ING Groep N.V. (INGA) Earnings Call Transcript & Summary

Good morning. This is Laura welcoming you to ING's 2Q 2024 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 statements not involving a historical fact. Actual results may differ materially from those projected in any forward-looking statements. A discussion of factors that may cause actual results to differ from those in any forward-looking statements is contained in our public filings, including our most recent Annual Report on Form 20-F filed with the United States Securities and Exchange Commission and our earnings press release, as posted on our website today. Furthermore, nothing in today's comments constitutes an offer to sell or a solicitation of an offer to buy any securities. Good morning, Steven. Over to you.

Thank you very much. Good morning, and welcome to our results call for the second quarter of 2024. I hope you're all well. And as usual, I'm joined by our CRO, Ljiljana Cortan; and our CFO, Tanate Phutrakul. In today's presentation, we'll discuss the strong quarter we had, and I will inform you about how we're progressing on the priorities we set out during our recent Capital Markets Day. Tanate will walk you through the financials of the quarter and show you how we're performing compared to our targets. At the end of the call, we will be happy to take your questions. Now let's move to Slide 2. Before going through our strong results in more detail, let's start with a recap of the key messages from our recent Capital Markets Day. First, we've shown that our entrepreneurship, our relentless focus on our customers and our collaborative culture have made us a very successful bank delivering value for all stakeholders. This DNA enables us to capture opportunities in the highly attractive markets in which we operate. By executing our Growing the Difference strategy, we will capture this potential, and we will accelerate growth, increase our impact and deliver value for our stakeholders. And I will now take you through how we have done so in the second quarter. On Slide 3, we show how we are accelerating growth. After a successful first quarter, we again had very strong commercial performance in the second quarter with an increase in the number of customers in lending and in deposits. The number of mobile primary customers increased by almost 250,000 with increases in all countries where we pursue growth opportunities. And with this increase, we've grown the number of mobile primary customers by well over 900,000 customers in the last 12 months, and we're well on track to reach our target of 1 million per annum. We have also grown our lending book with a particularly strong performance in mortgages where we saw growth across all markets. Growth in wholesale banking lending was offset by loan sales as we continue to optimize capital usage. On the liability side, successful marketing efforts in retail banking and a stronger focus on deposit gathering in wholesale banking resulted in EUR 15 billion inflow this quarter. Annualized customer balances growth, so that's lending and deposits combined, amounted to 6.2% in the first half year, exceeding the annual target of 4% we set during our Capital Markets Day. Then I'm moving on to Slide 4, and there, we show the increasing impacts for all our stakeholders. After growing by 430,000 in the first half year, we now have 13.7 million mobile primary customers, and this growth reflects the appreciation of our products and services. 65% of our customers now only do business via the mobile and we're the most loved bank in many markets we operate with a #1 net promoter score in 6 out of the 10 retail markets. We have a highly engaged workforce, and we're proud that we're seen as a role model in advancing LGBTQI+ inclusion in workplaces worldwide. The number of sustainable deals has increased further with EUR 32 billion of volume mobilized in the second quarter and EUR 57 billion in the first half year, which is EUR 10 billion more than last year. [Audio Gap] more than 40% of the mortgage production in the Netherlands has at least an A label. And finally, we're showing excellent financial results for our shareholders. As a result of continued strong profitability, we have announced an interim dividend of EUR 0.35 per share, bringing the year-to-date yields to over 13% already. Slide 5 lists how we are delivering value. Net interest income remained resilient with an increase compared to last quarter despite the negative impact of higher accounting asymmetry. Fee income was very close to EUR 1 billion this quarter, and we're well underway to reach the EUR 4 billion this year that we stated earlier. Most of this growth compared to last year was driven by structural increases, as Tanate will show you in more detail later. Risk costs continue to be below our through-the-cycle average, and we remain comfortable with the quality of our loan book. And this has all resulted in a return on equity of 14%, and we're confident that we will end the year with a return on equity of more than 12%. We have achieved this return while operating at a healthy CET1 ratio. With the ongoing share buyback, we've made further steps converging our CET1 ratio towards our target level, and we'll update the market on next steps with our third quarter results. Then Slide 6, and on this slide, I would like to zoom in on an individual country and show how we're executing on our strategy in retail banking. In Romania, we've been the most preferred bank since 2016. And this appreciation of our digital products and services has resulted in strong growth in the number of total customers, and over half of these customers now use us as their primary bank. We've also been able to grow both sides of the balance sheet and make a very healthy return and we firmly believe we can grow further and make more impact for our customers. For example, we completely redesigned our digital onboarding process that now really stands out in the country. And we've introduced a digital mortgage in Romania with digital financial approval and collateral appraisal. To increase presence in new segments, as we also talked about during Capital Markets Day, we have introduced dedicated value propositions for Gen Z, while we renewed our focus on the affluent segment. And we've increased cross-sell within business banking so that more customers use our daily banking packages, which helps to further increase fee income. Overall, Romania is a great example of how we're growing the difference. And now, I'll hand over to Tanate, who will take you through the results of the second quarter in more detail, starting on Slide 8.

Thank you, Steven. As Steven mentioned in his introduction, net interest income was strong again this quarter and improved quarter-on-quarter despite a more negative impact from accounting asymmetry. Lending NII increased for the fifth consecutive quarter, driven by higher volumes, while the margin rose by 1 basis point. Liability NII continue to be resilient as the expected normalization of liability margin was almost fully compensated by higher volumes. The overall net interest margin, which takes the development in the total balance sheet into account, decreased by 3 basis points, driven by the impact of increased accounting asymmetry. Now if you go to Page 9, I'll show you more details on this. The point I'd like to make here is that the structural drivers of net interest income developed very well this quarter, while reported net interest income increased by EUR 5 million quarter-on-quarter. However, when excluding the impact of one-offs and the increased accounting asymmetry, our net interest income actually increased by a strong EUR 65 million compared to the previous quarter. As you know, the negative impact from accounting asymmetry on the net income is more than compensated by other income. I'll get back on this on Slide 12. On the next slide, we'll show you the strong volume growth in both core lending and deposits. The commercial momentum that we had in the first quarter continues in the second, with strong net core lending growth of almost EUR 8 billion. We have been able to grow our mortgage book in all of our retail countries. This was just not driven by recovery of the market, but also by increasing our market share in some countries. In the Netherlands, for example, we have grown our market share in new production to over 16% on the back of providing an excellent customer experience. Growth in wholesale banking lending was offset by loan sales as we continue to focus on capital efficiency. On liabilities, we saw core deposit growth by EUR 14.7 billion in the second quarter due to strong performance in both retail and wholesale banking. In retail, we grew across many markets, driven by effective marketing and supported by the inflows of holiday allowances in some countries. In wholesale banking, our focus on increasing deposit paid off, with strong inflows in payment and cash management in particular. Now turning to Slide 11. Fee income year-on-year was again double-digit as we made almost EUR 1 billion in fees this quarter. This is a record. The growth was particularly driven by retail banking as we were able to grow mobile primary customer, active investment product customer, lifting income from daily banking, investment products and insurance. In addition, we paid low commissions to independent agents and brokers in Belgium. We also benefited from favorable market conditions that led to higher fees from mortgage brokerage and increase in the number of investment product trades as well. In wholesale banking, fees were slightly lower due to lending, but was still at a strong level. Given the strong performance across the bank, we remain confident that we can reach our EUR 4 billion fee income outlook this year. Now on Slide 12, we show what the developments in the different income lines in the first half of the year mean for our guidance for total income this year. We note that we previously provided an outlook for net interest income, assuming a stable accounting asymmetry, resulting in a range of between EUR 15 billion to EUR 15.5 billion. However, as this asymmetry remain difficult to forecast, we have now excluded this impact from our outlook. Any impact from accounting asymmetry will be more than compensated in other income. As structural drivers of NII remained strong, we continue to guide for interest income, excluding accounting asymmetry to end up in the upper end of the range. We are confident that the fee income will reach the EUR 4 billion outlook. And as a result, we have increased our total income guidance this year from around EUR 22 billion to more than EUR 22 billion. Now on Slide 13, we'd like to explain a bit about the cost development. Total expenses in the first half of the year increased by roughly 3% compared to the first 6 months of 2023. In the same period, expenses excluding regulatory costs and incidental items were approximately 6% higher, which is in line with our outlook for 2024. This increase was mainly because of the impact of inflation on staff expenses, reflecting salary indexation and collective labor agreement increases across most of our markets. We also continue to invest in our business and had to pay a higher VAT following the implementation of the Danske Bank ruling in the Netherlands. Regulatory costs were significantly lower than last year because no contribution is required to the Eurozone Single Resolution Fund for 2024. For the full year, we continue to guide for a total expense base of around EUR 12 billion. On to risk costs on Page 14. Total risk costs were EUR 300 million this quarter or 18 basis points of average customer lending, still below our through-the-cycle average and demonstrating the quality of our loan book. In retail banking, asset quality continued to be strong, and we benefited from strong improvement in the macroeconomic outlook for house prices. In wholesale banking, risk costs, including additions to Stage 3 for a number of unrelated existing files, we have also transferred a part of the Russian-related exposure from Stage 2 to Stage 3, reflecting the worsening economic outlook in that country. At the end of the second quarter, we still have a stock of overlays amounting to EUR 415 million. Page 15 shows the development of our core Tier 1 ratio, which was mostly impacted by the ongoing share buyback, which we announced last quarter. Core Tier 1 decreased by EUR 1.7 billion as the buyback was partly offset by the inclusion of net profit for the quarter after reserving for dividend. Total risk-weighted asset increased by EUR 7.3 billion, excluding EUR 0.6 billion of FX impact. Credit risk-weighted assets, again, excluding FX impact, increased by EUR 7.7 billion, partly driven by an increase in exposure. A temporary increase from quarterly model updates had an impact of EUR 6.5 billion, of which the majority will be reversed before year-end. This temporary increase has no impact on our capital outlook. Changes in the profile of the books resulted in a decrease of the credit risk-weighted assets by EUR 2.1 billion, operational risk-weighted assets were stable, market risk-weighted assets decreased by EUR 0.4 billion. The interim cash dividend of EUR 0.35 per share will be paid on the 12th of August, and we will update the market with our Q3 results on the next steps in converging on our core Tier 1 ratio to our target levels of around 12.5%. Then finally, on to Slide 16. As Steven and I has explained today, executing on our strategy has resulted in a very successful first half year with good commercial and financial performance. Mobile primary customer increased by 430,000 as more and more customers choose us as their primary bank and increasing number of customers are using mobile as their preferred channel. Total income increased with strong NII, double-digit fee income growth, and we have updated our outlook for total income for the full year to end up above EUR 22 billion. The development of operating expenses was in line with our outlook, while regulatory costs decreased significantly compared to last year. Core Tier 1 ratio continued to be high at 14%. Our fourth quarter rolling return on equity remains very attractive at 14%, and we're confident we'd be able to provide an ROE of over 12% for the full year. Now on to the Q&A. Over to you, operator.

[Operator Instructions] We will now take our first question from Benoit Petrarque of Kepler Cheuvreux.

So the first one will be on net interest income. Looking at the 2 main moving parts, so lending NII and liability NII. On the lending NII, obviously, very strong growth on the volume side. Yes, it sounds that you -- or at least, I am more positive on the lending NII development going forward. Are you also a bit more positive on lending volumes for the rest of the year and also on lending margin development. So that will be the first question in NII. And then on NII, again, on the Page 22, you provide a very interesting sensitivity. Last quarter, you told us that based on the curve end of March, you expect to be between 100 bps and 110 bps on liability margin. I see your delta based on the current curve of EUR 600 million on interest income from replicating income in '26, which will be about 9 bps on the total customer deposits. So my question is on the -- based on the current curve, are you maybe a little bit more also positive on this range of EUR 100 million, EUR 110 million. Are we more likely to be on the high end of this range based on the current curve? That's the question. And then just a very tiny question on the asset sales. So wholesale book is down EUR 1 billion, but how much is the kind of effect of the asset sales in, say, Q2 or H1? I just wanted to get the full picture on an underlying basis. And also, you talked about asset sales in the past. I'm just wondering where you are on that.

All right. I will do the one on asset sales and the NII and Tanate will talk about the graph on Page 22. Talking about the NII, I think we also are quite positive. And if you look at the volumes in mortgages, to start with that, the volumes were good. You also saw -- if you look at the market share of the new production in the Netherlands, it was 16% and higher where our total market share is around 13%. So we're doing very well. It also has to do, by the way, with our -- the strength of our digital channel and interaction with our brokers. So we're doing very well. I'm very happy with that. You also, by the way, see it in our number of NPS -- 1 NPS position in this market. And also, you see gradually increasing volumes in Belgium and Germany, and those markets are recovering a bit slower on the mortgage side. So they are still quite some way off of where their mortgage sales were or how sales were in '22 and '21 and before that time. So that recovers slower, but also in the slower market we're doing well. So that gives us also confidence for the future. In wholesale banking, we saw also lending growth, but we also have a number of underwrites and loan sales. And therefore, I link question 1 and question 3, we had about EUR 2 billion in loan sales this quarter. And therefore, we see the total going down. But we also have a number of committed facilities, which are undrawn. So we grow, but you don't see it in the numbers because it's not drawn at this point in time, but we see in our pipelines of deals that the market is becoming stronger. So from a volume point of view, we have a positive viewpoint on -- based on what we see, the market shares in the market and how the market in mortgages and wholesale bank are recovering. If you look at the margins in wholesale banking, you already see a bit of margin expansion, okay It's only 1 basis point, but it gives at least -- it has been stable and -- but you now see the growth is coming back when liquidity in the market should become a bit lower with quantitative tightening, that should have a positive impact on it. Let's see where that goes. But we saw at least for this quarter a limited increase. And the deposit margin is holding up well in line with what we expected. But I'll let Tanate talk about Page 22.

I think we wanted to provide this mechanical replication of the U curve for the Eurozone deposit book. I think this is one determinant of where our net NII fall liability will go, but I think there are 3 other developments. I think volume is clearly one in terms of deposits. And you can see that we are quite optimistic about our momentum in terms of volumes given what we see in Q1 and also Q2. We also will be determined by the mix of our deposits, between term deposits, savings and current account. And what we also saw is that the migration from current account to savings account has stopped, right So that is a clear trend line, which is also positive for NII liability. And the third is the deposit rate itself. And that, of course, we do not give forward guidance, but we reaffirmed the guidance that going into '25 the liability margin should be between EUR 100 million to EUR 110 million with some of those positive momentums that I mentioned.

I will now move on to our next question from Giulia Miotto of Morgan Stanley.

The first one, I want to stay on the same topic and double-click on the margins by country. Is it correct that Belgium is still under pressure probably on lending and deposits, whereas Netherlands and Germany look better? Or any further color that you can give us by country would be welcome. And then my second question goes on a different topic, capital. The EUR 6.5 billion temporary model increases, so can you give us a bit more color there, what are those and how do you -- why are they temporary essentially? How do you then offset them?

On the margins, I will take the question and Ljiljana will take it on the EUR 6.5 billion temporary increase. Yes, it is true that in terms of the countries, if you look at mortgage margins, that they are better in the Netherlands and Germany than they are in Belgium. So what we clearly do, of course, is when we look at pricing of our products and of our service to our customers, we look at where we do -- whether we make the right return on it, a return-focused bank. And if we are able to make a return that's -- that meets our internal return hurdles, then we'll do it. And if not, we don't. And that's also, therefore, how are you -- if you look at the expansion of the mortgage book, you see a significant expansion in the Netherlands, also as a result of the fact that it's an attractive market. But I must say that also the mortgage markets in Belgium and Germany are still a bit slow. So there is some recovery, but not to the tune that we have seen in the Netherlands already, which is now already back at the level of house sales as of 2022. That's where we currently are.

On the models, yes, we have seen a temporary increase this quarter, which is a bit higher than usual of EUR 6.5 billion, and we say a majority of it will be reversed before the year-end with no implications for our capital outlook. And what do we mean with that? You know that we execute in line with our ING model road map strategy. Every quarter, the model updates. In some quarters it goes up or down depending on the timing of the changes taken, but as well on the timing on the mitigating actions that are being taken in parallel in order to also work on that impact. What we have seen in the second quarter is the negative impact that you've mentioned. However, most of it will be taken through a different mitigating actions, primarily risk transfers that we use in order to, I would say, come to the structural level of RWA that we will operate at. If you look, for example, in the last 6 quarters, you will see a net impact of our model changes of around EUR 1 billion to EUR 1.5 billion, which is the proof that we actively manage our RWA throughout the year in which some quarters might have the upticks due to these changes, but then in the others taken risk-mitigating action in place, they are going down.

So if I understand it correctly, this negative EUR 6.5 billion in part will be offset by SRTs, is that correct?

Not just SRTs, there is a number of other, I would say, actions which are insurance policies, derivatives hedging, so different risk centers mitigations and yes, largely, it will be offset.

And if I can go back on the margin question. Anything on the deposit margin by country?

I give this to Tanate.

I think, as I mentioned already, Giulia, deposit margin is depending on volume and on mix, to be clear. And the mix, I think we have seen favorable development in terms of stabilization of current account. So I think that's good on the mix. And I think in Q2 we had such high inflows of deposits. So it moved the net interest margin down a little bit. We had quite a big promotions in Germany. So I think I just repeat the key drivers, replicated income, volume growth and mix, those are the key drivers for margins. But we stick with our guidance, that we expect net interest margin for liability for this year to be above EUR 110 million and that it will be in the corridor of around EUR 100 million to EUR 110 million going forward.

I was looking for more like comment by country. If you have any -- I don't know, if any country is looking differently or if these trends are sort of similar across countries?

I think limited change by country. What I can say is that the margin is actually expanding somewhat in the non-Eurozone countries where interest rate environment are somewhat more favorable for us.

And we'll now move on to our next question from Tarik El Mejjad of the Bank of America.

Two quick questions, please. First, follow-up on the liability margins. One of the moving parts is the pricing on deposits, I understand you can't comment, it depends on competition and other factors. But can you, in your 3 main Eurozone retail markets, describe a bit the dynamics there in terms of competition and pressure on pricing there. And the second question is on costs. I understand your approach on costs, which have been very kind of continuous and looking for opportunities to optimize costs as it goes. But what are the areas we could potentially look for in terms of finding some levers to offset the sticky high inflation in cost and have the jaws. And maybe you can just confirm that despite -- I mean, looking at your guidance for costs and revenues, we should expect quite wide still negative jaws this year and negative jaws next year would potentially slim to slightly improving in '26.

The cost question goes to Tanate and I will say something about the liability margin. But first of all, like Tanate already said, the margin is holding up well. So -- and there are different price points. So in the Netherlands, the base deposit rate is relatively high, and that is a bit lower in Belgium and in Germany. But there you still see -- in Belgium they work with loyalty premiums, i.e., the longer you stay as a depositor in Belgium, the more you get and Germany, they work with marketing actions. So what we currently see, and you see it in the past quarters, is that -- we -- of course, we look at our own products, our own balance sheet, and we also look at how to grow in a profitable way our primary customers, and that's how we are also looking at deposit gathering. Now what we, therefore, especially see in Germany that with marketing actions, and we saw it in the first quarter again, as we have done in the first quarter also the last year, or maybe it was April last year, that we started a marketing action at the right point in a profitable way by which we got a significant amount of deposits in. And that's how we continue to look at how do you balance growth of customers -- profitable growth of customers with balance sheet management and with getting more deposits in the bank. Now -- and there you see a bit more action in Germany than you see in Belgium and the Netherlands.

Then question, Tarik, on expense developments. As we kind of highlighted on Page 13, we do expect that the cost development for this year to be around 3%, a combination of regulatory expenses and operating expenses. We do expect that if you look at the first half of the year where the increase in business growth come from, some of the big buckets are really -- as we mentioned on our Capital Markets Day, we have increased the level of customer acquisition costs. These include front office staff, marketing expenses to acquire customers. And you see that the volume of new primary customer is developing nicely. This would be one of the big principal drivers of business growth that we see. And you're right that we don't take restructuring provision on a program basis, but as they come. And in this quarter, we took around EUR 34 million restructuring provision for restructuring in Belgium, which is related to reduction of our operational staff levels. To give you the comfort about the outlook for the future, we stick with our CMD guidance, which is that cost-income ratio is likely to rise to around 54% next year and gravitate back to 2027 of around 52% to 54%, cost-income ratio. So those would be reaffirmation of our guidance for the CMD.

And we'll now take our next question from Sam Moran-Smyth of Barclays.

So 2 questions on, I guess, either side of the balance sheet. So on assets, net core lending this quarter when annualized was above your 4% annual gross target, but also significantly above Eurozone system growth. When you -- a while early you commented on the core retail markets, so Netherlands, Belgium, Germany, but it looks like the highest relative growth this quarter was actually a challenger market. So perhaps you could give us some color on which markets you feel you're taking most market share and where you expect that to continue. And then my second question is on the liability side. You mentioned a couple of times your marketing campaigns in Germany. I appreciate the latest campaign started in Q1 and went into Q2. But when I look at net core deposit growth in Germany this quarter, it was actually quite subdued compared to other quarters where you've had those promotions. So should we think about that as a net number where you have had inflows, but you've also had outflows? And if so, are those outflows going to competitors Or are they going into asset management products? I suppose any color there would be really appreciated.

So, maybe on the marketing campaign in Germany, that led to a big inflow in Germany in the -- of EUR 11 billion in the first quarter. So I was talking about that in the context of the first quarter inflow in Germany that was EUR 11 billion. And so indeed, that it has not those levels in the second quarter because we did not do a marketing campaign this quarter. That was the last year where we did the marketing campaign in April, which then led to an inflow of, I believe from the top of my head, EUR 16 billion. So this quarter is actually a deposit inflow all around in the various markets. But -- and depending on at which point in time we want to again push the pedal and to grow our customers, we'll do new marketing campaigns, but I cannot say anything about that. But now you see actually increase of deposits across the various markets in which we operate. Then -- and there was a bit of static on the line. But I believe the first question was about where did you -- where do you see more growth in markets in lending. Is that correct? Can you repeat that question, Sam?

Yes, specifically in reference to your challenging markets?

To the challenging markets. Well, I mean, also there we see a significant growth in most of the markets, and we also see a return of the market in Poland whereby the economy is gradually improving again. And there we see particular growth coming in that market as well. So next to the analysis that we saw is very strong gradually markets coming back in Belgium and Germany, but not to the level that we have yet seen a few years ago. And we see a return of the growth in Poland, and we see also Italy doing particularly well.

If you don't mind, if I could just quickly follow up on German deposits. When you talk about marketing campaigns, if I was to go on your German retail banking website right now, I can still get -- I think it's 3.3%. So the promotion is still there, but are we talking more specifically about actual marketing rather than just a higher bonus rate Just to clarify.

I did -- what we did really talk about when there is a marketing campaign, so that means that you are allowed to get a certain interest rate for a certain period. And when we talk about the campaign itself, it is about the start of that campaign, the start -- when we start to offer something new for a certain period, that is when you see a big increase in deposits flowing in.

And we'll now take our next question from Benjamin Goy of Deutsche Bank.

Two questions, please. So first on costs. And thank you for the breakdown of the cost inflation. Now you have seen your 2 largest markets, you have essentially seen the CLAs of the sector or of key competitors. So wondering if you can help us a little understand how your cost CAGR looks throughout the plan, whether it's slightly elevated initially given the CLA. And then secondly, on the deposits, and particularly, if you can share a bit more color on the current accounts which were nicely up quarter-on-quarter, is that in the byproduct of the savings campaigns that people also bring over current accounts and use them more frequently? Or how can you explain the growth here?

I'll do the current accounts question and Tanate talks about costs, as he typically does. So if you look at the current account growth, that indeed -- a part of it is just growth of new customers coming in. You see 250,000 mobile primary customers and with these customers we do more, and they also typically keep more money on our accounts. But also we have a current account growth on the back of holiday allowances amongst others in the Netherlands and Belgium and Spain. But also we had a campaign in Italy this quarter as well. So that's what caused it as well. But typically, holiday allowances cause current accounts to go up. The flip side of it is that what we typically also see in the third quarter of the year is that you see an increase of transaction fees in the third quarter on the back of the holiday period because then people start to spend that money, typically in our case by way of credit card fees, so that will then have a positive impact on the transaction fees. That's what we have seen over the past year. So that's a bit hard. Well, second quarter increase due to holiday allowances, third quarter increase in credit card users because of the holidays.

Then, Ben, in terms of costs, particularly the collective labor increase, we do see the delayed impact in terms of wage inflation and that you have mentioned, we watch our competitors in a number of markets like Germany and the Netherlands. So we do expect that the cost increase in the short term, so '24-'25, to remain sticky, but that the normalization in terms of wage increase to become more prevalent in '26-'27 indeed. So more uptick in the first part of our planning period and more normalization in the back end.

And we'll now move on to our next question from Anke Reingen of RBC.

The first is on the Slide 22 again. Sorry for following-up. But in 2025, the EUR 500 million step up in the replicating portfolio income, why should it not be a similar step up in the guidance you gave on the EUR 4.4 million post the deposit cost? Is there anything that would make the headwind larger so it's not a EUR 500 million step up? And then secondly, on the loan volume growth, I mean, it's really quite impressive. And you mentioned market share gains. Can you elaborate a bit about what you're doing to grow faster than the competition?

I'll talk about loan growth, Tanate talks about Page 22. Well, I mean, in the end, I think we always highlight it that it's a matter of customer experience. And what we do is we build very strong channels. Like we talked also about Romania, for example, where we said we have a digital approval or digital collateral valuation. And it just means that we continuously work very diligently, very focused on lower time to yes and lower time to cash. So how long does it take when you get an approval, or how long does it take when you get your money. And in the Netherlands, we have with our brokers -- and the broker channel is the largest channel for mortgages. The time to yes is less than 24 hours, which is just very good and I think it's the best in the market. You also see -- and I don't know where you come from, but in Germany, we -- also there it's being sold a lot through brokers. But also you see that in the way that we do it with our clients, we continuously work on do that fully digital as far as we can, as far as law permits us to do so. So in the end, it's creating an environment where there's more certainty for customers in a quicker and less friction type of way. So easy, instant, personal relevance. That's the name of the game and that's just hard work every day.

Then, Anke, in terms of the step up on Page 22, that's the replicated income. And I think the other legs of it, which we don't -- we cannot disclose is what happens to customer rates, but we do give on that page a sensitivity analysis, right, that every 10 basis points of pass through has an impact of around EUR 400 million on NII. So that's the second leg. The only thing I would describe is that competition for deposits from what we see in the second quarter has remained benign, right, that we are able to gather quite significant volume in many markets that we operate in. So those are the missing pieces that you need to make your judgment is what is the outlook in terms of competition, in terms of retail deposits, and what tracking do you assume in your model.

[Operator Instructions] We will now move on to our next question from Hugh Moorhead of Berenberg.

One on fees and one on risk cost, please. So firstly, on fee income, strong performance in insurance this quarter. Is that -- sort of should we see that as being driven by one off like a marketing campaign, for example? Or are we seeing a bit more of a structural recovery in that business? If you could just give a bit more insight, that would be great, please. And then secondly, on loan losses. I think cost of risk this quarter, excluding the overlay write back is 25 bps, a bit above your through-the-cycle guidance. Should we see -- how should we view this quarter in terms of risk cost normalizing? How are you guys thinking about the evolution of the overlay as the quarters come? For example, will you write that and will you sort of continue to use the overlay to keep the cost of risk at around 20 basis points? And also finally, sorry, are you able to quantify the Russia -- the impact of the transfer of the Russia exposures from Stage 2 to Stage 3 as well, please?

So I'll give the question about the risk cost overlays, Russia trends to Ljiljana, and I'll talk about fees. That makes my job fun. So, well, I mean, there are many reasons why our fee performance is strong. It starts with getting more customers in the bank who do more with us. And we have [Audio Gap] [ 250,000 ] new mobile primary customers. Then it's about them doing more with us when they're in the bank. So if you look at the investment accounts, we increased, and I told on the Capital Markets Day we have approximately 4.5 million investment accounts, on a total of approximately 40 million customers. So that's only, let's say, 11%. So there's nothing wrong with it. But that means there's a lot of upside and that grew over the past year with 8% and this quarter with 3%. Then in insurance, yes, we're -- because we do more, and we also made specific agreements with insurance providers in different markets for private individuals, but now also starting in business banking, still relatively small. We also now are selling more bespoke insurance products to our customers, which we did not do in the past. So we start from a very low base. And as I said previously, there is a lot more we can do with our customers. We just need to offer it to them and start offering it to them, which we started to do also a bit more in insurance fees. And that's why you see the increase coming from. And the same goes for daily banking where in some countries there were some increases in price packages. And then on top of it, and that's more, let's say, the beta side of the story, like I told you, there is some recovery in the mortgage markets, in the various markets, and also in Germany and Netherlands. And therefore, you see that we have a bit more mortgage fees than we had in the previous quarter. So that's gradually recovering back. But a lot of things have to do, to summarize, by just doing more with our customers and offering more bespoke solutions to them in the fields of investments and insurance. Ljiljana, risk costs?

Yes, the risk costs were EUR 300 million, or if we look at the net amount, it's 18 bps off through-the-cycle. Overlays are being made when we believe our models are not able to capture fully the risk that we see in the environment. And they are to be used once these risks happen, or they are to be released if we don't see these risks happen. So also the average calculation of through-the-cycle cost -- risk cost includes always overlays. When it comes to the specific Russian impact this quarter, you will have seen the uptick, I would say, in S3, so Stage 3 provisions. And from Russia, that uptick is approximately EUR 133 million on the side of the S3, so that's why increase. However, there is as well a partial offset on the Stage 2 impact. Net impact on Russia is EUR 39 million additional risk costs this quarter.

We will now take our next question from Farquhar Murray of Autonomous.

Just 2 questions, if I may. Firstly, just going back on the model updates, EUR 6.5 billion of RWA. Which parts of the model or lending books did that come from? And in terms of the separate mitigating actions, could we just -- it should be expected cost from those? And then secondly, as we move into a cutting cycle, what's ING's philosophy going to be on deposit pricing? I think on the way up you characterized it as a slow follower. Is ING willing to move the other way on the way down?

I'll take the question on the deposit cycle or the cutting cycle, and then Ljiljana talks about the model updates. I mean, clearly, we cannot say anything of our -- about our strategy in terms of our deposit rates going forward. Clearly, indeed, depending on whether we grow and want to grow in customers and make our income there, it's an economic position we take on it. So in the end, it's a balancing between do we want to have more customers on who we in total then, because we have more customers, make more money, or do we have an impact by leaving rates as they are or lowering them and therefore make more money or less customers, and that's just an economic equation, which we can't continuously calibrate. We have been in a period whereby rates moved up very quickly. And then at some point, competitors started -- starting to move. And there we have seen that in markets where you typically see that as a challenger, we grow our customers very quickly. We start with marketing actions and sometimes rates are higher a bit quicker to get those customers in. And in markets where that is not the case, we keep it much more stable. And we are in a good position in practically all the markets in which we operate. So we will be nimble in terms of our approaches, depending on where we want to grow and where we want to be stable in terms of our share or our total balance sheet. And that's how we take it. That's all I want to say about that going forward.

On the model updates, yes, the update comes from actually various models, but the majority one comes from the low default portfolio in the wholesale banking space.

And is there any cost to the mitigating actions?

There are risk transfer mitigating actions. As I say, those are the low default portfolios. So that's also -- there is a number of instruments available also in the market and internally to manage those.

The question is, are there costs to the mitigating actions?

Farquhar, we look at -- its 3 parts of a pyramid, right? We look at revenue trajectory, risk cost -- I'm sorry, risk-weighted asset and return on equity. And we will find a way to optimize. We expect the impact from a revenue perspective to be minor in terms of managing our risk-weighted assets on this particular point.

There are no further questions in queue. I will now hand it back to Steven van Rijswijk for closing remarks. Thank you.

Good. Thank you very much for listening in and for the call of the -- on the second quarter of 2024. I wish you a great summer. I hope that you still have some time to take some time off and go on holiday. And I'm sure we'll speak again on the third quarter. Thanks very much.

Thank you. This concludes today's call. Thank you for your participation. Stay safe. You may now disconnect.