Prepared remarks
Good morning. This is Laura welcoming you to ING's 1Q 2026 Conference Call. Before handing this conference call over to Steven J. van Rijswijk, Chief Executive Officer of ING Group, let me first say that today's comments may include forward-looking statements such as statements regarding future developments in our business, expectations for our future financial performance and any statement not involving a historical fact. Actual results may differ materially from those projected in any forward-looking statements. A discussion of factors that may cause actual results to differ from those in any forward-looking statement is contained in our public filings, including our most recent annual report on Form 20-F filed with the United States Securities and Exchange Commission and our earnings press release as posted on our website today. Furthermore, nothing in today's comments constitutes an offer to sell or a solicitation of an offer to buy any securities. Good morning, Steven, over to you.
Thank you very much, Laura, and good morning, and welcome to our results call for the first quarter of 2026. I hope that you're all doing well, and thank you for joining us today. Sitting next to me is our new CFO, Ida Lerner. Ida joined us on the 1st of April, and we're very happy to have her on board. Welcome, Ida. And next to Ida, I'm also joined today by our Head of Risk, Andrea Cesaroni. We have started the year strongly. The first quarter of 2026 unfolded against the backdrop of geopolitical and macroeconomic uncertainty. However, our performance demonstrates once again the resilience of our business and of our clients. And we have continued to deliver strong and diversified growth, and we're well on track to achieve our full year financial outlook. In today's presentation, I will talk about the resilience of our growth strategy and how the consistent execution thereof is delivering increasing value. After that, Ida will walk you through the quarterly financials. And at the end of the call, we will be happy to take your questions. And with that, we now start on Slide 2. This slide highlights our continued commercial momentum going into '26 with solid growth across all key areas. And as you will remember, we had ended 2025 with very strong volumes, including some seasonal inflows. And we have managed to maintain that strong positive momentum also across the first quarter, more than absorbing the seasonal effects and continuing to push volumes even further up. Mobile primary customer growth, for instance, is seasonally lower in the first quarter. However, we managed to grow by another 125,000, and we continue to be on track to achieve our 1 million growth target also entering '26. Loan growth was again strong at an annualized pace of more than 8%. In retail banking, we've grown by 9.4% in the first quarter. And besides continued momentum in mortgages, we also saw strong growth in business banking, where we continue to expand the franchise. In Wholesale Banking, we grew the loan book by EUR 5.6 billion, while keeping its risk-weighted assets broadly stable. We also saw solid inflow in deposits at an annualized rate of 4% despite seasonal outflows from current accounts in the first quarter and despite conversion into investment products. Fee income rose by 13% year-on-year, supported by our growing customer base, by higher customer trading volumes and by strong deal flow in Wholesale Banking. And all of this translated into a return on tangible equity of 13.6% for the quarter. And finally, our sustainable volume mobilized has increased by 11% year-on-year as we continue to support our clients in their sustainable transitions. Now let's move on to the next slide to take a closer look at the fundamentals of our continued commercial growth. Slide 3 summarizes how the resilience of our business supports our growth strategy also in a more challenging environment. And let me start by saying that the main driver of ING's commercial growth is the superior experience that we provide to our customers. With a leading Net Promoter Score in most of our retail markets, we continue to attract new customers, and we see even stronger growth in the conversion into mobile primary relationships as more customers choose ING as their primary bank. And this deepening of the relationship with our customers is furthermore supported by the broadening of our product offering. And here, we see strong momentum across all of our businesses, helping to further diversify our revenues across a growing range of capabilities. We've recently launched business banking in Italy. And in the Netherlands, we are rolling out an insurance broker model to further integrate insurance capabilities into our mobile app. We are achieving most of our lending growth in mortgages. And as the leading European mortgage bank, we benefit from continued strong market fundamentals. The strength of our largest mortgage market is supported by constant low unemployment rates and a resilient market outlook. And our Wholesale Bank is well positioned to support Europe's strategic resilience with deep expertise in key focus areas, including in infrastructure and TMT and as a top 3 MLA and book runner in Europe and with our strong DCM franchise. Our Wholesale Bank is ready to support the investment initiatives that are needed to strengthen Europe's position in the global context. And with that, we move to Slide 4. And on this slide, you can see how the consistent execution of our strategy is driving value, supported by rising profitability and by our consistent deployment of share buyback programs. Our EPS has improved by 11% on a 12-month rolling basis. And with EPS and return on tangible equity clearly on a rising path, we have set firm direction towards our profitability targets by 2027. We see a wide range of strong catalysts that will support further value creation. First of all, we continue to grow our mobile primary customer base by 1 million per year. And this means that we're not just growing the number of accounts, this is growth from customers who actually use ING as their primary bank. And this is the core engine of our growth strategy. This is where our growth, income diversification and superior cost to serve, all come together. In addition, as number two, we continue to expand our business and develop new business streams. We are further rolling out our successful business banking franchise into several countries. We're building our Private Banking and Wealth Management as a third retail banking pillar in our existing markets. We're continuously developing new insurance propositions to make insurance a relevant revenue stream. And in Wholesale Banking, we're making strong progress to further diversify our capabilities in capital-light revenues. And thirdly, when it comes to growth, growth becomes powerful only when it is truly scalable. And our continued focus on operational excellence is increasingly enabling us to achieve growth in a truly scalable way. Combined with our capabilities to scale AI solutions quickly, we see a powerful improvement in growing commercial value and volumes at a much faster pace than our cost base. And finally, number four, we continue to improve our already strong level of capital efficiency, supported by continued capital velocity measures, both in Wholesale Banking and in Retail Banking. And all of this is not a journey that we will start tomorrow or in the years to come, but one that is already well underway and one where we see its strong results already clearly today. Now let's zoom in for a minute on that topic of scalability, moving to Slide 5. On Slide 5, we demonstrate how we're increasingly enabling scalable growth. And first, I want to touch upon what drives our ability to achieve scalable growth. Now ING has a long track record of digitalization. And as a result, the vast majority of our key customer journeys are already fully straight through without any human intervention, and this is a key ingredient, not only for superior customer experience, but also for achieving through cost efficiency. And in addition to a high level of digitalization, we also have built strong foundational capabilities that enable scalability. For example, we have our global hubs network and that houses 27% of our tech employees and 40% of our operational workforce and a fully integrated and scalable network organization supports improved productivity and operational resilience, but also our scalable tech platform, which includes core infrastructure components such as our global private cloud and our global technology platform that provides reusable shared services for product development. And when you add these two ingredients together, digitalization and a scalable tech and operations organization, then you have a very strong starting point to deploy AI solutions. And that is why we have been able to already roll out many AI solutions at scale quickly. More than 90 percent of our AI pilots have successfully been moved into production. More than 75% of our customer checks are fully resolved by AI without human support. More than 7 million customers have already received hyper-personalized marketing campaigns with agentic mortgages live in production in the Netherlands and soon rolling out to other countries. And we are on the verge of globally rolling out conversational banking for our retail customers, which is a personal assistant with agentic experience. Now then when you then look back cost performance over the past 12 months and in comparison to our commercial growth, there you then see the powerful proof of our ability to achieve scalable growth. Because over the past 12 months, we have grown our mobile primary customer base by almost 7%, our customer balances by more than 5%, our volumes in investment products by more than 15% and fee income even by 15.6%. But our FTEs, however, decreased by 0.6%, while our cost growth was limited to 2%. And with our commercial growth significantly outpacing incremental costs, we are delivering clear scalable growth, supporting meaningful improvements of our efficiency ratios in the years to come. Now let's move to Slide 6. On Slide 6, we show how the consistent execution of our growth strategy is resulting in strong capital generation. Over the past 12 months, we have delivered EUR 6.4 billion in net profit, contributing almost 2 percentage points of our CET1 ratio. And of that EUR 6.4 billion, 50% has been reserved for our regular dividend distributions. Around 15% of the capital we generated has been used to fund profitable growth across our markets. And here, we see a clear demonstration of capital efficiency. We have generated EUR 65 billion of profitable lending growth over the past 12 months while consuming only EUR 1 billion of capital. And finally, the generated capital that was not needed for organic growth, we have returned to shareholders, with a total amount of EUR 4.4 billion of additional distributions over the past 12 months, largely in the form of share buybacks. Now let's move to Slide 7, where I will show how these distributions have resulted in continued attractive shareholder return. In line with our distribution policy, Page 7, we have consistently paid cash dividends, and we have been executing significant share buyback programs for several years. And together, this results in consistent and attractive total distributions per share. The previously announced share buyback of EUR 1.1 billion has been completed this week. And today, we have already started with another EUR 1 billion share buyback program, which will run for the next 6 months. And when we look ahead, we remain fully committed to strong capital discipline to deliver strong shareholder results, and we maintain our semiannual rhythm of assessing the potential for additional distributions, and we will update you again in 6 months' time. Now before handing over to Ida, let me first take you to Slide 9. And on Slide 9, we confirm our financial outlook for '26 and 2027. We're well on track to achieve our upgraded outlook, which we communicated in the previous quarter with our full year results. We continue to add 1 million mobile primary customers per year. We see continued momentum in building out our fee income. We will deliver positive operating jaws in the years to come, and we are delivering on a broad range of catalysts that will continue to support the upper part of our RoTE in the years to come as well. Now let me hand over to Ida, who will walk you through our first quarter results in more detail, starting from Slide 11.
Thank you, Steven. It is my pleasure to present the results of what has been a very strong first quarter of 2026. On Slide 11, we can see that commercial NII has continued its upward trend since the second half of 2025. This is supported by continued volume growth on both sides of the balance sheet by disciplined commercial pricing and by the hedging tailwind on our replicated customer deposits. Fee income also continued its upward trend, driven by further customer growth and by strong performance, particularly in investment products and in Wholesale Banking. All other income, on the other hand, was affected by the heightened market volatility towards the end of the quarter. This has resulted in some IFRS asymmetrical effects, of which the majority should come back over time given lower interest rate volatility ahead. Overall, the strong customer activity and volume growth noted in the first quarter outweighed the lower all other income and led to an uptick in total income of 3% compared to the same quarter last year. Let's now move to Slide 12, where we will show the development of our customer balances. As you can see, we delivered another quarter of strong commercial growth across both Retail Banking and Wholesale Banking. Net core lending increased by EUR 15 billion. Retail Banking contributed EUR 9.4 billion, driven by continued mortgage growth with strong production in the Netherlands, Germany, Italy and Australia. This was coupled with a particularly strong performance in Business Banking, mainly in Netherlands and Poland. Wholesale Banking also delivered strong growth of EUR 5.6 billion, while keeping risk-weighted assets broadly stable. Within this growth of EUR 5.6 billion, we see a strong net inflow of EUR 7.8 billion in lending, which was partly offset by the repayment of a short-term working capital solution facility. On the liability side, core deposits increased by EUR 7.2 billion. Retail Banking contributed EUR 4.3 billion of growth with strong inflows into savings and term deposits, most notably in Poland, Belgium and the Netherlands. This more than offset the seasonal outflow from current accounts and the conversion into investment products. Wholesale Banking added EUR 2.9 billion of customer deposit as it continues to build out its capital-light income capabilities. On to Slide 13. On this slide, we zoom in on commercial NII. Commercial NII grew by EUR 132 million quarter-on-quarter and was 7% higher than last year. Lending NII was up EUR 41 million in the first quarter despite a lower day count driven by sustained volume growth at stable margins. Liability NII increased by EUR 91 million quarter-on-quarter, reflecting both volume growth and a 5 basis points increase in the liability margin. This higher liability margin is a reflection of the prolonged hedging tailwind on our replicated deposits while maintaining disciplined commercial pricing across the back book of our deposits. What it also reflects is the absence of larger savings campaigns during the first quarter, meaning that the level of acquisition costs was relatively low this quarter and will likely normalize again in the coming quarters. As such, let me be clear that we should not expect a 5 basis points increase of the liability margin every quarter ahead. Looking ahead, on the back of a very strong first quarter and especially the higher-than-expected volume growth, we can expect a slightly higher level of commercial NII than previously guided. We now expect commercial NII for the full year to be between EUR 16.5 billion and EUR 16.7 billion. Turning to Slide 14. Fee income growth remained strong, increasing 13% year-on-year and was also up on the prior quarter. What is especially encouraging to see is that this strong performance of fee income stems from all products and all markets, supporting the diversification of income sources for the bank. In Retail Banking, fee income grew by 13% year-on-year. This was mainly driven by structural factors, such as continued customer growth and improved cross-selling. Investment products, in particular, performed very well, a record quarter even benefiting from 8% growth in customers with an investment account and 15% growth in assets under management and administration, of which roughly half comes from net inflows, while also benefiting from 13% more trades, which besides a higher customer base, was supported by the increased market volatility towards the end of the quarter. In Wholesale Banking, fee income grew by 11% year-on-year, again demonstrating its strong progress on further income diversification. Let's turn to the next slide. On Slide 15, we show the development of all other income. Here, we see that the heightened market volatility towards the end of the quarter had a negative effect on hedge ineffectiveness as well as our activities within financial markets. It's worth remembering, however, that the P&L impact from the hedge ineffectiveness is not economic in nature. It is account-driven and should reverse over time. In Financial Markets, we continue to support our clients through the volatile market conditions. However, all other income was impacted by the sharp increase in interest rates. Overall, we expect all other income for the full year to be slightly lower than our normal run rate, ending somewhere between EUR 2.5 billion and EUR 2.7 billion. Next, Slide 16. Expenses, excluding regulatory costs and incidental items showed only a moderate increase year-on-year of 1.1%, clearly demonstrating our disciplined approach to cost management and our scalable growth capabilities. The impact from wage inflation was largely offset by savings from prior restructurings while allowing for ongoing investments to support business growth. Quarter-on-quarter, expenses were down slightly, mainly driven by seasonally lower customer acquisition costs in the first quarter. Incidental items of EUR 13 million for the quarter included EUR 25 million of restructuring provisions for the full-time employee reduction in Wholesale Banking and in Retail Banking Belgium. Once fully implemented, these measures are expected to lead to approximately EUR 20 million in annualized cost savings. Now let's move to risk costs on Slide 17. Total risk costs were EUR 346 million in the quarter, equivalent to 19 basis points of average customer lending, which is slightly below our through-the-cycle average, reflecting the quality and the strength of our loan book. Within this quarter's risk cost, we have included a prudent overlay to address the possible impact of higher energy prices and of the broader economic effects of the war in the Middle East. This EUR 94 million addition to management overlays was, however, partly offset by a large repayment of a Stage 3 loan in Wholesale Banking. The Stage 3 ratio slightly improved to a low 1.5%. Overall, we remain confident in the strength and quality of our loan book. And finally, before handing it back to Steven, let me take you to Slide 18. On Slide 18, we show the development of our core equity Tier 1 ratio. Continued strong capital generation and overall solidity allowed us to announce and start a new EUR 1 billion share buyback program today while maintaining our core equity Tier 1 at our around 13% target level. In terms of risk-weighted assets for the quarter, these increased by EUR 3.6 billion. Besides a EUR 0.9 billion FX impact, this mainly reflected continued business growth. Within Wholesale Banking, the risk-weighted assets remained broadly stable despite strong lending growth, reflecting the continued capital velocity measures that have been taken within Wholesale Banking. What is new this quarter is the change in our dividend reserving approach to ensure compliance with EBA guidelines. As of this quarter, our additional distributions will mainly be financed through upfront reserving. The implementation of this new reserving approach had a one-off effect this quarter of minus 23 basis points. In total, the additional distribution has an impact of roughly 29 basis points on our core equity Tier 1. This is merely a change in reserving approach. Our distribution policy remains unchanged. And with that, let me hand it back to Steven to wrap up today's presentation.
Very good. Thank you, Ida. And before we move to Q&A, let me recap the key takeaways from today's presentation. The resilience of our business supports the continued execution of our growth strategy also amidst geopolitical uncertainty. The consistent execution of that growth strategy is clearly driving value with strong momentum in our profitability metrics, and we have a right range of catalysts to further increase value. Our commercial growth is significantly outpacing the growth in expenses, reflecting our strong foundational capabilities to achieve scalable growth. And as a result, we see continued strong capital generation, which enabled us to start a new EUR 1 billion share buyback program today. And finally, we are well on track to deliver on our full year financial outlook. And with that, I would like to open the floor for Q&A. Operator, back to you.
Questions and answers
We will now take our first question from Benoit Batra of Kepler Cheuvreux.
Welcome, Ida, and looking forward to talk to you in the coming days. So yes, two questions on my side. The first one will be on the liability margin, the 104 bps. Clearly, we should not replicate the plus 5 bps quarter-on-quarter. But objectively, looking into the second quarter, yes, it looks like there's further support from the short end of the curve. So I wanted to confirm that with you, if you see that as well. And could you please also talk about the competitive environment on the deposit side so far in the month of April? While it seems to be still okay, so I just wanted to get a bit of a feeling about how deposit pricing behave in your main markets so far in the second quarter. And then the second question, yes, sorry, I will just talk about a bit more like the strategy on the insurance because it's interesting what you've done. I think what you announced 2 weeks ago, you will be mandated broker in the Netherlands for NN and Allianz. So what is your strategy now on the insurance? It seems that things will probably speed up in terms of growth there. Just wanted to understand your long-term plan regarding insurance. And clearly, with this move into mandated broker, I think you are stepping up in the value chain of insurance, which probably could accelerate the growth there. So yes, the long-term picture on insurance, please.
Thanks, Benoit, for your questions. And I'll take the question on insurance, and Ida will talk about the liability margin. Look, in insurance, it's a little bit the same as we saw on investment products. So I think a couple of years ago, we started to talk again to our insurance partners to look at, okay, what is the best proposition for which market, for which customer segments and how does each market develop itself. And it comes a bit back to what I said previously, which is we have been very dependent on interest income, whether it was deposits or lending. And there's nothing wrong with these two products. But in the end, we want to build up a broader client relationship when growing our primary relationships across the board. And in that regard, we have also started to do that with insurance. I think a few quarters ago, we started to report on that separately. Every market works a bit differently. So in some markets, we have one partner. In this market, we work more with a platform model, whereby insurance partners can subscribe to certain products. And increasingly, we're also moving up the value chain. In some of the markets, the insurance fees are still very low, like I said in the past about investment business that I said, the assets under management business compared to other banks that are smaller than us is still relatively benign, that also goes for insurance. So in my view, we have just nearly started. It is getting better. We've seen that the growth was, I believe, 14% compared to a year ago. This is good, but we're still rolling out in more markets. We're hiring people and specialists, and we are maturing and also the way we provide insurance, and that could indeed also be taking over some more services. We currently don't think about taking over underwriting services, but we really tailor it in each market where we're at, and there's quite a bit of upside from where we currently are.
Thank you for your question on liability margin and competition. I'll start with competition on deposits. We see strong but rational competition in both deposits and lending across our main markets. The first quarter is seasonally lower for deposits; compared with the same quarter last year, you should note we ran a larger campaign in Germany then, which produced a stronger inflow of deposits. We believe our offering remains attractive to customers, and we continue to balance profitability with growth, ensuring sustainable deposit development in line with our guidance of about 5% average deposit growth, which we consider a natural pace. On the liability margin, we should not expect a 5 basis-point increase every quarter. We expect the liability margin to be in the mid-range of 100 to 110 basis points this year, supported by a hedging tailwind that will arrive gradually and not in a straight line. The lower-than-usual campaign-related deposit cost in the first quarter also affects the margin and should be taken into account when looking ahead.
And we'll now take our next question from Chris Hallam of Goldman Sachs.
Two questions. The first one, I see you've introduced on Slide 27 that bullet point on the right-hand side to say the range of 100 basis points to 110 basis points could be temporarily exceeded. And I just wanted to ask more conceptually how do you think about that opportunity. So on the one hand, you could pay up to sort of source additional deposits essentially sacrificing margin for volume and hoping maybe find the demand on the lending side to put that additional liquidity to work given you typically run about 100% LDR. But obviously, that ties up more capital and it brings in a bit more credit risk. Now on the other hand, you can allow volumes to react to your determined pass-through rates and just ride the tide of higher rates and underlying volume growth in your markets. You wouldn't grow deposits by as much, but it's a higher ROE and a lower credit risk strategy. I guess from the outside-in, that's a pretty easy decision to make, but I'd just be interested to see and hear how you see the balance between those two strategies? And then second, of the EUR 600 million increase in replicating income in 2026 again on Slide 27, I know that's a gross number, but how much is included in the new commercial NII guidance? And the haircut you're taking in deciding how much of that EUR 600 million to embed in the new guide? Is that because you're waiting to see where rates really settle this year? Obviously, there's a huge amount of volatility, or because you actually see more price competition coming through on deposits and there being a bigger difference between the gross and the net number?
All right. So the second question I read it as, or I heard, that we gave commercial NII guidance of plus EUR 200 million, and how much of that is for more liabilities? Is that the right understanding, Chris?
Effectively your replicating income guidance for 2026 has gone up by EUR 600 million. Your commercial NII guidance gone up by EUR 200 million. The replicating income number there is gross. So it could be high deposit cost or it could just be you using the latest forward curve on that replicating income slide. You don't want to put the latest forward curve into commercial NII guidance.
So basically, I'll take the second question and Ida takes the first question. I think on the EUR 200 million, that increase is all liability income. If you look at the liability income that's growing both on the volume and, of course, on the margin that we make and on the average duration and therefore the curves that we see. Now clearly, we have been moving up our deposits by EUR 7 billion; that is in line with what we typically would do for the year. Sometimes we run campaigns and it goes a bit quicker, but also comes at lower margin. We didn't run campaigns. If you strip out campaigns, we are still at what we typically do in a quarter. The margin is supported by a higher short-term interest rate that helps our current accounts. We're also helped in this case by the higher forward curve that will help savings margins. In the end, what we have seen from competition always trends back to a certain level. Based on what we currently have seen and done to date, this is the increase in liability income we expect in commercial NII for 2026. It has nothing to do with lending or lending margins. It's just a matter of the volumes that we expect at higher margins and a better replication rate.
I think it's important to say that the Slide 27, which I think you're referring to, is a visualization of what we would see bearing in mind a specific forward curve. And that's also the forward curve that we saw in March. That has been quite volatile, as you know, during the quarter. As Steven also alluded to, some of the benefit from higher short-term rates is from current account volumes and therefore, structurally accretive to NII. However, most of the benefit for us comes from the savings volumes, which is more sensitive to competition and historically has shown that the margins are fairly stable over time and is expected to also come down. And I would link that to the range of 100 basis points and 110 basis points in terms of the long-term perspective. Taking purely the forward curve from March into account, you would say that, yes, we would potentially be higher than 100 basis points and 110 basis points. But we also know that there is a fierce competition. There's also a very rational behavior in the bank, focusing on profitability above growth over time. You had also asked about the composition in terms of lending, will we prioritize lending over deposits? I think we've said that our long-term goal is to grow approximately equal by 5% on both sides of the balance sheet.
And we'll now take our next question from Giulia Aurora of Morgan Stanley.
I have two. So the first one, the commercial momentum was very strong in Q1. And Steven, you called out momentum in mortgages, also growth in business banking. How is this evolving now considering the change in the macro backdrop? So are you still seeing good demand for loans or has that slowed down? First question. Second question, on cost of risk, the EUR 94 million overlay, what oil price do you assume there? And could we see more coming in Q2 considering how things are evolving literally as we speak?
All right, Giulia. Thanks for your question. I'll take the question on commercial momentum, and Andrea will take the question on the EUR 94 million overlay. So on the commercial momentum, look, there's many elements that we anticipate to continue, and there are some elements where we could expect and could see an impact. If you look at the lending and the deposit space, I think a large part of our loans is in mortgages, and there the main drivers are unemployment rates and housing shortages, and that hasn't really changed. And we've seen it also in previous cycles, maybe except when rates increase very, very quickly as we've seen in the course of '22 and '23, then there was a little bit a bump in the housing demand. But other than that, we have actually seen a continued rise in demand for mortgages, given the fact that there is a housing shortage and there is low unemployment rates. So that's an important element to it. When we look at fees, many of our fee growth is alpha driven. That's just having more customers doing more with us and driving more impact and relevance in the markets where we are. And I just talked also to the question to Benoit about, okay, rolling out new insurance propositions, rolling out broader investment propositions, having deeper payment capabilities in various markets, deepening our financial markets capabilities in terms of pricing for certain products. So it's just enabling ourselves because we have these customers to do more with them. And that I don't see change either. I think the biggest impact that we could potentially see, but it's too early to call, is that when we look at the lending demand in Wholesale Banking. And there, we've seen in the second half of last year, quite a pent-up demand after the pipelines were full in the first half, but didn't really convert based on the uncertainty, given liberation day that then convert in the second half and that we see continue in the first quarter. But with all the uncertainty going on, yes, that could be more muted in the quarters to come, but let's see what happens. That's what I could see at this point in time.
Yes. Okay. So the primary purpose of the overlay, which we built was indeed to adjust the quarter end macroeconomic scenarios, which feeds into our credit risk estimates, to reflect the potential deterioration linked to the ongoing escalation in the Middle East. And let's say, from the coming quarter, we expect to revert to the normal process, whereby macroeconomic consensus is feeding naturally into our loan loss provisioning process. And therefore, this overlay should diminish, while the net impact on the loan loss provisions will be actually depending on how the, let's say, higher oil price will affect the macroeconomic outlook, I would say. So in a nutshell, let's say, this is the setup. It's to us to come to a conclusion about the potential impact of the current oil price volatility on our loan loss provisions.
And we will now take our next question from Delphine Lee of JPMorgan.
So my first one is, sorry, just to come back on the liability margins and your comment about exceeding temporarily in outer years. So just to understand, when you say temporarily, just to understand like you do think that there will be a significant change in competition, which you're saying at the moment is rational, but the new players and newcomers could really trigger potential change. Do you think this would be sudden or just to kind of like understand sort of how quickly that could bring down liability margin back into the long-term range of 100 basis points, 110 basis points? Second question is on capital. Just wanted to get your thoughts around like the change on the mortgage floor in terms of the impact that you have on your CET1 ratio and your distribution policy. You want to run around 13%. So seeing a bit of a positive impact, would that change how much you distribute in terms of buybacks?
Thank you very much. I'll take the question on capital, and Ida will take the question on liability margins. Regarding the mortgage floor, it was recently announced by the DNB that they have decided the Dutch mortgage floor will expire on 1 December 2026. That decision will reduce our risk-weighted assets by EUR 4 billion, which is about 15 basis points of our CET1 ratio. As we have previously said, we are targeting around 13%. We use our capital for growth and for normal distributions. If there is any structural amount above around 13% in capital, we will return it to shareholders, and we will treat it in the same way as we normally do.
Thank you for the question on liability margin. First, I think it's important to look at the composition of our portfolio and link it back to what we saw in 2023. In 2023 we saw a rapid increase in margins, which then came down gradually over time due to strong competition. It's also important to consider the percentage split between savings accounts and current accounts in our portfolio, and as I mentioned before, we expect savings margins, or margins on savings accounts, to return to the long-term levels we've seen previously.
Thank you. And we'll now take our next question from Ben Goy of DB.
Two questions, please. So first on cost. It seems like Q1 good cost control and you are a bit ahead of your full year guidance. Just maybe you can comment a bit more on that, whether it was FX and how the benefits of the operations restructuring should help in the rest of the year? And then on deposit campaigns, obviously, you didn't do a big campaign. Should we generally expect bigger campaigns as you did in the past? Or should it be more below the radar, potentially cheaper micro campaigning type campaigns?
All right. So on both questions, what we have been able to do is, with continued cost discipline and the scalability I mentioned in the presentation, largely offset wage inflation. That has allowed us to continue making investments. Ultimately, we want to further grow and diversify. The more we can realize efficiencies from scalability, through digitalization and scalable technology and operations, the more we can reinvest to improve customer experience and broaden our products, which will support long-term value and drive our return on equity. In that sense, we continue to confirm the outlook we have for 2026 and 2027. As I mentioned on page 5 of the presentation, we see continued improvements on the front of scalability, and that gives us the ability to adjust the levers between investments and costs, which is very helpful. But the outlook remains the same at this point in time. When we talk about campaigns, it is a mix and match. We want to grow our customer base while balancing loans and deposits over the long term. For a number of quarters deposits grew faster; recently loans have grown faster. We want to manage that balance. Our goal is to increase primary relationships, because those customers will buy multiple products and deliver greater profitability and stickiness. We will tailor how we grow and develop the customer base while keeping an eye on the balance sheet. That means using a mix of more targeted micro campaigns and potentially above-the-line campaigns similar to previous years.
And we'll now take our next question from Tarik El Mejjad of Bank of America.
Welcome from my side as well, Ida. Looking forward to talk more in the future. So I just want to follow up first on volumes. I understand the uncertainty element that could reverse if things get better in Iran and the conflict. But what about if we have a more sustained higher energy prices, lower consumption and maybe higher inflation on your wholesale lending. If we see something more structural rather than the reverse uncertainty, which areas you see and what could be impact on your lending? And the second question is on the SRTs that you're planning to do for the rest of the year, I think 15, 20 bps push of capital. How are discussions with the ECB? And how do you see the market evolving in this current uncertainty? Is that something you still see as on track in terms of delivery and pricing and also on what kind of loans you put there?
Thanks, Tarik, for your questions. I'll take the question on volumes and Ida will take the question on SRTs. On volumes, in retail, as I said, over the past six to seven years we've seen various elements that increased macroeconomic volatility. However, most of our retail lending, which is predominantly mortgages, is more closely linked to unemployment rates and housing shortages, and therefore the war's direct effects do not necessarily impact those indicators. We therefore expect continued demand for mortgages and, depending on pricing, will further grow that book. In Wholesale Banking, if you annualize the lending growth we saw in the first quarter, it was 8% in total. That is substantially higher than the 4 to 5% we saw previously over the years. Sectors in Wholesale Banking that could be affected are those tied to oil and energy prices, since energy is a significant input cost, for example chemicals, fertilizers, construction, and transport and logistics. For those companies the key question is whether they can pass on higher energy costs. Another factor is Asia's dependence on oil shipments through the Strait of Hormuz; if that affects production levels it can disrupt supply chains for many companies worldwide, including in the U.S. and Europe. Those are the main macroeconomic impacts. So far, and we are watching this closely, many companies we speak with are more flexible than they were a few years ago because they have already been dealing with the war in Ukraine and the pandemic, so they are more used to operating under uncertainty. So far we do not see much impact in our loan book. You have seen risk costs that are below the through-the-cycle average, and they include an overlay, so risk costs remain fairly benign. It is a matter of monitoring, supporting our customers, and we are still too close to see the full effects. We need to stay close to clients, especially in the sectors I outlined.
And on SRTs, SRTs are an important tool in our toolbox to ensure capital efficiency and also optimize our capital position. As you know, in November last year, we announced the successful completion of our first 2 SRTs in Wholesale Banking, which provided a core equity Tier 1 relief of 12 basis points. We aim to continue using SRTs across wholesale as well as Retail Banking portfolios in the coming years. And we have previously also said that we expect to do additional capital reliefs in 2026 of between 15 to 20 basis points and that still remains the plan. We have a very good and constructive dialogue with ECB. So I don't see any negative trends there at all or hesitations from their side. And it's also important to say we are kind of in the early phase of doing SRTs and therefore, are not an outlier in any way.
And we'll now take our next question from Shrey Srivastava of Citi.
Apologies if it's been touched on already. I just joined. But if you look at your 2026 commercial NII guide, it's been uplifted by about EUR 200 million if you take the midpoint. If you compare that against the gross replicating income uplift on Slide 27, it's about EUR 600 million. So therefore, you're guiding to an implied pass-through close to 70% in 2026, if I'm not mistaken. Can you just explain what's driving that, what key markets and what opportunities do you see?
Okay, Ida?
Shrey, nice to speaking to you again. As you rightly say that we saw a strong momentum on the commercial NII. It was much better than expected than what we had guided for before. I think there are mainly four factors impacting this. We had a particularly strong lending growth, good deposit growth also in the first quarter in spite of the seasonal outflows that you always see in the first quarter. Then we see the positive impact of the hedging tailwinds, as you saw already from the second half of last year, really showing an impact also this quarter and then lower deposits costs related to promotional campaigns. When you look at Slide 27, it is important to say that that's more of a visualization of what we see in terms of replication development driven by a specific forward curve. So what we're saying there is that, yes, you will see a positive impact given the interest rates environments coming into play, but we're also then saying that we will be in the midrange on liabilities margins between 100 and 110 basis points this year and could potentially given the interest rate path that we're seeing today be slightly above 110 basis points in the 2 coming years. But we also expect, given the portfolio mix that we have to see that trending down to more normalized level over time as we also know that there is strong competition also on the savings side, which we also saw in 2023.
And we'll now move on to our next question from Matthew Clark of Mediobanca.
More questions on liability margin, I'm afraid. So I guess, firstly, I was just hoping to understand a bit better whereabouts on the curve, the movements were that benefited the liability margin this quarter. I mean, interest rates only really moved through March. So only for the last month of the quarter. So just trying to understand, was it 3 months, 6 months, 12 months that really drove that 5 basis point benefit that we haven't seen in the past, presumably it would take too long for the longer end to be benefiting the margin that much. And then a related question is just in terms of the change in guidance from the around 100 basis points previously given. I mean, if you're guiding for that at the end of January, start of February, to have a 4 or 5 basis point upward surprise in the first quarter implies a very high exit rate in terms of the liability margin for March in order to bring that average up. So any comment there? Is it right to think that the March liability margin would have been trending some way higher even than that 104 basis point average for the quarter?
All right, Ida. It's going to be one-woman show.
Thank you, Steven. If I start with that, there isn't a single point on the curve to focus on. When comparing the numbers to what we discussed in the first quarter, you should remember we also saw a gradual increase in the December curve, so that needs to be taken into account. We're looking at a gradual increase rather than one specific time. In addition, you have already seen the positive hedging tailwinds from the second half of last year carry into the first half, which is also positive for the outlook for liability margins. Sorry, I forgot the second part of the question.
Can you reiterate the second question, Matt, the change in guidance. There are two things. First, I wanted to revisit the point that we were already seeing a benefit from the replicating tailwind last year, because I thought the guidance had been, well, that was true at the long end; I did not expect an overall improvement in the replicating tailwind to swing positive until later in 2026. Was the replicating benefit we were seeing last year overall, or only at the longer end? Second, was the exit rate for the liability margin in March significantly higher than 104 basis points in order to bring the average for the full first quarter up to 104 basis points?
So I think what's important to keep in mind here is that we have lower campaign costs this quarter as well compared to previous quarters. And particularly, if you also look at the first quarter last year where we have larger costs related to campaigns. And then in addition to that, you're right in terms of your point on the shorter end.
And we'll now take our next question from Namita Samtani.
First one, do you think the cost income target of around 52% in 2027, just based on your revenue and cost targets, is ambitious enough, given there are 23 other European banks targeting a lower cost income between 2026 to 2028. I'm just trying to understand the main pillars stopping ING from getting to a lower cost income than 52%. And then secondly, just on what you would characterize growth markets in your Excel file, particularly in retail, I noticed the loan-to-deposit ratio over the past 4 years has come down by about 10 percentage points and is down to 52%. So I was just wondering why are you not able to grow lending as fast as deposits? And what's the strategy here? Because I would expect deposit profitability in the subcategory to not be as good as it could be in other regions.
Thank you, Namita. If you look at cost-income targets, the implied target is 52%. We are driving operational efficiencies in our existing business, but the main way for ING to drive value is to grow and diversify. We are a bank that makes about 80% of its revenue based on interest rates or linked to them, primarily from deposits and lending, which is good. That's also our Zip Code, i.e., where we came from. We also have the opportunity to do a lot more with our customers. We are growing fee income across many areas as client interaction increases: more people trade with us, use the app, make payments, buy insurance through us as a distributor, and execute financial market transactions. You can see us moving up the league tables in the capital markets, for example. At the same time, we are growing lending in various areas, so that part of the P&L is increasing, but the goal remains to diversify. What we largely save through operational efficiencies we are investing in broadening and deepening client relationships. That supports our ROE objectives. We expect ROE of 40% this year and more than 15% RoTE in 2027. We continue to focus on RoTE growth, and implicitly that will also lead to a lower cost-income ratio. The main driver is consistent RoTE at scale. Regarding the loan-to-deposit ratio, I believe you were referring to a low ratio in Poland. Yes, every market works differently. A lot of investment stimulus there comes directly from the government, so public spending is increasing while private spending is not necessarily rising. As a result, banks in that market have loan-to-deposit ratios significantly below 100. We have been very successful in Poland over the past 20 years, growing to become a top-three bank and continuing to do so, but there is a dislocation between lending and deposit growth in that market. That's correct.
I just meant the growth market, it's like a category and in your AXA hold, but you still answered my questions, thanks very much.
All right. So that is correct, by the way. So all these dynamics are in the growth markets, which are mostly emerging markets, whereby if you then look at also the lending that is being done to households to date compared to mature markets compared to total GDP is significantly lower and is going step by step to higher levels, but it takes time. So the dynamics in those markets are different. That is correct.
And we'll now take our next question from Farquhar Murray of Autonomous.
Just two questions, if I may. Firstly, as you say the rates curve, by process, has been very volatile and there are quite a range of possible scenarios that could play out this year. So my question there is, how are you managing around that range of uncertainty and whether you've done anything specifically to adjust for it? And that would be both in terms of positioning within the replication portfolio and perhaps also competitively where it feels maybe you're leaving room for any your own campaigns this year. And then secondly, briefly coming back on the mortgage floor change, should I see your comments are suggesting this will be simply wrapped into the kind of exercise of 1Q '27, so probably one and done and then maybe even slightly lumpy.
All right. On the mortgage floor, I will respond and then on the whole curve and the campaigns, Ida will respond. I think that when we talk about the mortgage floor, what I meant to say was that there's all kinds of movements happening, whether it is model updates or SRTs or changes in regulation. And we just take it into account in our semiannual update, in this case, by the end of October, whereby we say, okay, we look at what is our structural capital level. And if it's structurally above 13%, then we'll pay it back because what we need below that, we will need for growth. But if there is a structural excess above 13%, then we will pay it back, and we lump what we now see in also the mortgage floor in the Netherlands into account in that whole decision.
Thank you. In terms of looking at the replication, I think it's important to just say that this is primarily a risk management tool in order for us to match the different parts of the balance sheet rather than trying to make smart moves in the short term. And that's also why you see that we continuously see a good uptick in terms of replication income from the second half of last year into this year and also expect to see it going forward. So we haven't changed any strategy, are not making shift transitions purely based on the volatility. And I think overall, we have a very low risk appetite when it comes to interest rate risk in the bank and are therefore, managing interest rates overall in a prudent and strong way.
Thank you. That's all the time we have for questions. I will now hand it back to Steven van Rijswijk for closing remarks.
All right. Thank you very much again for your time, your attention, your good questions. I'm sure you will have a very busy day, given all the banks that are coming out with their figures today. So all the best with that. And I'm also very happy that you have now spoken to Ida as our new CFO and to Andrea as Head of Risk, and we will continue on the path in the next quarter and see you soon. Thank you.
Thank you. Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.