Good morning. This is Brasina welcoming you to ING’s Fourth Quarter 2019 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 a historical fact. Actual results may differ materially from those projected in any forward-looking statement. A discussion of factors that may cause actual results to differ from those in any forward-looking 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.

Okay. Good morning, everyone. Welcome to our full year 2019 results call. As always, there’s a whole team here to support us in order to give you as much details as possible. And both Tanate Phutrakul, our CFO; and Steven van Rijswijk, our CRO, are here as well. And after my introduction, as you know, we’ll have plenty of time for Q&A. So let’s go through the presentation. I hope you all have it now in front of you on the screen. So in our annual results, we’ve posted a profit of €4.8 billion in 2019. For earning primary relationships, 2019 was actually another strong year. Our primary customer base has increased to 13.3 million. We grew by 830,000 primary customers, which is nearly 100 new primary clients per hour. And that is in a 24/7 world, which it is, in a digital environment. So 24/7, 100 new primary clients an hour. On the back of this commercial growth, we were also able to increase our core lending. That was up almost 3%. And at the same time, we were able to keep our pricing discipline, and that translated into higher lending margins, especially in mortgages. The clients do more business with us, and as a consequence of that, we see good fee growth. And also that’s largely countered the margin pressure that we see coming from customer deposits as well as the higher expenses that are related to KYC and further increasing regulatory costs. Risk costs increased as we saw a number of larger uncorrelated incidents. However, risk costs remained below our through the average – through-the-cycle average, and the quality of our loan book remains strong. Now if you combine all of that, we generated a return on equity for 2019 of 9.4%. The CET1 ratio ended the…

[Operator Instructions] First question is from Mr. Robin van den Broek, Mediobanca. Go ahead please.

My first question is around capital and dividend. I mean, in the past, you’ve always guided for regulatory overhang to be 15% to 18% to RWAs. Today, you take a 60 bps impact. I think the guidance was pre-mitigation. So is it fair to assume that we’re basically roughly halfway through taking that regulatory overhang into your capital ratio? And in connection to that, some of your peers are starting to get a little bit more enthusiastic about the Article 104, which allows you to fill your Pillar II with lower-quality capital instruments. Can you comment a little bit on that, and how that would possibly, yes, lead to maybe a bit more than €0.01 dividend accrual in the year? And secondly, on return on equity. Ralph, I think in your introductory statements, you mentioned that you’re still happy with the total return package the company is offering. But yes, clearly, it’s short of the 10% to 12% target. So I was just wondering on how quickly do you think you could get to that target range also considering, yes, that the step-up on capital you probably still need compared to the average base in 2019? Thank you.

Yes. Thank you, Robin. I’ll start with the last question. And then the other questions, I will kind of give it to Steve and Tanate here. So return on equity, well, it’s the first time that we stepped out of that range. It is particularly because of the last quarter here. So yes, we’re not happy with that. Indeed, the further pressure on capital will have an effect on that. Having said that, so we’re looking at a lower rate environment. We may have some capital increases coming still. We have some regulatory costs. We have some KYC costs. But on the other side, we’re also management. And as management, we are here to manage this kind of things. So the big thing still stays: our strategy of making sure that we move to a platform, that we get more customers, that they buy more products, that we charge more fees on the back of selling products, that we expand in also in non-euro areas, that we decrease the cost to serve because of digitalization. So that’s how you manage it. Now clearly, from a more how do you go about pricing perspective, as you see this year both in wholesale as well as in retail, we have pricing discipline. And we don’t mind to walk away from business if it doesn’t yield a return that we need to have. As a diversified bank in many different geographies and many different sectors in Wholesale Banking side, we have the opportunity because we’re not tied to one specific geography like some of our competitors have. So the repricing is happening, and we will continue with that discipline. Then it’s to continue to grow the lending book versus the cost. So you should expect that we will continue to improve in what we call operating leverage. Then it is a change in lending mix, which we will continue to do, moving to a higher NIM lending businesses. So that’s kind of still how we think we can manage things. Will we kind of be able to be back in the 10% to 12% tomorrow? We’ll have to see, work hard on it. But at this moment, the guidance that we have is the guidance that we keep. Maybe then on capital, Steven, and then on B2R,Tanate.

Thanks, Ralph. So with regards to the capital, like I said the previous quarters, we would expect the impact of the regulations, including treatment of new regulatory technology standards is going to help in the next four quarters. This is now what we are seeing. We will see some more impact coming up in the next couple of quarters. But we are confident that we will remain in our ambition level of around 13.5%. And the biggest impacts – this was a big impact and one or two will follow. But then by the third quarter, we have had, by and large, impact of all new regulation that has been coming up.

I think just to supplement Steven’s statement, I think if you look at the original calculation on Basel IV, we talked about a 2% reduction of our core Tier 1 because of Basel IV, and that after mitigation, it’s around 1.5%. And where you see us standing today at 14.6%, having already taken 60 basis points on TRIM, which is related somewhat to Basel IV , you can say that our capital targets remains actually on track. I think there are some new things happening, for example, the introduction of DoD, which could have a potential impact. But at the same time, we do see, as you mentioned, the introduction of CRD V, which is beneficial from a core Tier 1 perspective. We are still in discussion with the ECB on the precise impact on CRD V, but that, indeed, would be positive on our core Tier 1 development.

Next question is from Mr. Pawel Dziedzic with Goldman Sachs. Go ahead please.

So two questions from me. The first one is on cost. So you reported €25 million increase in KYC-related expenses, I think, in the fourth quarter alone. And you talked in your presentation about €75 million increase throughout the entire year. And I think your comments also kind of pointed out that this is still an ongoing process and you’re intensifying your efforts rather than maybe making them – reducing them. So how should we think about increase in this line going forward? Should we see a similar rate of growth in 2020, or you think this can be contained? So that’s the first question. The second one is on cost of risk. And I think you rightly pointed out there is a lot of noise. You mentioned there is no common denominator and that your Stage three assets are down but your impairments are up and so on. But I was hoping if you can comment on your confidence that cost of risk will actually remain below through-the-cycle levels this year? Where is it coming from? We kind of – we are late in the cycle, and you would expect that recoveries will be lower. You would expect that single case files will probably happen more often and so on. So where does your confidence come from? Thank you.

Yes. Thank you, Pawel. So I will take the first one, and Steven will take the second one then. So the first one. So on KYC. So clearly, you know that we’re still in a phase of massive file enhancement, just carrying the documents in place, getting all the customer information in place. And that will continue also in 2020. At the same time, we’re looking at how can we do this smarter, how can we digitalize these processes, what kind of tooling can we introduce. And we’re in the midst of introducing a lot of tooling, both in dealing with these files as well as a tool on the transaction monitoring side. So that will be introduced in and rolled out this year as well. So from an overall cost perspective, maybe a bit increased, but I actually think that 2020, it will plateau. The KYC cost will plateau.

Okay. Then on cost of risks, yes. I mean if you look at the fourth quarter, we see a number of files. But if you’re looking at Wholesale Banking, it is around 25 files. It is a similar amount that we typically see for the quarter, both existing files and a few new ones. Within that, and then I point out that the press release in the section on Wholesale Banking regarding Daily Banking & Trade Finance, there is a big suspected external fraud case. So that is a special one, I would say. And if you then look at our watch list, our forbearance levels, the number of increased REF files, the number of files that we’re dealing with in our credit restructuring departments are all not going up or even going on. And that gives us confidence, given the current economic circumstances, so to continue to guide below the through-the-cycle gross average in risk for 2020.

That’s very clear. Maybe just one follow-up. If the KYC expenses were plateau, is it then fair to assume that your total cost base could actually go down in 2020? Is this how you would see it?

Maybe I give you a bit more detail about the evolution of cost in Q4, right? Because if you look at it, we have three buckets of cost increases. Clearly, KYC is one where we flag as being €75 million in cost increase. And if you look at our total wage bill, it’s roughly about €1.1 billion per quarter, right? So if you estimate the inflation cost of that on a quarterly basis, 3.5%, you’re talking €45 million or €40 million in cost increases there, right? And as Ralph mentioned, this year is somewhat unique because of the lower accrual for performance pay in 2018 affect 2019 numbers. What you do see is that our efficiency programs are working, right, because we have negated the inflation in terms of our labor cost inflation as well as the impact of additional performance pay. What we are unable at this point in time to negate is the impact of the KYC enhancement program, and that we hope to do over time. And as mentioned, we expect those costs to plateau in 2020.

Thank you very much.

Our next question is from Mr. Benoit Petrarque from Kepler Cheuvreux. Go ahead please.

Two questions on my side. So the first one is to come back on capital. I mean there will be a lot of clarification on most of the regulatory uncertainty this year. When do you expect to be able to update the market on capital management? Do you update us maybe end of this year? Because clearly, ECB is coming with a big update on Basel IV, and I think most of the regulatory uncertainty will be clarified by year-end. And you mentioned also that you’re still building up capital, i.e. the CET1 capital is still going up. Where are you basically in that process? Do you think you are kind of finalizing this ramp-up of capital or you’re still in the phase of building up capital? The second question is actually on the negative rate. So moving to negative above €1 million. What is the kind of deposit base which will be impacted by that one? Thank you very much.

Okay. I’ll take the one on capital, yes. So thanks, Benoit. So the regulatory levels are coming on in hand, both on our – the redevelopment of our models as well as on the finalization of TRIM. Of course, we get the macro prudential impacts on the mortgages in the Netherlands. That will come in the third quarter. Basically for ING, that basically means that based on what we currently see in all regulations, all the major impacts we then have held as modest quarter. And it basically means that we can give you an update in the second half of the year on our capital planning. I think, as Ralph mentioned, we have gone negative on accounts of over €1 million. And while we don’t give precise numbers in terms of outstanding, our expectation is on a full year basis, the pressure on our negative rate gets less by approximately €17 million.

Great thank you.

Our next question is Mr. Farquhar Murray of Autonomous. Go ahead please

Just two questions if I may. Firstly, on the topic of negative deposit rates. I just wondered if you can outline how you see that developing across the businesses you have. Clearly, we’ve seen movement in the Netherlands, but I just wonder what you might expect from the competitive dynamics in Belgium and Germany. And then just on the recent loan officers' survey for the Netherlands. There seems to be a bit of a drop-off in loan demand. Is that something you’re seeing on the ground? And is that potentially related to the nitrogen crisis at all? And have you seen any asset quality consequences from that at all? Thanks.

Okay. So on the negative rates. So clearly, as – basically, we can tell you what we do. We’re not allowed to tell you what we’re planning to do if it comes to rates because these are market prices and there is authorities that are very clearly indicating to us that we should not guide to things around that. So what we can say is what we do. But it is clear that in order to shield some of the negative effects and then – and the losses coming from the deposit base, specifically when it comes to the larger deposits and the companies that bring the larger deposits as well as the private individuals who bring the larger deposits that we will be really looking into that. So that is what we’re doing in the Netherlands. On the – and that’s certainly something that’s in the Eurozone because we also have many non-Eurozone businesses like Poland and Romania and in Australia, where this is – this doesn’t play a factor, right? Then on the loan demand. We – it’s not so much a loan demand that we see. And so in the fourth quarter, we had this kind of decrease on the business side. We think it’s more seasonal than anything else. Over the last year in the Netherlands, we saw quite good loan demand. It’s not a – nothing indicating overheating nor the other way around. So it’s okay. From the nitrogen crisis specifically, we know that our customers are taking measures specifically in the construction business, but we don’t expect more impairments from that.

Okay, thanks.

Next question is from Mr. Stefan Nedialkov, Citi. Please go ahead.

It’s Stefan. A lot of interesting questions until now. Just to get a couple of clarifications and additional color on the NIM. So when you put it all together, right now you’re guiding through end of 1Q 2020. Could you give us an update on your guidance for the next couple of quarters beyond 1Q 2020 or maybe through the end of 2020? And secondly, to come back on the component of the last KYC cost. Right now, you have 4,000 people working on that. It’s up from 3,500 last quarter. That’s an additional 500. Can you give us some color on the increase? Is that mainly from external people or internal people that have been moved from front-office or middle-office functions temporarily as well as the split of the 4,000 overall in terms of external versus internal? So the split on the increase and the split on the sort of stock of employees, if you will.

Yes. Thank you, Stefan. Thanks for the questions. Well, as you know, we’re not really guiding NIM these days anymore because as I said already in my introduction, there are so many factors there that also kind of bring some kind of a volatile nature. What we really want to continue to guide on is how we see the net interest income developed. That one we see as stable-ish given the margin pressure from the savings side. The NII with the repricing efforts that we have, the pricing discipline that we have installed, we think that we can manage the margin protection on one side, pricing at 10% minimum return, over 13.5% risk-weighted assets. On the other side, we do expect lending growth in the retail bank to be more like 3% to 4% and also bank lower than that. And that is how we kind of manage it. So making sure we have to price – the pricing discipline, making sure that we change the mix, making sure that we continue to grow on the lending side where it is profitable. And that’s how we basically manage and offset the pressure from the savings side. On KYC, the 4,000 is actually excluding the internal workforce if it comes to the front office that also has to work on this. So for the total effect of KYC, you would have to add that even, and that has two sides. So basically, it has a cost side. It also has an opportunity cost side because clearly if people are working on KYC, they can’t be working on specific deals. Now so that’s the picture there. The 4,000 FTEs are, to a large extent, externals as we would call them. So basically companies that we work with that have these services. We…

And then Ralph, just to follow up on your comments about the opportunity cost of moving front-office employees to deal with KYC issues. When you go back to your October 2016 cost savings targets for this year, for 2020, what is the percentage of that original target that you think you will be accomplishing this year?

So we refreshed that during our IR Day in March, as you know. And that from a Market Leaders perspective, over time we would expect, next to the 2,000 that we already kind of saved, the Market Leaders that we would, over time, for the next – so 2020 and 2021, we would be able to save another 1,500 in FTEs. And those are the numbers that we gave you at the IR Day, and that is certainly the numbers that we are still managing and expecting.

Next question is from Mr. Raul Sinha, JPMorgan. Go ahead please.

I’ve got two, please. The first one is on the decision to obviously reiterate the progressive dividend policy. We know at some point last year, you were debating whether or not you should treat that. And that’s why I was wondering whether that option is still open in terms of once you have full regulatory clarity, you might still look at the appropriateness of that progressive dividend policy. Or do you think that, that is something that you believe is very much set in stone given how you view your capital position, which is obviously quite strong? And then the second one is on fee income. If I may ask about – a little bit about Retail Benelux, especially whether or not you think that we might have a slightly better performance in fee income for 2020? Or do you think this is still going to be a challenging sort of area whereas the other areas within fee income will be the main drivers? Thanks.

Yes. Thank you. I will start with the second one. So on fee income Market Leaders. Actually Belgium, over 2019, did a good job. So from that perspective, in Belgium specifically, we have seen fee income really increasing. We didn’t see as much in the Netherlands, but we do expect that fee income will increase in the Netherlands because we have already announced the increase in commissions on the payment packages two months ago. And that should really lead into higher commissions for the Market Leaders altogether. So we do expect a better performance in fees in Market Leaders in 2020 because of the announcements that we already made. That’s one. Then specifically on your dividend one. As we said, yes, so we feel that we can reiterate progressive dividend for 2020 as a policy. Clearly, we change the policy when we change it. So I’m not going to be kind of hinting at that as we speak. For 2020, we propose to continue with the progressive dividend. We will consider specials if we deem capital is sufficient. But the next two, three quarters, we do expect some further clarity around some of the impacts from TRIM and DoD. And with those uncertainties at that moment in time hopefully being clarified, we can come back in the year on this whether we want to continue with that or alter it.

So if I can just follow up very quickly on the capital point. As you know, within CRD V, there is also this Article 171, which is quite a negative impact from a systemic risk buffer perspective, depending upon how you interpret this. Have you had any discussions with the regulator about this? And is that kind of driving your view that CRD IV is actually likely to be positive?

Indeed. This is Tanate. And we did have that discussion. I think what you’re talking about is whether the different buckets of systemic add-ons are additive or not. We have been getting those clarification that what they say to us is not in addition, right? It’s not the three numbers added together. So we don’t expect that to be the case.

Thank you.

Next question is from Mr. Tarik El Mejjad, BoFA. Go ahead please.

Hi, good morning. Thank you, Ralph, for the explanation about the ROE target, 10% to 12%, and how you’re working hard to get back to this range. I mean I just want to focus on costs. I mean we discussed a lot today, but I want to know what are you doing actually to try to absorb the KYC cost. I mean you mentioned it will take probably two years. So with all these, you are confident. But I mean can you give us some qualitative things you’re doing? And do you exclude like all kind of traditional cost savings things you invest more and then with hopefully getting more savings down the road? Or is this more like sort of everyday discipline and some more tweaking of operations? And the second question is more clarification on capital. So do you – are you saying that TRIM impact is front-loading of Basel IV fully? So there’s no – it’s not on top. It’s within. And the only extra bit will be definition of default that you hope to offset by potential pillars to relief. Is my understanding correct? Thank you.

So I’ll do the first one, and Steven is already waving at me that he wants to do the second one. So Steven, you will get the second one.

Thank you. So should I start?

Yes.

Okay, good. So on capital, yes, you’re right. So we have Trim, DoD and the macro prudential measure that the Deutsche Bank took our mortgages. That will all come in, in the next couple of quarters. So the impact of further Basel IV or whatever Basel IV comes for us will be very benign. That’s where we currently are and that’s what we’re waiting for. When we have that, then we can give clear guidance or clear guidance on our capital planning.

Yes, Tarik. On the cost side, it’s a mix of everything literally. So clearly, there’s a lot of cost discipline and kind of all the things that you can expect. From procurement, travel, stuff like that. That is under – that we’re putting under the magnifying glass just to make sure that we only do the things that need to be done. That’s on one side. But what really is going to help us is that the change in tech that we already had indicated during our IR Day that – for example, in the Market Leaders, we will extend the channel offering that we already have in Germany, that we already have in the Netherlands, so the one ad, one rep, that we will extend that into Belgium in the next coming months to all of our retail customers. And that we are focusing all of our investments in Market Leaders, for example, in further digitalization of a lot of the processes, ensuring that a lot of these services now actually become available on – service processes actually come available on the app. That will lead to higher Net Promoter Scores. It will lead to lower cost as well, running cost. On the Wholesale Banking side, we’re very much looking into the digitalization of process as well. So there is a massive program to go after. Just go through every process and digitalize whatever you can digitalize. And those are – those programs continue to need investments on one side. But on the other side, they structurally solve your cost issue and make your model very scalable. And that is – it’s in line with the strategy, but we’re putting extra, extra, extra effort on this with short-term reward as well.

Perfect, thank you for that. Thanks.

Next question is from Mr. Omar Fall, Barclays. Go ahead please.

Could you just highlight where we are on the Unite plan, please? I know Belgium isn’t the only beneficiary, but the expenses are still growing 3% there. Any sense at this stage of giving us what you think the euro amount savings to come, particularly given the migration to the new app and the Internet banking environment is happening in the coming months? And do you still expect somewhat of a hockey stick effect on cost savings to come from next year? And then similarly, sorry again, on expenses, but just so we can get a sense of the underlying developments. It would be helpful if you could give a sense of how the increase in KYC cost, the €75 million of the Q-on-Q number is split across the divisions. Or maybe just even a sense of how the stock of KYC cost is split across the divisions, that would be great. Thanks.

So Omar, on the first one. Just to update you on Unite. Just to go back three years ago when we launched it, at that moment we envisaged and we announced a total number of FTEs that were going to be affected by it in the range of 3,500. That was specifically Unite. 2,000 of those, and yes, you can literally go through the numbers, we have done. Then we changed tax tactics earlier last year. But again, the effect of that was very much focusing on how can we speed up the customer experience to the Belgium clients and thereafter then look at further digitalization. That would lead to a further saving of FTEs as well. That effect, you will see during this year. You will see that effect during this year. So it’s not a hockey stick from that perspective. The end of the hockey stick is where we are now. So the next two years is where you see where the benefits continue to come in. But I still want to also say there is that I don’t look at Belgium numbers only. Don’t look at Netherlands numbers only. The more we have this Unite working – sometimes the cost in Belgium will increase because we spend more on the teams that do specific work in Belgium for the combination. Sometimes, you see the cost decrease in another area or we see the cost increase in the Netherlands because we have the tribe in the Netherlands working on something for both countries. So look at the combination, and that’s where you see a continuation of a decrease of cost already this year. And as you know, that’s a recipe to continue that and that you will see this year. On the KYC number, how it’s split across the divisions? Honestly, I don’t have it here. So I’m not sure whether we have any of that. So Tanate, do you want to say something to that?

Yes. I think our preference is not to really give you divisional numbers, right? A number of our KYC programs are run centrally, and those costs are then allocated. So our preference is just to give you the overall bank numbers. But if as a guide, you probably can expect in terms of the number of customers in each market as a guide of how these costs are shared, but the program and the costs are more centralized.

Got it, very clear. Thank you.

Next question is from Mr. Kiri Vijayarajah, HSBC. Go ahead please.

Yes. Good morning, Kiri Vijayarajah, HSBC. First question just really a clarification on the €70 million benefit from the negative interest rates. So what have you assumed on outflows, if any, once you introduced the negative rates on your Dutch deposit base? And then secondly, going back to the fee and commission outlook. You’ve got your 5% to 10% growth ambition. Do you think that’s achievable specifically for 2020? And within that, the wholesale bank fee and commission was a drag in 2019. And I wondered do you think that still remains a bit subdued in 2020 given your cautious risk appetite there on volumes at least in the Wholesale Banking. Thank you.

Yes. So on the fees, well, yes, we do think it is feasible for 2020 because we are looking at many different aspects there. So if you just look across the retail activities, it’s the introduction of behavioral fees. And that will – that we introduced this year – last year, but that will really come kind of into the P&L. Also this year, the introduction of fees around payment packages in different countries and the retail share, where we haven’t done that earlier. The increase in some of the fees there, it is the introduction of new products around, for example, the insurance products that we are delivering now digitally to our customers, the investment product area. That is growing fast for us in a digital way where we expect fee growth to come from. So from a Retail Banking perspective, it is a little bit more predictable because of what – the actions we are taking and have taken already and the growth that we see on the customer side and the primary customer side that we can say, well, yes, we feel that, that ambition is feasible. On the Wholesale Banking side, as you know, it is very dependent on how the markets develop. It’s dependent on the demand in the market. It’s dependent on the syndicated loan market where we are a player. It’s dependent on the debt capital side where we have quite some fee income coming from as well. So whether that is actually specifically going to pan out to have a growth of 5% to 10%, I don’t know. But clearly, this year, it was lower. And therefore from that base, a bit of growth is always feasible.

Okay, thank you.

Our next question is from Ms. Daphne Tsang, Redburn. Go ahead.

It’s Daphne from Redburn. I’ve got two questions, please. One on margin and the second one on cost. On margin, regarding charging on negative rate, how much deposits have you got above 100 million and 100k, respectively? And you mentioned you will focus on shifting business towards higher NIM product. What specifically are there that you’re shifting to? My second question on costs. Are you able to give a rough sense on the KYC cost as a percentage of your cost base, please? And how many of those costs in terms of FTE and absolute costs would go down after the KYC cost plateau in 2020, please?

Thank you, Daphne. Tanate is going to answer some of these questions first. And Kiri, just to make sure, you had one more question outstanding, and we’ll come back to that one as well. So Tanate.

Kiri, maybe to address your question. We start in terms of implementing our negative charging for accounts of more than 1 million, I think, just to be clear on that point. And second, I think we do simulation, of course, based on what could potentially may be attrition. But just to remind you, one of the other major banks in the Netherlands have already started charging negative rates. So we take that into account in terms of our assumptions to provide you that guidance. Okay. In terms of margin improvements, I think we’re looking at a number of actions that are ongoing. Clearly, we talk about the overall repricing in every segment where we can. We also look to see that our consumer loan growth should be growing at a higher pace than, for example, our mortgage or business lending where consumer lending has a higher and more attractive NIM as well as return on equity, right? The other factors that we do is the diversification for some of our Eurozone market into the C&G countries, in particular. And you see that in the shift of loan growth in those countries where the interest rate environment remains more positive for us. And lastly, we prioritize really Wholesale Banking returns and NIM over perhaps volume growth. And that’s why you see in the last two quarters perhaps even somewhat slower growth, even negative growth but in lieu of better net interest margin in those markets as well. And then in terms of KYC cost, I think I just addressed those questions. We talked about the increase being approximately €75 million. We expect those costs to plateau during 2020. And we don’t really provide guidance on divisional KYC expenses.

A follow-up on the negative rates. How much deposits have you got above the €1 million mark?

Sorry, we – as I mentioned, we give you the guidance on the less negative impact on our P&L, but we don’t guide on the absolute amount of our deposit base.

Got it. Thank you.

Our next question is from Ms. Alicia Chung, Exane. Go ahead please.

Good morning, everyone. Just a few quick questions from me. Firstly, sorry to go back on costs. But when you say that the KYC cost will plateau in 2020, is that versus Q4 levels or versus 2019 levels? Also, would you be able to give the split of ongoing KYC cost versus project costs in the €75 million? Secondly, just on the capital. Obviously, you had a very nice boost to capital from the €7 billion lower RWAs. I’m just wondering how much of that you see is sustainable, because of the €7 billion, you have about €3 billion related to off-risk RWAs which tends to be quite volatile and move by up to a few billion every quarter. Then of the €4 billion lower credit risk RWAs, how much of that is due to positive credit risk migration that might reverse over the medium term? And then I also have one sort of longer-term strategic question.

Okay. So where is your strategic question, Alicia?

It’s just thinking a little bit – obviously, the fashion at the moment, I think this is going to be a very structural fashion, is ESG. So just wondering what your thoughts are right now in terms of how you think about the growth and the risks of your lending book in oil and gas and metal mining and natural resources, which is close to 10% of your loan book at ING? And how do you think about that with an ESG context in terms of the longer-term growth risks and potential rise in capital requirements around these portfolios as the sector transitions to decarbonization and likely lower CapEx requirements for those sectors? And how are you preparing for that now? I suppose I’m wondering is this a good opportunity to descale your Wholesale Banking further over the medium term. Thanks.

Yes. So let’s pick up on that one, and then I will go back to capital and then to KYC cost. So on the last one, on ESG in a broader sense. But because that is – it’s a very broad concept, right? So – but more importantly, the E part of it, the environmental part of it are more important part. That, again, being the carbon footprint coming from the different industries. As you know, Alicia, we actually came out in September 2018 with an approach called the Terra approach. And that Terra approach, we have a great – basically, an approach with the 2-degree investment initiative in how we can calculate the impact of the footprint of the different industries that we bank and how we can calculate a trajectory that will get us in line and develop that footprint, our indirect footprint, in line with the Paris Accord and preferably a little bit more ambitious. And we came out with – in September 2018, already with a commitment that based on these methodologies, we are committed to decrease our indirect footprint in line and a little bit more ambitious than the Paris Accord. Now the nine sectors that create the biggest indirect footprint for us are: oil and gas; the energy area, so the power generation area; it is the cement industry; the steel industry; the automotive industry, the aviation industry, the shipping industry. And then it is commercial real estate and residential real estate. And for each of these sectors, we have agreed a trajectory which has been tested by the international economic agency for us to decrease our footprint. Now this does not mean that we will massively decrease our exposure on specific sectors. It does mean that we have the obligation to really enter…

Yes. Thank you. Maybe less inspirational but still also true. On the RWA, we’re focusing on – if you look at the risk migration, part of that comes from increasing housing prices and growing GDP. But part of it was due to management actions in – that we had better linkage of cars, i.e. loan coverage through particular loans or that we are improving our data quality. So there are these two elements that have caused the positive risk migration, and we continue to work on that. And that was for around €4 billion. That needs the operational risk-weighted assets decreased to €3 billion. That more consists of internal scenarios and an external database. We continue to calibrate that. You’ve seen that coming up in the first half of the year and then greatly coming down a little bit in the second half. And we try to measure it as stable as we can. So I would say it’s a mix of factors. But part of it has to do with management actions, not only by risk migration due to economic circumstances.

Then Alicia, on KYC cost. I think you see the RAM starting in Q1, Q2, going into Q3 and Q4. I think we are now flying in Q4 at more what we think is the plateau level. So if you compare the KYC cost in 2020 compared to 2019, you should – you would see somewhat of a modest increase given the annualization of this impact.

Very clear, thank you very much.

[Operator Instructions] Next question is from Ms. Anke Reingen, Royal Bank of Canada. Go ahead please.

Thank you very much. Just two follow-up questions. Firstly, on your comment that you work hard on improving operating leverage. Is it too early? I mean it’s not in consensus expectations. But is there a scenario where you can actually already deliver operating leverage in – positive operating leverage in 2020 without being too optimistic on the top line? And then secondly, just on your capital return policy. I understand that you announced changes when you do. But given some of the banks now talk about buybacks, I was just wondering, conceptually, would you consider replacing part of your cash dividend with the buyback? Or is that only really an option as an additional capital return?

Well, thank you, Anke. So on the operating leverage one. So the way we look at operating leverage is basically can you manage your cost base versus the volume that is going through your business. So it’s not against the price of your volume. It’s not against the income, cost versus income, but it’s cost versus number of transactions, the volume of the balance sheet, et cetera, et cetera, et cetera. Actually, from that perspective, the Market Leaders have really improved on operating leverage even in 2019. And in C&G, we’ve seen that stabilizing. And the reason for that being is that we’re always growing the business there. So we’re investing in new products, et cetera, et cetera. So in the remaining part, you see an improvement of operating leverage there as well. But given the fact that we’re really investing in broadening the product scope, you see that the operating leverage is not really improving in the C&G countries. And again, you know that, that is – we’re building that for future value. And we’re really looking at things more or less as a real strategic value creation play. And then given the plans that we have in digitalization of the customer interactions and all the processes, you will see that there is still some investments going into these plants. And therefore, the operating leverage itself as a concept will more pan out over time with positive series therefore also to be expected over time. But again, in Market Leaders, you see some of that already also in terms of the cost going down. And we expect that to continue there. And we have always guided that Market Leaders really have to take the cost down. C&G are allowed to grow the cost if the income is growing as well. I mean just make sure that decisions are good there. And Wholesale Banking is a flat-cost business for us over time. Then on dividend, for the moment – well, for the moment, as I said, we’re on progressive dividend and we pay it out in cash. We may want to consider it, but we’re not actively working on that now.

Okay, thank you.

Our next question is from Mr. Bart Jooris, Degroof Petercam. Go ahead please.

Main questions have been asked. So I have a detailed question and a more conceptual one. The detailed question is your net core lending is up for a large part from Retail Belgium. What’s the effect there of the disappearance of the one bonus this year? Is that important in that number? Or is that very small? And then secondly, more on a conceptual basis. You’re planning on using AI and machine learning in your KYC processes. However, as I understand it, those machine learning processes often lead to black box algorithms that give you the results. Are your regulators happy with you using black box algorithms in your KYC processes?

I think regarding your first question, the impact is benign. So we do not see a big impact of that. And on the second question, we are in continuous dialogues with regulators when we use artificial intelligence. So when we do more validation on certain parts, for example, and there are AI guidelines that have been coming out from different regulators, we will use that to discuss with those regulators because in the end, we need to have explainability in our algorithms. And currently, we buy in our view internally developed AI, which in some stages is still in sandboxing, but in other stages it’s sort of advanced. And then when we come to validation in line with our regulatory standards, we will then discuss with the supervisor.

Okay, thank you.

Okay. Then thanks for all the questions raised. Thanks for making the time and to go through the annual as well as the fourth quarter results with us. Maybe just to summarize. Commercially, 2019 was another strong year with further growth of our primary customer base. As said, it is still 2,000 customers a day that basically choose ING as their digital home bank, as their digital primary bank, which is really a driver for future value. We also see the underlying digitalization in terms of the behavior really increasing in terms of the transactions, through interactions, which gives us ample opportunity to really deliver a differentiated experience with more than 1/3 of our customer base now actually only working with us through the digital channels. On the back of all this, core lending was up by 3%. Pricing discipline is coming through in the results as well and you see that in the NII. We had a good fee growth. And the combination of that – through the combination of that, we are able to offset the margin pressure on customer deposits, able to offset some of the higher KYC-related expenses and further increasing regulatory costs. The fourth quarter specifically showed higher risk cost. As indicated, it’s more individual files. We don’t see a connection there. And we do expect that going forward, the risk cost will be below the through-the-cycle average. And then from a core Tier 1 perspective, pro forma 15.2% but already taking expected supervisory impact of risk-weighted assets in the amount of €13.2 billion, leading to a 14.6% core Tier 1. So a good buffer there. So overall, yes, it’s been tough. It’s been hard work, but we can be content. Thank you very much. And if there’s any further questions after this call, you know the IR team is always there to help you also to dig into some of the details and to help you making your write-ups. Thank you very much.

Ladies and gentlemen, this concludes the analyst call. Thank you for attending. You may now disconnect your lines. Have a nice day.