Aug 6, 2020
Operator
Good morning. This is Patricia Klosov Norton, welcoming you to ING Second Quarter 2020 Conference Call.
Before handing this conference call over to Steven van Rijswijk, 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 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 statements is contained in our public filings, including our most recent annual report on Form 20-F filed with the United States Securities and Exchange Commission and our earnings press release, as posted on our website today. Furthermore, nothing in today's comments constitutes an offer to sell or solicitation of an offer to buy any securities.
Good morning, Steven, over to you.
Steven van Rijswijk
Thank you very much. Good morning, everyone, and welcome to our second quarter 2020 results call.
I hope you are healthy and well. I'm happy to take you through today's presentation in my new role as CEO.
I am joined by our CFO and our interim COO, Tanate Phutrakul, as well as Karst Jan Wolters, currently responsible for the day-to-day risk activities. At the end of the presentation, we will as always have time to take your questions.
With COVID-19 affecting many also the second quarter was far from standard. We continue to support our customers, employees and society during this time.
At the same time, as countering financial economic crime remains our priority, we continue our efforts to increase effectiveness of our KYC activities. However, the current operating environment reinforces our belief that we are on the right strategic path, with our digital model being a clear strength in continuing operations and uninterrupted service.
Pre-provision results proved resilient, as we keep focus on pricing discipline. We also saw some of the negative valuation adjustments from last quarter reversing as financial markets somewhat normalized again.
Combined with cost control, this largely countered the margin pressure on customer deposits and goodwill impairments. Over to our risk costs, in the IFRS 9, we took substantial collective provisioning in Stage 1 and Stage 2 to reflect worsened macroeconomic indicators.
When these remained unchanged, we believe that we have already taken the majority of provisioning for this year, and for the second half of 2020, we expect risk costs to be below the level recorded in the first half year. The CET ratio improved from 14% to 15%.
This ratio was supported by lower RWA due to several management actions and CRR amendments. Regulatory capital also increased.
I'll come back to this later in the presentation. We are confident that we are well positioned to face headwinds with a strong capital position, a strong funding base and a low Stage 3 ratio.
Also this quarter, we provided support to our employees, customers and society. Currently, around 75% of our staff continues to work from home and we have started with a phased return to office, ensuring that our people can work safely and align with local requirements.
We help both our private and business customers with payment holidays. So far, we have granted payment holidays on €18 billion of credit outstandings representing 2.5% of our loan book.
This is mainly in mortgages and business lending. And of these amounts, the payment holidays on €1.3 billion have already expired and on these loans, we are not seeing a meaningful increase of risk cost.
After initial peak in March and April, new requests have come down and as we are already seeing payment holidays starting to expire, we wouldn't expect this amount to show a large increase going forward. We've also extended approximately €250 million in loans to SMEs and mid-corporate customers and our government guarantee schemes and provided €5.4 billion of liquidity to larger corporate customers, with part of the liquidity drawings having reversed at peak at the end of March.
We use different ways to monitor the credit risk profile of our clients, aside from individual credit assessments, we also use our early warning system to identify potential signs of an increased credit risk for an individual customer and through personal contact, we stay updated on what our clients are doing and if needed, we are involved early on. Now moving to Slide 4.
In the previous quarter we saw a very high loan growth and that was mainly driven by protective drawings in Wholesale Banking. This quarter part of these drawings have come back, while also investment plans are on hold, and that has reduced the demand.
In Retail we saw continued demand for mortgages, while in Consumer Lending demands was subdued, and also in Business Lending, there was less demand, driven by liquidity provided through government support packages and less need for working capital or investment loans and that resulted in negative loan growth. In fees, the strong trend of the last quarter continues in investment products.
Daily banking fees were affected by the lockdowns with lower payment fees reflecting lower commercial activity and limited travel. We managed to partially offset this effect with the increased payment package fees in the Benelux as well as in Germany.
Our conservative approach to syndicated transactions, so in Wholesale Banking resulted in lower lending fees over there and low oil prices affected trade finance. Now, despite these COVID-19 effects, fee income over the first half year was almost 9% higher than the first half of 2019.
So we're on track with our fee growth ambitions. Loans provisioning, that was impacted by worsened macro-economic indicators.
And as a result, we saw an increase in Stage 1 and Stage 2 provisioning. I'll come back to that later.
Now let's look at Slides 5. This slide shows that despite all the challenges posed by the current market environment, we keep on growing our primary customer base.
And as we also saw last quarter, especially Germany benefited from the digital experience we offer to our customers. Furthermore, we managed to grow our top line income both year-on-year and quarter-on-quarter.
And while there is some positive impacts from more volatile items, when you look at our NII, our net interest income, we've managed to keep debt stable as also guidance, despite negative interest rate environment in the euro-zone. Year-on-year there is some support from tiering.
Nevertheless, the pressure on liability income is still significant and even increased this quarter with core rate reductions in the non-eurozone countries. Our discipline and supported with lending margins and charging negative rates, are examples of how we are managing the pressure.
It's also important to know that the benefits that we could get from TLTRO III will come as of the third quarter as our main participation in this scheme only came at the end of the second quarter. Then on to the next slide, Slide 6.
I want to underline a message that our digital and agile abilities are great assets in the current circumstances. Digital banking is a safe choice for customers involved and ensure business continuity in a rapid changing world.
Our digital, mobile-first strategy, in my view is the right strategy and under my leadership, we will continue with this. And as you can see in the top graph on this page, we continue to help our customers making the shift from using assisted channels, being branches and call centers, to mobile banking at a very high pace.
With lockdown measures in place, our customers have quickly adopted remote channels for advisory products such as video calls for mortgages, or investment advice. And this is visible in the further reduction of assisted channel usage and further acceleration of the share of the mobile owning customers, and that came in at 41%.
And if you take that further, the share of mobile interactions increased to 87% with the number of interactions, again increasing, if you look at it at an annualized basis. And last but not least on the right-hand bottom side, if you look at that graph, again on an annualized basis, it shows we improved our conversion rate to sales since the end of 2019 with an increasing number of mobile sales per thousand customers.
Slide 7, we continue to work on improve the digital experience for our customers including further steps in Unite as we are improving the digital experience also for our Belgian customers. This quarter, we took important steps in Belgium towards digital harmonization.
We launched OneWeb, the new digital banking channel. And we start welcome to private individual customers to OneApp, which is based on the app also available in Germany and the Netherlands.
To remind you, many Unite milestones already have been realized. We implemented an agile service model, reduced the number of branches, migrated all record bank customers and decommission systems.
Our centralization of the core banking systems and we've said, that before, will not happen. However, with the technological changes and benefits that we currently have and that we initiated after we had started Unite in 2016, we will be able to harmonize our digital customer proposition much faster, for example, through the use of API's.
A large part of the planned cost savings has already been realized. And although the technical execution of Unite differs from what planned back in ’16, we are certain that we can improve and further improve efficiency.
Now with that, let me take you through the second quarter results starting on Slide 9. In the second quarter, income increased both year-on-year and quarter-on-quarter.
And compared to a year ago, we saw higher Treasury income and we disciplined our lending margins, combined with positive valuation adjustments. This offset the continued pressure on the customer deposit margins and also the lower income from foreign currency ratio hedging, reflecting lower interest rate differentials as the core deposit rates not only in eurozone but also in non-eurozone countries, were significantly reduced.
As a reminder, 2019 second quarter also included a €79 million one-off gain. So the overall income was €6 million higher year-on-year and without that one-off gain, even more.
Sequentially, income improved by €160 million. This mainly reflects the reversal of last year's -- the last quarter’s negative valuation adjustments despite special liability income and lower fees after an exceptionally high fee income in the first quarter of this year.
Pre-provisional results and that excludes both volatile items and regulatory cost, was resilient. Income excluding volatile items was slightly lower and pressure on liability income remains.
Further, record high previous quarter fees were lower. Costs were lower year-on-year despite the CLA related increases.
And the previous quarter benefited from a significantly higher VAT refund, if you exclude this item, the quarterly operating costs excluding the volatile items and goodwill impairments also went down for both year-on-year and quarter-on-quarter. Then going to Page 10, on to NII.
Net interest income excluding financial markets was slightly lower year-on-year, reflecting the effect of the negative rate environment on customer deposits as well as lower income foreign currency ratio hedging. This quarter, we saw several core rate reductions in the non-eurozone countries with a substantial inflow of deposits especially in the eurozone countries, reflecting reduced spending in these uncertain times and employee allowances received.
Versus the previous quarter, NII excluding FM was 1.8% lower. NII on mortgages improved however, margin pressure on customer deposits did continue.
And overall, we continue to see the effect of pricing discipline, as we benefit from negative rates that we charged on deposits. For the second quarter of last year, we benefit from deposit tiering which came into effect at the end of 2019.
And again, the benefit that we get from TLTRO III will be pronounced as of the third quarter of this year, as the main take -- uptake of the TLTRO scheme was at the end of June of this year. Our net interest margin decreased by 7 basis points this quarter 144 basis points.
And that was mainly driven by a higher average balance sheet, reflecting high deposit inflow, our TLTRO III participation, and the customer's elevated are withdrawing on revolving credit facilities in Wholesale Banking. And as I told you, it came down towards the end of this quarter.
For the first two months, April May, the drawings in revolving credit facilities were still relatively high. But generally low margin in these facilities did impact the margin on non-mortgage lending as well as income on liabilities.
And as mentioned before, while NIM is an important metric for the markets, we know that NIM can be impacted by volatile items as you can see this quarter. And so we believe it is also good to look at the overall net interest income developments.
If then look at Page 11, Slide 11, we turn to core lending developments. If you look at Retail, starting with Challengers & Growth Markets, we continue to grow their mortgages, especially strong growth of mortgages in Germany, with some lower demand for consumer lending products kept overall net core lending flat for other challenges in growth markets.
Then Retail Benelux, there you saw a small decline, mainly due to lower the mountain business lending and that reflects a combination of liquidity provided through the government's packages, as well as the impact of lower commercial activity and that in turn has an impact of reduced demand for working capital. And Wholesale Banking, there saw a decrease of €5.6 billion, driven mainly by repayments of the last quarter, of last quarter’s increase utilization of the revolving credit facilities that was in lending that came down this quarter.
And Daily Banking and Trade Finance, we did see a decline reflecting lower demand of receivables, finance and working capital solutions, as well as of course, the impacts of the low oil prices in Trade & Commodity Finance. In the second quarter, therefore, net core lending was down by €7 billion.
And on the other hand, net customer deposits increased by close to €21 billion and it was driven by Retail Banking reflecting a reduce spending due to the COVID-19 pandemic and the holiday allowances received. Now we go to fees on Page 12.
We managed to grow fee income by €12 million year-on year and that's a 1.7% increase in Retail Banking, that's especially good. Fees were 5% higher, driven by investment product fees.
And those were almost 28% year-on-year as we continue to see a high number of trades benefiting from market volatility. In Daily Banking, fees were lower, and that was due to fewer payment transactions.
But we already see an increasing of the payment transactions getting close to the pre-COVID levels following the relaxation of the lockdown measures. Lower fees in Wholesale Banking were mainly driven by our conservative approach towards the syndicated lending markets.
For the quarter, and quarter-on-quarter, fees were down by 7.7% after very high fees in the first quarter, which was elevated also by the successful first quarter campaign in Belgium and typically the first quarter in Belgium is a very good fee quarter. In addition, lending fees in Wholesale Banking were lower quarter-on quarter after a very strong start of the syndicated loan market.
And then we contracted our appetites and therefore it came down. And the same was the case due to Daily Banking, and therefore the activities in Daily Banking and Trade & Commodity Finance went down as well.
Then to Slide 13. Results in financial markets, very strong for the quarter.
Client income up €64 million, mainly due to, Rates and Global Capital Markets. Sequentially, client income rose by €73 million, reflecting good income and rate and credit rating, which in the first quarter experienced losses due to market volatility.
Net valuation adjustments had a positive impact of $87 million this quarter. This was driven by markets normalizing again after the volatility we observed towards the end of the previous quarter, and this led to a reversal of the negative valuation adjustments.
So both effects contributed to the good results for financial markets this quarter. Then we go to the cost side of things.
So slide 14. Expenses, excluding KYC, and regulatory costs as well as the €310 million goodwill impairment that we announced last week, were down by €44 million year-on-year.
But solid focus on cost control and lower performance related expenses, we were able to absorb CLA-related salary increases. Even when we exclude a provision that we took in the second quarter of 2019 for a restructuring in Germany, cost of this quarter were still lower than last year.
KYC related costs were comparable to the previous quarter, as we work on becoming more effective and make progress on our fund enhancements. These costs are expected to plateau in 2020, with an expected run rate of around €600 million for this year and regulatory costs, obviously were seasonally lower in the second quarter by €40 million compared to last year, but that was due to a catch up on contributions that we had to do for the Single Resolution Fund.
As our income sees resilience, the demand is currently impacted, you can expect me and Tanate, to take a real serious look at our cost base. And some investments will continue but there is, a need to have, a nice to have, and we will certainly look at these projects to see whether we need to impact these or not.
Then we go to Slide 15. That shows elevated provisions in all stages.
And Stage 1 may feel a bit counterintuitive. So here we go to the technical explanation of that.
If you look at credit outstanding in Stage 1 that represents performing loans and, on these loans, credit risk in of itself is not increased. Yet, if you look at this quarter in the IFRS 9, our accounting regulation, we need to take a €255 million provision for these loans and that effect is caused by the macroeconomic indicators and that deteriorated compared to the first quarter.
And for Stage 1, you therefore only look at macroeconomic indicators for 12 months. And in the 12 months, what we do see is a sharp downturn, but not so much an upturn and the recovery comes subdued, and recovery in a 12 period is more limited.
And as close to 90% of our exposures is Stage 1. Therefore, this impacts and effect, applies to the majority of our book.
Then you go to Stage 2, provisions and these were higher as well. Again, we have deteriorating circumstances in the second quarter and therefore also there they reflect collective provisioning, based on worsening macroeconomic indicators.
Now, a smaller part of the book but there a broader impact because there you do not look at a one-year loss but you look at the lifetime loss of the loan. However, because you also look at the lifetime macroeconomic forecasts, therefore, you see some recovery in years two and three and that then positively impacts the risk of some provisions.
We also have some individual files in higher risk sectors that we move to the Watch list and we have applied some rating downgrades. And then Stage 3.
And you can expect that we saw that for already weakened companies, the COVID-19 pandemic is clearly not helping. So we saw a deterioration of existing Stage 3 files on which we took additional provisions and compared to previous quarters as well.
We also moved a number of new larger files to Stage 3, and has also included a sizable suspected external fraud case, on which there were quite some reports in the press over the past couple of weeks. If we move to Slide 16, that shows a total picture of risk costs, which in the second quarter of this year came in at €1.33 billion or 85 basis points over average customer lending.
As I explained to you on a previous slide, this was largely driven by elevated provisioning in Stage 1 and 2, including €421 million collective provisioning allocated to the segments. And also in that number, we took a management provision for payment holidays.
Aside from Stages 1 and 2, in Retail Benelux there were higher risk costs mainly driven by some larger additions for individual files in mid-corporates and in Retail Challengers & Growth Markets, the higher risk costs predominantly came from collective Stage 3 provisioning that was mainly visible in Poland, Spain and Turkey. Wholesale Banking, Stage 3 risk costs remained elevated, reflecting additions for large individual clients, both existing and new files, mainly in Germany and the Americas and in Asia and in the Netherlands.
And it also included this sizable provision I just mentioned on the expected or a suspected fraud case. As we moved more exposures to the Watch list, Stage 2 outstandings went up mainly in Wholesale Banking.
And that resulted in a higher Stage 2 ratio of 7.0%. But to be clear, as Stage 2 is not necessarily a waiting room for default, it implies, at this point in time, risk cost is monitored more closely on individual files but not necessary that this exposure is expected to default.
When the risk cost or credit risk is no longer deemed increased, then we move it back to Stage 1. And the strength of our book is also exemplified by this Stage 3 ratio of our group that's 1.6%.
Now, of course, that ratio is always looked at by a nominator and a denominator, so if you exclude TLTRO III from the credit outstandings, Stage 3 ratio is up slightly, although it's still low at 1.8%. And I think that exemplifies the strength of our book.
And to continue that book or risk management, Slide 17 depicts our book. And again and I’ve said and highlighted that also in the previous quarters, I feel very confident with our risk management framework and the quality of our book.
We've taken lessons learned from the previous financial crisis, resulting in a very well diversified loan book with caps on single exposures, caps on sectors, caps on countries, we have a conservative risk appetite, with a focus on senior structures, collateralized secures, and our confidence is underscored by our strong track record through the cycle with historical risk cost as a percentage of pre-provisional profits, well below that of our eurozone peers. The slides provide this overview of our loan book and highlight some of the sectors in Business Lending and Wholesale Banking which are more directly impacted by the pandemic.
As you can see, and again I told you that also in May, the size of the individual books is limited and Stage 3 ratios are generally low. So let me now focus on a few of the sectors on which we typically receive questions.
So Oil and Gas, €4.5 billion directly exposed to oil price risk, covering reserve base lending and offshore business, main focus here is on the €1.4 million U.S. book in reserve-base lending because it operates in a relatively high cost base environments.
And this quarter, we also saw some deterioration in our offshore drilling portfolio. But that's small because that book is only €0.5 billion.
Hospitality and Leisure sectors, we've always had a restrictive portfolio and we’ve been very selective. Then if you look at Aviation, and I'll repeat myself for May, the exposure is limited.
Also here we've been selective and even under the current market circumstances, exposure in Stage 3 is basically nonexistent. And as you know, we feel we're ahead of the curve by capping certain businesses, as we did with, for example, our Leveraged Finance book, we closely monitored impairment of this portfolio.
We follow a strict policy, including all senior debts, we have a max leverage of max €25 million that taken hold, and there are no single underwritings allowed. Overall, and that of course, we have seen in the fees for Wholesale Banking, we are less active in underwriting markets, as uncertainty remains high.
And that's a conscious choice. Clearly, current market circumstances will have an impact on our customers and we are closely monitoring how our book develops, but with a risk framework in place with too many experienced risk colleagues, we remain confident on asset quality.
Then onto our capital, Slide 18. Here you can see how our Common Equity 1 ratio developed, which was up by 1%, reaching a very healthy 15%.
And on the capital side, so on the capital number, we had a €1.4 billion positive impacts. So in addition to adding our full net profit, capital was up by €600 million reflecting the adoption of the traditional IFRS 9 arrangements and where the shortfall became a surplus.
Also, the goodwill impairment we took had a positive impact on the capital because we took it away from our profit, our P&L but we already had a regulatory capital, so we could take it out here of capitals to avoid double counting. The Common Equity 1 ratio was also supported by lower RWA rate and we'll come back on that on the next slide to give you more detail on that.
Now with this 15%, we are well above our current CET1 ambition of around 13.5%, increasing our buffer versus MDA level to 4.5%. And as mentioned before, we will come with an update on our capital plan with the third quarter results.
As far as thoughts on dividends, we want to provide our shareholders within an attractive return. However, and for now, and we have delayed further dividend payments until after the 1st of January 2021, which is in line with the ECB’s recommendation.
The dividend reserve over 2019 does remain outside regulatory capital, are realized from banks added back to capital. And if we would do that, but we do not intend to do that, but just for comparison purposes, it we would add this Reserve back, our pro forma Common Equity Tier I ratio, would stand at 50.5%.
Now going to Slide 19, some more details on the RWA developments. RWAs were lower by €13 billion this quarter, mainly driven by approximately €12 billion of lower credit risk related assets.
And that was mainly a result of management actions including €8 billion due to the adoption of the standardized approach for sovereign exposures, away from ARRB, and €3.5 billion from implementing a cash flow-based maturity approach, rather than a legal maturity approach. Again, we become a bit technical here.
We also benefited from several CRR, i.e. regulatory amendments, while lower lending volumes further reduced RWA and so I point again at the €7 billion lower core lending for the quarter.
We did also record a €6.6 billion RWA increase reflecting expected TRIM impact following an update at the end of July that the ECB made in which they intend to resume decisions on TRIM investigations. And overall, with the definition of default impact absorbed with the TRIM impact largely known and absorbed, we do feel very comfortable with our current capital position, including absorbing potential future RWA impacts.
As you can see on Slide 20, both the Common Equity 1 ration and leverage ratio remain ahead of our ambitions. On ROEour UI, it's clear as we lower our ambition that we very much intend to compete to provide an attractive total return to our shareholders.
As mentioned also in previous quarters, our cost income ratio was impacted by factors such as the negative rate environments, and regulatory cost as this quarter's goodwill impairment affected that metric. To reiterate what we said before, cost income is not how we run our business, but it remains an important input for ROE.
And hence, we continue to have our ambition to reach a 50% to 52% cost to income ratio as we further digitize. This quarter, most segments show reduction of operating expenses.
Cost will continue to have the focus of the organization and in particular, of Tanate and myself. As for our dividends, following the ECB recommendation, we have suspended dividend payment until at least 1 January 2021.
The €1.75 billion that we reserved last year for the final dividend payment over 2019 is kept outside of regulatory capital, and we are keen to provide the shareholders with an attractive return. So to wrap it up, we continue efforts to help our customers, our employees and society to deal with the effects of COVID-19.
At the same time, conquering financial, economic and -- financial economic crime remains a priority as before. The current environment reinforces our belief that we are on the right strategic path and with a digital model, we've seen it through the crisis with digital use uptick -- uptake, and with a digital model enabling us to continue to grow primary customers and keeping them stable and keeping NII stable.
Loan amount was affected by COVID-19, still strong and mortgages growth however, reduced the amount mainly from business customers. Pre-provisional reserves very resilient, supported by focus on pricing discipline, good fee income and cost control.
And when the current macro-economic indicators remain unchanged, we believe we have already taken the majority of provisioning for this year, and for a second half of the year, we expect risk costs to be below the level recorded in January to June. The CET ratio strong 15% and we will come, therefore with an updated capital plan at our third quarter results.
We remain very confident that we are well positioned to face headwinds with a stable income base, with a growing fee income, a strong capital position, a strong funding base as well as a low Stage 3 ratio. Thank you very much.
I will now open the call for questions.
Operator
Thank you, sir. [Operator Instructions] Our first question is from Mr.
Stefan Nedialkov of Citi. Go ahead, please sir.
Stefan Nedialkov
Hi, good morning, guys. It's Stefan from Citi.
Steven, welcome to your new role at ING. I have a couple of questions.
The first one is on the outlook for pre-provision profit and post-provision profits. You seem to be getting to stable NIIs for the rest of the year.
There was a small miss in the quarter. How should we think about the evolution for the rest of the year in terms of help from TLTRO and others?
Then fees obviously very strong and costs relatively under control. Does this mean we should be looking at an improving pre-provision profit into the second half of the year?
On the post provision profit basis, cost of risk, you guys seem to be guiding to second half being less than the first half. Back of the envelope calculations basically point to around €3.4 billion which is in line with consensus.
Would you agree or disagree with that? Thank you.
Steven van Rijswijk
Thank you very much, Stefan. I will take the cost on the risk guidance, and then I will give the outlook for the pre-provision profits to Tanate, also in light of your question on TLTRO.
If you look at the risk cost, there is a significant part of our risk cost that came from macroeconomic indicators. And as we said in the first quarter of the year, we then took very much a process approach and said okay, well there's no consensus that we have in the first quarter of what we use with or for the economics of the then outlook, we then have for the economies for the first year and also for the next three years.
And that consensus still was quite benign because some reports already were negative, some reports were still flat, and hands on average, the impact, GDP impact or impact on house prices or unemployment was relatively limited. And we took then a €200 million plus an additional €40 million for one of the portfolios.
Now, what we now do is again, go back to the process, and we look then at what are the macroeconomic indicators for the end of June and there you see a big deterioration. You see a forecast for the eurozone minus 8% for some countries, even minus 10% or minus 12% with then recovery, a gradual recovery in 2021, 2022.
And we need to bridge that delta in our risk costs. So both in Stage 1 and in Stage 2, you see then a significant uptick in our risk costs with over €400 million.
And we included in that an additional management overlay for potential risk cost that we get from our payment holidays. Also what you see is actually migration of clients, who because of these macroeconomic indicators get higher probability of default allocated and therefore get higher ratings, and again, therefore, you see higher risk cost as well.
So it's an additional effect. So, the lion share, the large lion share of what you see in Stage 1 and in Stage 2, are these macroeconomic impacts.
And therefore you look almost already at about €550 million. Now if these macroeconomic indicators stay as they are, then the next quarters we will not see that anymore.
And therefore, we are quite confident that our risk costs will go down for the second half of the year. Now, I will give some pointers, but obviously, I cannot give forward looking statements as to the provisions to make.
So I cannot comment on the consensus, but I trust that with these pointers, I give you a good view of how we look at it. Now, Tanate, can you go to the pre-provision profits?
Tanate Phutrakul
Sure. Stefan as you know, we don't give forward guidance, but let me talk you through some of the components about our NII.
If you look at our quarterly results this quarter, you see that we maintain pricing discipline in terms of our repricing of our loan book. We try to also continue with the geographical diversification of our loans to more the non-eurozone, and I think to maintain stable NII, we do count on improving macroeconomic situation where that should come through with increased loan growth in Q3 and Q4.
Having said that, we are also taking steps with respect to our liability costs, for example, there in a number of our non-eurozone markets, we are looking to take steps or having taken steps on reducing the deposit rates offered to our customer. And as you know, we have already gone negative for large private banking customers in either the Netherlands or in Belgium in charging negative rates.
And of course, as you mentioned, we have taken this TLTRO funding outstanding as of the end of Q2, we have taken approximately €60 billion TLTRO funding, which we benefit if we can keep our loan growth stable or rising, we’ll benefit from funding of approximately minus 1%.
Stefan Nedialkov
Okay, thank you guys.
Operator
The next question is from Mr. Benoit Petrarque of Kepler Cheuvreux.
Go ahead please. See
Benoit Petrarque
Yes, good morning and welcome Steven, good to have you onboard. Now Steven, just as a first question, I know you are here just for a couple of weeks now.
But do you expect us-- do you expect to update us on the strategy? I will not expect major turnaround but any thoughts on the -- on the direction you might want to give to the company?
And linked to that, obviously, a big thing is, you know, the cost focus. We've seen some banks actually lowering costs significantly in the second quarter, and the direction is quite clear there.
You know, could you update us on the -- on the pipeline of the cost cuttings and also on the kind of direction for the full year 2020? It was, I think, down 0.4% on the clean basis in Q2.
It’s good but, maybe more is needed in front of the pressure on the on the topline is facing? And then the second question is on the asset quality and risk.
Obviously, you have quite a small amount of loan under moratoria, I think it's 2.5% of your book, its €18 billion. Do you have a bit more granularity on that figure?
How much is Retail and how much is Wholesale? And when do you expect those loans to be back to normal?
And also, do you have any initial idea of, how much could turn, maybe, problematic on the $18 billion? Is that a small figure?
Or do you have a view on that? Thank you very much.
Steven van Rijswijk
Yes, thanks very much Benoit and I’ll try to dissect your two questions. So I will answer on strategy and the cost of risk and then Tanate will look at the cost side of things.
But let me start with saying on cost, that it will be also an important focus of myself, especially in these times. So yeah and indeed it has been a couple of weeks in a job and but I mean, but in this particular job, but let’s say that I have already been in the Board for three years as a Chief Risk Officer but part of a Board management team.
So I'm part of -- I was part of the strategy and I will continue the strategy. And of course, we will make some, we could make some amendments when we further develop but I'm behind the strategy.
And I also do think and we've seen it in the crisis, that digital banking and mobile-banking first and 24/7 banking is the way to go. And the digital use of our customers went up again dramatically, with 87% of interactions being pure mobile, and with 41% of our clients, being only on the mobile and then we slowly transform our clients from assisted channel such as chat or call center, or even branches to -- to digital banking or to mobile banking.
We have been closing branches in the Netherlands and we continue to look at our branch footprints. I mean some of these branches, there's only two or three customers coming per hour, so yeah, what can you do and we cannot leave them open.
So the digital banking focus and the online banking focus really, really helped. And we've also seen it, for example, in the way in Germany, they are increasing fees in the brokerage fees that we do online, we do online brokerage, and that helps really in our income and also on our cost side.
So that line, I will continue. And I will try to accelerate and put an additional focus on even accelerating digital banking going forward to make sure that we go into the direction that we believe sustainably will be the right path for banking.
Of course, there is a crisis to manage and that’s on the one hand helping clients and also discussing with clients, to what extent we can help them with their loans and also have a good management or strict management on the risk cost side of things, to be prudent when it comes to extending loans for our clients, to take appropriate provision levels, and to make sure that we can dissect the winners from the losers. Thirdly, there will be increased cost scrutiny in these times is logical.
I mean, any CEO in this day and age would look much stricter at the cost and so that's what I will do, as well. And last but not least, but that remains important for the banking industry overall, for society overall, but also for ING, and also to keep continue to working on AML.
That's a key priority, was that for ING before the 1 July, it will remain an important priority. But also note that we need to do this effectively and efficiently.
Tanate Phutrakul
And then now just addressing a bit on your cost question, I think clearly if you look at our quarterly results in Q2, we have achieved absolute cost reduction. And this is also absorbing inflation increases as well as heightened increase in spending on compliance and KYC.
Now, if you look at what we have guided before with respect to costs, in market leaders, we have guided towards negative costs, negative costs evolution, and if you look in our Q2 that has been achieved. If you take out the goodwill impairment that has happened in Belgium, for example, in the wholesale bank, we have talked to you about the fact that we are flattening the cost growth in the wholesale bank.
And that has been our guidance in Q4. And now you can see in Q2 with some positive evolution from that perspective that cost in the wholesale bank has started to decline.
And within the CNG countries, again, we have said that selectively we would like to see cost growth. As long as we see positive jaw.
Now in light of the macro-economic situation and slowing revenue prospects, we will also be taking actions with respect to cause in the CNG world in the coming quarters. And I think overall, we just wanted to say that we will take a balanced view between looking for efficiencies at this current time and investing in our digital future that Steven is talking about.
And a number of our programs are under review in terms of looking for that cost efficiency.
Steven van Rijswijk
And to come back to the cost of risk and a payment where it is, if you look at the €18 billion, approximately 40% is to households and so are Retail, 60% is to business clients. The lion share of the payment holidays is to the northwestern European countries.
A bit over €1 billion already expired and there was no meaningful higher risk cost in these loans. We took some additional provisioning for payment holidays still outstanding and other than that, so we remained to watch it but currently we have no deteriorating signals at this point.
Benoit Petrarque
Great. Thank you very much.
Operator
Our next question is from Giulia Aurora Miotto of Morgan Stanley. Go ahead, please.
Giulia Aurora Miotto
Yes. Hi, good morning.
Can you hear me?
Steven van Rijswijk
Yes, very well.
Giulia Aurora Miotto
Okay, fantastic. A couple of questions from my side as well.
So fees, a strong result there. Can you please run through the main initiatives that make you confident that ING can deliver on the 5% to 10% fee growth?
And, and then secondly, less related to results per se, but DCB had an M&A consultation last week or yeah, recently, and any thoughts on that could ING be perhaps involved in cross border M&A do you think if and, you know, there are some opportunities available? Thank you
Steven van Rijswijk
Thank you very much, Giulia. I think on fees, I mean, we have clearly strong results.
We've seen that for the first half year compared to the past half year, and we had an over 8% increase. But you let me give your also more granularity here.
I mean, we increased our brokerage fee business in various countries with most notably Germany. There you see that our brokerage fee activity went up year-on-year with 28%.
We increased our payment packages in various countries, amongst others, the Netherlands and Belgium but we only did that at the end of the first quarter, so the impact is only gradually coming. Despite the fact that we had virtually no travel and a significant decrease in payments in this quarter, obviously, we could keep our fees up.
And the activity is now coming back again. We have subdued syndicated market loan activities.
And when it comes back, those fees will go up as well. We have various initiatives in the insurance space, for example, which are currently growing, our collaboration with AXA.
And there the fees are growing as well. And so -- and as you can see, historically, we consistently have delivered on our fee ambition of 5% to 10%.
So in that sense I'm confident. And we see that delivering quarter-by-quarter.
And if you look at the consultation --
Giulia Aurora Miotto
Sorry, can I just follow up on the fee bit. The increase in payment packages how, what impact do you expect from that?
Steven van Rijswijk
I'll give that to you Tanate.
Tanate Phutrakul
Yeah. Giulia, the fee packages that we announced in the Netherlands and in Belgium, we announced a fee increase of approximately 10% to 15% in these two markets, but these packages normally increased on an annual basis.
So we take decisions, if we would increase fees somewhere around October and it has an impact in the beginning of the subsequent year.
Giulia Aurora Miotto
Thanks.
Steven van Rijswijk
Okay. And then on the M&A consultation, I mean, our strategy has been clear, which is we first and foremost focus on organic growth.
If we look at acquisitions, we focus on certain skill sets or certain products that we do not have that can broaden and deepen the service delivery to our clients. And then we would look at, yeah, in market consolidation because basically that is cost synergies, clearly, the current landscape as we currently see it in Europe limits the ability for cross-border synergies on both capital and liquidity, given the compartmentalization of that in various countries.
And therefore we find it difficult to see benefits for cross border M&A at this point in time.
Giulia Aurora Miotto
Thank you.
Operator
Next question is from Benjamin Goy Deutsche Bank. Go ahead please.
Benjamin Goy
Yes, hi, good morning and two questions please from my side. I want to follow up on the fees and your work has been repriced, in Germany, for example, your payment packages, just wondered how the experience was and whether we can expect them to say more pricing power in your Challenger market as well where you have historically been price leader?
And then secondly, I think there was a headline that you reviewed you your dividend policy, which probably is no big surprise. But I was just wondering whether this is part of a broader review and it might also include share buybacks, considering your trading well below the book value?
Thank you.
Steven van Rijswijk
Yeah, let me do the question on dividends and then Tanate will answer the question on fees. I mean, based on the announcements by the ECB earlier this year, we basically delayed our dividend policy.
So and therefore, we said we need to resume a dividend policy later in the year. And that's what we will do in the third quarter.
We also said that already in the first quarter that we would resume our dividend policy in the third quarter or announce what our dividend policy will be going forward. So that is and how we will then do it.
And also depending on what we are allowed to pay, we will come back with the -- with our dividend policy and the structure in which we would pay dividends. But one thing is clear, and it is that we want to pay dividends to our shareholders.
And hence we also made a reservation for the second half of the year 2019, dividend we could not pay. And we will do that -- have a new dividend policy as part of the total capital planning review, including the management buffer that we could only have 4.5% over our MDA level.
Tanate?
Tanate Phutrakul
Then, Benjamin just to reiterate the point on fee income, as Steven has mentioned, we do annual reviews on daily banking packages, we make sure that we try to take steps to sustain our investment product fees, and third-party fees as mentioned on our joint venture with AXA. Now to address your question specifically on the category of fees that we call behavior fees, whereby for example, in Germany, we say that we would start charging payment package fees of approximately €5 per month, unless you actually bring your salary accounts to ING.
In those instances, and this is just an example for Germany, probably about a third of our customers actually who are not primary customer decided to become primary customer. So start bringing regular income into their account, so they go from non-primary to become primary.
A certain proportion of our client, about a third, as well decided not to be primary customer but agreed to pay the €5 per month in fees, and the remainder have decided to leave ING as a client. So it's --it's I think, overall we are quite happy with this evolution.
Benjamin Goy
Thank you.
Operator
Following question is from Mr. Johan Ekblom of UBS.
Go ahead, please.
Johan Ekblom
Thank you. Just coming back to some comments you made in terms of growth ambitions.
And I guess, should we expect any change in terms of where you would like to focus on growth? You talked about the challenges in growth market but if we look back over the last two years, you clearly put the brakes on a bit in Wholesale etc.
Is it a continuing of that strategy or is it an acceleration of that strategy? Or how should you think about?
Steven van Rijswijk
Yeah, thanks Johan. I presume that’s the question that you have.
So I mean we will have a continuation of the strategy. So we’re already, a couple of years ago said that we saw some risks creeping into the wholesale banking books.
I mean, structures were deteriorating, we're becoming a looser, the amounts were getting bigger. We saw in some sectors that we were not really, the risk was not really priced in.
And hence we started to put caps on books. We started to put caps on leverage books, we started to put caps on a real estate finance book, we started to run off some of the books to the extent we could in the oil and gas and the drilling sectors.
And, yeah, that will -- that we will continue and obviously, we've also seen it in the previous crisis at some point in time there was a reversal, then this structure become tighter again, then the pricing goes up again. And then we can, again grow that.
But for now, we will keep quite strict in the Wholesale Banking, especially when there's a lot of volatility, we need to be prudent there. And that's what we will continue to do.
And at the same point in time, we said that we want to diversify our loan book, we want to diversify our business and hence we are doing that in different geographies amongst our CNG, amongst our consumer lending. And that's what we have been doing over the past couple of years, and that's what we will continue.
Now I see while I'm talking that Johan’s question was lost. That's why he didn't hear it, but I hope all of you heard it.
So I suggest we move to the next analyst. And when he returns, he may have a second question.
Operator
Thank you, sir. The next person is Tarik El Mejjad of Bank of America.
Go ahead please.
Tarik El Mejjad
Hi, good morning money. A couple of quick questions, please.
First on the NII, could you give us some indication of how’ve been the behavior of Retail and Corporate customers in terms of deposits and how the €21 billion significant increase in deposits in Q2 could reverse in the next month? And the second questions is on capital?
Think if you could give us a breakdown or if you think in terms of capital and other new evolution, but my question is on the CRR 2.5. What did you take in there in terms of semi-supporting structure and the rest of the small components?
And on Basel IV, so is it fair to think that once you take the division before the €10 billion you booked into Q1 and then the now the whole €13 billion TRIM, that's like a majority, I guess for RWA related to Basel IV, I think there's still only like a 20 or 30 basis points to go. And you'll be fully loaded deflation related to Basel IV?
Is that correct? Thank you
Steven van Rijswijk
Let me take the questions on capital and RWA. And then we will also discuss the fees, sorry, the deposits.
If you look at the capital benefit, we have from the CRR 2.5. Regulation, it was approximately 25 basis points benefits.
So the lion share came from management actions, but 25 basis points came from the new regulation. And if you look at RWA, I think you make a valid point.
I think that DoD was significant impacts. We had the -- with the large corporate model and the €13 billion you mentioned you remember that well, because we reversed €6.6 billion of that, we now we put it in again.
Then most of the TRIM missions we've had four letters if you will, there are – two are yet to come, but these are on relatively small books. So the impact there from an overall point of view will be benign.
And then the last step would be the Basel IV outcome, where it then comes 2022, 2023 or even later isn't clear. But we expect the impacts of eventual Basel IV to be limited.
And hence, we are very confident with our current capital level with the most and the large majority of the impacts already having taken that. Tanate on the customer deposits?
Tanate Phutrakul
If I may, just on the capital --
Tarik El Mejjad
Clearly on the visibility on --
Steven van Rijswijk
Sorry, Tarik, did you say something?
Tarik El Mejjad
Yes, sorry, just on the CRR 2.5 form of the bids, so the 25 bits that takes into account the software and the SME, so nothing and IFRS 9 you took it, I saw that in the capital bit?
Steven van Rijswijk
Yeah, it takes into account the SME, it does not take -- the SME support factor, if you will. It does not take into account software.
Tanate Phutrakul
Yeah, Tarik, the software, the RTS is still being debated. We expect that to be issued during the course of Q3 and will be applicable in Q4.
And we’re given some estimate that we think will benefit anywhere from 10 to 12 to 15 basis points from the software.
Tarik El Mejjad
Okay, thank you.
Operator
So, our next question is from Johan Ekblom, UBS. Go ahead please, sir.
Johan Ekblom
Thank you, sorry, I was cut off -- my line cut off before but you don't need to repeat that, I think I got most of it. Just a second question in terms of the TLTRO impact, how should we expect that to be accounted for, given the growth dynamics we're seeing?
Will you be book it on a recurring basis and then adjust it at the end or will you wait until the end to book the benefits etc.?
Steven van Rijswijk
Yeah, thanks, Johan. By the way, say hi to Ralph for me when you speak to him.
So --
Johan Ekblom
I will.
Steven van Rijswijk
Yeah, so the first question we already answered. But on the second question on the TLTRO, I will give it to Tanate.
Tanate Phutrakul
I think in the TLTRO, there's really three component parts that you need to think about. Clearly first, the magnitude of the TLTRO, we mentioned that we'd have taken approximately €60 billion of that funding.
The second is the confidence level that we have with respect to maintaining at least zero growth in the portfolio. And currently, we do expect that we can actually encourage loan growth to basically be more than zero.
And then the third point is, of course, as long as we can deploy into the relevant amount, the margin will be attractive and if we can deploy, we can still place the money, for example, with the ECB and have a margin on this funding of approximately 50 basis points. That's how it would be done from an accounting treatment.
I guess it really depends on the level of confidence that we would have with respect to loan growth. And we'll inform you in subsequent quarters on that.
Johan Ekblom
Thank you.
Operator
Our next question is from Mr. Kiri Vijayarajah of HSBC Bank.
Go ahead, please.
Kiri Vijayarajah
Yes, good morning, everyone. So you alluded a couple of times to pricing discipline and you talked about fee packages deposit repricing.
But I'm curious to what extent you've been repricing on the loan side and is it more than just saying no to loans from just a risk perspective in the wholesale bank? So just some color on where you've sort of demonstrate pricing discipline, if you like, on the lending side?
And then just a quick follow up on the -- on the capital management actions you've done this quarter on the RWA? Just, 20% of that flow through onto into the Basel IV ratio or were those leavers more skewed towards really improving the Basel III ratio?
You know, the €11.5 billion of RWA mitigation done this quarter. Thank you.
Steven van Rijswijk
Yeah, thank you very much, Kiri. First on the repricing on the loan side, I mean, on the one hand, it's just a matter of discipline to not price loans whereby there's too much pricing pressure to make an adequate return.
And for example, you see that in, -- in countries like Belgium, whereby if there are sometimes pricing pressure on the mortgage book, yeah, and then we will not go along and the mortgage book decrease a little bit, but we will stick to pricing discipline to go for return not for size. If you now look overall on the book, you see that on mortgages our lending margins on the overall book went up.
On business lending, so mid-COVID and SME, it went down a little bit, and Wholesale Banking, it stayed approximately flat. But well it doesn't stay flat, because on the one hand, we increased our discipline in pricing for these project loans.
But what you do see is that there are less projects and less project loans and less trade finance. There is a heightened demand in our recurrent credit facilities and our corporate facilities.
And these typically go at lower rates. So on average, therefore, the Wholesale Banking margin stays flat.
So it's a move from one book to the other. Now, then to the capital -- the management actions on RWA, to our extent that it’s front-loaded Basel IV implications.
Yeah, it doesn't get sense since we are, if you look at the Basel IV regulation, largely hit, if you will, by the input factors and less by output factors. And that's why we have said that the lion share of what Basel IV will do and it's TRIM missions are actually a prelude to in the essence, Basel IV, that because of our dependency on the input factors rather than the output factors, the lion share, over 80% and I think now it's more than 90% at this point in time of Basel IV will impact will come as a result of TRIM missions and remodeling and DoD.
So that in essence, the answer is yes.
Kiri Vijayarajah
Great, thanks.
Operator
Our next question is from Anke Reingen of RBC. Go ahead, please.
Anke Reingen
Yeah, thank you for taking my question. And the first one is on loan goal.
A number of banks have talked about under recovery in demand in June and some also mentioned July, so I just wonder what you have seen in terms of demand coming back? And then secondly, on your update on capital with Q3 results.
I'm a bit confused as to what you can actually say given the ECB is unlikely to have commented by that point. Is it about potentially reallocating capital within the group, capital return control and should we also expect this to be part of a broader overview of your targets and having taken over your role now?
Thank you very much.
Steven van Rijswijk
Thank you very much. I mean, on loan demand coming back, yes, its early days, but we see it going back a little bit.
I mean the same goes for payments. Payments were quite down in April or May.
Points of sales were down in April or May. And ATM withdrawals were down in April May.
ATM withdrawals are still a bit down as we increasingly see we go to a less cash society and not necessarily a cashless society but less cash society. But that the payments we see coming back and if you see payments coming back, you can also expect loan growth to come back.
By the way, there is good demand in the mortgage market, that has continued. It's a matter of pricing whether we will take it or not.
But as -- when the economic activity recover, you can also -- we expect that working capital levels will increase and, in that extent, and the loan amount is expected to come back a little bit. But it's early days and also depends of course on how the lockdown will progress.
In terms of capital plan, the ECB has given advice not to pay dividends in 2020, but it does not preclude us to have a dividend policy. So, basically here, we adjourned our dividend policy until the third quarter of this year.
And so, we are going to come back to you with our new capital plan and in that new capital plan, we also will say to you our dividend policy going forward whether changing or not. And of course in that, we will also say something about buybacks because we do not exclude buybacks to some extent.
But again, that's just in general -- a general statement. It's not logical to look at buybacks at below book valuation.
Anke Reingen
Thank you. And what would you also review your ROE targets at that point or is that for a later point?
Steven van Rijswijk
At this point, I have no intention to change ROE targets.
Anke Reingen
Okay, thank you very much.
Operator
Our next question is from Daphne Tsang, Redburn (Europe) Limited. Go ahead, please.
Ms. Tsung, please unmute your line.
Ms. Daphne Tsang, can you hear us?
We'll go further to the next question. Ms.
Daphne Tsang, can you hear us?
Daphne Tsang
Hi, welcome to the role. And I've got two questions.
Hi, can you hear me?
Steven van Rijswijk
Yes, we can hear you.
Daphne Tsang
Hello?
Steven van Rijswijk
Yes, hi, Daphne.
Daphne Tsang
Hi, welcome to the role. I’ve got a couple.
First on NII, do you stick to your flat NII guidance which you [inaudible] in the current department, does that sort of imply that you need high NII in H2 versus H1, if I am correct? You mentioned that you expect no --
Steven van Rijswijk
Sorry Daphne. Daphne, sorry you seem to be very far from the microphone.
So we have trouble hearing you. Can you get a bit closer to the mic please?
Daphne Tsang
Yes. Yeah, sure.
Hi, is now better?
Steven van Rijswijk
Yes, it’s much better. Thank you.
Daphne Tsang
Okay. Okay, thank you.
I'll repeat my question. First one on NII, to meet your flat NII targets year-on-year, it kind of implies that you will need a higher NII in H2 versus H1?
You mentioned earlier that you expect loan to improve in the second half. But I'm just wondering how about -- how about your margin?
I appreciate you've have already given some comments earlier. But you mentioned pricing discipline and TLTRO which offset your liability drag?
So is it fair to say that the H2 NIM should improve from the current low level of 144 bits? You previously guided 140 bps for each H1 and high 140 bps to H1 and you're kind of just below, so what's the outlook on H2, please?
On NIM and on TLTRO III, how much more room you could increase from the current €60 billion levels taken in June? And my second question on cost, where do you see costs going in H2 and beyond?
Your previous remark about a serious taking a serious look into the cost is very encouraging. Are you looking to achieving that cost reduction in 2020 or from 2021 onwards, given that the growth of opportunity in near term is quite limited?
Thank you.
Steven van Rijswijk
Thank you very much Daphne. And these are all good questions from on the P&L side.
So I will give the floor to Tanate. So it’s the NIM, its TLTRO, its cost.
Go ahead Tanate.
Tanate Phutrakul
Daphne, I think if you look at our NIM evolution during the course of Q2, you can see that it is declining from 151 to 144. But that's really driven by the balance sheet extension that you have seen in Q2, right?
Partly because of the revolving credit facilities that were taken by a wholesale bank, which comes with a margin, which is approximately 50% less than a normal blended portfolio of loans we extend in the wholesale bank, and also the extension of our balance sheet by increased funding to the Central Bank because of the taking up of the TLTRO III, but if you adjust for that on a pro forma basis, our net interest margin is approximately 148, right? So we do see a drop but not as dramatic as perhaps the number would indicate.
And I think looking forward about how we would expect things to evolve. Again, I reiterate, it's really depending on to a degree maintaining and we will be maintaining price discipline.
We will take actions also with respect to lowering deposit rates in our non-eurozone market, already announced plans to charge negative rates to, for example, private banking type customers in the Netherlands and mid-cops in Belgium. And I think with those actions together with the TLTRO, we hope that we can maintain that stable NII going over the next few quarters.
Having said that, you asked about the TLTRO plans of €60 billion, currently, we are happy with our liquidity position and we don't have any current plans to increase that for the time being. Now, respect to cost.
Again, we are taking steps with respect to costs, we are taking -- you can see that our costs evolution is good in the second quarter of the year with absolute cost declines in all of our major divisions. And we will continue to look at that whether it's in our channels, branches, other types of channels given the digitization that we have seen.
But again, we will balance that with investment in our digital future. So it will be a balance between the two.
Daphne Tsang
Thank you.
Operator
Our next question is from Omar Fall of Barclays. Go ahead, sir.
Omar Fall
Hi, good morning. Thanks.
Thanks for taking my questions. So just two based on costs, and so on the €44 million decline in underlying cost, ex the restructuring charge, can you just give us a sense of the scale of the three elements, you mentioned the cost savings versus bonuses versus CLA increases.
I just don't really understand why you haven't seen the very sizeable COVID related savings that your peers are all seeing in areas like travel or marketing, etc. Many of your peers are down almost double digits year-on-year in their retail businesses, which is very, very far from you.
And then similarly, if you could just update us on Unite plan and you know where all that stands is effectively on hold for the foreseeable future as we go through the crisis. I see Belgium seems to be down just 3% in terms of costs on an underlying basis.
You know, I know that it affects both Belgium and Netherlands but an update on that would be, be helpful. Thank you.
Steven van Rijswijk
Thanks very much, Omar. I'll take the bit on Unite and then Tanate will give you an answer on the cost.
I think going to Unite. So there, we have already done the majority of what we needed to do under that program.
We integrated Record Bank in our bank in Belgium; we decreased the number of branches in Belgium by half. We have put all of our active retail customers on the OneWeb environments from Belgium to the same OneWeb environment as the Netherlands.
We're currently in the process of putting all the retail clients on the on the OneApp environment in Belgium. And today, that's approximately 170,000 and that will continue and by the end of the year or early next year, we will have migrated all those clients.
We will then continue also to put our business clients on the OneWeb environment and we started with that as well. And then what we can do is that we then do is, that we will then put a new offerings, so for example, what we're currently doing is an insurance offering that we then can put on that same OneApp and OneWeb environments for both countries in one go.
So therefore, we do not only have a larger number of clients on one IT system and one customer integration layer and one customer experience layer, but we give them a better digital experience by offering solutions on that one platform. And that we will continue going forward and that will continue beyond the Unite program.
So the lion share of the Unite program we will taper off in 2020 and 2021. But the benefit from it both from a digital experience, a revenue and cost point of view, will then continue to come.
Tanate Phutrakul
So then Omar to address your questions on cost evolution, I think the collective label agreement or wage inflation varies from market-to-market, but on a blended basis ING is anywhere between 2.5% and 3%. I think that's addressing part of your question.
The second one, we do recognize that some of our peers have been reducing variable compensation, which has resulted in maybe a sharp reduction in their expense line, but I think ING as you know, is not really big on variable compensation. So that hasn't been a major factor in terms of our cost decline in the second half of the year.
And then the third thing which I want to remind you is that we are still in the path of taking steps to improve our KYC environment within ING. And that if you look year-on-year, the KYC expenses actually went from €98 million to one €134 million.
And to remind you, we had given guidance that during the course of 2020, we expect the total expenses that we would take on KYC to be approximately €600 million. And again, within that €600 million approximately half we currently pay either to external consultants or management consultants, and we would expect that going forward we will make efficiencies there as well.
Omar Fall
Thank you. And sorry, Steven on the Unite, and also you predecessor use to tell us that there would be kind of hockey stick effect with the sizeable savings to come, you know, kind of 2021, 2022 as the systems were decommissioned, following all the elements of implementation that you've just highlighted.
Are you basically saying that, that process is still ongoing? And that decommissioning process in 2021, 2022 will lead to those sizeable savings or you're basically saying that, you know, everything's kind of in the base of costs from here and any potential savings from the plan are going to be marginal?
Steven van Rijswijk
Thanks, Omar. I think that, what my predecessor said that in the beginning of the process, when we started in 2016, we would look at centralization of our core banking systems.
And then after some time in 2018, 2019, we said well, basically on one hand, it is very difficult to centralize those systems, on the other hand, we also can now make use of API's to actually draw data and products from our core banking systems into our customer integration experience layer to in an easier way, realize a one platform environment in the Benelux. So, we will continue to decommission systems.
Not all systems can be decommissioned, but for some products it’s easier to decommission than not. But it is increasingly focused on harmonization, standardization, delivering a better digital experience on the full layer and that will deliver savings, not necessarily by a big bang in decommissioning the core banking systems.
Omar Fall
Got it. Thanks a lot.
Operator
Our next question is from Mr. Raul Sinha of J.P.
Morgan. Go ahead, please.
Raul Sinha
Good morning, gentlemen. Thank you for taking my questions.
If I could just follow up on a couple of points, please. First one's slightly detailed, the oil and gas book, Stage 3 ratio seems to have picked up materially in the second quarter, not 7.8%.
Even if I adjust for the trade finance book in Q1. Steven, I was wondering if we could discuss what you're seeing here, given the recovering oil prices and how you might be looking to proactively manage the risks in this book.
And then related point on frauds. I think we had a discussion that last quarter as well, when there was a big fraud in Asia, now there is a big fraud in Europe?
I was just wondering what lessons the group is taking away from what we're seeing in terms of fraud? And then just very quickly, just to follow up on the dividend discussion.
I'm not sure if I missed this. I'm gathering that the progressive dividend payout policy of the old obviously, is behind us now.
And this review that you're flagging at Q3 is that a sort of new policy? In that context, do you think that there are merits in a sort of U.S.
model where, bank dividend payout ratios are low but then they have the flexibility to use buybacks. Is that a sort of direction we should think the sector should be heading towards, given what you've seen in the pandemic?
Just some thoughts would be really useful. Thank you.
Steven van Rijswijk
Yeah, thanks Raul. If you look at oil and gas, indeed, taking out, if you look at the Stage 3 ratio that 7.8% that is for the bigger oil and gas portfolio.
And if we then take out let's say the trading part of it or the non-directly oil price related part of it, largely the 7.8% relates to that €4.5 billion. I'd say if you then do the math, you basically do see and I refer to what I said in the first quarter, then I said that we moved the entire U.S.
oil and gas book to Stage 2. And that book is around €1.5 billion.
Now, if you look at the 7.8% and you do the math. It's pretty well resembles that book.
So what do you take from that? Yes, that book is a difficult part of the book.
But again, and that comes in line with what we said in a previous quarter. It is therefore, so that book and not something else.
So if you look at the broader oil and gas portfolio that we highlight on that page, there we don't see that many issues. It is really focused on this €4.5 billion, and that's where we see the provision taken.
Now if you look at one of the later pages in the deck, you see in one of the bar charts that we took provisions in the natural resources space, that is largely that oil and gas part, including offshore and drilling that relates to the 7.8% amounts. So with a number of the names in Stage 2 and some of the names in Stage 3, continuing to move and taking higher provisions, we do expect that the provisions on oil and gas in the next half year will go down.
Then on fraud or fraud case. Yeah, well, my first comment is people should stop defrauding other people and that's -- that's step one of course.
But if you look at then the ING book, the previous frauds we have seen, were focused on the Trade & Commodity Finance book, and there was one each one, quarter one, one in the fourth quarter last year. Now what we have done there is that increasingly we look at transactionally-secured exposure.
So we're looking at our policies, because we do have, I’d say, control teams that do checks on the traffic that goes on, the bills of lading that we have, the documentation that there is. So there is all things going on to look at the lineage, if you will, at the end-to-end transactional dealings going on in trading commodity finance part.
However, over the course of the years, you see that the structures have been weakened to some extent and we're reintroducing the strict structures and we call that TCF 1.0. And so we go back to where the market went to back to back to TCF 1.0.
Then on same point in time in that business, we are also experimenting with blockchain because blockchain is in terms of an end-to-end payment system, especially for trade, much safer than all the paper floating around on a global basis. And so the ability to defraud is much lower when we can use the book, the internet technology and some of the players in the TCS space, we are currently experimenting with it.
So, the fraud in TCF was therefore, we have seen a few of these cases. Yeah, what we now see and further we have this quarter is a complete one-off scenario.
Many institutions, many organizations, many accountants, many regulators are -- are hurt by that. It's just a matter of, in that sense, knowing business models, and in terms of that sector, we have very, very little other exposure and yet our business, and let’s say business sector and actually we decreased it to almost a negligible amount.
On dividends, I think we have just delayed our dividend policy in light of the measures that were taken by the ECB and the advice that they have given us. We will resume with a dividend policy in 2000 -- in the first quarter of the year.
Yeah, it could go several directions. And of course, I noted also the U.S.
banks with a lower dividend policy and the share buybacks, all options are on the table and we'll come back to that in the third quarter.
Raul Sinha
Great. Thank you very much.
Operator
Next question is from Farquhar Murray, Autonomous. Go ahead please, sir.
Farquhar Murray
Good morning gentlemen and just two questions, if I may. And I shall apologize, the first one is a little bit of an echo of Raul’s question there on the dividends.
So my question there is, can you just outline what the key considerations are going to be that will feed into that kind of dividend policy revisit [inaudible] your perspective or the pros and cons of the previous approach and charges, so we get a bit of a sense of, of what you might regard as things were changing? And then secondly, apologies if I missed it, but what is the current full-loaded Basel position?
And are you suggesting that as of today, basically Basel III and Basel IV are now essentially the same? Thanks.
Steven van Rijswijk
Sorry, Farquhar, can you repeat the second question, please?
Farquhar Murray
Yeah, sorry. So basically, the second question is on Basel IV.
I'm just kind of wanting an update on the current fully-loaded Basel IV position. And essentially whether you're saying that Basel III reported and Basel IV are now essentially the same?
Steven van Rijswijk
So on Basel IV, let me put it this way, if the TRIM missions are behind us, and of course we've now taken additional step. One of the main TRIM missions by taking additional €.6 billion.
But once we are done with the TRIM missions, so we’ve got two more letters on smaller portfolios, but the impact on that is will be limited. But then 90% of the total Basel IV impact we will have had.
Then on the -- and the Basel IV impact, I just lumped them together, it's a bit apples and oranges, but if you look at DoD, TRIM, remaining Basel IV, all of that, then 90% is already behind us. Then on the key considerations, yeah sorry, maybe I should add, that's why I'm hesitating, that Basel IV end part of it, that remaining 10% is not certain yet.
So we've taken all the input factors, but Basel IV is still under discussion. It was first in 2022, then it would be 2023 and currently still under discussion where it will be implemented.
So we do not know, but we know the rules that if they were implemented, what the impact would be, in that sense the 90% stands. Yeah, key considerations that will feed into our new policy are not different than what I asked to Raul.
Maybe one thing to add there, we are looking into to what extent the new MDA level has structural elements in them, given the new regulations and the relief that has been given by the ECB. And to that extent that could have an impact on our dividend policy as well and to our capital levels.
Farquhar Murray
All right. Thanks so much.
Operator
Our next question is from Robin van den Broek, Mediobanca. Go ahead, sir.
Robin van den Broek
Yes, good morning, everybody. Thank you for taking my questions.
And first one is on, I noticed some threats that you are putting some pressure on your external FTE providers to take lower wages. I was wondering you have a pretty sizable external FTE base, whether that could have impact in Q3 already?
And then maybe a bit more specifically on TLTRO take up. I think you implied benefits could be €150 million per quarter.
Is that what we should expect in Q3 to come through and then that benefits dissipate a little bit longer term on the back of continued margin pressure. I was just thinking about the shorter-term dynamics there.
And on project Unite, I think in the past, you always have the longer-term view to integrate even more countries on the same platforms. Now, though it’s being a little bit different than you anticipated it firsthand, for Belgium and the Netherlands, I this still going ahead?
Are you expecting to still add more countries on that same platform longer term? Or is the country differences are they too big basically to make that happen?
Thank you.
Steven van Rijswijk
Yeah, it's -- thanks, Robin. I think on the -- on Unite or on Maggie, I’d so let's say that's the Challengers & Growth countries, we have increasingly have focused on building a customer integration layer, so a front-end integration.
And we've always called it an intermediate step. So we will continue with harmonization and digitization to offer a better days to experience, so new propositions can be put on that OneApp or OneWeb environment immediately across a number of countries.
That does not necessarily mean centralization. So you do not need to centralize all your systems to create the same experience for your clients and put new propositions in one go on an integrated app or web environment.
Then on TLTRO and lower wages, I give it to Tanate.
Tanate Phutrakul
Yeah. Just maybe to address your question on external staff, first of all, our external staff community is significant.
And we always treat them with a lot of respect and very similar to our employees. Having said that, we are asking them indeed for temporary cut in tariffs, right, given the COVID situation and it's slowing down over a number of projects.
So it's a combination of tariff cuts and a reduction in absolute number of external staff that we deal with. And in addition, we're looking of course at changing mix, right?
So how many of these external staff do we deploy in our home markets in the Netherlands, Belgium and Germany, and where we deploy them in other lower cost markets, for example, in Poland, or in Manila. So it's a combination of factors, but indeed it is part of the plans to actually get better efficiencies there.
In terms of your question on TLTRO benefits, as I mentioned before, we have taken roughly €60 billion and if we can maintain zero loan growth or better, we benefit at least 50 basis points. But of course, if we can deploy those funds lending to our customer, then the benefit would be larger.
Robin van den Broek
And I think in the past on TLTRO, you were able to book the full rate basically, immediately on the back of your growth history. Is that the plan now as well or is it more conservative approaches there?
Tanate Phutrakul
I think those conversations are ongoing, the threshold given that the TLTRO III is coming with a deeper discount from a funding perspective, I think we would like to give you an update in Q3 based on what we see other institutions doing in discussion with our accountants.
Robin van den Broek
Okay and I guess on the external FTE base, there's no quantification behind what we could expect there?
Tanate Phutrakul
No, we don't disclose external FTEs externally, but rest assured we were asking in many of our home markets for these types of arrangement with our external suppliers.
Robin van den Broek
Okay. Just asked, thanks
Operator
We have another question from Stefan Nedialkov of Citi. Go ahead, sir.
Stefan Nedialkov
Yeah, hi guys. It's me again.
Just wanted to follow up on the digital proposition here, obviously over the years you have been mentioning and emphasizing some partnerships, like the Scalable Capital one in Germany which I believe is now being extended. You have AXA, you guided to around €1 billion fees over 10 years.
Now you're announcing the Amazon partnership in Germany for small businesses. Are you ready to give us more color in terms of the percentage of fees that are derived from the digital partnerships and the outlook for next year and beyond?
Steven van Rijswijk
Yeah, I think that had -- what we can disclose about is that that one thing is clear is that the digital partnerships and the broadening of our services to our clients becomes more important. So, we are diversifying away from net interest income.
And in that sense, we either do that by developing new services ourselves, such as a brokerage channel, by setting up fintech ventures ourselves such as Yolt or by collaborating with external partners. Now we have close to 200 of these fintech partners.
We're very pleased in this case, as with Amazon, we have an exclusive partnership to afford our seller portal to provide loans to the sellers that come onto their platform. It’s again a sign of strength and the way ING has perceived also by the strong fintechs in the world as a strong digital player.
And in the past people asked us, oh, don't you see the fintechs as a threat? But on the one hand, they can be a threat but on the other hand, they're also good in terms of collaborating to further develop businesses.
And in that sense, it also helps us in our ambition of the 5% to 10% fee growth per annum, and is already a testament to that ambition going forward.
Stefan Nedialkov
And Steven, are you able to put a number and like, are we talking about 5% of total fees right now coming from these partnerships, 10%, more than that?
Steven van Rijswijk
It will be a ramp up. And so with AXA we started last year, with Scalable, we started two years ago, with Amazon we started the 1 of July, the first loans are in and this will be a ramp up and will become a more important part going forward.
Stefan Nedialkov
Okay. Thank you.
Operator
There are no further questions sir, please continue.
Q - Stefan Nedialkov
Okay, thank you very much. With that, I would do a wrap up.
One second, please. So thanks very much for the questions.
And to summarize, we continue our efforts to help our customers, employees and society to deal with the effects of COVID-19. At the same time, we continue to work on countering financial and economic crime as it remains a priority not only in my previous role, but also in this role.
The current environment reinforces our beliefs that were on the rise to strategic path. We've seen that now also in the COVID-19 crisis with our digital model enabling us to continue to grow primary summers and keep NII stable.
Our loan demand was affected by COVID-19, stronger mortgages still, however, reduced demand and mainly coming from business customers. Pre-provision result was very resilient, supported by our focus on pricing discipline, good fee and common cost control and risk costs were impacted by substantial corrective provisioning in Stage 1 and Stage 2 to reflect worsened macro-economic indicators.
But as I said, the lion share of that had to do with these indicators. And as a result, risk cost came in well above through-the-cycle average.
And when these current macroeconomic indicators remain unchanged, we believe that we have taken the majority and the bulk of provisioning for the year. And for the second half of 2020, we expect risk costs to go down compared to the level in the first half.
The Common Equity 1 ratio was strong at 15% and if we compare that to banks that have not included -- that have included the dividend for a second half of 2019 in our capital, our pro forma capital would stand at 15.5%. But we do not intend to include it in capital, but we intend to pay it out as a dividend.
And we will come up with an updated capital plan and dividend policy in the third quarter results. We remain very confident that we are well positioned to face headwinds.
We have a very stable income base with growing fee income, strong capital position, solid funding base as well as a low Stage 3 ratio. And with that, I thank you very much for your attention, for your good questions, for the interaction.
And I wish you a very good day. Thank you.
Operator
Ladies and gentlemen, this concludes the Second Quarter 2020 ING Analyst Call. Thank you for attending.
You may now disconnect your line.