Feb 3, 2022
Operator
Good morning. This is Patricia.
Welcome you to ING's Fourth Quarter 2021 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 a historical fact.
Actual results may differ materially from those projected in any forward-looking statement. A discussion of factors that may cause actual results to differ from those in any forward-looking 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 a solicitation of an offer to buy any securities. Good morning, Steven, over to you.
Steven Van Rijswijk
Thank you very much, operator. Good morning and welcome to our full year 2021 results call.
I hope you are all well and I'm joined by our CFO, Tanate Phutrakul; and our CRO, Ljiljana Cortan. And I'm happy to take you through today's presentation.
After that, we will take your questions. A year ago, we were looking forward to circumstances normalizing again and now reflecting on 2021, we're not yet back to normal as COVID-19 is still there and world faces strained supply chains, staff shortages and rising prices.
On the positive side, consumer confidence is up and businesses have become more optimistic. Economies have shown resilience and the same applies to ING.
And I'm proud that our customers recognized our strength, resulting in further growth of our primary customer base and the number of sustainability deals. Our digital only, mobile first focus continues to pay off with mobile becoming the main channel through with customers interact with ING in '21.
And this sector support our efforts to diversify income and offset the continued pressure on liability income caused by a negative rate environment. Loan growth has always been important to counter this pressure.
In 2021, loan growth returned on the corporate side, contributing to the overall €30.6 billion net core lending growth. At the same time, we were able to stand the inflows of deposits.
Fees grew by 70%, which is quite an accomplishment. On costs, we managed to keep full year cost broadly flat, which means we absorbed CLA increases and higher costs related to employee performance and marketing, which were reduced in 2020, reflecting COVID-19 impact.
Full year risk costs were €516 million or 8 basis points over average customer lending, well below our through-the-cycle average. On asset quality, the Stage 3 ratio was lower at 1.5% and we remain confident on the quality of our loan book.
The CET1 ratio improved to 15.9%, a 50% of the fourth quarter resilient reserved for future distribution. And we propose a €0.41 final cash dividend, bringing the full year cash dividend for €0.21 to €0.62 subject to shareholder approval in April.
Now before we over to this year's figures, let me spend some time on some key aspects of our strategy being our efforts to grow our primary customer base, our focus on the mobile channel and on income diversification. Slide 4 shows that also in 2021, customers recognized our strength, resulting in almost 0.5 million new primary customers in '21.
And keep in mind this is net growth as we have also taken actions to reduce savings, which resulted in some reduction of primary customers and it excludes a retail markets that we exited in '21. Growth of primary customers continue to be strategic priority and we'll come back on this during our strategy update in June this year.
We've talked before about the transition opportunity and how ING's well positioned to benefit from that, the exponential growth of sustainability deals support in '21 prove that clients turn to us for financing solutions related to transition challenges. And one transaction we're highlighting this quarter is a sustainability loan for CEMEX, active in a cement industry, which is a good example of our support authorization activities in the hearts to abate CO2 intensive sectors.
We believe that as a bank, we play an important role in financing the transition to low carbon society. And we will continue to focus on providing this support with our inclusive approach.
We are working on translating this also into more concrete targets, which we will address on our Investor Day in June. And I said before, we can't do this alone.
As the urgency for climate action increases, corporations, governments and regulators have to work together to define new ways of doing business. It aligned economic growth, with positive environmental and social impacts.
On Slide 5, you can see that our focus on the digital mobile first customer proposition has benefited us, as we saw customers increasingly turning to these channels during the pandemic. Also in 2021, the share of mobile only customers increased.
And mobile is not a main channel through which our customers interact with us. It is also reflected in a number of mobile interactions growing to a 91% share, while the number of total interactions continue to grow as well.
We also saw a strong upward trend in our mobile product sales. Over 2020, we highlight our digital investment economy Germany, as an example of how we successfully offer a digital only and differentiating customer experience.
Now looking at '21, we see the success of the story continued. We open 390,000 new investment accounts, outpacing the 226,000 over 2020.
And also worth mentioning it over 20% of those new accounts were opened by customers who were new to ING, demonstrating our digital offering continue to attract new customers. Now on to Slide 6 our ability to grow primary customers and focus on diversifying income support income growth in '21 despite the continued liability drag.
And fees have been an important contributor grown by 17% in '21 and by a 7% CAGR over the past 5 years. In that period to share a fee income on total income increase from 15% to 90%, helping to reduce dependency on NII and reiterates our 5% to 10% growth ambition going forward.
Looking at loan growth, net core lending growth was back at levels more comparable to pre-COVID. Half of the growth was in mortgages for over '21 Wholesale Banking grew as well, which partly reflected TLTRO.
We also see a strong pipeline so that is a positive signal going into 2022 and supports our 3% to 4% loan growth ambition. Our actions to delimit the deposit inflow have also paid off mostly visible and Retail Germany are introduced negative interest rates in November.
The pressure from low interest rates clearly visible in the declining contributing - contribution of liability NII. And I want to emphasize that this graph is backward looking and the development of income components is not the guidance going forward.
And specifically a liability income, it is not a linear drag as we generally invest in maturities ranging from overnights to 10 years and quarterly impacts depends on what rolls off and how we reinvest. Pressure on the liability income will continue into also the longer maturity in our replicating portfolio having repriced to today's environment.
And having said that though, the yield development curve is positive for us. As we expect pressure on liability income to reduce from what in '22.
Over '21, the pressure was clear though. However, we have been able to more than offset this ever continue to focus on diversifying our income.
Slide 7, shows full year NII and fees and first NII. And as you saw in the previous slides, liability NII has been declining and the leaves the counter pressure was successful until the pandemic start in 2020.
And '21 loan growth again offer some support however, liability pressure remains high and if we exclude TLTRO benefits, NII was done. And while we're optimistic looking at the yield curve development is continuing pressure, reinforce our strategy to diversify income and reduce dependency on NII.
2021 was a very successful year with fee growth fully compensating lower NII while excluding TLTRO benefits and we believe this higher fee level is largely structural, as it is driven by primary customer growth, structural fee growth in daily banking and growth in investment accounts and asset under management. Future fee growth is supported by the fact that we are not back at pre-COVID levels for international transactions and also lending fees are still at the lower level.
In Germany, the consent process for new and increased fees is well underway and for the Netherlands and increasing package fees has been announced. Aside from that, we see several factors and drivers.
The first being continued growth of our primary customer base. Secondly, we see possibilities to further increase daily banking fees, which we also have to do as the cost of operating an account has been increasing for banks.
And some of our largest markets fee level are still low, and peers initiate either or they follow an increase, while in other markets we are still cheaper than peers. And thirdly, on our products, we continue to work on new and improved propositions.
The digital investment proposition in Germany is an example where it is clearly materializing. Now we go too expenses on Slide 8.
And our regulatory costs for up mainly reflecting an incidental 50% increase in Dutch Bank tax. '21 expenses for included €522 million incidental items are mainly reflecting provisions for strategic measures we announced over the past two years, such as we power [ph] from several European Retail Banking Markets, and a further reduction of the branch network in Retail Benelux.
And also includes the provision for compensation of certain consumer credit products. Excluding these items operating expense were broadly flat compared to 2020 and a focus on costs almost fully offset contractual salary increases and higher expenses related to performance and marketing as these return to more normal levels, after being reused in 2020.
And going forward, we could expect to see some inflationary pressure in our expenses and CLAs. Overall, we will continue to focus on managing costs and aim to absorb inflationary effects and keep costs at least flat in 2022.
Slide 9 shows a risk of developments with 2021 risk costs coming in and €516 million. In Stage 1 and 2, we saw an overall release of around €470 million, mainly driven by releases of management overlays taken in previous quarters, as further reflects clients being removed from watch list and moving back to Stage 1.
Total additions in Stage 3 included a total of €254 million specific provisions taken in the fourth quarter which I come back to later on. The remaining Stage 3 provisioning was largely in retail banking, and included several more updates in Retail Belgium and collective provisioning in our Challenger & Growth markets.
Stage 3 additions in Wholesale Banking were limited and mainly reflected these additions to existing files. And our Stage 3 ratio remained low at 1.5%.
Although the current environment is not without challenges, we feel confident about the quality of our loan book supported by the fact that this well diversified and avoid concentration risk. The loan book is practically all senior and well collateralized.
And in Wholesale Banking we mainly work with investment grade companies. And finally, historically our provisioning has been prudent without surprises when we do move into the recovery phase.
Now on Slide 10, you see ROE. And that recovered from the low level in 2020, primarily reflecting lower loan loss provisioning as our factor have remained unchanged, such as high incidental costs and high capital levels.
And we look at ROE through the cycle and the recovery of our ROE level in '21 supports our belief that we can reach the 10% to 12% ambition. And going forward, it should be supported by several factors such as forward growth of primary customers, loans and fees, combined with continued discipline on controllable expenses.
And at the same time, we intend to reduce equity level over time, and we take management actions to control RWA is bringing the CET ratio more in line with our ambition level. Now on Slide 11.
In line with our distribution policy, we intend to pay out a final dividend of $0.41 per share over 2021 subject to shareholder approval. And this means that the full year dividend over '21 amounts to $0.62 per share.
And this year we nearly completed the 1.7 billion share buyback program that started in October last year. And overall yield in '21 was 9.4%.
And the share buyback will improve earnings per share, dividend per share and return on equity. We see the run ratio 15.9%.
We have significant excess capital. And we are in a constructive dialogue with ECB about our distribution plans.
We will announce next steps if and when we have received necessary approvals. As you can see on Slide 12.
CET1 ratio is well ahead of our ambition. Our REIT has improved significantly with continued growth as well as focused on costs and capital, we maintained our ambition and very much intend to continue to provide net purchase total return.
To reiterate, cost income ratio remains an important input for ROE. We continue to work on 50% to 52% ambition in that regard.
And as for distribution as I mentioned, we proposed a full year dividends of €0.62 should subject to shareholder approval for final dividend. Now let me take you through our fourth quarter results on Slide 14, which we'll try to go through a bit faster.
Year-on-year, NII, excluding TLTRO was lower - slightly lower, primarily due to pressure liability income and a minus €23 million reclassification from our income to NII, and this was partly absorbed by increased negative interest rate charging in the Retail Benelux as compared to a year ago thresholds in the Netherlands have been gradually lowered. While in Belgium charging was introduced as the beginning of '21.
NII from lending was up, reflecting mainly higher average volumes and when looking at --excluded - except for reclassification NII went slightly up quarter-on-quarter as higher lending NII and increasing interest rates - negative interest rate charging more than offset this quarter pressure on liability income. Our net interest margin declined quarter-on-quarter by one basis points to 137 basis points driven by the aforementioned reclassification, as increased negative interest rate charging absorbed most of this quarter's pressure.
Slide 15 showed net core lending growth. Overall strong growth continued in Retail, while in the fourth quarter Wholesale Banking also has strong contribution, resulting in a net core lending growth of €13.4 billion In Retail mortgages were the primary driver of lending growth, with some growth also visible in consumer business lending.
Mortgages were strong in Germany but also in Spain, Australia and Poland. In Wholesale Banking, loan growth returns with partly reflected TLTRO eligible deals, so the number for the fourth quarter should not be extrapolated.
However, when we look at the pipeline, we see signs that demand remains strong. And we are positive on loan growth and also banking going forward.
Net customer deposit growth was minus €2.1 billion and Retail sales are by €2.7 billion with inflows in the Netherlands and one Eurozone countries, while we saw an outflow in Germany and France. And for Germany, this was mainly the result of the introduction of net negative rate charging in November.
Wholesale Banking records an outflow of €4.9 billion mainly in PCM. And turning to fees on Slide 16.
Year-on-year, fee income grew by 20% with both growth in Retail and Wholesale. Retail fees were up 70%, with an impressive 27% increase in daily banking is reflects growth in primary customers, the increase in payment package fees and further recovery.
And the level of domestic payment was actually - which was basically back at pre-COVID levels. And international payment levels actually remained subdued in transactions.
In investment accounts products, fees were 12% higher, effecting growth in accounts as I mentioned. In trades, the wholesale banking fees were 26% higher with growth across all four groups and sequentially, retail fees were 3% higher driven by investment products and daily banking.
In Wholesale Banking fees were up 9%, mainly reflecting higher fees in financial markets and corporate finance. Slide 17 shows expenses which this quarter included €166 million of the incidental items, mainly reflecting €141 million of provision and impairments, related the announced closure of the French Retail Banking activities.
Excluding regulatory costs and incidentals, operating expenses remained under control. Year-over-year, these costs were slightly higher, mainly reflecting a lower VAT refunds and higher stock expenses related to CLA increases and pro forma related expenses, which were reduced to lower levels in the fourth quarter of last year, that is 2020.
Program Contour [ph] was also largely driven by the staff-related cost increases, while also marketing activity trends were higher. Regulatory costs for up, including the Dutch Bank tax, which was 50% higher in '21 and '22.
These levels should normalize again. Overall, I'm pleased with our operating costs are developing.
Also, as we already see some effects of measures taken so far, we will always keep focusing on optimize where we invest our capital, and further measures can always materialize. But at the same time, we also need to look forward and we will invest in areas where we can get the best returns.
Now we go to risk costs, that's Page 18. As Q4 they were €346 million or 22 basis points over average customer lending.
The increased level compared to previous quarter reflected our prudent approach. In certain environments, we do hold the €30 million to reflect uncertainty in COVID scenarios and valuation shorten.
Asset classes, mainly Wholesale Banking. And in addition, we took hold €24 million related to residential mortgages, for increasing inflation and interest rates could affect the customer's ability to pay, which could impact house prices.
This was partly offset by €124 million releases of management overlays taken in previous quarters, mainly related to payment holidays and sector-based overlays predominantly as a result of reductions in losses. Aside from these releases, Retail Benelux risk was mainly reflected and more based in Belgium and some individual Stage 3 releases.
However in challenging growth market risk was further reflect the collective provisioning mainly Spain and Poland and the Wholesale Banking, Stage 3 risk costs for included limited editions too many existing files. Finally this Stage 3 ratio - sorry, Stage 2 ratio slightly lower and Stage 3 ratio was stable.
Slide 19 shows that our CET1 ratio increased 15.9%. CET1 capital was €600 million higher, mainly due to the inclusion of 50% of net profit for the quarter.
And with net profit being equal to resilience net profits, the other 50% was reserved for future distribution in line with our policy. RWAs waste increased mainly due to the higher markets and operational RWA.
Credit RWA were down mainly reflecting overall improved profile of the loan book. And regulatory RWA inflation known at this moment ahead of the 2025.
Basel IV implementation has been almost fully incorporated. We still expect RWA impact from the postponed implementation of risk for waiting for mortgages in Netherlands, which we currently estimate at around €7.5 billion.
But we expect this floor to be temporary as this front lowering the outlook for under Basel IV. And besides that, we will continue to see releases or additions to RWA from regular mobile updates.
To wrap up with the highlights of the quarter on Page 21. Our customers continue to recognize our strengths, resulting in further growth of our primary customer base, as well as the number of sustainability deals.
Our digital only mobile first focus continued to pay off with mobile becoming the main channel through which customers interact with ING in 2021. And these factors support our efforts to diversify income, with full year loan growth returning and fees increasing by almost €0.5 billion or 17%.
And this offset the continued pressure on liability income caused by the negative rate environments. On costs, we managed to keep full cost - full year costs flat.
Full year risk costs were €560 million, or 8 basis points over average customer lending well below are through-the-cycle average, and is included some prudent adjustments to Stage 3 provisioning on existing files. The CET1 ratio improved to 15.9% with 50% of the fourth quarter resilient net profits reserved for future distribution.
We proposed a €0.41 final cash dividend be bringing the full year cash dividends to €0.62, subject to AGM approval in April. That concludes the presentation and I will now open the floor for Q&A.
Operator
Thank you, sir. We are starting the question-and-answer session.
[Operator Instructions] Our first question is from Mr. Benjamin Goy of Deutsche Bank.
Go ahead, sir. Your line is open.
Benjamin Goy
Yes. Hi, good morning into question two please, from my side.
First on cost maybe just to double check in the absence of restructuring costs at any incidental, should we expect then that the underlying cost base is stable? And you can also absorb investments bank and the likes in 2022?
And then secondly, you obviously guiding towards payouts about 100% - yeah, 100% going forward. Was wondering how the discussions with regulators have evolved over the last month?
I mean, we saw a large appeal of you announcing effectively that plan, do you think the likelihood of that has also become more or has increased for ING? Thank you.
Steven Van Rijswijk
Thank you very much, Ben. I will answer the first question and then, Tanate will answer the question on payout?
Yeah. I mean, so the cost base is stable.
Please know that the fourth quarter was impacted also by CLA and by performance related salaries. And, of course by slightly increased marketing and R&D expenses.
On the back of growth because we want to continue to grow our business as well. Now gradually, we see some of the impacts that we made as a result of the announcements that we made on some of our retail markets and some of our other activities kicking in that is gradually kicking in over 2021.
But will continue to kick in over 2022. And that means that despite what we see and currently see inflation and CLA pressure that we intend to keep our costs at least flat over the year 2022.
Tanate?
Tanate Phutrakul
Hi, Benjamin. So I think just on capital returns.
I think our discussion with the regulators are constructive. Look at what we announced so far, €0.41 in dividend payments €1.7 billion share buyback, which is coming to its conclusion and rising levels of core Tier 1s.
So that capital strength means our conversation with the regulator has been constructive, as we say. And, these discussions are ongoing but we expect that we would conclude our discussion before we announce our first quarter results.
Benjamin Goy
Understood. Thank you.
Operator
Next questions are from Mr. Benoit Petrarque from Kepler Cheuvreux.
Go ahead, please. Your line is open.
Benoit Petrarque
Yes, good morning, guys. So the first one will be on NII.
So the red curve is moving quite fast now. I just wanted to, to discuss basically this gradual positive effect into the replicating portfolio.
Especially at which points - when do you expect the kind of loan growth at a 3%-4% level to offset the pressure on liability income? And are we getting closer at current levels to that point?
I was wondering that, if that could be something we will start to see in 2022? And also, little bit awful on the rate increase.
What is your sensitivity again to have 50 bps hike of ECB rates on NII that would be very useful please? And then the second question will be on the fees.
Just - do you see fees going in 2022? I mean, you're coming from a very strong year at almost 20% year-on-year.
Do you still expect some of these uplift? Do you think that includes some structural and market related effects?
Or do you see this growth into '22 basically, that will be very useful. Thank you.
Steven Van Rijswijk
Thank you very much, Benoit. I will answer the question on fees, and Tanate will talk about NII.If you look at fees, I mean, most of the elements that we currently see in our fee build up are structural.
We have increased the number of people that have investments, public accounts with us. For example, if you look at Germany, in 2020 we grew the number of accounts for investments with 326,000 this year, it was three 390,000.
So in total, more than 2 million clients in Germany are currently investing through us. We increased the number of payments, the increase the payment packages in some countries, as a result of which our fees went up as well.
And we also do more insurance with a number of our clients in the different countries. But please note that we also continue to grow our primary customers.
And if we grow our primary customers that means that we have clients that do more with us. And like we always have said clients who do more with us are more sustainable from both sides from advance, but also from our side in doing business together.
And you see that on one of the pages in terms of mobile sales, that also increased quite dramatically in this year compared to the year before. So all those elements play a role.
So higher number of primary clients, increasing payment packages, more clients that do investment with us, more clients that do insurance with us. And I think that was - and the reason why I am confident is that if you look at the lending fees in Wholesale Banking, that is not quite yet back at the level that we saw pre-COVID.
If you also look at the international payment volume, that's completely not back where it was before the COVID crisis. Yeah, we saw domestic payments coming back - the international payments going back.
And that is a significant part also of net income. So in that sense, I'm positive I'm confident.
And therefore, we continue to guide a growth in fee income of 5% to 10% per annum also for the years going forward. Tanate, on NII.
Tanate Phutrakul
Benoit, just on NII maybe I give you a bit of color in terms of what is some headwinds and what's some tailwind. Clearly going in assumptions for 2022 is that the TLTRO program will end.
And with that ending of the TLTRO program, it means that we will be missing somewhere around €300 million NII compared to 2021. Having said that, if you look at the other components, we were fairly confident given what we see in Q4 at the 3% to 4% loan growth is there.
And we think it will be there across the board whether retail or wholesale banking. We also believe that we see a strong pickup in high margin business in our central European business which I think will also be contributing to that NII uplift.
The other couple of things to point out is that negative charging for liability is continuing not about the future, but the current actions already taken. And that for the full year 2021, we have a positive impact from that negative rate charging of approximately €220 million.
And that would raise to about €300 million for 2022. These are kind of also some positive tailwind that you could see.
And to address your question on the curve movements, we do expect that the negative rates compression that we will see in '22 will be significantly less than what we saw in 2021. But I think it's not so easy to just say what would a 50 basis point uplift would mean, it's a much more dynamic calculation that would we would have to make.
But I would say that these rates movements that we see now is really helpful in terms of mitigating some of the compression we saw in 2021.
Benoit Petrarque
This is very useful. On the 50 bps, I was just mentioning the short end of the curve.
So the currency rate, let's say from the ECB - the ECB will kind of act by 50 bps in guidance on that?
Tanate Phutrakul
Well, I think we do - our replication in a barbell. And we see really good evolutions in the long end.
So indeed, if the short end would move, they will be very, very helpful.
Benoit Petrarque
Okay, great. Thanks.
Operator
Our next question is from Mr. Stefan Nedialkov, Citi.
Go ahead. Your line is open.
Stefan Nedialkov
Yeah, hi, guys. Good morning.
I want to ask a couple of questions here. The counter cyclical buffer have gone up by around 20 bps at the group level, I'm assuming that the buffer --increase in the buffer.
So we're now at 10.7% swap, which means that the buffer to the management target has shrunk by 20 bps. Is this something that you're so to say going to absorb within the management buffer?
Or are you thinking that maybe as regulator states in the counter cyclical buffers across Europe, the 12.5 might move higher, maybe closer towards 13% or so? So that's one question.
And the second one is on costs. It's encouraging to see that you're aiming to absorb inflation for '22.
That will presumably come via restructuring in the business as you have been doing over the past couple of years. Is it fair to assume that the flat guidance or at most flat guidance is exclusive of any restructuring costs that we may be seen from the various businesses?
Thank you.
Steven Van Rijswijk
Thanks so much, Stefan. I will do the question on costs.
And then Tanate will do the question on the counter cyclical buffers. We took quite some - I mean, first of all your rights.
And so yes, that's what I guide on is the course excluding these restructuring amount if they would come. We done quite a bit of restructurings in 2021 with Czech Republic, Austria, France, also provision some of the branch networks in the Benelux.
Not all of those benefits have yet to materialize. And so the announcement that we made earlier in the year still means that it takes us quite a lot of time to actually run all those businesses.
Let me take the Czech Republic and Austria that has taken until the end of this year to roll off. So that takes time.
So benefits of some of these announcements that we made in 2021 and 2020, by the way, will also materialize in 2022. And that will help us.
But indeed, it is excluding new restrictions if these would take place. Tanate?
Tanate Phutrakul
Stefan, so just addressing the question on counter cyclical buffer. So we clearly have issued a press release on our new MDA target.
And in calculating our 12.5% capital targets. We already take a certain assumption about rising levels of counter cyclical buffer.
So far, I think about 6 or 7 countries of material size have increased our buffer which is contained in our numbers. We stick with our 12.5% core Tier 1 guidance.
Stefan Nedialkov
Great, thank you.
Operator
Next question is from Mr. Omar Fall of Barclays.
Go ahead, please. Your line is open.
Omar Fall
Hi there. You mentioned the very helpful impact from higher policy rates.
So just to clarify, is there an expectation then that if and when actual policy rates increase, you'd be able to maintain the negative rate charging, you're currently doing and the €300 million benefits? And then you'd have some positive beta there for some periods?
Then the second question would just be - to help us with our modeling. Could you give us the cost base of France, Retail Austria and Czech Republic?
Or just some slightly better clarification of the component of OpEx that you'd expect to see removed in 2022? That would be very helpful.
Steven Van Rijswijk
Thanks, Omar for our questions. So on policy rates, I mean, and clearly you also mentioned, what is the beta there?
And then that is a good word, because it depends on the beta tracking that we then will do. Clearly, as long as the rates are negative, the beta will probably be higher and is the ratio positive than the beta tracking will probably be a bit lower.
But it also depends on what competition is doing and how the rates not will only move in the short term and also in the long-term. So it's not a one sided answer that you can give.
What will of course help, is that now we already see that the market rates on the low end are increasing. Those are - and we see that mortgage rates are more linked to the long end of the spectrum.
And the ECB is more focused on the shorter end of the spectrum. But yeah, we will need to wait and watch the ECB are all going to announce as of today, but also the next quarter.
So, we will need to remain seen. But if you look at it overall, a gradually increasing interest yield curve upward sloping will be helpful for us both on short term and on the long-term of the yield curve.
Then on the cost base of France, Czech Republic and Austria, we do not disclose individual cost basis. But Tanate will give you some flavor
Tanate Phutrakul
I think, as Steven mentioned, we don't disclose the absolute cost number. But we did disclose the number of employees affected by these closures.
And for Czech, for Austria, we have announced numbers of around 560 staff. And for France, as we announced recently, it will affect 460 FTEs.
Omar Fall
Thank you.
Operator
Next questions up from Giulia Miotto of Morgan Stanley. Go ahead.
Your line is open.
Giulia Miotto
Yes. Hi.
Good morning. Can you hear me?
Steven Van Rijswijk
Yes, very well.
Giulia Miotto
Perfect. Okay.
Thank you. So two questions on my side.
And I want to go back to the NI sensitivity question. So these - the perception of investors that we have ING might be less sensitive with respect to peripheral European banks, because the mortgage book is mostly fixed.
And if I look at what you disclosed in the annual report, I think that is €60 million impact for 100 basis points more in one year, which is basically a negligible impact. But what we have seen through the years is clearly a much higher impact.
So it will be very helpful if you could give us any sort of sensitivity for either a parallel or a front end move. So that's my first question.
And then my second question on fees. So I totally understand the structural discussion around the retail fees.
But my question is on Wholesale Banking fees actually. So €322 million in the quarter is pretty high also by Pre-COVID standards.
Is that sustainable, what is driving that? Any color that you can give us on Wholesale Banking fees?
Thank you.
Steven Van Rijswijk
Thanks very much, Giulia. You're correct.
The Wholesale Banking fees were good this quarter. And that was a result of more event driven fees also in financial markets and corporate finance.
So in that sense, that was good. But if you look at the lending fees within that, because most of the fees that we make in Wholesale Banking are still from let's say, the syndicated loans and underwriting activity that we do.
And that market is not completely back, it's typically still a taken hold market, or a number of these elements will be held by M&A, of course. That have more M&A that also more underwriting.
But they still to come. So yes, we benefited this quarter from some one-off - positive one-offs in terms of event driven fees.
But we have not yet benefited from the syndicated loan market coming completely back. That's on Wholesale Banking.
Tanate Phutrakul
And Giulia, I think your question is - as you know, in most of our markets, we do fixed rate mortgage loans. But it does not mean that we keep that long dated interest rate position.
From a hedging perspective, as long as we originate the loans we start swapping the position down to the level of interest rate risks that we are comfortable with. So I think if you want to see the sensitivity, you should look at the 3 to 5 to 7 year piece of the curve.
And also, as we mentioned before if the short end of the curve, kind of the 6 months will start moving materially that really will be quite positive on ING's results - net interest income results.
Giulia Miotto
Thank you. And maybe just a follow up to this last point.
In terms of your replicating portfolio can we assume that about two thirds of the deposit in terms of size or any more color on that?
Tanate Phutrakul
We don't give that information. But about €600 billion of liability are fairly significant part of Eurozone base indeed.
Giulia Miotto
Thank you.
Operator
Next question is from Mr. Kiri Vijayarajah of HSBC.
Go ahead, please. Your line is open.
Kiri Vijayarajah
Yes, sir. Good morning, everyone.
Couple of questions. So firstly, on the wholesale bank and the rapid lending growth you're seeing there.
If you go back, you have been doing some de-risking there when you first became the CEO. So my question is really, how do we get comfortable you haven't simply kind of backtracked on your kind of risk appetite in the Wholesale Bank and give us comfort.
You haven't just gone back and restarted some of the old lending in Wholesale Banking. And then the second question more on the Retail side in the extra revisioning you're taking.
Now you've planned higher inflation, higher interest rates, risk of falling property value. And I just wondered what early warning signs you're seeing that was the trigger there.
Whether you seeing that maybe some of your peers aren't seeing yet? And just putting them in reading between the lines?
Is it fair to say Turkey was a fairly minor elements? You do mentioned it in the slides, but you didn't really mention it in your in your verbal commentary.
So just curious as to where Turkey fits in to the extra provisioning you've taken on the retail side this quarter? Thank you.
Steven Van Rijswijk
Sorry. The last part was?
We couldn't quite get that. Turkey and what else you said?
Kiri Vijayarajah
When you flagged the extra provisioning triggered by debt servicing, higher inflation, higher interest rates, and also falling property values for the extra provisioning. And yeah, a lot of your peers haven't really been flagging that yet.
And maybe you're ahead of the curve, but I wondered what early warning signs has been the trigger for you to actually take those extra provisions.
Steven Van Rijswijk
Right okay, clear. So Ljiljana will answer the questions on the provisioning and early warning signs or signals that we see.
I will take the question on lending and Wholesale Banking and also respond to Turkey. Because we could - I believe you asked Turkey as well.
But this was not in our - it was in the slide, but not in the verbal comments. If you look at the lending and Wholesale Banking.
I mean, yeah - I mean, I used to work in Wholesale Banking, and then I was a CRO and I became the CEO. But I have not become yet schizophrenic, I hope in a sense that we did change or tighten some of the policies over 2017.
And that had made to do with the more cyclical sectors in real estate, finance and leveraged finance, because we saw that then at least in leveraged finance. Some of the structure is not being conducive to what we would like to do, which means the final takes or the underwriting standards in terms of the governance.
And the same was going for, let's say some of the indicator levels is your loan to value in terms of our real estate finance book. And that's what we then tied it.
We never changed that since. So if you look at what's the growth in Wholesale Banking current years, which we see is fully in line with the policies that we have had since then, which is largely investment grade.
In this quarter, also a bit of a pull forward due to TLTRO short term, facilities also in trade, also supported by higher oil prices or higher commodity prices. That's what it is, so there is no - has not been a change of tax in what we do in Wholesale Banking.
I will leave the risk costs to Ljiljana.
Ljiljana Cortan
Hi, Kiri. Yes.
The early warning signs that you mentioned, let me please clarify that these are not related to the asset quality that we see in the fourth quarter on contrary. We do see the signs, all of the metrics of further strong and improving asset quality.
The early warning signs that we talked about is more related to the forward-looking macro indicators that have been, I would say accelerated in the fourth quarter, specifically with the outlook on inflation is it going to stay high for longer. And definitely its impact and eventually amplification effect on other macro variables.
And just let me give you a few of the numbers that has made us think of what could happen going forward clearly, depending on the monetary response is the fact that in December, as we know, the Eurozone inflation has peaked to the highest since the euro introduction. Not just that, but also fourth quarter inflation year on year has almost doubled in some of our core markets compared to the third quarter driven by the strong energy increase of the prices, which actually horizon of the end is not yet there.
And let us not forget it, in the last few years during pandemic we have seen a double-digit growth in our overall markets with respect to the property valuations. And we have seen quite benign I would say outlook and position of the household incomes.
So all of these coming together with what we see on the longer end of the curve, which is increasing interest rates and looking forward to today's announcement as well of ECB and how they look into it. We are we are taking this prudent stance.
Let me just add that most of these provisions have been taken on the I would say more vulnerable part of our portfolio which is primarily Stage 3, having in mind that we expect eventual impact first to material on this weaker part of portfolio. So they are not taken systematically for the whole book.
Kiri Vijayarajah
Very clear. Thank you.
Operator
Our next question is from Mr. Farquhar Murray, Autonomous.
Go ahead, please. Your line is open.
Farquhar Murray
Good morning, all. Just two questions if I may.
Firstly on costs, you mentioned the impact of a risk profile reduction on regulatory costs in the quarter. Can I just ask if you could elaborate on the mechanics of that?
And in particular, has that only really just kicked in for this final quarter or did it support the whole of the year? And then secondly, just coming back to the counter cyclical buffer?
Are you willing to elaborate on the assumptions you build into the target for that? And then just more generally, maybe even philosophically, can we all - we can all mechanically just increase the counter cyclical buffer?
And it narrows the headroom to MDA? But is the target exercise really so bottom up mechanical?
And can we just take everything else as a given within that? And I asked him that because obviously, if we do move to a landscape with much larger counter cyclical buffers.
And does the domestic buffer of 2.5% really makes sense in that case, because it looks like it was built for a different environment? Thanks.
Tanate Phutrakul
Okay. So - and you have to guide me a little bit how you exactly - what exactly mean with your question.
But I think that your - that the first question related to the higher bank taxes that we saw in the fourth quarter in terms of DGS so or lower. But I mean, can you just repeat what the question exactly was?
Farquhar Murray
Sorry, that's my fault. Actually, the other component, obviously the higher incidental component, which I understand but actually below that you seem to essentially have had a slight reduction on the rest of the regulatory costs.
And you seem to be attributing that to a risk profile reduction, which I think related to leverage. And our read just trying to understand what's the timing and mechanics of that.
And sorry, if it wasn't clear to start with.
Tanate Phutrakul
So just on - if I call on the calculation of DGS. DGS calculates based on any banks given matrices of different dimensions.
And one of the driver of the contribution of DGS is the level of leverage ratio that you have. And given the improvement in the leverage ratio of ING how contribution to DGS came down?
Farquhar Murray
Did all of that just kick in in the fourth quarter?
Tanate Phutrakul
Principally, yes.
Steven Van Rijswijk
Yeah. And then on Garner signal buffer, is really a bottom of exercise that well, in the end, yes.
So basically, what it comes down to - is that these countries can include these counter cyclical buffers or not, what we have done when we came to our levels of 12.5% of or around 12.5%. Because it changes for example, the Netherlands made in the local SRB buffer that was it that was here for ING for a long time, they decrease that.
But in return, there was an opportunity for the Dutch Central Bank to start levying a counter cyclical buffer. So, in our buffers we take into account the possibility that some of the counter cyclical buffers will materialize at some point.
And that's when we include it. So based on what we currently know, based on what has been introduced, we have currently no intent to change our guidance on our CET1 ratio.
Farquhar Murray
Okay. Thanks a lot.
Steven Van Rijswijk
Thank you.
Operator
Our next questions are from Mr. Tarik El Mejjad of Bank of America.
Go ahead. Your line is open.
Tarik El Mejjad
Hi, good morning. Just come back to please, on the question on the counter cyclical buffer.
I mean, I understand that you seeing compensation of the higher potential buffer in Netherlands through the lower plot - lower - sorry, domestic savings buffer that you had in March 2020. But the question is really the 2.5%, how volatility is in the context where LTVs are lower since the last 10 years it is in place, [indiscernible] fund almost failed.
You have much higher RWAs on mortgages. So what's really your discussion with the DNB about this 2.5%?
Because clearly, we are in different contexts. And in a European context sounds very elevated.
And when you think about still the ambition to take the CCYB to 2% in next 2 years. We're not in spirits where the DNB will be in a loop of sucking up capital for the Dutch Banks.
So the second question is on costs. So in your 10% to 12% ROTE.
You mentioned in the bullet point that you're counting on termination or, or the filling of the individual fund. So what's your expectations of all that from 2024?
Do you think it will fully stop the contribution, or it's only the contribution regarding the increase of the size of the fund? So what's your view in there?
Steven Van Rijswijk
Thank you very much. When it comes to the 2.5% systemic risk buffer that we have here in the Netherlands, that is high compared to systemic risk buffers at our national competent authorities are levying.
I have been advocating against that for quite a long time already. These based on the premise that banks who are systemic are systemic for the country, and the intent of let's say the banking union with the three bureaus was, which is having an ASM [ph] having one resolution agency, and having also one deposit guarantee system that there was not so much dependency anymore on one country, but there will be dependency on Europe.
And in my view currently, where I feel, doubling this. So I understand and understand and appreciate the prudency.
But I think that this is not justified anymore in terms of where we're going. And I'm continuously - I don't think what was good is that, that the percentage was changed in March 2020 as you rightly mentioned.
But I still think from - you're in a European context, this is not what it should be. And it also goes against level plain field.
So that's my first remark. And by the way, this is not a secret to the Dutch Central Bank, we have quite open discussions about it.
And it comes back down to the second element, which is, yeah, the banking union should help with that. And one of the pillars is that European DGS funds, the contribution to that continues at the current level into 2024.
And then it will be tapering off. We do not think as yet that will go to zero completely, but it will go down as from that time onwards.
Does that answer your questions?
Tarik El Mejjad
Yes. Just following very quickly on the first one.
But don't you think the ECB - sorry the DNBs is in the mindset of really locking up and capital within the Dutch Banks, because I'm sure they understand all the arguments we're putting forward and still detect any opportunity to keep buffer. So it was clearly potential for them to decrease further the systemic buffer and then compensate.
So they haven't done that. So do you think - and does it make you more cautious when it comes to capital return and rundown excess capital over time or not?
Steven Van Rijswijk
There's another question. The answer is no.
Look, I cannot comment on the future views of DNB. That's for the DNB.
But I'm I don't have particular concerns in that regard. And it's for sure not an element that we currently discuss on the table when we talk about the distribution plans.
So the answer on that question is no.
Tarik El Mejjad
Thank you very much.
Steven Van Rijswijk
Thank you.
Operator
Next questions are from Mr. Jon Peace of Credit Suisse.
Go ahead. Your line is open.
Jon Peace
Thank you. So my first question, just following on from Tarik's points, I think it would be quite helpful to manage our expectations.
If you could give us a rough idea of how quickly you plan to get to your 12.5% targets. I know you've mentioned maybe a couple of times last year, the phrase a couple of years.
I mean, could you just maybe clarify, are you still thinking 2 to 3 years rather than 4 to 5 years to return to a 12.5% target? And then my second question, please is on the cost of risk.
How much do you see that normalizing in 2022? Given you still have some overlays given the underlying run-rate is still pretty good?
Should we still expect it to be below or even well below the through the cycle rates? And is Q4 a good proxy for the potential cost of risk next year or would that be a little conservative given you took some extra provisioning?
Thanks.
Steven Van Rijswijk
So, Ljiljana will do the question on the cost of risk. And regarding I would say, how quickly we will get to 12.5%?
Look, we have been saying that we will do this in the next couple of years. I'm not going to speculate what's the exact number of years we'll be?
But it's clear that if you look at our current levels of 15.9%, we have compared to 12.5%, we have €10 billion of excess capital. We started last year with a share buyback based on the capital we already had preserved.
We've told you that we will before the first quarter figures will come with the conclusion of our current discussion with the ECB on paying further excess capital. And we will then work step by step towards our 12.5% common equity Tier 1 in the next couple of years.
Ljiljana, is the fourth quarter any predictor of what it will be in '22?
Ljiljana Cortan
Well, I would not take it as a proxy for '22 extra provisioning. As we explained, we have taken a specific management overlays this quarter.
And there are very specific to a certain macro indicators that will in the end realize are not in '22. What I believe is important to look at the overall cost of risk for the year which are at 8 bps well below the through the cycle.
And actually, we remain with our guidance going forward as well in line through the cycle. So in short answer is no, we do not expect this to continue in the same trend.
And we were prudent for the reasons that we have mentioned before.
Jon Peace
Thank you.
Operator
The next questions are from Mr. Jean Neuez, Goldman Sachs.
Go ahead, please. Your line is open.
Jean Neuez
Hi, there. I have two questions, please.
One on one is for the net interest income, the pricing component. So you noticed in one of your slides that there were strong volumes in Q4.
And you noted that some of them were due to the ramp up towards TLTRO, I guess one other two for the cutoff date. I know it's early in the year, but are you noticing changes, none of the threshold has been passed in time.
In competitive behavior when it comes to phone book pricing, in particular for non-financial corporates in the various markets, where you operate. I'd expect that the comments you've made under €300 million TLTRO is all else equal for the loss of income.
But I also think that the TLTRO overtime had its desired effect from a monetary perspective, which was to bring down cost of lending for companies. So I'm just trying to understand whether that can reverse or partially reverse?
And my second question is on the cost line. I wanted to understand when you say that the cost would be roughly flat or at least flat in 2022.
Whether you could give us some example of what you're doing to achieve this and to counter inflation, which is picking up and essentially to try to understand how more there is to go in the years that continue or whether that those are actions which are point in time as opposed to structure.
Tanate Phutrakul
Thank you very much. In terms of loan volumes, there was some full force of the loans in wholesale banking use of TLTRO.
In the end, we still see that there's a lot of liquidity in the market. And that is of course determining the price levels in their particular loan book.
What we have seen and like I said also in a presentation, we do see a good pipeline. And again, I particularly pointed out that the pipeline that we currently see.
So that's also encouraging for our loan growth in 2022, which I said you should not extrapolate the fourth quarter in '21. But we're still aiming for typically for 3% to 4% long rows, which we're doing as well.
And when there is more normalization in economies, you see the economies that continue to grow also for the coming years. The outlook in that sense is good, despite the uncertainties that we all know.
And of course, we have the whole transition ahead of us. And it also means that we have to the Europe, companies need to make massive investments and elsewhere by the way to go through that transition.
And also that will be a positive stimulus for demand. So in that sense that we're optimistic but not a particular impact currently on pricing.
On costs, first of all in the end, we focus on growing our customer experience. If we are increasing and improving the customer experience, we will get more - we will get more primary clients, we will get more traffic.
And we will then also do more transactions and business with those clients. That's what we believe in and that's what we are very successful in.
In that if you then can do it in a better, digitalized way that will both improve the customer experience is will improve the quality [ph] experience, but it will also impact our cost to serve. And therefore, in building that more personalized, smart and instant customers experience digital is the key.
And you see already that over 50% of our retail customers are mobile only, and over 90% of all are complex are our digital. So basically, we will pull also the digital lever to - and improve the customer experience by entering digitalization and use cable technology and operations to further improve our cost income levels as part of the overall equation.
So that's what we do structurally. And then what we also do, and we have been doing it over the past one and a half years.
And I see one of your fellow colleagues was asking about that we are not only going to reviewing our businesses, we will continue to review business as always, to see if they long-term adds sufficient scale, talking about retail and shorter markets or as sufficient individual deliverables also for other markets so we can make a applicable return in that regard. And the return targets are clear.
And if that cycle is not the case, then we take our conclusions to deploy that capital elsewhere where we do have sufficient client business and skill in certain particular markets. Now, I will never run ahead of myself in announcing these things or what I will announce, but the first lever we pull is digitalization that is structural.
And the second one, which is business reviews that is more, I would say one-off, depending on where we operate and how successful we are.
Jean Neuez
Okay. So just to clarify, in other words, you're not combating inflation by freezing investments or delaying things that you would otherwise have done that we could then have to kind of payback further than the years.
Right?
Tanate Phutrakul
No, not at all. Because in the end, you always need to focus on continuously improving your client experience.
That's the only way that you can compete long-term. And if you -
Jean Neuez
Okay.
Tanate Phutrakul
Good. Thank you.
Jean Neuez
Thank you.
Operator
Next question is from Mr. Guillaume Tiberghien, Exane BNP Paribas.
Your line is open. Go ahead.
Guillaume Tiberghien
Thank you. Good morning.
I've got two question. And sorry, two clarification.
So the two questions are, could you provide us the fees that you generated from international payments in '19 and in '21, because you highlight that as a source of growth. So I wanted to see what the base was and what it is now?
And secondly, could you give us a flavor about how your commercial real estate portfolio is developing in a changing world with people working less from the office and going less to shops? The two clarification are, number one on the Belgian €23 million NII transfer to other income.
Does that represent a new normal, a new run-rate for NII? Or is it just a one-off movement?
And we go back to previous level? And the second clarification is about the cost of risks?
The question earlier was, is 22 basis points, a good reflection of what you would expect for 2022? And I think the answer was, No, it's not because we had some provisions that were one-off the nature.
But your usual guidance is '25. So actually, the Q4 number is very close to that.
So is the Q4 number, actually a number we could utilize for '22? Thank you.
Steven Van Rijswijk
Thank you, I will answer a couple of questions. And the Ljiljana is deliberating on the real estate portfolio.
So if you look at the level of fees from international payments in 2019 and 2020, we don't disclose it as such. And if you look at our payment fees, they consist of two parts.
The first part is the monthly package fees that people pay. And secondly, depending on the type of package that you get, you also pay for transactions.
Now on the second part, and it depends per package and it depends for country. The international payments of that second part is the lion share of the second element of daily banking fees are not of the monthly packages as such, but on the transaction payments, then international banking and international payment are very important especially in the Netherlands and Belgium, which is largely a debit cards, which are largely debit card driven markets.
And that's what I want to say on first one. If you look at the minus €23 million, so that came from other income to interest income and therefore was minus 23.
That was a one-off. So you can ignore that going forward for Belux [ph].
Then on cost of risk, if you look at the guidance and if you look at the real saver for you, I will give the floor to Ljiljana.
Ljiljana Cortan
Steven, thank you, Guillaume. As we said, 25 bps is our through the cycle average not necessarily for the year.
So we do believe that what we've done in fourth quarter was one-off to the management overlay. However 25 bps should be looked as a longer term average and through the cycle.
We remain confident on the quality of our book and the level of provisioning. And when it comes to the commercial real estate portfolio, I think it's important to say that over the four years, we have kept the growth in that area in order to I would say, manage the concentration risk and specifically with COVID coming in place, we have revised as well some strategies in the office and retail space.
However, in terms of the overall outstanding, they're very stable. They're approximately €49 billion.
And it's quite low and even decreasing clearly LTVs of approximately 48%. Also, with respect to the asset quality in that area, we are at a very low and lower than average NP ratio of 1.2%.
So we do remain cautious, but we do remain as well monitoring our portfolio and so far now even Ember flex [ph] I would say in that area.
Guillaume Tiberghien
Thank you very much.
Operator
Next question is from Anke Reingen of RBC. Go ahead.
Your line is open.
Anke Reingen
Yeah. Thank you very much for taking my question.
The first one is cost the risk as well? I want to understand the €124 million management overlay related to residential mortgages.
I understand Stage 2 and Stage 3. But I mean, just trying to understand how €124 million doesn't seem a large number is if you're really concerned about customers' ability to pay and changing property valuations.
So how much of a risk is that number keeps on going up in the next quarter? And then just on the capital return.
I mean, I guess that could have been expectation, you announced a special dividend and a new buyback program today. Is that basically because - it's not happening because the discussions are still ongoing.
I mean, I understand that I saw that the buyback program significantly slowed down so it's not completed. But at some point, it looked as if you were done today.
So this is really just because the discussions are still ongoing. And then there's the special dividend.
Is that just a full year event? Or would you potentially consider also a special dividend with half year new with the half year or interim dividend?
Thank you very much.
Steven Van Rijswijk
Okay. First, we go to the €124 million overlay.
Ljiljana?
Ljiljana Cortan
Hi, Anko. And yes, as correctly you mentioned it does not seem large.
It's also as I said, because we haven't taken the overlay on the overall portfolio. We have with combination of deteriorating some of the macro indicators taken that overlay predominantly on the significantly increased credit risks in the portfolio, meaning it's Stage 3 and somewhat Stage 2.
That's why the amount is as well as not big as if it would be if we would be really looking at the overall mortgage portfolio. I hope this answer your question.
Anke Reingen
Yeah. But does that then provide comfort?
I mean I guess if you review that overall portfolio and the potential risk on higher rates and inflation should be done not expect more to come?
Ljiljana Cortan
Well, we do not see that risk for the whole portfolio, as you said. Because underwriting principles and our originating LTVs are very low.
So I would say the worry is not on the overall level. It's more on the combination of the credit repayment capabilities of the more I would say, a lowering part of the portfolio or lower income part of the portfolio and combination of developments on inflation and housing prices.
Anke Reingen
Okay, thank you.
Steven Van Rijswijk
Okay. And Tanate on dividends?
Tanate Phutrakul
Yeah. Thank you.
So we have three touch points with respect to capital returns. The first clearly we have a policy of having an interim dividend payment.
So that happens at the end of the Q2 results. We now have of course, the final year dividend that we just announced.
And in terms of the further capital returns, we have done the share buyback. We're still doing the share buybacks to finish it.
And that we have indicated to you that the discussion with the ECB is constructive. And we will give you some messages on that by the end of the Q1 results.
Anke Reingen
Okay. But the special - potential special dividend or extra dividend that would be a full year consideration?
Tanate Phutrakul
No. So we have announced that cash dividend for the full year.
Any further capital returns, it may be approved. If it's approved, it may come in the form of cash, it may come in the form of share buyback that's something to be decided later.
Anke Reingen
Okay, thank you very much.
Operator
Next question is from Miss Flora Bocahut of Jefferies. Go ahead.
Your line is open.
Flora Bocahut
Yes, thank you. Good morning.
I have two questions I wanted to ask you more specifically on your Belgian business. First of all, on the NII, even if we adjust for the €23 million reclassification this quarter Belgian NII.
We still have the NII down high-single digit versus Q3. And that's despite loans that were roughly flat.
So that implies actually that there has been quite a deterioration the mean in Belgium this quarter. Just wanted to understand maybe what happened there.
And if you could elaborate on this? And then on Belgium, but this time on the cost side.
If I look at the cost, ex-regulatory costs, they were actually down 2% year-on-year in Q4. And that's despite inflation of this year, reaching very high levels in a country where core inflation gets passed directly to wage inflation.
So that's a strong performance. I just wanted to understand to what extent is it because you've managed to offset the wage inflation with savings elsewhere?
Or is it just that there's a delay and we should expect actually the wage inflation to kick off more likely in Q1? Thank you.
Steven Van Rijswijk
Okay, if you look at - thank you very, Flora. If you look at the NII down in Belgium, if you look at that was €23 million.
If you look at the production in Belgium, then you see actually positive lending margin in our new prediction compared to what we saw in the previous quarter. So in that sense, we - and that is largely due to also a lower cost of funds.
But also the price to the street has been going up. So the biggest impact that we currently see on our portfolio in Belgium has to do with a €20 million reclassification, not with the pricing that we currently level to the street.
And then we talk about Belgium costs are okay, but there is of course, wage inflation. Tanate?
Tanate Phutrakul
And we have plans in Belgium with respect to what we call our Route 24, which is the digitization and the efficiencies program in Belgium. That program is on track.
And we expect that, despite the inflation's that we see in terms of wages, we expect that through branch rationalization reductions in staff over the coming period, that we're able to offset that wage in relation in Belgium. But of course, the situation becomes somewhat more challenging with expected wage bill in Belgium to be somewhat higher than what we planned in our budgetary process.
Flora Bocahut
Okay, thank you.
Operator
Next question is from Mr. Robin van den Broek of Mediobanca.
Go ahead, please. Your line is open.
Robin van den Broek
Yes. Good morning.
So, first of all, on the buyback. It was my understanding that you've outsourced that.
So can I think - I don't know if you know the answer to this question. But how come the pace of the buyback has slowed down materially since mid to end of December?
And it was also wondering to what extent does that - what kind of liquidity do you think your shares offered to do buybacks in general? You mentioned 10 billion of excess capital.
But how much can your liquidity absorb in a one-year window? That's the first question.
And the second one is a bit more about the Netherlands. I mean, the timing of the CLA was quite fortunate before the inflation pickup started to happen.
But do you think there's any risk of a catch up one this CLA and that you basically have to do left to catch up on the inflation we've seen in the intermediate period? Thank you.
Steven Van Rijswijk
Okay. Thank you very much, for all for your questions.
I mean, in terms of the slowdown or the buyback. Yeah, we did outsource it.
And there is of course, market abuse regulation. So there's no first interfere with.
But it is not helpful let me put it this way. Then the related question was on that €10 billion excess capital and how much liquidity we can absorb?
I'm not sure I understand your question. If you talk - to look about overall liquidity, of course, we have very strong liquidity.
But I'm not sure - but I don't think that that's your question. Maybe it has to do with liquidity in shares.
But now we have not really taken any decision as to the future or how we would distribute excess capital for our shareholders. So in that sense, we still need to wait for the further announcement that we would intend to make, either at or before the first quarter figures.
But if you then would look at if you didn't really say, I would do a 10 billion all in share, but this is very theoretical example. And you would not want to move the share price, then it will take us approximately up to two years to do that.
But let me put it this way, it's quite unlikely that we will do 10 billion share buyback. So let me put it this way.
So the way that we this will capital can be different. And we said previously, it will be largely in cash and maybe depending on the share partially by means of capital distribution.
Then is there a risk of catch up inflation when the CLA in the Netherlands ends? Well, since the 1980s of the last century, many European countries decoupled inflation growth with CLA growth.
By the way that's not completely the case in Belgium that the previous question asked that was stipulating. So in Belgium, that is their friends.
What you do see is a bit increasing pressure given the high level of inflation end of the last year or this year, to couple that a bit more. So there is inflationary risk in that regard, not only in the Netherlands, but also in countries outside of the Eurozone, where the inflation rates are a lot higher.
But it also goes with higher growth and also clearly comes with higher interest rates. So you need to look at it in conjunction with from what we see now for 2022.
We should be able to absorb CLA and inflation levels in our cost and keep them flat or lower. Thank you.
Robin van den Broek
Thank you.
Operator
Next questions from Mr. Raul Sinha of JPMorgan.
Go ahead. Your line is open.
Raul Sinha
Hi, good morning. Thanks for much for taking my question.
I've got two peas. The first one is just only out of a, efficiency of new lending.
I think 2021 was quite a good year for you. Loans were up almost 5% and RWAs are only up 3%.
I think that was also the case in Q4, where your RWAs actually went down on the credit side? Should we expect some of this to reverse next year as you kind of do 3% to 4% loan growth?
Or do you think you can still maintain this gap between loan growth a lot of your growth against mix will probably chain effect? And then the second question I've got is on just the structure of ING savings since you obviously taken over, there's been quite a few market exits.
You obviously taken a few decisions around what used to be that MAKI [ph] program. You talked about the nose of the cost plane heading downwards.
So I guess my question is, are you done with market exits? Or do you think there's still more to go in terms of reshaping the sort of profile of ING?
And I see you're guiding to sort of broadly flat cost for '22 and inflation, obviously different are you sort of no longer thinking about getting the nose of the plane down more medium term in terms of costs? Thank you.
Steven Van Rijswijk
Thank you very much. And thank you also for referring to the nose of the plane.
Well, talking first about RWA efficiency lending. I mean, if you look at the loan growth versus RWA in '21, you're correct that from an RWA perspective that was quite efficient loan growth, which also had to do with that most of the loan growth was in mortgages and in investment grades shorter term corporate facilities or trade facilities in Wholesale Banking.
And typically for those sector or segments the RWA density is low. Now, that may not necessarily continue.
We do see of course, that the markets are improving. We see that the economic growth is growing.
And we see that for the supply chains are getting less and less disrupted, there will also be growth in things like project finance or sustainable finance, especially for which many companies need to make many investments as well. And that could then also increase the risk weights on certain of these financings because that also there are different segments.
What you should not forget is that, regardless in which sectors it takes place, we will continue to price the deal against the return. And the return is partially dependent on the revenues or costs, but also your risk base and the capital that we have to put against it.
So that we will always take in a mix. And then clearly, we continue to work on the efficiency of our capital you've seen as also, despite the regulatory increases on our models under Basel IV.
We have been able to quite - keep this quite well under control. So we're working on our capital efficiency as much as we can.
And the third lever that we pull, of course, is capital velocity can we also underwrite. And then sell things to the market so that we can optimally use our capital.
So that's maybe one. Then if you look at the actions of the market.
And again, I would like to reiterate, we're not just exiting for the sake of exiting. In retail, belief that has not changed is that we want to create a differentiating customer experience by having a superior of beat offering, and we're good at it.
And we will keep to work on it. And as part of it, a part of the benefit of being so digital is that you can also skill that more and that you can also be - that you also are be able to influence your course income with that.
So we focus on cost income. The second element that we have set, what we believe in is that we need to have local skill in retail, not necessarily in wholesale and retail.
And if the retail - the skill is sufficient, and you can see at the some of the markets, you make through-the-cycle adequate returns, you continue to invest to grow and broaden the customer franchise, and broaden also the offering that we make in retail customer franchise. And in some markets - but again, it's not a goal.
It's an input to the goal. That has not been the case.
And then you choose to read or write your capital and your investments to markets where you do make the applicable return. Now in that total mix, like I said to one of the previous colleagues.
Decisions or footprint decisions are more erratic and more one off, but we will continue to work on improving our customer experience by end-to-end digitalization and by our scalable technology and operations platforms. And that is going to help us to keep the costs under control.
And what I said for '22 is that we at least want to keep nose of the plane flat despite all the CLA and inflationary pressures.
Raul Sinha
Thank you.
Operator
Next question is from Mr. Stefan Nedialkov of Citi.
Go ahead. Your line is open.
Stefan Nedialkov
Yeah. Hi, guys.
It's me again, I just got a couple of quick follow ups. Sorry for coming back.
Number one, could you please tell us a little bit on your ECB discussions as much as you can? Obviously, as far as I know, there's no official limit on the buyback in terms of - or any capital distribution really in terms of payout ratio.
So you could theoretically return 100%. But in reality, you're discussing your capital return levels with the ECB?
Is there a soft ceiling that you are noticing in your discussions with ECB? Or is there much more of a push by the regulator to limit overall distribution ordinary, special dividends and buybacks at 100%?
So hard versus soft or none at all? Those would be my three options here.
The second question is on fees. One, one thing I don't fully understand in your wholesale lending business.
So unit [ph] production was really strong around €6 billion, which was close to half of your overall net production. So really, really good.
But when I looked at fees, they were actually down sequentially and quite a bit below where I would have expected them to be. I'm assuming most fees within wholesale lending are lending related fees.
New lending volumes are up significantly, why are fees not tracking that? Thanks so much.
Stefan Nedialkov
Thank you, Stefan. I will answer the question on fees and Wholesale Banking.
And then at Tanate will give you his views on the ECB discussions. Then when we talk about fees in lending, it's a good observation that you make.
Because indeed, you would expect if we make good lending growth. And we did good made lending growth that you would also see the fees going up.
That did not take place, because many of the learnings were focused on short term financial markets, short term investment grade, short term trades, and then overall to TLTRO facilities. So these are not the typical big underwriting big loans that you can syndicate out to the market.
And that's where you make the fees. These are more one-to-one relationships that we have with our clients.
And we benefit from these good relationships, that's also a benefit of having these long-term relationships, that you can call on each other to help each other. But it also means that when we - when the market is not increasing on short term trade that we could greatly see, or short term working capital that these companies greatly want, that these are not so much syndication facilities, but much more one-on-one facility.
And therefore there's no syndication fees. Either wherever expect if the economies return the growth path that we currently see and also the syndication market will then return and it can then have a benefit on our fees in lending.
Tanate Phutrakul
Stefan, just to give you a bit of color on capital returns and Capital Management. I think if we go back, it seems a long time ago.
But when we were looking at November-December, we really didn't know how the whole Omicron situation would pan out. Things have turned out well, things could have turned out quite differently as well.
So that's part of our Capital Management prudency. But having said that our discussion with ECB, as we mentioned is constructive.
They do recognize that for us to converge on 12.5% that would mean more than 100% in capital return per annum to make that number. So that is well informed by us to the ECB.
And as we mentioned, these discussions are ongoing. And we will give you an answer before the end of Q1 this year results time.
Stefan Nedialkov
It does very clear. Thank you guys.
Operator
There are no further questions. Sir, please continue.
Steven Van Rijswijk
Thank you very much. And thank you very much for your time.
And I'm sure that we will speak again in 3 months' time. Have a great day.
Operator
Ladies and gentlemen, this concludes the ING fourth quarter 2021 analyst call. Thank you for your attention.
You may now disconnect your lines.