ABN AMRO Bank N.V. (ABN) Earnings Call Transcript & Summary

Good morning from the city center of Amsterdam, a wonderful city. I'm actually on my way to the ABN AMRO Investor Update. Behind me, you see one of our previous headquarters. So why don't you join me as I get on my bike, I tour some of the old sites of Amsterdam on my way to our current headquarters. We are a Dutch bank rooted in an open, internationally focused society, much like Amsterdam. Our distinct heritage has made us a leading Dutch bank. Part of our heritage is that we have always changed, along with society, our clients, technology, and we will continue to do that. Well, that was quite a ride. We're in front of ABN AMRO's headquarters, right in the middle Amsterdam's business district, the Zuidas. I would have loved to done this live. But unfortunately, due to COVID, that's not going to work. So we'll broadcast this from Circl. Circl is ABN AMRO's fully circular meeting space, sort of a giant LEGO construction. Circular means it can be taken apart and reassembled into a new building. But also we recycled many materials: the wooden floors from 20 different buildings; for the isolation in the ceiling, 16,000 old jeans of my colleagues were used. Circularity is an important part of our sustainability focus. And sustainability is embedded in our purpose, our strategy and in everything we do. In April, I started as CEO for ABN AMRO Bank. Today, I'm happy to share my vision for the bank and the outcome of the strategy review. Let's go. I'm very much looking forward to today. I started in April as new CEO. And today, I'll present my vision for the bank. Clearly, we are currently all affected by COVID-19, and nonetheless, we decided to go ahead with our Investor update, building on the momentum we created early in the year. To be sure, since the start of the pandemic, ABN AMRO has taken all precautions in the interest of the health of our staff and clients. Let me emphasize that we've taken an abundance of all possible safety measures to minimize the risks for all those involved in today's event. Today, I will start this Investor Update by presenting the outcome of the strategy review and our vision for the bank. Next, Daphne de Kluis, CEO of Commercial Banking, will tell you more about the opportunities we see for growth in our focus segments. Christian Bornfeld, our Chief Innovation and Technology Officer, will update you on how we will deliver on a personal bank in the digital age. Next, Clifford Abrahams, our CFO, will take you through how all this translates into the financials. Afterwards, you'll have the opportunity to ask your questions. So let me first tell you about the bank as I've gotten to know it. Before I became CEO, clearly, the brand ABN AMRO was known to me, in particular, the rich heritage of the bank. I knew ABN AMRO as a leading bank in the Netherlands with a long heritage, strong market positions and a reputation for expertise. As I prepare for my new role, I did get to know the bank much better. Let me give you a few examples. We are a market leader in private banking in the Netherlands, and we're recently recognized with the Best Overall European Private Bank, an award by WealthBriefing. In the last 2 months, MT500 announces the third sustainable company in the Netherlands, and we won the Cashcow award for best supplier of sustainable investments. These are just a few examples. So let's start with a short video to show something of the ABN AMRO I am proud to lead as CEO. [Presentation]

I'm passionate about the purpose of the bank, banking for better for generations to come. As a bank, we have a clear role in society. And our purpose clearly reflects the responsibility we feel and take towards all stakeholders and future generations. The strong focus of the bank on sustainability is important to me, as I've always focused on sustainable business models with a long-term view. Our strategic pillars, customer experience, sustainability and a future-proof bank guide us in acting on our purpose in everything we do. These pillars are the basis of the strategy review. Let me be clear. We build on the choices the bank made in 2018 rather than starting all over. So turning to our strong foundation. What stood out for me right from the start are the strong market positions of ABN AMRO across all the different businesses. The Dutch mortgage and SME markets are great examples. In the Netherlands, we serve some 5 million retail clients and more than 350,000 SME clients. Next our mobile banking app, we have more than 5 million active users of Tikkie, a payment request app. In addition, we also have a strong award-winning private bank with a scalable onshore franchise in Northwest Europe. We have leading market positions in all customer segments, retail, private and corporate banking, a unique proposition. Our strong digital capabilities of the bank became very evident in the beginning of the COVID pandemic when the bank moved to an off-premise organization within days. We have long-term trusted relationships with our clients and are well known for our expertise. Our main market is the Netherlands, an attractive market and a resilient economy as is underlined in the strong action taken by the Dutch government to support the economy through COVID-19. Since the IPO back in 2015, we've built a very strong capital position, an important asset in the current changing environment, as you all know. We have delivered on our cost target, absorbing increasing AML and regulatory costs. The bank has strong fundamentals with areas to improve. In the past few months, I've listened to many stakeholders, investors, employees, clients, regulators. So let me share a few observations. The profile of the bank is not always clear. The 3 pillars of our strategy are the right guiding principles. We need further direction. Risk costs are too high. We saw this in the previous quarters. There's a clear need for change reinforced by our environment, the economic circumstance, society's expectations and our ever-changing industry. So having shared my impressions of the strong foundation which formed the basis of our strategy review, let's turn to our vision. First, we are building on our strong foundation. We aim to be a personal bank in the digital age, serving clients where we can achieve focus and scale in the Netherlands and Northwest Europe. Second, we will continue to lead in sustainability. Thirdly, we build a future-proof bank with a simplified operating model. Embedded in a culture of accountability and execution, safeguarding our license to operate, the fourth part of our vision. These clear choices will give us a stable platform to grow in identified segments, take out costs, improve ROE and resume capital return when conditions allow. So 4 choices. Now let me talk you through each one. The first choice is that we aim to be a personal bank in the digital age, serving clients where we can achieve focus and scale. Let me first address focus and scale. Serving clients where we can achieve focus and scale required us to early in the year to clearly define our geographical footprint as the Netherlands and Northwest Europe, serving clients where we have long-standing relationships. Also we decided to exit oil and gas in areas outside of Europe and TCF globally, addressing profitability and risk profile. In the Netherlands, we will safeguard our strong position in mortgages and SMEs with convenience offerings, for example, by repositioning Moneyou as a price-competitive mortgage provider. Both in the mortgage market as well as in the SME market, we aim to grow our market share from around 18% to around 20% in 2024, all that based on convenience propositions. Now the following segments we identified are the wealthy and affluent segments in the Netherlands. We see great opportunity for growth potential. For example, by growing the number of younger generation clients. Combining our knowledge and experience within the commercial private and corporate sides of the bank, we have created the entrepreneurs and enterprise concept, a clear example of how we will put the clients at the center of our services, offering an integrated service concept with a life-cycle approach for entrepreneurs and their enterprises, both in the Netherlands and Northwest Europe. These segments will allow us to be there when it matters for our clients. And this means we will be there for them, from student to young entrepreneur, growing towards affluent and wealth by providing relevant expertise when it matters. Finally, in Northwest Europe, we will unlock profitable growth for corporates in selected niches as we communicated in Q2. Daphne will tell you more about the opportunities we see for growth in these segments. To be sure, beyond banking, we will continue to explore opportunities to work with carefully selected partners across ecosystems, exploring new revenue opportunities across sectors. These choices will safeguard our income over the coming years. Underpinning client segments is the fact that we will be a personal bank in the digital age. Now what does that mean? We have long-term trusted relationship with our clients. The biggest mistake we can make as a bank is to lose the personal in the relationship. Our business hinges on trust. It is essential to stay in business. In the digital age, personal is often digitally enabled, supporting us in anticipating the needs of our clients. Client expects easy digital delivery in apps, full digital services and seamless self-service through one channel. Also clients expect the ease and comfort of video banking, as is evidenced by our high net promoter scores on the back of all of this. But personal is also evidenced by the expertise we provide to our clients, whether through tailored solutions, sector-specific expertise or indeed, personal interaction through video banking. Christian will give you more examples of how we bring convenience into the daily lives of our clients and expertise where it matters, make the simple easy and guide the client through the complex. So in short, the personal relationship we have with our clients is essential to stay in business as a bank. Having discussed the various chosen segments and explaining what the relevance is of a personal bank in the digital age, let me turn to the second part of our vision, sustainability. Sustainability is an important part of our purpose, banking for better for generations to come. Over the years, sustainability indeed has become a clear business case and diversifying factor. We are engaging with our clients to support their transition. We aim to be the first choice for our clients in sustainability, addressing a clear need and attracting target clients. In order to do this in a bank-wide consistent manner, we will focus on 3 specific areas to support our clients' transition: climate change, the circular economy and social impact. For all 3 focus areas, we already have a broad range of services, also making use of beneficial partnerships. We aim to increase the volume of client loans and investments in sustainable assets from 23% to 35% in 2024. We also aim to lead by example. And it is our ambition to make our office buildings more sustainable and energy efficient. We will redevelop one of our main locations in Amsterdam into a perish-proof hub into a state-of-the-art workplace, designed to facilitate the clear trend of remote working. And at the same time, we'll sale and lease back our headquarters in Amsterdam. Concluding, sustainability is a clear client need and differentiator in our services. The third part of the vision addresses how we intend to operate over the coming years. And as I said, we are building a future-proof bank, which is digital by design. In order to do this, we will further simplify and centralize the organization, freeing up time for front-office staff by removing admin and processing tasks. The design will allow us to proactively engage with our clients, digital first, using digital channels and enhancing the relationship with seamless service. As clients make the shift to digital, we will continue to adapt our geographical footprint responding to client behavior. Clients increasingly prefer video banking to live meetings in our branches. By 2024, We will have increased the number of end-to-end digitalized high-volume processes from 10% now to 90% in 2024. Another driver to prepare us for the future as well as reduce costs is to optimize sourcing from partners and emerging utilities. So while we are improving client journeys, at the same time, these initiatives will enable us to reduce our cost base to about EUR 4.7 (sic) [ EUR 4.7 billion ] in the next 4 years. As we increasingly automate the bank, the number of staff will continue to go down by approximately 15% over 4 years, mostly from 2022 onwards. We will reduce the impact on staff through natural attrition and reskilling in roles where we expect shortages in order to retain talent. In conclusion, the future-proof bank allows us to deliver a better experience for our clients while, at the same time, allowing us to deliver on our cost-saving programs. Turning to the last part of our vision, culture and our license to operate. From the start, these have been clear priorities to me. I place great value on fostering a culture within the bank in which everyone feels respected and valued. This requires a culture in which all within the bank care for their clients by taking responsibility, acting in the common interest and acting with courage. Taking ownership. Clear targets and accountability are key to execution, but also for our license to operate. I will remain committed to deliver on our moderate risk profile and continue to fight against money laundering. These priorities are an important part in all of this. Having explained our focus segments, clarified our sustainability ambition supported by a simplified future-proof bank, I would like to take you through our financial targets. For 2024, we target a return on equity of around 8% while the low rate in interest environment persists. We will maintain our return-on-equity ambition of 10%. But over the next few years, our revenues will remain under pressure due to the low interest rate environment, COVID-19 and the wind out of CIB non-core. Over time, we will offset the NII pressure by negative pricing and growth as discussed. Next year, 2021, will be a transition year in which total costs will be higher, reflecting increased levies and AML costs and strategic investments. By 2024, our costs will be no higher than EUR 4.7 billion, taking some EUR 700 million out of our cost base. We expect the cost of risk to normalize to 25 to 30 basis points post-COVID as a result of CIB noncore wind-down and disciplined execution of our risk framework. We have and will continue to have a very strong capital position as it provides resilience, both under Basel III as well as under Basel IV and are well placed for the current challenging economic environment and regulatory transition. The choices we are making change the capital allocation of the bank in the next few years. So the CRB wind-down is capital accretive, and we will use this capital to grow where we see future returns and can build on current market positions. We will remain to be open to bolt-on M&A opportunities, primarily focused on the private bank. We continue to expect headwinds and uncertainties on both capital positions and capital generation, a logical result from impairments, AML, restructuring and NPEs. So therefore, we will remain well capitalized coming out of the crisis and expect regulatory easing to be temporary. Let me be very, very clear. We are committed to resuming payment of dividends sustainably, conditions permitting and taking into account the ECB recommendations. We intend to pay out 50% of dividend of net reported profit. Basel IV will be our primary capital metric, and we are already at around 15% CET1 ratio. We believe a target of 13% is appropriate going forward. And in addition, we will adopt a threshold of 15% above, which we will consider buybacks. These thresholds reflects uncertainties as well as a buffer for potential M&A opportunities. I presented my vision for the bank and how we will deliver on our strategic pillars. Let me confirm my commitment to deliver for all our stakeholders. In summary, I've taken stock of the bank. I welcome the foundation and strong brand. We made clear choices on the geographical footprint, serving clients where we can achieve focus and scale. We see growth opportunities in focus segments. We will be digital first by design, offering expertise where it matters. We will rigorously simplify the bank. I am committed to delivering on our metrics. We are a personal bank in the digital age. Now I'd like to give the floor to Daphne. As I said, we see opportunities for growth in our focus segments. Daphne will tell you more about this.

Thank you, Robert, and welcome all. Today, I will run you through the growth opportunities we've identified. ABN AMRO believes in a model growth story, for which we have carefully reviewed our market segments. We've seen growth in specific segments in the Netherlands and in Northwest Europe. And we will continue to be a first choice partner in sustainability. This will result in incremental volumes and fees, even in this changing environment we're in today. Our growth story starts with truly putting our customers at the center of what we do, with an improved digital proposition for all our clients and our expertise available for clients that need it or want it, intimacy where it matters, efficiency everywhere else. Now you can divide it into 2 type of offerings: convenience and expertise. With our convenience offering, we have selected 2 segments where we see room for growth, namely SMEs and mortgages. Here, we'll improve our digital offering and expand our product suite with beyond banking services. And this to get us at par with our competitors on market share and earnings. Now let me start with SME clients. And then I talk about business clients with an annual turnover of up to EUR 10 million. Our challenge here is that our market share is relatively low. It's around 18%. And 70% of our portfolio consist of clients with just 1 product and also our NPS is negative, around minus 5. Lending is, of course, an important anchor product. And historically, we are underrepresented in that space. So there's clearly an opportunity to better serve these clients and focus more on an integrated approach, and this to increase our relevance and our market share to a desired level. Now to overcome the challenge, we will help all clients with a solid product offering through fully digital payment packages. Here, the front office works very closely together with the IT team because we all have the same goal, service our clients in the best way. A package with 3 options: good, better, best, with payment products, but also the options to add on various sector-specific or beyond banking services. Think about, for example, a fully integrated bookkeeping proposition. The results of our actions will improve the offering to our clients, and it diversifies our income. So we expect to increase our market share to above 20%. Our aim is a positive NPS and an improved customer experience. Now let me continue with mortgage clients. Here, we see an opportunity to improve the online client journey to strengthen our position. Next to our ABN AMRO mortgage label and the Florius label, we will expand our digital offering via our Moneyou label for target groups like starters and refinancers. And we expected this to increase our market share in new production from 15% to above 20%. And this will, of course, contribute to a more stable mortgage portfolio. That's about the convenience proposition. Now let's move to the expertise proposition because in the end, it's all about the combination of the 2. Expertise is aimed at 3 specific client segments, client segments in the Netherlands, and also a focused approach in Northwest Europe, where we can truly offer value-added services, think about sector knowledge or sustainability advice. By truly putting our clients centrally, the relationship will be continued in a broader and more strategic concept. So for example, we see an entrepreneur running a business, but also know that she has personal financing needs and his family members that needs help as well. And maybe not only right now but also anticipating on upcoming events, such as succession planning or retirement. Now in expertise, let me start with our wealthy and affluent clients in the Netherlands. With our private bank being market leader in the Netherlands, we have strong client relationships with our wealthy customers. We also have a solid position within the senior affluent segment, however, not yet in the junior affluent segment, and we believe that we can build on our strong proposition even further. So what will we change? We will extend our client field to include their families to create a holistic family service. And we know that younger generations clients are looking for help in financial planning or advise on investments. And we will proactively reach out to these clients and provide them these relevant solutions such as, for example, sustainable investment options like impact funds. Now by doing so, we expect to grow our market share in affluent clients from around 16% to over 20%, and we want to increase our share of wallet. The second focus segment in expertise is entrepreneurs. We will keep on focusing on entrepreneurs, but in a more integrated way. This is especially needed in the COVID situation we're in today. These are clients with both business and personal banking needs. This explicitly comes into practice when we break down silos and we start with the entrepreneur and his needs on various personal and business moments that matter. Think about personal clients who start their own company. We can finance and provide advice on finance. But then while scaling the company, we can advise the clients on wealth management or supporting business expansion and maybe even think long with succession plans and potentially even hand over to next generations. So we look at our clients from different angles, and we create a 360-degree view, of course, with the consent of our clients. A true one-stop shop with a full product suite and experts for various moments that matter. And we expect with this integrated approach that our NPS will improve. We also expect income increase in assets under management, interest income and fees across the bank. Now lastly, in our expertise proposition, we include Dutch companies. We have a solid position of around 22% market share, a good track record in return on equity, and our expertise is one of our core strengths. We can offer full service, including sector knowledge, but also we have a strong product suite. But our clients are making it really clear. Sustainability is important to them, and they would like to make the shift and they also expects the banks, us, to help them. So what we would do differently? We will selectively invest in, for example, our project finance capabilities within solar, wind and infra. But we will also roll out new services such as sustainable leasing. We are increasing our relevance and strategic adviser and deepen our relationship. And of course, this will improve our margins, will increase NII and fees, but also enables us to stabilize our market share. Now I told you about convenience and expertise. And in the end, it's mainly the combination of the 2 that will differentiate us. Robert highlighted the selective profitable growth in Northwest Europe. Here, we focus on 2 segments: our enterprise network and our wealthy network. We're going to be selective and will leverage on our Dutch strengths and capabilities. Our aim is to realize profitable growth in Germany, Belgium and the U.K., with business clients from -- with a turnover from EUR 100 million and up. We chose 3 transitions being the digital transition, the energy transition and the mobility transition, and also 2 sectors: financial institutions and real estate. Because we want to develop our expertise even further, we will take 2021 and 2022 to invest in expertise building, specifically in Northwest Europe. And we will put dedicated resources in place. By growing our position, we aim to reach a top 3 position within our selected niches. Secondly, we will keep growing our wealthy network outside of the Netherlands, building, of course, on our solid private banking position in France, Germany and Belgium. And here, we have positions already ranging from top 3 to top 10. Next to organic growth, we will also consider inorganic growth opportunities. Like in the Netherlands, we will focus on connecting our wealthy and our corporate clients together with our entrepreneur and enterprise concepts. I explained it earlier, the 360-degree view. This will enable us to attract new clients, increase our fee income and also the share of wallet of existing clients. I explained our focus segments in convenience and expertise and I talked about Northwest Europe. However, there's one more thing I would really like to highlight. Robert explained sustainability is at the heart of what we do. It's stepping into the real business opportunities for both the clients and the bank, evidenced by some of the examples I already gave. So it's good for our clients. It's good for our society, and it's good for the bank. More and more, our clients are turning to us to support them in making the shift to sustainability. And we are proud to be a frontrunner there, and that's acknowledged by awards, like Robert already explained. Our sustainability goals are split in 3 transitions: climate change, circular economy and social impact. All 3 are very closely linked to business opportunities. However, I would like to highlight one example, and that's our ambition in the circular economy. We aim to keep our strong position as expert in this area and increase the volume of circular transactions to over EUR 3.5 billion in 2024, and that's an increase of 400%. This year alone, we've already completed 90 circular deals. So to conclude my growth story with focused segments, geographies and sustainability, a personal bank in the digital age. I am proud that we put our clients at the center of what we do. And I therefore would like to conclude with showing you a video of our new beyond banking program. It's called Impact Nation. We embarked on this program with many of our clients. But in this case, the example is of Wereldhave. In this program, we help companies with the practical site of making their business more sustainable by uniting them with start-ups and knowledge partners. I really hope you enjoy the video. [Presentation]

Thank you very much. I really enjoy the Impact Nation video as an inspiring example of how we work with our clients on accelerating the sustainability shift. Daphne's presentation has given you a better understanding about the growth opportunities we see and how we will deliver on them. Our front office and IT teams are working together with the same goal, serving our customers in the best possible way. Therefore, Christian, will now tell you more about how we will deliver on a personal bank in the digital age. This is about improving client journeys, but it's also about working efficiently.

Thank you, Robert. Hi, I'm Christian. During the next 15 minutes, I'll give you an overview of how we deliver personal banking in a digital age. I'll do this by first introducing the design principles we've defined and how we have translated those into specific initiatives that we will use to evolve the way we do banking. I'll then share some examples of the metrics we use to track our progress and how the roadmap for the coming years looks like. Finally, I'll give you a glimpse of how this will be experienced by our customers. So let's start looking at the design principles we've defined. As Robert mentioned in his presentation, the world around us is changing. And 2020 has, in many ways, been a year that will have a long-term impact on all of us. When defining the design principles for a future-proof bank, it is therefore obvious to start with an outside-in perspective. We've analyzed the big shifts we see emerging and how they will impact customers, ABN AMRO and society at large. This highlights clear threats to traditional business models, but also many new opportunities. We've also looked closely at the evolving needs of target customer segments mentioned by Daphne. For many of these segments, it is clear, they will not be content with only digital solution for simple needs. Most of our customers have complex financial needs and value expertise and relationships. So with this as a starting point, we've defined 5 design principles. Digital first by design, expertise when it matters. This reflects our clear view that the best level of convenience can be achieved digitally. And this should always be combined with expertise as it's our main differentiator. Second, modular products with partners. We will streamline our product portfolio and make our products modular. This avoids downstream complexity across back-office support and control functions. We increasingly look at partner opportunities, especially in the area of beyond banking. Intelligent automation based on shared capabilities. We will use the increased focus of the new strategy in regards to geographies, segments and products and combine this with the latest technology, while further leveraging shared capabilities across all entities of the group. Fourth principle is around strong data foundation with regulation built-in. Data will be a key enabler going forward, both for the way we serve our customers, but also how we deliver structural solutions to reflect the evolving regulatory requirements. And last but certainly not least, the fifth principle is all about our people, great people, deep expertise and strong culture. People will continue to be at the heart of how we deliver banking at ABN AMRO. So now let's look at how we apply these principles. To illustrate this, we use the Z model or ecosystem model. Many of you have seen me present this before. The model consists of 3 different layers: customer engagement, products and services and shared capabilities. And each of these layers outlines potential role of partners, which is essential for our future strategy. Let me summarize for you the outcome of applying the design principles to each of the 3 layers. For customer experience, we naturally apply the first principle and will deliver a digital-first experience designed around the needs of each segment. This will free up time for both customers and employees by removing servicing and administrative tasks. In parallel, we'll invest in our expertise by creating stronger specialist teams and making these specialists available to a broader range of our customers. We will also provide new data-driven tools to support, guide and guide the dialogue with customers, resulting in more impactful interactions. So the net result would be more interactions with customers, especially for customers in our focus segments, while at the same time, achieving a significantly higher level of efficiency. For products and services, we streamlined the product portfolio by removing irrelevant, redundant and overly tailored products. This will allow us to reduce the number of products by more than 50%. Using this targeted product portfolio as a starting point, we have defined a number of product areas where we will pursue partnerships. We will do this either because the areas are too far away from traditional banking or because we don't want to build and maintain scale and competencies in a given area. For the products we continue to deliver internally, our focus will be on end-to-end digitalization to increase efficiency but also to enable a digital-first customer experience. Finally, for a number of the product areas, we will upgrade our APIs, especially to allow deeper integration into ABN AMRO solutions, but also selectively into the platforms of others. This includes better solutions for intermediaries, which continue to play an important role in engaging with our customers in the areas of mortgages and consumer loans. So overall, we'll have a more streamlined product portfolio, leading to lower complexity and greater efficiency end to end. From a customer perspective, we will have a broad and compelling proposition combining the best of ABN AMRO with the best of our partners. For shared capabilities, we'll continue to extend the use of all of shared capabilities across all entities in the group. This is not just to increase efficiency but also to get full leverage of important capabilities like data, cloud and our strong innovation setup. Under the shared capabilities, we will also continue the ongoing IT transformation. Next to the activities under each of the 3 layers, we will, of course, continue to complete the structured wind-down of C&IB non-core. As you can hear from the summary, we have a broad set of levers to build a future-proof bank, with the design principles related to data and people embedded in each of the layers. Now let me share with you some examples of the KPIs we use to track our progress on each of the 3 layers. For the customer engagement layer, an important focus is to reduce our effort related to administrative and servicing tasks. We therefore track the share of servicing requests that are handled through our digital channels. As you can see, we've already handled a large share of the request from households through our digital channels, but there's still more potential. For SME customers, the potential is even bigger, but we'll make significant progress over the coming years. In regards to products and services, we track the number of products that are fully digital end-to-end. While we are highly dense still in many areas, there's often a small gap to be fully automated. And as you can see, we'll address these gaps during the coming years. And finally, for the shared capabilities, we track our progress on the IT transformation. Here, we look at the number of teams and associated applications that have been moved to the DevOps and cloud. We started this transformation in 2019, and we're on track to finalize by 2024. So let's take a look at the overall roadmap for the coming years. To construct this roadmap, we've considered the full portfolio of initiatives for the bank, including deliveries related to regulation. Externally committed deadlines, dependencies and priorities form the basis of the overall sequencing that you see in this plan. We've added clear checkpoints to track progress on a monthly, quarterly and yearly basis. The result is a roadmap with 3 distinct phases. For 2021, the focus will be on strengthening our foundation. During this year, we will further strengthen our digital and data capabilities with additional investments to enable our new customer engagement model. And in parallel, we'll continue to streamline our product portfolio around the needs of customers. All this, while safeguarding deliveries committed to the regulators. 2021 will be a key year where we lay the foundation for future success. For 2022 to 2023, we will unlock the full potential of personal banking in a digital age. We will transition into the new customer engagement model for all segments, while further solidifying a common digital backbone across the bank. And importantly, we'll finalize the ongoing AML remediation. In 2024, we will further anchor the transformation and finalize a number of the larger initiatives. This includes IT transformation and the wind down of C&IB non-core. So all in all, a realistic plan with clear checkpoints focused on delivering structural solutions that drive efficiency, but at the same time, enabling the income-related initiatives that Daphne explained and safeguarding delivery on regulatory commitments. Before I conclude, I'd like to give you a glimpse of how we apply this model from the perspective of our customers. In our strategy, we've confirmed that we want to be customer-centric rather than product-centric. In practice, this means designing solutions and customer experience based on the needs of the customer segment rather than looking at individual products or features in isolation. So this is what we've done. We've put the customer segment in the center to ensure we provide them with the right mix of convenience and expertise. What you see here is a simplified example for a Dutch household segment, a segment where we lead with convenience and support with expertise. But let me give you 2 concrete examples of how we provide convenience by making the simple easy and expertise when it matters to guide the customer through key life events. Let me first introduce you to Anna. Anna is our digital assistant. Anna was first launched 2 years ago in our Internet banking environment to help customers that had questions related to international payments. Since then, Anna has expanded her area of expertise. And in September this year, Anna became available through our mobile banking app using the native chat functionality. Anna is now able to handle 75% of normal household requests. And if needed, she can even schedule a meeting for the customer with an adviser, for example, in an area of mortgages or investments. Lately, Anna has also become more proactive. She now reaches out to customers on topics like renewal of cards and to validate customer contact data. Anna is still young, but she's learning a lot, and we have high hopes for her in the future. For expertise, the key example would be video banking. ABN AMRO has been the leader in video banking in the Netherlands for several years. And due to the COVID-19 restrictions, many more customers across all segments and geographies have been able to experience the solution to stay in close contact with ABN AMRO. And the customer feedback has been great. We expect the vast majority of our customers will continue to prefer this convenient access to expertise in the future. But for us, video banking is not just about setting up a simple Zoom or WebEx meeting. At ABN AMRO, we provide a fully branded experience with specific usability features developed together with Microsoft and specific routing features that matches the customer to exactly the right specialist. Our solution also includes the ability to share documents and to sign documents digitally before, during or after the meeting and the ability to pull in additional experts into a meeting if and when needed. And we have many new cool features in the pipeline for the coming months to make this experience even better and more effective, both for customers and for ABN AMRO. And as stated, this is just one example for one of our segments. We have the similar views for all the segments reflecting the different -- their different needs in regards to solutions and in engagement, but often leveraging many of the same underlying capabilities. So let me summarize. We have a clear set of initiatives with real impact for both customers and for the bank. We have metrics to track our progress, and we have a realistic delivery plan for the coming years. I'm truly confident that we will build a great future-proof bank. Thank you.

Thank you, Christian. Now I've set out my strategic vision and our targets. Daphne explained the areas where we see opportunities for growth. These are well-focused and a natural extension to areas where we already have expertise and scale. Christian discussed how we will meet client expectations while, at the same time, making the bank future-proof and more cost-effective. Clifford will now take you through how all this translates into the financials.

Thank you, Robert. As many of you know, I will be leaving the group in Q1 next year. After 5 years working in the Netherlands, I've decided to return to the U.K. where my family are based. This is very much a personal decision, and I have full confidence in the team, the bank and our strategy. So I'm now very pleased to run you through how the strategy delivers on the financials and our targets, which are set out here. Let's be clear. The economic environment remains tough, with rates lower for very much longer. Our targets reflect our cautious outlook and are sensible and deliverable. We're focused on things we can control, including costs, and our growth plans are targeted and realistic. Short-term returns will remain under pressure, but we remain confident and ambitious in the longer term. While there's now continuing uncertainty, including the ECB dividend ban, we do want to be clear about our framework for dividends and buybacks going forward, so you know what to expect. In the next few minutes, I will run through our baseline scenario for the economy going forward. And after that, explain our outlook for income, costs and ROE. And finally, I'll set out our framework for dividends and buybacks. So turning now to the economy. I've set out here the current state of the economy and our cautious outlook. This outlook underpins our strategy and our targets. By showing this, we enable you to form your own view of the potential upside and downside from here. Clearly, 2020 has been a difficult year for both health and the economy. In the Netherlands, we are currently in a partial lockdown since the start of the second spike of infections in October. So while the Netherlands has been relatively resilient, we expect only a modest recovery and slow growth in coming years. This expectation is based on a wide availability of a vaccine by mid-2021 and large-scale vaccinations by year-end 2021. This slow growth will constrain lending demand from our clients in general. We also forecast negative central bank rates for the coming years, and this puts significant and sustained pressure on our income from deposits. This is why our strategy is focused on sustaining loan volumes in our target growth segments, growing our fees, reducing costs and further derisking of our corporate loan book. Turning now to loan volumes. Short term, our total loan volumes will decline, reflecting the wind-down of CIB noncore, which is progressing rapidly. Looking through this into 2021, we expect core loan volumes, excluding noncore, to be flattish given the impact of COVID-19 on loan demand from our clients. However, we are more optimistic longer term where we see opportunities for growth over time, as Daphne described. We aim to keep mortgage volumes around current levels despite prepayments, aiming for a market share of at least 20% as we launch our low-cost label and maintain best-in-class operations. In CIB core, we expect to grow volumes in our target segments, broadly in line with GDP. Over time, our initiatives in SMEs and the private bank will deliver growth in volumes in these segments in excess of GDP growth as we take market share. So in total, some modest volume growth over time. So what does this mean for our income? Weak GDP and low rates lead to structural pressure on interest income. Our strategy is focused on mitigating this pressure. Firstly, by charging negative rates on deposits. As you know, we've lowered the threshold to EUR 500,000 for passing on negative rates to deposit clients from January. Secondly, through our growth initiatives, delivering incremental loan volumes that I just described. And finally, we expect fees to recover sharply post-COVID-19 lockdowns and show good growth after that as we increasingly charge for our convenience and expertise, products and services. Now moving to costs. Robert highlighted the importance of cost control and set out our cost target of no higher than EUR 4.7 billion by 2024. ABN AMRO has established a good track record of cost control and delivering on our cost-saving programs. I'm confident we can achieve EUR 700 million of cost savings by 2024, and Christian has laid out our plans underpinning these savings. As Robert highlighted, we'll be investing a total of around EUR 300 million through 2023 to accomplish our strategic goals, starting with around EUR 100 million in 2021. Our current underlying costs are around EUR 5.1 billion, that is for 2020. We expect total costs for 2021 to be around EUR 5.3 billion, that is above this year, and reflecting EUR 100 million strategic investments and also higher regulatory levies, which include a one-off clawback on AT1. As you can see in 2021, like-for-like costs are around flat as ongoing cost savings offset underlying inflation. So after that, our new cost programs will bring costs down to no more than EUR 4.7 billion in total by 2024. Now putting it all together. As you know, our ROE is depressed this year, reflecting high impairments. We show here 5% ROE year-to-date, excluding non-core. We expect our ROE in 2021 to remain low. However, over time, we expect improvement to our target of around 8% ROE in 2024. In 2021, ROE well below our target, reflecting continued elevated impairments though below this year's level, low rates further eroding deposit margins and our strategic investments kicking in before cost reductions materialize. Beyond 2021, we see around 8% as deliverable, even in a low interest rate environment as impairments will reduce post COVID and also reflecting our derisking as we wind down noncore. Cost savings will come through. In addition, we expect growth initiatives and higher fee income to support the top line. We also expect benefits from capital optimization over time. All this underpins our target of around 8% return by 2024. And we believe there's further potential for the bank to deliver 10%, particularly if interest rates increase, and this remains our long-term ambition. Now turning to dividends and capital. Our capital position is strong at around 15% Basel IV CET1 ratio. We recognized early the large impact Basel IV would have on our capital and built up a strong capital position over the years. We're now in the middle of a very challenging period and regulatory restrictions have been imposed on our dividends. Despite this difficult environment, we want to be clear on our framework for capital distribution once uncertainties reduce and reflecting our capital strength, the wind down of noncore and our close dialogue with the regulator. So turning now to dividends. We intend to pay out 50% of reported net profit going forward. Our interim dividend will be set at 40% of half year profits. The payout of our full year 2019 dividend will be prudently considered at year-end 2020, taking into account the status of the ECB dividend ban. Now turning to capital targets and buybacks. We're adopting now Basel IV as our primary capital metric. Our target for this is 13% going forward. We will also adopt a threshold of 15% above which we will consider buybacks, if conditions allow and subject to regulatory approval, but not before year-end 2021. Our threshold of 15% reflects current uncertainties as well as a buffer for potential M&A. We expect to recalibrate this number as uncertainties reduce. So wrapping up. I've run through our targets and why we consider these to be deliverable in the current low interest rate environment. I've explained how we focus on things we can control to safeguard our income through growth initiatives as well as cost savings. We expect impairments to normalize over time as growth recovers and reflecting our derisking and the wind down of noncore CIB. While we are realistic about short-term economic challenges, we remain confident and ambitious about growth and returns in the longer term. We've also given clarity on our approach to dividends and buyback, so you know what to expect of us as uncertainties diminish and the ECB dividend ban is lifted. With that, I'll hand back to Robert.

So you've heard me talk about vision. You've heard Daphne talk about our growth and focus segments. You've heard how we intend to change our bank by the storyline that Christian had and all of this came together in the financials. In short, we are a personal bank in the digital age. Now to give you a little bit of breathing room, to allow you some space, we now have a 3-minute break. And let's make sure we come back in those 3 minutes for our Q&A. [Break]

Welcome back, everyone, to the Q&A session of ABN AMRO's investor update. My name is Ferdinand Vaandrager and I'm Head of Investor Relations. As a moderator, let me briefly run you through a procedure of this session. For analysts and institutional investors who registered for the session, there are 2 opportunities to ask your question. You can put your written question in the chat and there's a functionality in your browser. I see it working well because chat questions are already coming in. If you want to put your question directly to the team, preferably, you can use the dial in provided to you last Friday by e-mail, and again this morning with an entry card. [Operator Instructions] Also, can you please mute your live stream connection when asking your question. Otherwise, we might get an echo on the line. If we run out of time, my team is, as always, available to answer all further questions you might have. Let me start with the first question. The first question is on the phone, and it's coming from Omar Fall from Barclays. Go ahead, Omar.

I've got 3 questions. So firstly, on operating expenses. You've got flat operating expenses, excluding the investments, AML and levies, at EUR 4.4 billion in 2021. Why is there no benefit already from the CIB noncore wind down? You have taken the restructuring costs already and you told us that out of the EUR 300 million or so million of costs there, EUR 200 million were network costs, which should pretty much track revenues and volumes, give or take. So given noncore is down 20% last quarter, and you expect it down 50% next year. Why aren't you getting $100 million or so savings? Or is that kind of -- or are those savings in there that are just being offset by other elements? Then second question is also on cost, a bit more general. You'll most likely be one of the few European banks to see expenses rise next year, even though the pressure on rates is hardly new, that's not very good. So when you look at that glide path from EUR 5.3 billion next year to EUR 4.7 billion. Do you expect that to be linear or there should be already a meaningful step down in 2022 as levies and some of the AML project costs fall off because, I guess, asking investors to wait until 2024 first and then use these cost savings to [indiscernible] isn't that interesting. Finally, on the retail mortgages, you have them as flat throughout the core forecast period. Can you help us understand the dynamics of that? How much is coming from the ongoing weight of prepayments? And how much is a function of your cautious past price index forecast that you have on Slide 31. And then where do you think we get to the end of that wave of prepayments in particular?

Yes, Omar, thank you very much for that question. Let me take the -- I think I believe it was your second question first. We are indeed showing an increase in our cost levels for next year. That is indeed very reflective of the fact that we will have to increase our investments to accomplish what we set out in our strategy review. So that will lead to an overall cost level that you see coming in, in '21. And to your question -- your first question, I'll ask Clifford to reflect. And on mortgages, I'll ask Daphne.

Yes. Thank you, Robert. I think on expenses, I think you answered your own question there, Omar, because we are investing next year to deliver on the strategy, both cost savings as well as growth next year. That's the EUR 100 million. We see underlying costs as flat as we have more cost-saving programs delivering next year, including programs that we have underway currently as well as the ones we've outlined today, and that will absorb inflation wage inflation. We have agreements in place through next year. So -- and we give it -- as you can see, we give it to 1 decimal point. So rest assured, we're working hard on costs. As far as the noncore wind down is concerned, I think we've been consistent that we expect expenses to lag somewhat the book as we need to maintain the infrastructure in place outside Europe to ensure an orderly wind down. But those expenses around GBP 200 million are in the GBP 700 million of cost savings that Christian described earlier.

And then maybe to follow-up on mortgages. So mortgages, the overall book is amortizing, but we have a strong multi-brand strategy with ABN AMRO, Floris, and how Moneyou. And if you look at Moneyou -- what we do with what I explained to you in the presentation is we increase our production and because increasing our production, our market share goes up from 18% to 20% and in new products.

Thanks, Daphne. Maybe moving on to the next question, can I please ask you really to limit your question to one at a time. At the end of the session, you can go back in the queue for the second question. The next caller is Giulia from Morgan Stanley. Go ahead, Giulia.

I will ask one then. What sort of interest rate pressure do you foresee throughout the plan? And this is part of the same question. What sort of interest rate level would you need to achieve your 10% RoTE long-term target?

Giulia, thank you for your questions. I'll ask Clifford to react.

Yes. So Julia, in the reference document that we have on the web, we’ve given the economic scenario, Page 31. And you can see we expect the ECB deposit rate to be flat at minus 50 basis points, the 5-year swap rate to tick up marginally positive at the end of that period. So that's our base forecast. I think it's broadly in line with consensus, but reflects the very low interest rate environment we're in. If to get to 10% solely through we call it interest rate normalization, we think would be a shift of around 75 basis points a parallel shift. And the way we hedge rates is that shift would need to be sustained over time in order to deliver 10% in 2024.

Next question is coming in from Bank of America. Tarik, go ahead.

Really ask one question. I think there's one key question here today, to be fair, Robert. It's growth. I mean, I get your presentation growth, but I remain a bit lacking visibility here. I mean, all the metrics, I mean, the lever, sorry, you gave us is charging for deposits and the fee recovery. But we don't see really how the volume growth and what's the measures you're putting in place can actually boost revenues and growth in revenues. So I mean focusing on mature low growth mortgage in Netherlands as you basically described it as well. And SMEs and private banking, which is small contribution. And also on the corporate, basically getting into niche products where you'll be just developing them will be basically a struggle, I guess, to get profitability in the next 3 years up to the level you desire. So can you -- maybe I'm missing something here, but where is the revenue growth would come from? And if you can give us also some quantified indication, obviously, adjusted for rates, but staying low and so on, what's your view on where revenue should head by in the next 3 years?

Yes. Thank you so much for the question. It is clear that we've set our targets in a challenging economic environment. So let there be no mistake about that. What we have done on the basis of work over the last few months is we've looked at each and every one of these categories that we described to you, and we've determined what the potential for the bank is. So for example, on SMEs, we know that we are currently underrepresented in the SME market. It is a significant part of the market in the Netherlands. And we're confident with the offerings that Daphne described to you that we can indeed meaningfully begin to grow our market share. Our mortgages, there is indeed a strong market position. We are confident that based on the analysis that we've done and the opportunities we see within our mortgages practices, based on the solid brands that we carry in mortgage, the intermediary relationships that we have, the digital component of mortgages, which we are amply rewarded that we can meaningfully grow our market share. And meaningfully, I mean, about a 2% market share that we're actually talking about. So whilst our top line in a challenging economic environment is not going to grow exponentially, we have identified those segments of growth, that we do feel will add on to our top line in the sense that it will continue to stabilize our top line in a low interest environment.

Robert, as a follow-up on your example for mortgages. In instance, in the past, you've been -- you're having quite a volatile market share quarter after quarter because you don't state a market share to begin with. Basically you see how rates evolve the competition from nonbanks and so on. And then you would be able to take on not profitable business and growth. So I don't understand how you can set a 20% market share on the margin that you don't know upfront because it could be much lower if competition picks up. So that's where I'm a bit confused.

Yes. So can I -- let me go to Daphne, and I'll take that question as well.

Yes. Okay. So what I explained to you before. So our mortgage book is amortizing. But what we've looked for is areas where we could grow. And in the Moneyou label is an area for refinancers and starters, where we're not playing yet. And there, we see the potential to grow from 18% to 20% market share. Maybe, Clifford, do you want to add to that?

No. No, I think -- I mean, I recognize the question because the market is competitive, but we've historically competed in the less than 20-year segments. So -- and we have market share of 20% plus in those segments. So the offerings that Daphne talked about will be in segments that we've traditionally not played in where we have market share, for example, less than 10%. So whilst it remains competitive and each segment remains competitive, we've developed propositions that will allow us to make a step change in those underrepresented segments. And we regard this as, frankly, low-risk growth. So it's a mature market, but we're growing through taking share by leveraging our strengths in a market we know.

I will now switch to a few questions coming in via the chat, addressing the ROE. First one is from Jason Kalamboussis from KBC. The ROE of 8% by '24 seems low for a company that not so long ago, had a 10% to 30% range. How much of this is down to cautiousness on the outlook? Can I pass that one on to you, Robert.

Yes. Thank you very much. It is indeed an 8% that is reflective of the current economic environment in which we are in. We're confident on that 8%. And I'll point to you to the fact that we haven't let go of 10%. We still have that within our longer-term ambition. But we realize things need to change significantly, for example, low interest rates in order to get to the 10%. So the 8% is an ROE that we are comfortable with.

Second one I see here coming in on ROE from Albert Ploegh, ING. Is your ROE of 8% based on 13% or 15% core Tier 1 ratio? Can I pass that one on to you, Clifford?

Yes. Thank you. Our 8% target is based on detailed bottom-up bands that Robert described that we have confidence in. From a capital perspective, we've assumed we'll operate prudently within the range we've just talked about. We're comfortable at 13%. We'll consider buybacks at 15% and our ROE reflects operating prudently in that range. We did mention that we would consider recalibrating that threshold at 15% as uncertainties diminish, which I would hope would be the case in 2024, but we're planning prudently for now. And as Robert indicated, we have confidence in those plans.

Thanks, Clifford. I will now move to a question on the phone from RBC, Anke Reingen. Go ahead, Anke.

Firstly, on the cost. You indicate it will be lower than EUR 4.7 billion. I just wonder what the scenario is, you assume it's EUR 4.7 billion or lower? I'm using consensus numbers, it would be around a 63% cost/income ratio, although as you move away from a cost/income ratio target. Is that sort of like a 63% or better what you would be aiming for? And then secondly, on the cost of risk, so the EUR 2.5 billion, I guess, still stands for 2020. How quickly can we come down to the normalized level. I'm looking at consensus as EUR 1.6 billion in 2021. What do you think that's a reasonable path to assume to come to your normalized level?

Thank you for your question. Let me take cost of risk, and I'll ask Clifford to comment on the first part of the question. Indeed, we will continue to guide as we did in Q3. And as to expectations of the next quarters, I definitely would have to first see developments happening in those first quarters. I think right now, it would be too early to tell. We are comfortable based on the work we've currently done on our current cost of risk as we've guided, but we'll have to see how the next quarters will evolve.

Yes, Robert, turning to expenses. I think just my correction, we said no higher than EUR 4.7 billion, so sort of less than or equal to EUR 4.7 billion in 2024. I think cost/income ratio, I'm sure your maths are right. I think you've noted that we've not been very specific about income targets today. We do have confidence that our growth initiatives will deliver materially to income, but we're reluctant to commit to specific income targets, particularly given the uncertain environment we're in, the very low interest rates. And I'm sure you'll understand that. So I'll leave it at that, and you can do your own sums on cost/income ratio for now.

Thanks, Clifford. Next question also via phone is coming from Kepler Cheuvreux, Benoit Petrarque. Go ahead, Benoit.

So the question is on M&A. You have been focusing on private banking in the past. Will you be happy to consolidate the broader retail market in the Netherlands? So that's the first question. And then just briefly on the share buyback. You have already 15% CET1 ratio Basel IV. Could you launch a buyback post the summer post stress test already in 2021 or it's a no go?

Yes. So on your last question, we've indeed guided to the share buyback at about 15% Basel IV. I'm not expecting any meaningful or any buybacks over the next year. As to your first question, remind me again.

M&A.

M&A.

On your question on M&A, we remain open to bolt-on M&A, and we've always been open to bolt-on M&A. And we currently will consider that bolt-on M&A in the areas that we have strength, for example, the private bank, and that's why you see us commenting on M&A and private bank.

Let's switch to another question on the phone, Deutsche Bank, Benjamin Goy. Please, go ahead.

One question, please. As part of the new plan, you want to grow, or you significantly want to grow your commercial banking loan book. We have seen that before, and you indeed delivered growth here. But then in 2018, 2019, the cost of risk picked up materially to levels twice the current guidance going forward. So wondering what is different this time?

Daphne, would you like to?

Yes. So of course, we're in unprecedented times at the moment. But the way we look at it is that we say we have certain areas where we are underrepresented. So for example, in the SME space, also on the loans, we are very underrepresented. So we believe we can deliver on that. If you look at the book of CB at the moment, and there's a lot of government measures that are taken in the current environment, there are payment holidays that are taken. And yes, we have confidence that the SME market is still relatively okay at the moment. The government measures stay there also for the next year, at least in the beginning, and we'll carefully look at it.

For the dynamic, I'll switch again to chat's question. On the digital experience, is it the aim to build 1 platform for customer experience and how advanced are you on the digital journey today? I think that's an obvious question for you, Christian, to pick up.

Yes. So thank you. I think generally, just speaking to the last question regarding how advanced we are today. I feel quite confident and happy with where we are today. I think we are certainly competitive with our peers in the Netherlands and maybe even more so outside of the Netherlands. I think we continue to be very specialized on providing a digital experience to the specific segments that we have defined. So we believe being digital, but for clients with complex needs is where we will have our focus during the coming years. In regards to having 1 platform, I think that's an area where we will still be flexible, again, depending on how the market will develop. I think internally, we will certainly have 1 platform, and you will see us consolidate more. But outside of ABN AMRO, working with partners, we will certainly be open for creating platforms together with partners.

So next question on the phone is coming from Citi. Go ahead, Stefan.

One question on ROE, which is made up of 2 smaller questions, if I may. In your 8% plus target, do you include any management action on negative deposit rate between EUR 100,000 to EUR 500,000? And again, when it comes to your ROE and your EUR 300 million IT investment/digital investment over the next few years, what is the assumption you're making expensing versus capitalization for those investments?

Clifford, would you like to?

Yes. Shall I pick up both of those? So it's around 8% that we seem to be negotiating the targets during this Q&A session. So it's around 8%, and we're not going to comment on future pricing strategy. But as you know, we've lowered the threshold to EUR 500,000 from January. In terms of the IT, we have a policy of expensing IT -- money's out. So we're not planning to capitalize those. And I recognize some of the capital benefits associated with that. But in our view, these wash out over time and also add volatility to the numbers. So we've got no current plans to change that approach.

Thanks, Clifford. The next question is on the phone from Thomas, Goldman Sachs.

So I think I saw a headline this morning saying that you would sell and lease back one of your offices -- your head office actually. And you've realized the transaction with the 3Q results as well the offices in Paris. My question is, so how much of this small and positive one-offs, okay, can we get in the future? Or how many assets that are noncore do you have a disposal if you wanted to boost the reported net profit, which is now your base for dividend policy?

So let me take the first part of your question referring to the Gustav Maherlaan and the sale on leaseback. And in a way that is very consistent with what we did in Paris. Our ambition around sustainability is clear. We intend to lead on sustainability, and that applies to ourselves. It also applies to the way we work. And that is why we've taken a view as to how we would deal with the real estate we currently have in Amsterdam. The Foppingadreef is an area that we will invest in significantly. So we'll significantly upgrade the building to high sustainability standards. And then at the same time, we're looking at the usage of our square meters in the Gustav Mahlerlaan. So that's why we decided to enter to a sale and leaseback transaction, to be very consistent around our long-term ambitions and how we see our way of working.

The next question on the phone is coming from JPMorgan. Go ahead, Raul.

I really just sort of 1 area that I'm struggling with. Trying to understand why you set such a high 15% threshold for share buybacks when your stock trades at 0.4x price tangible book value. I'm really struggling with that. So is there something else in terms of what we might not know about that might prevent you from doing a share buyback apart from, let's say, the AML? And then related to that, how do you expect to optimize your long-term capital position back from 15 to 13 if you're not going to buy back the sort of gap, is that the 2% sort of an M&A buffer practically?

Yes. Let me take -- I'll take that question. We have included in our presentations, giving you the reasons why we have that 2%. Part of it has to do with the economic conditions that we're currently in. There is uncertainty. And I'd like just to reiterate that uncertainty is not going to go away over the next few quarters. So that economic uncertainty is part of the buffer. In addition, we have AML happening within the bank. We have the uncertainties that come out of that AML. We've also then decided to have a bit of a buffer around M&A to ensure that when and if that opportunity presents itself, that we are indeed adequately capitalized. So there is a clear reason why we have the 2% buffer that we've currently included in our guidelines.

Thanks, Robert. Maybe a small reminder. I mean, I know if we stretched and it goes quite well. [Operator Instructions] Let's now move to another question on the chat. It's coming from Johan Ekblom, UBS. Can we assume the 8% ROE includes normalized loan losses? Shall I put that over to you, Clifford?

The answer is yes. So that's part of the rationale for '24. So we can debate when things normalize, I think we feel '24 there's a good prospect of normalization.

Thanks, Clifford. Next question is on the phone, Bank of America. Tarik, again, just go ahead.

It's me again. Just a question on -- actually, Anke asked it, but it wasn't answered on cost of risk trajectory. So 2021 will be lower than 2020. But understand from Q3 that some of the cost of risk could be rolled over into next year. So how materially will be below 2020 actually next year? Just to appreciate a bit the trajectory and speed of normalization.

Clifford?

Yes. So we gave guidance November 11 as part of our economic outlook, and we assume a vaccine would get rolled out next year. So I think it's great to see developments, but that was broadly in our expectation. So I think that's not a lot to add. So we do expect impairments to be lower next year than this year. So 2020, we've said closer to EUR 2.5 billion. So that guidance is less than closer to EUR 2.5 billion. I think over time, we will benefit from the wind down of non-core so you see we've prudently kept our guidance of 25 to 30 basis points. But I would expect, over time, the shape of the book to be higher quality than it's been in the past. So as conditions normalize, we'll see the benefits of that coming through.

I switch now to a question coming from the chat from Robin van den Broek, Mediobanca. Can you please explain the dynamics of the M&A buffer? Can you split the buffer in its components?

Yes. [ Take the expectations]. The answer is I'm not going to advice -- or begin to articulate what that buffer is actually like. There is a buffer we've included, and that's what the M&A buffer is. And that's how we've defined it. There's no different components in that buffer.