Good morning. This is Patricia Klosov welcoming you to ING's Second Quarter 2018 Conference Call. Before handing this conference call over to Ralph Hamers, 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 historical fact. Actual results may differ materially from those projected in any forward-looking statement. A discussion of factors that may cause actual results to differ from those in any forward-looking 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, Ralph. Over to you.

Hi, good morning, and good morning, everyone. Welcome to the second quarter 2018 results call. As always, I take you through today's presentation. Our CFO, Koos Timmermans, and our CRO, Steven Rijswijk, are here with me. Just to go through the key points. I think we can be happy with the quarter. ING's group net profit was up 4.2% than the same quarter last year at €1.4 billion. Just like in the first quarter, we recorded a strong core lending growth of just over €14 billion and a well-diversified and disciplined growth. Also, fee income was strong and risk cost remained low. On the Retail side, primary customers increased by 400,000 to 12 million, and that's real good growth and partly helped by the inclusion of Record Bank customers as per the second quarter and that's 80,00 out of those 400,000. The second quarter was a very important one for our colleagues in Belgium. And they successfully completed the legal integration. They successfully migrated all of the Record Bank customers to ING. And I will provide you with some more details later in this presentation. And given our strong focus on transformation, the digital spend remained fairly high in the quarter. You will see that as well. The group CET1 ratio ended the quarter at 14.1%. That's mostly due to the strong lending growth and the fact that we keep setting aside profits for future dividend payments. Over the first half of 2018, we will again pay an interim cash dividend of €0.24. Moving to Slide 3. This slide illustrates that we are on the right track with regards to our Think Forward strategy. Total Retail customers now exceed 38 million, while primary customers are up to 12 million. As said, this now also includes Record Bank. And that's versus…

[Operator Instructions] Our first question is from Mr. Benoit Petrarque, Kepler Cheuvreux. Please go ahead sir. Your line is open.

Two questions on my side. The first one will be on the net interest income and NIM outlook for the rest of the year and next. If I look at your NII and strip out the two small one-offs on NII, I think you are growing it around 2% year-on-year ex-Financial Markets. At the same time, you're growing the loan book I think it's about 7% over the past quarters on average. So I'm a bit surprised the difference between growth of loan book and clean NII. And I was wondering what you can tell about the underlying commercial margins and also the underlying deposit margins. So what is the outlook for those two components and whether you think loan growth will translate into higher NII growth overall going forward? So that will be the first question. The second one was on the cost side. In the past you updated us on where you were in terms of cost savings and achievement of the cost savings. Could you update us on the 900 million, where you are in terms of achievement of this cost cutting plan? I think you were planning to get to 400 million cost cutting by end of '18 originally. Now you have been getting that figure a bit down. But where are you now at the end of Q2 in terms of achievement of this cost cutting plan?

Thank you, Benoit. We'll share the answers around the table here. Koos, if you could...

Yes. Maybe, Benoit, first if I look at the net interest income. Indeed, you spotted well that you see a modest growth. So we are growing by 2%. In this quarter what you see, loan growth is outpacing that. Overall, what you also see is our net interest income it edged down from 152 to 151. Three factors play a role. First, loan growth is accretive, so in that sense that helps on the margin side. On the other hand, what we still see is the reinvestment of our savings money is still costing some. And then the third element which plays a role, and that is also what you see particular this quarter, is we also took some actions in lengthening funding, particularly in dollars and that had to do LCR requirements and with the fact that we took an LCR on a growth basis with regards to cash pool. So sometimes you take some repair actions on that side and that is not helping on the margin side. So overall, I think these three factors are there. If you then ask like, what does it mean going forward? In general, on the lending side, things, yes, look quite good in terms of at least what you see in current production in terms of margins, not a real concern. If you look at the savings side, then what we do see is that on the savings side we still expect some margin erosion over the next quarters, but then again still we feel we are confident with our overall guidance that we say like the high 140s, low 150s. That is what we see for then the second half of this year.

Maybe to complement that in view of I'm sure follow-up questions that could come. If you look at the current market circumstances, I think the NIM will be managed as indicated by Koos. Basically, the big effect going forward will be to continue to change the asset mix with higher lending margin. So that helps. That's the way it works. We do see room for selective repricing. And if you look at the second quarter in the major franchises in which we work, whether it is in structured finance, real estate finance, on lending we see margins to be stable, if not improving a bit. In the transaction services, at least in the PCM area, the payments and cash management area, we see margins improving a little bit as well on the back of the U.S. dollar, that business that we have there. Then look at the Retail Markets, you see a bit of pressure -- well, pressure on stable margins and pressure maybe because of some marketing actions in The Netherlands. But for example, in Belgium, we see margins stable, if not improving. And in Germany, as well stable, if not improving. So we do feel that given that situation in market that we can do some selective repricing going forward. And that combined with the change in asset mix and then how we manage the savings margin, that gives the guidance, as indicated by Koos. Specifically, on your cost question, the update on the ATF savings, Koos, if you can...

If you look at our transformation program, well, what you know is that indeed we are expecting €900 billion benefits over time to kick in. But at the same time the first thing what we got to do is invest €800 million in terms of cost. That €800 million is what we said like we were going to invest over the next 5 years. And what you've seen is it was €38 million in Q1 and it is €70 million in Q2. So we are still making those costs currently. That's also why we ended up giving a rolling cost guidance around 55% for this year, which we expect that will start to decline over the next year for 2 reasons. One, investments will slightly go down. Secondly, benefits will start to kick in. And that is how we see it overall. But the savings, indeed, they are there. The one thing what we have seen is there where we had savings, for instance, Belgium right now in terms of merging operations, the temporary external staff hiring and IT support we need for that, overshadowed that, but that is of a temporary nature.

And how much have you realized so far out of the €900 million roughly?

We don't want to measure it this way because it becomes very piecemeal and incremental, because remember we also had old programs like in The Netherlands and there you see absolute cost going down. And at the same time, we are making cost currently and we are realizing benefits. So we like to express ourselves more in the overall cost/income ratio, how we see that progressing. And there are, again, for this year we maintain that rolling forward 4 quarters we want to keep it under the 55%.

Our next question is from Mr. Bart Jooris, Degroof Petercam. Go ahead, your line is open.

This is sort of a follow-up on Benoit's questions actually. If I take out the Belgium mortgage effect and the FX on your RW increase and normalize the dividend reservation, your CET1 ratio remained stable over the quarter. So my question is, do you see short time levers to increase that CET1 ratio? And also on the longer term, if you look at what you say on your cost income target, saying if that goes to 52%, you would save around [Indiscernible] €900 million there, you would gain that there. But you could lose that also if your risk costs would normalize again to 40, 45 basis points. So basically if you look beyond 2018, what do you expect there in NIM, because NIM will have to improve to improve your capitalization I think? And also maybe could you give us an idea of how you see your commissions evolving? That will also be needed to improve your capitalization.

So that was a long question, Bart. So let's try to decompose it in a couple of elements here. So your first question is on the CET1 ratio. I'll give that to Koos. And I will see how we fair with some of the other stuff.

Bart, on the core Tier 1, the good news is we are roughly making around north of 10% of ROE. And what we have always said is our ROE is used for three things: It's used for facilitating growth, it's used for strengthening the capital, and it's for paying a good dividend. And to be honest, in the longer term we don't need to change something significantly on that because the composition is fine. Now if you look at it per quarter, this quarter we had a bit more growth, and what we also do, is we reserve full year last dividend in the first three quarters. So that means like we are a bit stringent in setting aside the dividend and not accumulating that in the capital. So that is what you can see then, is that a slight edging down of your capital over the first three quarters and then it increases in Q4. And that might be a bit exacerbated if you have good loan growth. But if you look at all things underlying, it looks actually rather fine. So in that sense, we are not too concerned on the core Tier 1 ratio from that angle as long as you make good margins on your loans and stay disciplined.

Yes. On the other part of your question, the cost/income ratio. We've gone through this before and just to give you kind of the basic recipe as to how we manage. We do expect cost to really come down in the Benelux area. That has been the recipe since 2014 and the transformation is really focused on getting the cost really down in the Market Leaders area. So that's an important element. Then in the Wholesale Bank, we have indicated that as long as we feel we can grow profitably, so business that we book there makes the right returns. And if we need people on the front office side in order to support the growth, we will allow cost growth on the front office side. That should be funded by savings and the further digitalization of the machinery, if you will, of the Wholesale Bank. So a flattish, if not a bit of an improving cost/income ratio for the Wholesale Bank over time is what we are working on. But we would allow cost to increase if overall we feel that the cost income ratio can go down in Wholesale Bank. Then in the Challengers and Growth Markets, clearly we have commercial momentum. We are the leading digital bank in many of these. We have a differentiating client experience. We continue to grow in number of clients. We continue to improve our offering in order to ensure that you build a client franchise rather than a product franchise. And for that, we don't mind some cost increases as long as over time again here we do expect income increases, and with that, the cost/income ratio also to decrease. Now you can't compare us to some of the incumbents that are just doing the transformation and see no growth, because…

Yes, I was more looking about your NIM after this year, because probably your reinvestment yields on your deposits going down will bottom out somewhere there so you could maybe profit from some loan margin expansion. So that was more my question about the NIM.

No, honestly, I think the -- as we were indicating, we don't see too much pricing pressure at this moment in time. We will look for selective repricing not only because it needs to be done in order to get the right margin, but also in order to ensure that the increased capital requirements that will come in over time in Basel that we do some repricing in order to continue to have profitable growth. So that will influence the NIM and therefore it will, in our view, be stable over time, if not maybe improving a little bit.

Our next question is from Mr. Robin van den Broek of Mediobanca. Go ahead. Your line is now open.

Sorry to come back on the margin again. But I think over the last quarter, you've given us a little bit of detail on the replicating liability portfolio where you allocate €300 billion on the euro swap five-year point and another €120 billion spread over the euro swap seven to 10 years point. If you look at that, I can still see some residual pressure come through also next year, which you cannot offset by the deposit rate cuts anymore. I was just wondering, if I look at your narrative so far on margin, it seems that repricing could be a new element. So I could basically assume that you're going to be able to offset that residual pressure on the replicating liability portfolio by this repricing and then the other elements within NIM still remain in place? That is the first question. The second one unfortunately is also on costs. On your investments compared to your Capital Markets Day plan, I think so far this year you've done roughly 110 million. The budget for the year is 170 million. So contrary to last year, where you were backend loaded on these investments, it seems now you're more frontend loaded. And you've also indicated that the Record Bank integration on the Belgium platform is now fully over. So I was wondering if there are any -- I don't know, you can put the platform off are there any cost reductions coming through from that in H2 already besides the lower investment spend in H2?

It's Koos. Maybe on the NIM, the following point. What you have seen in the past in Belgium, where we hit the low of 11 basis points, by that time it started to have influence on your NIM. But also realize that, that was already more than a year ago and by that time the portfolio yields were still a lot higher than how the money was reinvested when it matured. What you see right now, we are in a slightly different situation because we are approaching zero in the other countries, but average portfolio yields have already dropped and reinvestment rates are actually a little bit higher. So the consequence of not being able to lower your savings rate is less than what we faced in Belgium in the past. And that is also the reason, can we then say "it's completely not there." The answer is no. But that is why we say like it's 1 or 2 basis points of effect which you could expect over the year, but not a lot more than that if we take the current forward rate as something which is about to materialize. So in that sense, we are not too much under pressure there. Then the question is, can you really compensate that with loan growth and additional loan margins? Well, that is what we have been doing over the past. But at the same time, yes, loan demand it needs to meet our capital hurdles as well. So as long as it does, we will do so. If it doesn't meet the capital requirements, then loan growth will be a bit less and it won't compensate. So that's the way how we work as a team.

And maybe, Koos, one question on that. I think the current one year or the five year euro swap is at 35 basis points. The one year forward is at 65 basis points. So it's an important assumption that we will move, that forward rate will materialize basically. If we stick at 35 bps, then there will be more residual pressure on this replicating portfolio presumably, right?

If you have the current yield curve not moving an inch and just staying as is over the next one or two years, then that has implications for your income, you're right.

Robin, we don't manage these projects quarter-by-quarter from a cost perspective. Clearly, these are major transformation that often are seeking for the same IT specialist and therefore sometimes we prioritize one versus the other. And that's how we manage them. Because in the end, given the fact that this is such a major transformation at ING from so many different perspectives, whether this is from a country perspective or more from a financial perspective as to what we do in risk and finance and what we do in the foundation in order to move to the Cloud or building a data pool, all that has to do with IT, all of that comes in the end often to a couple of specialists, and with that, we prioritize over time. So we don't manage specifically on a quarter-by-quarter basis, but we are managing this project and getting it done. And that is I think the important message here, is that we are on all projects making progress and sometimes we accelerate some of these elements and sometimes in some projects we delay some because of what I just mentioned. And with that, the cost could come sometimes a little bit early or come a little bit late, like last year. This year specifically in Belgium, we saw a peak and that is on one side because of the extra digital investments that we needed to make as part of the plan. It's also because we had to backfill on some of the people that left ING early. And in order to make sure that clients and specifically the new clients that are coming on from Record get on board in the right way, can get their questions answered quickly through all the channels, we have hired some additional people in order to ensure that they do benefit from that service. And we do expect that to fade away for the total organization and to absorb that extra volume. So the cost there, you should expect to decrease, but more in the first couple of months of 2019, not so much in the second half of 2018 in Belgium specifically. So as said, we will invest as needed to complete this transformation and we will get these benefits.

And related to the platform of Record Bank, anything to say there, that effectively you could switch it off I guess. There is no potential cost saving connected to that?

There will be and you will see that coming through at a certain moment in time. So -- I mean, the whole idea is that we will move from 3 platforms -- and now I'm talking about internal platforms and not about external client platforms, but internal IT platforms and core banking platforms. Yes, so in Benelux and Market Leaders, we will move from 3: basically Record Bank, ING Bank Belgium and ING Bank Netherlands. We will in the end in this program move to one, being the revamped platform that we have in The Netherlands. And as we speak, we are preparing that platform in order to be able to migrate the ING Belgium lines on to that. And then at the end -- and therefore some of these savings specifically -- if this is all about decommissioning, the biggest savings in this program are a little bit backended. If it comes -- if we're talking about decommissioning savings, it will be backended, because you can't switch a system until the final client has left the system. And that is an important thing to notice. Therefore, we do expect costs to go down. We do expect cost/income to go down still. And you will see that next year already and then 2020, 2021 as well. So we're confident about reaching that cost/income ratio. But at this moment for 2018, we are in an investment year.

Our next question is from Mr. Bruce Hamilton, Morgan Stanley. Go ahead, your line is open.

Firstly, just on the sort of industrial lending book. Obviously, there was a pickup in the longer dated lending, which helped feed NII in the quarter. How much is that sort of a normal sustained push or is it just a function of the opportunities seen in the quarter? So should we kind of normalize that? And how do you sort of balance growth against the risks that we're getting to later in the cycle and any segments that you're sort of actively looking to avoid? And then secondly, linked to that, how meaningful were the benefits from restructuring files in Q2 from the industry lending and the general lending books, just to get a sense? I assume quite small, but just wanted to check.

I'll give the word to -- the floor to Steven certainly on the second part, maybe also on the first part. And I'll come back on the first part as well. Go ahead, Steven.

Yes. Thank you, Bruce. So with regards to lending, I mean, if you look at, and we've shown it also over the past number of quarters, that typically one quarter you will grow in longer dated lending, other quarter we grow more in working capital solutions. But if you look at the growth that we see in the past quarter, that was specifically focused on shorter dated lending in traded commodity finance based on a higher dollar and a higher oil price. So in that sense, you could see more that quarter as an anomaly and typical growth in structured finance overall, where we grow our projects in our project finance business all across the world. Then with regards to the link to the risk costs, I mean, we will -- we stay -- and Ralph already said that within our risk appetite we typically focus also in our project finance lending. On the first quarter, our cost producers often are loans that are secured often with regards to shorter term funding. They're self-liquidating. So there is no move and no desire to move in our risk appetite, because we know what we know, but we are not going to diverse from that, especially not in this part of the cycle. Then I think your other question was with regards to the highs of the risk cost or what that does in terms of restructuring files and how you should potentially breakdown. I guess the risk cost within Wholesale Banking -- I mean, if you look also in the press release, on the one hand we had a benefit of one of the restructuring files coming back to performing and that had an influence on the performance of industry lending. On the other hand -- and that's what you see actually in the total risk cost. The last quarter, we had a number of releases on Stage three of files that were in restructuring that came back to normal performance. This quarter we had less of those releases. What we did have was a number of files that are actually performing, but that moved to Stage 2, for example, because of sanctions. And when you move from Stage 1 to Stage 2, you go from one year losses to lifetime losses over the term of your loans. And that has an impact on the total risk cost that you provide for in your P&L. And that has impacted the risk costs in the second quarter of this year, Wholesale Banking.

And so just to follow-up. I guess my question is more, I thought you had a benefit through NII in Q2 from those restructuring and I was just trying to size how big an impact that was.

Yes, that -- we indeed. That's what is also in press release, but that's a small benefit of the total.

Maybe, Bruce, to -- on your first part of the question. As indicated by Steven, you see -- from a lending growth perspective in euros, you see a bit of an inflated number on the back of the dollar and the commodity prices, specifically in the TCF. If you look at the longer dated business, the number of deals that we did in the second quarter is the normal number of deals. It's just that in the first quarter, it was a bit low on the number of deals. So if you just move away from kind of the euro number that we're showing and you correct for the dollar effect and the oil price and commodity price effect that is always part of our numbers there and you look at number of deals on the long-term side, the second quarter is a normal number of deals.

Next question is from Mr. Benjamin Goy, Deutsche Bank. Go ahead. Your line is now open.

One follow-up on fee income. So you mentioned your [indiscernible] growth in industry -- or in Wholesale Banking, sorry, and the Challengers. But also in the Benelux, you did very well in the quarter. So just wondering what was the driver here in a not so easy quarter? And more generally, deposits are still flooding in and particularly in The Netherlands. So is it more potential to convert savers into investment management products or anything else here?

Well, I think the fee income in the Benelux is -- if that's a specific question -- it's a little bit across the board. There is some conversion happening from savers into investment products. But actually that's not where we see most of the activities honestly. So basically the fee income in the Benelux is really a little bit across the board. It's in payments areas, it is on closing more mortgages, and therefore specific in The Netherlands risk fee income related to that as well. So it's a little bit of everything from that perspective.

Our following question is from Stefan Nedialkov, Citigroup. Go ahead. Your line is now open.

It's Stefan from Citi. Two questions. The first one on costs and the second on your fintech partnerships and the AXA partnership. And in terms of the costs specifically in Belgium, could you please give us an update on how many branches have been closed at this point following the legal merger between ING Bank Belgium and the Record Bank? And what's the timeline over the next two years and similarly for employees? I think the initial plans were to basically get -- or I should say lay off 3,500 employees. Where are we now in terms of that number and over what timeframe are we going to get to 0 from the 3,500? And a related question to that. Just looking at your cost disclosure, external employees and the external consultants account for around 10% of your overall cost base. What would you expect that percentage to be sort of halfway through the digital transformation, that is end of 2019, and till the end of the digital transformation into -- at the end of 2021 that is? So sorry that was -- that might have been a little bit of a longer question. The second one is much shorter. Can you give us an update on the AXA partnership? Where are you in terms of designing the modular products? Can you give us some more disclosure on your expectations for fee generation from 2019 onwards?

Thank you, Stefan. On the cost, so in Belgium, if it comes to branch closures, we have now integrated the Record Bank into ING Bank and all the Record Bank agents, I think just short of 70, are becoming ING agents. And that is then again from that perspective optimized into a total branch network, a distribution network of 665 branches or distribution points or franchisees; however you want to call them. Now that has basically been done now. Then your question is going to be, so what about my cost? Now the Record Bank used to work through agents and therefore the cost savings in terms of costs that are in running a branch and having a branch and all that were always with the agents. So where you could see in the future a bit of a difference is more on the commissions you pay agents as to how to manage your client base. So there is no direct benefit, well, not a big one on those branch closures if it comes to the Record Bank agents being closed. Now on the FTE development, without going into specific details as to which number will exactly be reached by when in the Unite Migration, but from a Belgium number perspective a few words. And including 2021, you can expect that effect on FTEs to be more or less evenly spread across the different years. That's on the FTEs in Belgium now. On external FTEs in The Netherlands I think that was your question there externals in The Netherlands have a lot to do also with the digital investment program because many of these are IT people. So as long as we continue to invest and as long as we need it, we will have externals there. So these are…

Our next question is from Mr. Farquhar Murray, Autonomous. Go ahead please, your line is open.

Just two questions if I may and I'll try and keep them brief. Firstly, the €6.3 billion of Wholesale industry lending in the quarter seems very strong and you say it's consistent with your risk appetite. But I just wondered if maybe could you give us some kind of quantitative comfort that you're not sacrificing structure or terms and pricing to get that on the book. Secondly, to just follow-up on the answer to Robin's question, where you indicated 1 to 2 bps on NIM I think. Can I just clarify that it is 1 to 2 bps negative on NIM year-on-year probably from the high of 140 guidance for second half? And is that with the yield curve as it is with no deposit rate cuts going forward just so I understand what's implicit to that number?

Steven for the first question and I'll give the second question to Koos.

Yes, okay.

Well, with regards to the first question, we continue to have a diversified book in Wholesale Banking, including industry lending. We are continuing to focus typically on first quartile producers with secure structures where we typically are senior secured or super senior. So there is no deviation whatsoever from the current structures that we have. Like I also said in the past with regards to certain sectors such as acquisition finance or real estate finance, we've put caps in place to make sure that we do not focus on cyclical sectors or that we stay within the risk appetite that we have. And at this point in time, we feel comfortable to continue to work in that way. Going back by the way on the question that Bruce asked a couple of minutes ago regarding the releases of a few of those files and getting them back into performing, both of those files have a release in terms of single digit in terms of NII and it's a release of accrued interest.

And on the question of the NIM, could you say have the 1 to 2 basis point negative year-on-year if there are no deposit cut forecasted. Well, maybe a little bit, because, I mean, we don't give indications on when we cut. But we are not completely flat at 0 at all countries. So there is maybe a little bit of room to do something. And in that case that is included. At the same time is it based on the current yield curve? Yes, that was the current yield curve as about 2 weeks ago. At the same time we also see that reinvestment yields are now 5 basis points higher than it was 2 weeks ago. But at the same time that is what we didn't factor in. Now overall, what is that we do? We said like, well, reinvestments will still be at a slightly lower rate. And current portfolio yield, that has a 1 to 2 basis points drag, including that we say like, well, we might drop deposit rates where there is something possible in the future. But then again, we never give indications when that is that we do that or if we're going to do it at all, because you also look at the competitive situation.

Our next question is from Mr. Marcell Houben, Credit Suisse.

Koos, on the Basel IV mitigation, I think you stated earlier that you can mitigate roughly 1/3 of it. Do you see anything regarding the timing and can you -- I know it's a top down early stage still, but can you split that 1/3 into, for example, into securitization deals. That was the first one. The second one is -- Ralph, on the cost-to-income ratio guidance sort of, that obviously also implies a revenue growth assumption. So if I assume roughly 7.5% fee growth, 2% NII growth, so really you're looking at roughly 3% revenue growth per year. Is it sort of the -- is a good thinking there?

Yes. So maybe first one on the Basel. Indeed, we think there is a way how the impact of Basel can be mitigated. If I give you a few examples. If I look at high-end corporate' and if I look at rating all your corporate', well, there is a few unrated corporate' around. And if we do apply a rating to them, that has an impact of 2 billion on your RWAs. Well, 2 billion is not the same as a 15% increase of your RWAs, which is 45 billion. But at the same time it helps. So these kind of actions will work. Originate to distribute, yes, that was something which will start to give some RWA releases as well, but I think the most important part is actually just allocating more smartly. So if there is business where either we say like, well, there a bank is not the best provider given Basel, that should be other institutions, then you can say like, hey, let's refocus on some other activities. And that is something which will happen over time. Do we have it detailed out already in a work plan where we say like this is the allocation of savings per work stream there? The answer is not yet. But at the same time you also have realized we have till the end of 2022 to basically cover most. But we do feel comfortable that around 1/3 of the 15% to 18% increase what we see is what we can mitigate. Also, because that was basically -- that 15% to 18% what we indicated earlier, that was replicating the same portfolio exactly in the future and you would normally never do that. So that is basically the actions we have. So OTD, rating the unrated, come to a different allocation and maybe look at other structures. So you can say like, is our collateral well divided over the facilities and can you do that smarter with clients? So all these actions they will help and all of them will set them in motion. And overtime we will come with a more detailed timeline on that.

Yes, Marcell, on your cost/income side. As you know, we don't necessarily guide on NII. We do guide on how we grow the loan book in a profitable way. So basically if we can grow our loan book profitably with the right returns versus the capital that we need to reserve for these loans, that's how we grow the NII also in the next foreseeable future; and the fee income on the back of having more primary customers; as well as the strategic review that we did in the Wholesale Bank in order to ensure that these client relationships that we do more business with also outside of lending. And the fee income is expected to grow faster than the NII. But overall, we don't give guidance on it and there is a reason for that. It's not that we don't want to give it. It's just that we run a prudent shop, which basically means that if the revenue is not there, we will deliver it on cost. And therefore, clearly we have our dynamic plan and we are agile in the way we plan. As long as we see the revenues coming in, we don't mind investing and growing. But the moment we feel that the revenues are not going to come in on the back of what we're delivering, then it will have to be delivered on the cost side also across those franchises that in principle need to grow. And therefore, we have guided on cost/income and I think that should give you much more certainty and specifically on income one -- well, thank you.

Next question is from Alicia Chung, Exane. Go ahead. Your line is now open.

Just a couple of questions from me. First of all, just looking at the corporate center, the run rate of net profit over the last couple of quarters has been quite good, mainly on revenue. Just wondering why that is. Is this just volatility or is it something a bit more sustainable? And then secondly, just looking at the cost/income ratio in the Financial Markets business. Now we see it's been quite structurally high for a while. When can we expect to see the benefits of the consolidation of the trading floor -- trading activities coming in? And is there also other further opportunities beyond that for the cost to move lower given that revenues may well stay cyclically low for a while?

Okay, on the corporate line, I'll give the floor to Koos.

Yes, Alicia. So on the corporate line, I mean, in general what we have there is a few things. One, we have some capital related activities and that has to do with the investment of the capital, the FX hedging of the capital. Now the investment of the capital is sort of gradually giving you a lower rate because we reassess there. So that is not so good. On the other hand, the foreign exchange is always choppy, but at the same time what you see there is that overall it's a good result right now. I think if you ask, "What is now structural?" Structural is that in the past when we started to extend our funding -- and then this goes back into 2012 -- we said like, "Hey, if we have to lengthen our funding and implement LCR and everything," we didn't want to retroactively price that to our commercial unit. So then we took a negative hit at our corporate line. That one -- and that was running with a run rate of around 80 or so -- 80 a quarter. That one is going to disappear gradually. And by 2020, 2021, that one is gone. And so that is I think the most important part where we do see over time and that is particularly beyond 2020 that this element will disappear out of the corporate line. So barring that, we would be quite positive on it

And on the cost/income ratio for FM, I think it's a good question, but it's about cost/income ratio. So actually the guys have done a real good job merging the different trading floors across Amsterdam, Brussels and London. And that has happened, so that's done from that perspective. Now the cost will come out, specifically, the direct cost will come out because of, well, decommissioning some of the stuff and also saving basically on coordination costs and what have you. So that restructuring is done. The next step is also to ensure that indirect cost, so through the whole value chain and you know that Financial Markets has quite an integral value chain into the risk systems and into the finance systems. So that will be further rationalized as well. So cost from that perspective, they will continue to manage that. But the integration of the trading floors has been done completely. Also, as part of that plan was the managing capital much more efficiently. And basically what you've seen also this quarter is that there were some release on risk-weighted assets from the Financial Markets franchise there as well. Having said all that, while costs are under control and actually cost savings are being realized, we see that the markets are not helping the Financial Markets franchise on the income side. And cost/income has two sides. So the question is, how far can you go in trimming down your franchise? On one side, in order to reap the benefits when the markets come back. And that's basically where we are right now. If you look at the income side in Financial Markets, we've actually seen on a year-on-year basis that the FX business is actually generating more income, but the rates business is under pressure, as you know, and you know the reasons why. The equity products business part of that is sold and transferred, so the income is decreasing there as well. Then on the debt capital markets and the corporate finance business, this quarter was just a lower quarter than the same quarter of last year. But that can be picked up any time as well. So on one side, yes, the team is doing quite well actually on restructuring and on integrating and have finished the transfer onto one hub. Costs are being managed further down. But on the income side, the market is not helping, except for the foreign exchange side of the market.

Our next question is from Mr. Kiri Vijayarajah of HSBC. Go ahead. Your line is open.

I got a couple of questions on the Wholesale Bank. So in terms of you lengthening out the U.S. dollar funding, I was wondering, do you push the cost of that down to the Wholesale Bank's kind of individual desks that actually use the U.S. dollars or do you keep it in central treasury? And in terms of kind of better understanding the LCR issue itself, is it because so much of the volume growth you're generating at the moment is really skewed towards U.S. dollars and of course all the deposit inflows are kind of all predominately going to be in euros, in which cases is this kind of potentially an ongoing issue for your currency LCR?

Well, maybe on the first question, lengthening the dollar funding profiles, what happened is the following. Indeed, we have seen over the first 2 quarters also a significant amount of growth in our trade and commodity finance. So -- and that needs to be funded, because, I mean, dollar got stronger and trade commodity finance, underlying commodities got higher. So that got funded. And that means like, okay -- and we normally use also short-term debt to fund short-term assets. If you ask like, how do we price things? Normally what happens is in case we need liquidity, for instance, if it's for backstop facilities or anything, all of this is transferred through to the business, so contingent liquidity and all these things that's charged to the business so that there is not a form of free arbitrage around it. Now what happened as well -- and that is second and that is a bit irrespective of this -- if I look at LCR, what happened is we do businesses with clients, cash pooling and that can be euros only or that can be multicurrency. And in cash pooling, the fact that balance sheet needed to be grossed up also meant that you need to hold liquidity for this type of thing. And that gross element, that is where we needed to cater for and lengthen a bit of funding and make investment in securities. Or that is the part what I earlier mentioned in the call. So I think you see 2 effects. Yes, on your first question. Is anything what we do on liquidity side or on funding side repriced to clients? The answer is yes. Secondly, the LCR repair which we did that had to do with grossing of net balances and that is done. And to be honest, also these kinds of things get priced through to the end customers because, yes, in the end you want fair pricing.

Next question is from Mr. Nick Davey, Redburn. Go ahead please, your line is open.

Two questions please. The first one is a bit of a follow-up actually on that dollar funding question. I seem to remember in the past you've talked about possibly having a sort of risk limit on the balance sheet in terms of how much dollar-denominated assets you're willing to have. And my question is, are you anywhere near that limit? Do you think you're anywhere near to the peak dollarization of ING balance sheet? The second question -- I may be pushing my luck, but on the cost of risk. You've obviously been quite a few quarters now miles away from the 40 to 45 basis points through-the-cycle target. And I suppose I would humbly suggest that having a through-the-cycle guidance is just not that useful for us given that you've run for many years below it and then for some years above it. So my question would be, could you sort of dissect the 40 to 45 bp through-the-cycle average into what you would expect it to be in a good year and what it might be in a bad one?

Maybe on the dollar part, are we reaching a limit? The answer is, it's not one number. But what you see is we are still replacing that and that means like we are recycling that and we can do that partially where we in the past issued more euro-based MTNs. We do it a bit now more in dollars. So if there's still room, because in the past we were a more frequent euro issuer and now we are a little bit more a dollar issuer. So there is still some room there left. But can you sort of infinitely continue to grow with 4% or 5% on the whole by signing dollar assets only? The answer is no. But we have not bumped up against a hard stop right now. But we want over time a moderation of this, yes.

Yes, thanks, Nick. Regarding risk cost, I mean, clearly as you look at the cycle now and people have been asking me are we at the top of the cycle. Well, that's always difficult to exactly pinpoint. But if you look at the growth of GDP and the further growth forecast, that you see some of these forecasts being flat or some of them tapering off. And we see consumer confidence and macroeconomic confidence in the industries being at a high level as well. And you also see at this point in time that the risk cost indeed, as you all point out, are very low and I think that risk cost in this quarter is one of the lowest quarter we've had for many quarters. If you also then look at what you see in Stage 2, that the total risk book actually goes down a bit. And if you look at Stage 2, it goes up a bit. And there you see indeed based on sanctions or order elements. And then -- so now you see some risk cost appearing in the Stage 2 element. Those are all indicators, if you will, that we are at the top of the cycle. Now if you go back for the past 10 to 20 years and you see that the risk cost as a percentage of risk-weighted assets are between 40 to 45 basis points and now they are at this point in time between 10 and 20 basis points. And they were a bit higher than the 40 to 45 basis points at some other cycle. At the point in time when we hit higher risk cost, which was I believe in 2011 or 2012, is still included in that book called real estate development. And we've -- at that point in time, we've sealed off that book and have by and large limited real estate developments that we have done -- that we did in the past and the focus in real estate only on real estate finance. The difference between what we see now in Stages 1 through to 3 compared to what we had under the previous IAS 9 -- or IAS 39 is that we have Stage 2. It also means that in cases of economic downturn with the macroeconomic scenarios that are coming in on GDP or loan-to-value, for example, in mortgages, it has an impact on the loan losses. So it may therefore, well, be that risk cost as a percentage of risk-weighted assets will be a bit more pro-cyclical, if you will, than we've seen in the past. But for now we stay well -- we stay confident that at least for now we stay well below our risk cost average of 40 to 45 basis points.

Next question is from Mr. Tarik EI Mejjad, Bank of America Merrill Lynch.

Just two quick questions. First of all, on the fintech initiatives you have. I mean, I understand this is all small businesses and the contribution to revenues taken individually must be small. But if you add them all together, can you give us a sense of how much that will boost your revenues and is that significant or we should just ignore it? And maybe linked to that, if it's a small number and you don't communicate on it, is it just initiatives to basically offset what would be loss of revenues or is it really incremental? And my second question is on costs. I mean, I really hear you about the backend loaded nature of the savings versus investments. But I want to know what you're thinking here in terms of the need to invest more in the next two years, because I don't think the investments on digital are finished yet and you probably need to keep investing to keep pace with all the new banks and the fintechs and improve the systems?

Okay. Thank you. The -- I think most of the fintechs that we are after are really services. Otherwise, we would lose either clients through or our revenues through -- because basically what they're doing is they focus on how to improve the client experience. And as you know, part of the Think Forward strategy is exactly that. That's the focus, ensuring that. If you focus on the client experience, then -- to a certain extent you can develop that yourself, a unique client experience. And to a certain extent, you have to get it from outside. And that's what you do. So these fintechs help you on one side to make sure that you continue to deliver on that, and with that, that you continue to deliver on your net promoter score, and with that, that you continue to deliver on your client growth. And that's what you see. So it's kind of included in the overall way of managing our franchise and growing our franchise and it doesn't kind of add on top of it from that perspective. And some of them though -- if it comes, for example, to our acquisition of Payvision, it will automatically deliver additional clients and additional income. So some of those who are not really kind of fintechs anymore, but already kind of scale-ups and have a client base with an offering that is almost unique, which is beyond delivering a better client experience, there you can expect that will be a income growth from. On the overall ING income, it will help. But these are not the numbers that will make our P&L. But it is crucial in terms of building our platform for the future. Now on your cost side, do we need to invest more in digital up and…

Next question is from Mr. Timat -- Gouvello du Timat from Jefferies International. Go ahead. Your line is open.

Maxence Le Gouvello, Jefferies. Two question on my side. The first one, can we come back on the Growth Markets on the cost expansion? Are you surprised about the speed of the acceleration and is it driven by the success of ING offer and how long you believe it's going to last? The second question will be about Turkey. We have not talked about it. Can you let us know what are you doing over there in light of the recent political element?

Steven will answer the question on Turkey and I'll come back on the growth of cost in the Challengers and Growth Market. Thank you.

On Turkey, yes, I mean, we are watching the developments in Turkey carefully. We have a loan book of about 15 billion, which we by and large have kept flat. It has decreased a bit quarter-on-quarter based on change in FX rates. Total loan book there as part of the total loan book for ING is about 2.3%. The Stage three provisioning is of a similar level, so about 2% to 2.5%. So that's actually fairly low. And if you then look in the composition of that loan book, we have a mortgage book of a bit below 1 billion. So we keep that limited and relatively short dated. On SME and mid-corporates what we have done is we are working also with the state in terms of the guarantee that they give for lending, which currently is about 1.5 billion. And we want to limit that to some extent because you want to be careful not to overextend your loans which are supported by the guarantee because that guarantee is also subject to a certain level of NPL levels and we want to stay within that. And when it comes to foreign exchange loans, which are largely in Wholesale Banking, there we want to make sure that to the extent that we give loans to these companies in euro or in dollars, that they also have euro or dollar revenues to deal with that. And that's what you see in mid-corporate. But also with the corporates in the way they publish their results compared to some other countries, there is good information available to actually see that they make dollar or euro income. In that regard, we are trying to match the funding that we give in foreign currencies to the revenues and the income that they make. So in that sense, we keep a keen eye on the developments over there. But until now based on what we're doing, the size of it and the risk cost that we are make, it's well under control.

Maxence, on your other question, well, in other C&G, because this is basically ex-Market Leaders and ex-Germany and then retail, there is a lot going on. What is going on there? We have a Model Bank brand, which is basically investing in order to create a platform, a standardized banking platform across 5 countries. We are working on introducing new products, for example, the Scalable initiative we have there and we want to connect this into the service in other countries as well. We have the AXA initiative that will also have some cost increases. In order to ensure that in the end the move towards primary customers and the move towards a full-fledged universal digital bank, that you also have the product offering there. So there is a lot going on there. At the same time these franchisees are growing very fast. So if you look at the growth of the primary customers, the 400,000 for the quarter, apart from the 80,000 that come from Record, out of the 320,000 -- most of the 320,000 is coming from countries like Spain, Poland, Australia, Romania and we're growing very fast in all of these markets. And we're not just completely digital yet. So basically that means that growing customers, growing lending, also means sometimes growing FTEs. And now we have some improvement programs if it comes to ensuring some of the systems that we have, if it comes to improving the customer on-boarding processes that we have. And that's costing as well. And a point here to mention is that we continuously look at whether these costs increases that we allow will deliver revenue increases and whether they will and do support growth. Because if not, the cost increases will not create value. We're very disciplined in that. And if we have the feeling that it's not happening, we'll just not do it. The timing of the cost increase versus the revenue increase, and with that, the timing of an improvement in cost-to-income ratio also for these customers, yes, is not always -- they don't run parallel. So it's not €1 for €1 or €1 for €2 in the same quarter, but it's over time. And with that, it's important to look at number of customers and specifically number of primary relationships. We are building value for the future and that's important.

Next question is from Mr. Jean-Pierre Lambert, KBW. Go ahead, your line is open.

Just one question. When you look at Financial Markets, could you apply the same principles as you do in Retail Banking and envisage a platform where services will be provided rather than internally generated in order to reduce your cost?

Yes, Jean-Pierre, I think you hit the nail on the head here. I think that is -- that's one of the things that we are looking at and some of our peers are also looking at and seeing, first, as to, can you, I'll call as, reinvent the way you do the business in a fully digital way? That is the one -- that's the first step. And the second step is, can you with that improve the total value chain and the cost of the value chain even using blockchain? And those are the things that we're looking at. Just like we have announced a couple of these successful initiatives on the trade side of the business, we think we can replicate some of that success on the Financial Market side. And then as a next step -- or as a third step -- so first is reinvent; second, use blockchain to really digitize the total value chain. And then third, is there a way that you can actually platform your business and then be open for third-parties to offer products to your clients? So those are three elements, the exact three elements that we're looking at for Financial Markets.

Our next question is from Mr. Rajesh Kumar, Societe Generale.

In terms of TLAC plans, in your recent fixed income presentation you mentioned that ING has a good and quite manageable in-state TLAC outfall. So do you have any internal percentage target for your [Indiscernible] for your HoldCo senior tranche? And number two, more specifically for 2018. So far we have seen that you have done just one benchmark HoldCo senior compared to 8 billion to 9 billion OpCo maturing in 2018. So can we expect you to be more active in HoldCo senior space in next five months maybe? And what about Holdco sub-debt, any plans there, more so in AT1 given you just have a 0.9% in CRE compliant form?

If you look at the TLAC plans, then what you see is we are currently already at where we should be in 2019. So we are at 21.5 I believe. So we're north of that. So in that sense, terribly in a hurry we are not. At the same time what you've seen over this year is we have done some issuance. We've done some covered bonds, 1.75 billion. We've done some floating rate notes, 0.4. We have done some other covered bonds in Belgium. So -- and we have given a sort of a recycling strategy where we say like usually our senior OpCo will be replaced by senior HoldCo. And we will do that and that is basically the structural path we are on. But from time to time we escape into more opportunistic things as well. So the normal expectation would be that we do more HoldCo also for this year because that is our structural approach. But we never comment on like what's the next issuance plan for the next quarter.

What about sub-debt? What are you thinking out there? AT1 -- you have quite a bit to do yet.

Tier 1 -- we're actually at the moment also above our self-proclaimed target. So we are north of the minimum. We are north -- we are -- I believe that 1.6 and 1.5 is where the minimum is and 1.7 is what our target is. So, yes, I mean, not in a terrible area. And if I look at Tier 2, actually we are way north of the 2% we need to have. So can you say big plans? The answer is no.

Gentlemen, there are no further questions. Please continue.

Okay, thanks. Thanks, everyone, for joining us this morning and looking at our second quarter results. I think wrapping it up, another strong quarter from a commercial momentum perspective both in terms of the growth in customers, primary customers; the lending franchises very well-diversified across products, geographies and sectors; the funding side as well of the business. We made progress in delivering a better client experience if it comes to our own improvements, if it comes to teaming up with fintechs. And I think we have reached a really important milestone in one of the bigger parts of the transformation program, the Unite program, where we basically successfully migrated 600,000 Record Bank lines onto the ING Belgium systems. And that went rather smoothly I think. That sums the whole thing up. Delivering a net profit of €1.4 billion for the quarter. And I think you know it's been a real good quarter. Thanks a lot.

This conclude this conference. On behalf of ING, thank you for attending. You may disconnect your line now.