year?
And the second quick question, it was if you could give us just a little bit of color on Belgium. As you have mentioned, you have seen some good lending growth that's been I think for 3 out of the 4 quarters.
So what's the driver, and how do you see that in next year?
Ralph Hamers
Okay. Well, so on the cost/income side, so we have this financial ambition, 50% to 52%.
As I said, there's so many factors that influence our cost/income ratio that we can't complete the influence, and certainly not always absorbed within certain time frames. And so, it is a challenge to get to the 50% to 52% per se by 2020.
However, what we find important is that the concept of operation leverage, and how you continue to manage your cost/income ratio down is one of management hygiene in my view. And that you have to continuously look at as to how you can further improve your efficiency.
And that's what we will continue to do so. And as I said earlier, operational leverage is an input factor into the key performance indicator, which is to return on equity.
But there is more that makes up the return on equity there. But cost/income ratio is an important factor for us.
It's one that we feel we have to continuously look at and see how you can manage it. So now then you have a hiccup with new regulatory cost that you'll have to one way or the other absorb, but you can't do it in that at once, and you have to do it over time.
And that may affect, sometimes, how the cost/income ratio develops at that point. On the Belgium side, the good loan growth, the driver there is that we have a good client base.
While transforming, we keep focus on our clients, and we have a very good franchise there and basically that's what you see overall in ING. We're transforming in many different areas.
And even with some of the challenges that we have to deal with in KYC, people we have to deal with that. I'm particularly proud of the resilience that my colleagues are showing in dealing with all these different challenges whether it's the transformation challenge or the KYC challenge.
In the end, this is a franchise that is very customer-oriented, they make sure that they continue to service the customer. And the back of that, you do more business, and the Belgium franchise particularly even through the crisis has always performed.
And so it's -- yes, it's a very strong franchise with a focus that's -- super focused on the customers. On the staff cost, I give the floor to Koos.
Koos Timmermans
Yes. If you look at the staff, one of the things what you see is the 4% increase in staff cost that is including also all elements of change and one-offs.
So the FTEs, they've grown less, but it doesn't mean that our staff cost, if you exclude the changed element in it then it is more in line with the FTE growth. Now at the same time, yes, we do have the FTE growth and that has also to do with all the initiatives we are currently taking and all the KYC elements in there, so that's caused this.
Now at the same time, do we say it like, "Hey, if that they are for permanent?" The answer is no because these are programs but at that the same time, we just want to make sure that we speed up on these elements, and that is why we incurred those costs.
Jason Kalamboussis
Okay. If I understand well on the cost, the growth, excluding one-offs would be at around 1.5% year-on-year?
Koos Timmermans
Slightly higher than that but not close to the 4%, not at all.
Jason Kalamboussis
Thank you.
Operator
Our next question is from Mr. Jose Coll, Santander.
Go ahead, please sir.
JoseColl
Hi, thank you, hello everyone. A first question on Turkey, please.
On the 3Q call, I think Ralph said that there was no excess capital in the Turkish subsidiary. So now that the cost of risk is increasing, and we've seen other Turkish banks increasing capital, do you expect you will need to increase capital this year or next if your credit cycle continues worsening?
That'll be my first question. And the second question would be on Spain.
I was wondering whether you can give us a few more details, may be net income or capital allocated to Spain or risk-weighted assets. So can I get any profitability ratio there?
Thank you.
Koos Timmermans
On Turkey, probably we need to play back the previous analyst call but we do not know that there's no excess capital on the sub. If the question is where we need to inject more capital, then the answer is we do not expect us to do so, there was no need for that.
As a matter fact and as I've said it already, we have both equity and intercompany loans outstanding. Those intercompany loans, we expect that there is decrease in that the coming year.
But also in terms of our capital allocation requirements in Turkey, we feel comfortable there.
Ralph Hamers
Yes. On Spain, yes, we don't disclose all of those specifically per country as you know.
But what you do see in Spain is that our business continues to grow. So the lending is growing, the mortgage book is growing, it's now just passed €15 billion in Spanish mortgages.
The other customer lending is growing, so the consumer lending is around €3 billion. Wholesale Banking book there is growing as well.
And so -- and then on the saving side, we see a good development as well and the current accounts as well, on the back of increasing the primary customers. So that's how we look at it from a more commercial perspective, how we build the balance sheet and how the client business develops.
Yes, we can always give you a little bit more insight, but for that, I will give you cliffhanger. Come to Frankfurt, our Investor Day, and we'll take you through some of that.
Jose Coll
If I may just a quick follow up on Turkey. So I'm just trying to get this straight.
So if the bank ended up needing some more capital, cause the credit cycle keeps worsening a little more, would you be willing to commit more capital to the Turkish subsidiary?
Koos Timmermans
If that were to be the case, we'd take a decision around comps. But we also have a slab of subordinated debt in the -- over around €600 million.
So the first step that we would is actually flip that subordinated branch into equity before we will think of putting more capital into place.
Jose Coll
Great, thank you very much.
Operator
Our next question is from Mr. Marcell Houben, Credit Suisse.
Go ahead please, your line is open.
Marcell Houben
Good morning, thank you for taking you for taking my question. I've just one left.
On the less-quality revenue items, sort of investment and trading and other income. Can you give us a little bit more guidance as going forward.
Is the average of the last couple of quarter or years, is that the best guess or there are certain drivers in there that we should take into account, just because it could be a positive contributor to reaching your cost/income ratio target?
Koos Timmermans
I think overall, Marcell, the difficulty is with the lower quality parts, you have a few to think about. I mean, in Financial Markets, yes, we do want to restore somewhere and yes, we had a difficult year.
But again, quarter-by-quarter, that's a very difficult one to do. If you look at the other income items and if you then particularly look at the treasury, that was already what I told Farquhar, in the end, this is a pull-to-par type of business, so you will see as the nonsystemic swings in that part.
So in that sense, it's very difficult to give guidance on the moving parts in our income. And that is why I think it is kind of difficult to make that one.
If you look at the investment income and indeed, you had this quarter, I mean it was a low number because we had the reclassification of Italy. But yes, I mean, we know that in third quarter next year, if everything else exist and we get a bit of Bank of Beijing dividend, so there are some patterns in there, which you can see over the past, which are in there.
But particularly, these asystematic parts are kind of hard to give, to put the number on. Yes, maybe one thing that is -- well, we might have been on that because, I mean, that's very clearly the case.
In the Corporate Line, we have our so-called legacy result, and the legacy result by the end of 2021 that starts to run up, so that is where we are booking a negative result every year right now. I believe it's around 80-or-so a year at this moment.
But that will go down quickly and that will basically disappear to zero. And that is the one which has a pattern or a trend in there but look for that in the Corporate Line.
Marcell Houben
Excellent. Thank you very much.
Operator
Next question is from Mr. Rahul Sinha, JPMorgan.
Go ahead, please sir.
Rahul Sinha
Hi, good morning. Just a couple of ones from me to finish off as well.
On capital, there's a reasonable reliance on mitigating actions within your capital plan over the next 3 years. And so I was wondering if you can give some more detail on how you're progressing in terms of the mitigating actions on the main portfolios?
And do you have any updated thoughts on how that might impact your business and your P&L as we go forward? That's the first one.
The second one is just on this gap between RWA growth and loan growth. Obviously, this quarter was quite stark where your RWAs went on by a couple of billion and leaving aside stuff that we've already discussed on the call, which is TRIM or these migration areas.
Are there any other big moving parts that we should be aware of from an RWA perspective? I'm wondering whether you have any models that are pending for approval whether you're doing any data improvement exercises like you did in operational risk, and whether the impact of these could be meaningful from a positive perspective.
Koos Timmermans
Thank you, Rahul. On capital, like we said before, there are a number of elements that we -- when to bear, when to decrease the impact.
On the one hand, we can look at the rating of our corporates and when we have external ratings for these corporates then you can get a benefit on your capital. When you only have internal ratings, you do not, as was basic to bring external rating to a number of our corporates to get that benefit.
Two, when you look at security, there are a number of covers that you can use for security covers you they can more specifically link to certain assets that will bring their benefit. We're currently linking those covers better to certain assets to make sure that we get the benefits.
And three, you can use, originate or distribute, actually optimize your balance sheet versus your RWA and that's the third element. So that, when you look at the difference input and output factors in the composition of your balance sheet from a Basel IV perspective, that you optimize that, and that's what we're currently doing as well.
We will continue to do that and we're comfortable that we will, up to impact that we've said before.
Rahul Sinha
If I could just come back...
Koos Timmermans
Yes. Other factors are what we should take into account, when you look at the RWA movement also going forward?
I mean, if you look at our the model scope that we have and the model inventory that basically a number of these models are being calibrated all the time. And if you calibrate your models and there's significant change, you have to ask for approval again, from the ECB to use that renewed model.
And with TRIM, it may be that you say, well, I'm going to redevelop a couple of models, and that's what you need to have improvements and approval for as well. With the new regulatory standards that come on in 2020, 2021, there you will look more and more at the rating systems.
So what I try to indicate with this is that model development and model redevelopment is something that is going on all the time.
Rahul Sinha
Okay. So if I can just follow up on the first one, maybe to ask it slightly differently.
How much of the mitigating actions that you all planned and talked us before are already in the bag versus stuff you have to go out and do over the next 3 years?
Koos Timmermans
I think that's for, for this point in time, too early to call. We will look into it, and if we have it, we will come back to you.
Operator
There's no further questions, sir. Please continue.
Ralph Hamers
Okay. Well, thanks for attending this call.
Thanks all for all of your questions. I think looking back in 2018, it clearly has 2 sides.
As mentioned before, on one side we have the shortcomings that were detected in our role as a gatekeeper to the financial system, and in our role to fight and to prevent financial economic crime with resulting the settlement there. We have taken actions.
We started taking actions already early 2017. We will continue those actions going forward in order to ensure that we comply with that.
On the other side, we see a year, in which the strategy that we launched 5.5 years ago is proving itself again. With a year-on-year you see interest income going up, you see the fee income going up, you see the cost basically being almost stable-ish, whereas we happen to have an investment program.
The risk-cost stable year-on-year with the resulting return on equity of 11.2%. I'm particularly happy that with all the attention that managing a settlement situation on the one side and having some of those actions putting in place, at the same time, in the fourth quarter, we have been able to show further progress on strategy and strategic milestones, further progress on commercial momentum and financial performance.
It shows the resilience of our colleagues, of which I'm very proud. With that, thanks for your interest in ING, your support to ING, following us so closely.
Speak to you next time.