Good morning. This is Patricia Klosov welcoming you to ING’s Third Quarter 2020 Conference Call. Before handing this conference call over to Steven van Rijswijk, Chief Executive Officer of ING Group, let me first say that today’s comments may include forward-looking statements, such as statements regarding future developments in our business, expectations for our future financial performance and any statement not involving a historical fact. Actual results may differ materially from those projected in any forward-looking statements. A discussion of factors that may cause actual results to differ from those in any forward-looking statements is contained in our public filings, including our most recent annual report on Form 20-F filed with the United States Securities and Exchange Commission and our earnings press release as posted on our website today. Furthermore, nothing in today’s comments constitutes an offer to sell or a solicitation of an offer to buy any securities. Good morning, Steven. Over to you.

Thank you, Patricia, and good morning, everyone, and welcome to our third quarter 2020 results call. I hope you’re all in good health, and I’m happy to take you through today’s presentation. I’m joined by our CFO and interim CRO, Tanate Phutrakul; as well as Karst Jan Wolters, currently responsible for the day-to-day risk activities. At the end of the presentation, we will, as always, have time to take your questions. The third quarter of 2020 was another quarter marked by the COVID-19 pandemic, and we continue to support our customers, employees and society during this time. We also continued our efforts to increase the effectiveness of our KYC activities and are pleased that these efforts were recognized in Italy, and we can again welcome new customers. There are a couple of key points I want to make today. Our digital model continues to be a clear strength as we added another 213,000 primary customers, and the number of mobile interactions continued to grow. These also supported us to deliver a strong performance this quarter with pricing discipline, solid fees and cost control, resulting in a resilient pre-provision profits, excluding volatile items. Risk costs were markedly lower than last quarter despite taking a €552 million management overlay to reflect remaining uncertainty and delay in potential credit losses. As the external environment remains challenging, we keep our focus on managing the company through these times and are taking steps to maintain our strong performance. Our margin discipline and risk appetite remain unchanged while we take steps to focus our activities. At this point, we’re announcing adjustments in 2 areas: in Wholesale Banking with a focus on our core clients and where we need to be to service them; and secondly, in the Challengers & Growth Markets, we focus on how to…

[Operator Instructions] Our first question is from Mr. Benoit Petrarque, Kepler Cheuvreux.

Yes. It’s Benoit Petrarque from Kepler Cheuvreux. The first question is on capital. Thanks for all the details you’ve provided today. You are mentioning a periodic review of excess capital. I was wondering whether that will be once a year or do you plan to execute this periodic review. And also, on capital, you want to maintain a buffer during the pandemic, also reflecting uncertainties. What is this buffer right now? Could you be -- help us to quantify how much you need, as we speak, looking around, looking at this, well, second lockdown, second wave? So could you help us to quantify that? I want to understand if -- assuming ECB will give a go-ahead on capital distribution in December, whether you are able to pay shareholders next -- early next year? A bit of the excess capital sitting in the company or that would be a bit of a late decision? So that’s the first question. The second question is on costs. Also, in combination with the, let’s say, the NII outlook, it’s quite tough outlook, obviously. But how do you see costs moving? I get to a [indiscernible] cost at minus 1% in Q3 year-on-year. So that’s good. But what trend do you see for 2021 on costs? Could you help us to -- well, to model the cost line going forward in this challenging top line environment?

Yes. Thank you very much, Benoit. I will take the question on costs and then Tanate will take the question on capital. So on costs, we’ve taken clear actions in Wholesale Banking and with Maggie. The provisions in that regard will be taken in the fourth quarter. That’s just how we need to do it from an accounting point of view. But like I said, the previous quarter, the nose on the cost level need to come down. So costs need to move down from here.

On Maggie, how much cost-cutting will that bring, roughly? Could you quantify that?

We will only take a provision in the fourth quarter. Currently, we’re looking at 1,000 FTE. That’s both internal and external FTE. But we need to go through our provision committees to finalize that, so that will come in the fourth quarter. And yes, you have mentioned that, indeed, is a tough environment on NII. And of course, that is the case. But at the same point in time, we see growth picking up in the U.S. and Asia. So yes, it’s a temporarily tough environment, but that’s where our diversification in the countries will help because that -- because in some regions, growth is already picking up and that should benefit us as well. But coming back to costs, the nose of the cost will have to come down and it will come down. On capital, I will give the floor to Tanate.

I think on capital, as we guided, we are looking to, over time, get to that 12.5% or around 12.5% target. And we do review our capital structures almost every quarter, of course, looking at the prospects for the future and where we stand. But I guess the question is how fast and at what pace you need to get to that 12.5%. We just need to make sure that as we glide to that 12.5% target, we must have a sustainable structural reduction in the capital needs of the company. So that’s what we will do over time.

Like this additional buffer you’re planning to keep for the time being, how much is that roughly? I mean you are mentioning, like, 200 bps above the MDA. But I’m not sure that is your current buffer.

Our current buffer is almost 500 basis points, as you can see. And that -- we think that over the cycle, we can comfortably accommodate a 200 basis points buffer.

Next question is from Mr. Stefan Nedialkov, Citi.

So I have one bigger question on NII, which I’ll break down into, hopefully, quite short ones. The FX drag, can we assume that’s kind of a one-off item? I mean, obviously, one-off depending on how the FX trajectory develops from here. But more of a one-off than a recurring. Secondly, the TLTRO accrual decision, is that something that your auditors need to approve potentially in 4Q or the beginning of next year? Or is it much more of a management decision? Thirdly, on the pricing of your lending products. Are you already incorporating a full Basel IV impact on capital when you price for your products? And how do you see the competition approaching Basel IV, especially now during COVID? Basically trying to see if there is any upside to NII over time now that you’ve taken your Basel IV impact. And lastly, on negative rates. You mentioned that in Belgium, you will start charging negative rates. But I thought that there is, on the Retail side, 11 basis points of statutory minimum. So are you talking about more on the SME and large corporate side of things, plus Germany, the [indiscernible] of 50 bps above 100? So some color around the scope of the negative rates in countries outside of the Netherlands would be very helpful. Apologies for the 4 sort of shorter questions.

Thank you. I will take the questions on negative rates and pricing. And for FX and TLTRO, we’ll give the floor to Tanate. If you look at the negative rates, there, we started to charge negative rates in Belgium to corporates and SMEs. And the 11 basis points goes for our current accounts for retail customers. So like we have already been doing in other markets for corporates and for SMEs, we will also now start to charge negative rates above certain amounts for these corporates. We apply also schemes in Germany, for example, whereby if people open a savings account only, then we charge negative rates to also nudge customers to either do more business or to do business with ING. But if they only apply for savings accounts and that you can call, in that sense, behavioral fee, we charge negative rates. So we do that in different ways and shapes to protect our P&L and to nudge clients in the right direction, not to unnecessarily stall deposits at our bank. And that’s what we will continue to monitor. With regard to pricing, I mean, basically, with the TRIM missions that we have had already, including the TRIM mission on the large corporates, for which we have taken a further impact this quarter, so the full corporate large TRIM effect is now in. We still have only 2 TRIM missions to go on Trade & Commodity Finance and OMFI. The impact of that will be limited. So hence, by and large, the input of TRIM has come in for us. And hence, the capital uncertainty for us has been lower. As I told you, the biggest impact of all the regulatory capital changes is not so much Basel IV per se but also the change in the models that we had to make a definition of default and other TRIM missions. And hence, we have been able to actually lower our capital requirement level to 12.5% as an ambition. And that means that we can become more competitive as we can price off a lower Common Equity Tier 1 level as compared to previously where we would price to our clients based on a Common Equity Tier 1 level of 13.5%. So in that sense, we are improving our competitive level.

And Stefan, to answer your 2 other questions. On FX, I wouldn’t characterize it as one-off, but the impact on the differential interest rates between dollars or Turkish lira against the euro has already happened significantly in Q3. So we don’t expect that drag to be very significant going forward in the coming quarters. So that’s answering your first question. And in terms of TLTRO III and when we would book the potential gains, that’s really a management judgment when we are virtually certain that, that income will come. So it’s our decision. But of course, we do that in consultation with our auditors. And we will take that decision when we have reasonable confidence.

Our next question is from Mr. Omar Fall of Barclays.

Just firstly, how much of the decline in the core lending was related to the protective drawings being repaid? And are you saying now we are at the trough of volume growth in Wholesale because, in some ways, it feels like this business is shrinking forever, particularly with this restructuring you’ve announced today? And then on that same note, in Wholesale, why didn’t you take this opportunity to deal with financial markets? The business has made an ROE for -- it goes through its cost of the capital in basically almost a decade. So wouldn’t it be an obvious candidate for restructuring? And then -- so I think I misheard that the changes to the Maggie program are completely unrelated to the Unite program, right? So could you update us on that one and potential cost savings there?

Thank you, Omar. If you look at the decline in core lending, that was -- that came from the emergency drawings that was around €5 billion. So the largest share of the decline came from lower corporate demands as companies repaid their emergency drawings. And we have been seeing lower economic activity, and it also means lower investments. At the same point in time, we see that also in our payment business, activity has gradually been moving up again. We see increased demand coming from Asia and the U.S. So at some point in time, when companies will start to invest again, that also will then have an important effect on loan demand as well. Why not have an opportunity to deal with FM? We look at our return on equity on an integral basis. And hence, we do not compartmentalize different elements because you shrink the glory. We need to make sure we are a client-driven and customer-focused bank and means that in that integral part, we want to make a 10% return on our CET1 ratio, and that’s how we see the business. Nevertheless, we will continue to look at businesses or business lines or countries that perform sub-hurdle. And if that is sustainably also through the cycle, then we will need to take action, like we have taken action right now. With regards to Maggie, yes, that is unrelated to Unite. At the same point in time, a complexity that we saw in Unite, we’ve also seen in Maggie by the integration of local engagement layers and product elements is proving to be difficult. But we have been learning, and we’ve always talked about getting to -- from an intermediate state to an end state, if you will. And now we are in a lucky circumstance that we have built a number of our modular blocks. We’ve built our software blocks in terms of TPA. We’ve built our cloud. We’ve built our Data Lakes. We’ve built our global product propositions, including the insurance proposition that we have with AXA. We have already built an app environment in the Benelux and in Germany that is the same. And hence, we can use all those building blocks also in the countries in C&G, and that’s how we redirect both the scalability and end-to-end digitalization of the project. So that is -- they’re separate. On Maggie, we took a provision for capitalized software of €140 million this quarter. In the next quarter, the provisions will be taken for cost savings. If you look at the 1,000 FTE, approximately 600 relate to Wholesale Banking and approximately 400 relate to Maggie.

Got it. And sorry, as just a cheeky follow-up on the TLTRO. How is the balances spread or the allocation across the divisions just so we can get a sense of, for our modeling, the impact on NII and NIM?

Cheeky questions, I always pass on to Tanate.

So I think, Omar, the TLTRO is related to lending within the Eurozone. So if you want to see how we are doing, it’s really trying to look on a geographical basis for loan growth within the Eurozone. That would be the case for you to follow up in subsequent quarters.

Next question is from Mr. Benjamin Goy of Deutsche Bank.

I hear your comments on the regulatory inflation, and you talked a lot already. So just wondering on the Basel IV ratio where you’re currently standing? Also, I guess, Dutch mortgages at some point could come in. So how this compares to the 12.5%? And then secondly, on your fee income, I guess this will gain importance going forward. The €200 million of fees from investment products this quarter, very nice growth rate. Just wondering how much is driven out of Benelux and Germany probably next. But any other countries where there’s already a significant contribution? Any color would be appreciated.

Thank you, Benjamin. On RWA inflation, like we said previously, all these regulatory elements, DoD, TRIM, changing models, Basel IV have, for us, been largely taken into account, except for the final Basel IV output factor. Other than that, the impact for us is, from now on, almost benign. Hence, we have been able to take the CET1 level down to 12.5%. Assuming that Basel IV would be fully implemented in 2023 and then leading gradually up to 2027, that total impact will be around 50 to 60 basis points over the years. And hence, for us, it is a very -- it is a readily minor part of all the impacts. And hence, with TRIM and DoD, we’ve basically had it, if you will. So that’s good. On the fees, yes, typically, we come from an environment as a digital bank with our direct banks in different countries, whereby we had a very, very low fee share and investment products, in that sense, were actually not very well developed. And hence, we are now starting to do that. And you see now the first growth of that in Germany. We’re also rolling out investment proposition in other countries. So you should be able to see that space grow. But if you see that compared to the number of clients that we have compared to our peers, we’re still at a very low level. So in that sense, there is lots of upside potential in that investment product fee business.

Next question is from Mr. Kiri Vijayarajah of HSBC.

Just a couple of questions. Firstly, coming back to the pullback in the Wholesale Banking from Asia, LatAm, can you just give us a feel for what kind of sort of volume RWAs or revenue impact we should be thinking about? And timing-wise, when does this shrinkage get underway? And is it also fair to assume a lot of it’s going to overlap with your oil and gas commodity and shipping book? And then the second question is on capital, more just -- really just a technical point because I think at the first half stage, you were letting your profits flow into CET1 capital. But then I see at the third quarter stage, you’re not letting the profits flow into CET1 capital. So sorry if I missed it, but what’s the thinking there? What’s the -- have the regulators said something there? So just some color on that sort of moving parts on your CET1 capital, please.

Yes. Thank you, Kiri. On Wholesale Banking, it’s not so much a matter of shrinking of volume in RWA because we will continue to service a number of those clients from regional hubs in New York and Singapore and Hong Kong. It’s basically an efficiency measure, if you will, to service those clients from hubs rather than from all kinds of different offices. And hence, we will close down 3 offices in South America and 4 smaller offices in Asia, but these are small offices. So we have Mongolia and we have Thailand, and we have Kazakhstan and we have Malaysia. And in Latin America, it’s Brazil, Argentina and Colombia. But if you look at the total in Wholesale Banking, the number of people involved is still relatively small. We are actually able, across the Wholesale Bank, to actually service our clients with less people. So this also does not have an impact on the oil and gas book or shipping, if you will. We already said that we have put part of those books in rundown, but this measure has not an effect on that. If you look at the background on why we did not add net profit of the previous quarters to CET1 is basically because at that point in time, we did not have a dividend policy because we aborted or delayed our dividend policy as of the first quarter. And since we now resumed in the third quarter, we added the entire profit of the third quarter in it as sort of a catch-up.

Next question is from Ms. Giulia Miotto of Morgan Stanley.

A couple of questions from me. So first, from a strategic point of view, you made some clear announcement on capital and some announcement on costs. But I was wondering, should we expect an Investor Day with, for example, more clarity on cost direction or revenue initiatives? Or really, you have taken a look and this is -- these are the only initiatives that you plan to announce over the next 12 months? So this will be my first question. Then the second question, just going back to the 50 to 60 basis points that you mentioned for Basel IV, and -- how are you thinking about the mortgage overlay from the DNB? I know that this has been postponed, but in theory, it’s still in the cards at some point. So is that included in this 50, 60 bps or would that be on top? And then if I can just ask a follow-up on the IT, Slide #4. The product platforms, so insurance, investment, consumer lending, does this mean that now, finally, whenever you launch a product, that will be launched across the board to all your markets so we should be -- we should see a faster ramp-up in fees?

Thank you very much, Giulia. Starting top to bottom with your questions. Like I said, I want to -- and like I said also previous quarter, I’m reviewing all business lines and all business that we have in ING. And if there are measures to be taken, I will -- we will take them, and we will -- and I mentioned in my presentation execution certainty because I want to avoid announcing big megalomaniac plans for long term that are not executionable. So when we see things happening, we take action, and we make sure we get to execution of what is coming. So if there are new things to be done, then I will announce them at that point in time. So -- and we will take it from there. So in that sense, there is not a current plan for an Investor Day with additional direction. But I’m sure that the IR team will discuss this further with you. They’re already looking very happy. So with regards to the Basel IV impact and the mortgage overlay of DNB, the DNB overlay did not come because the further growth in mortgages did not come and there was also not a big increase in lending elsewhere. So it was a protective measure that the DNB would put in place. But in the current circumstances, it was not deemed necessary anymore. If it would still come, it would be a front-running of Basel IV. And hence, it is included in that 50 to 60 basis points. In Retail, yes, we have -- of course, in the past, we have developed products locally, and there are still local products. Some products are local in -- for example, in Italy, such as loans related to people working in certain companies that do not exist elsewhere and there are also products that can be applied more globally. So we will -- next to the local products that we have, we will also start to roll out these global products so we can easily make them scalable across more markets, which is, from both a revenue and cost point of view, more effective and efficient.

Next question is from Mr. Thomas Dewasmes from Goldman Sachs.

I had 2 questions, please. One on capital targets. Am I correct in understanding that your current 12.5% target and 200 bps MDA buffer already includes the planned increase in countercyclical buffer down the line? And the second question is on fee income, please. Mr. [indiscernible] said recently that banks would consider growing those lines, possibly incorporate asset managers in their whole business plan. You often talked about AXA and your initiatives there. Could you talk a little bit about what you’re doing in the Netherlands in asset management and insurance to improve that line, please?

Thank you, Thomas. On the first question, the answer is yes. So the 12.5% already includes potential increase in countercyclical buffers at some point in time. And so that’s why I said some parts of the decrease will be structural, some parts will be temporarily. But in our buffer, we have taken into account that the countercyclical buffers may come back. With regard to the article of Mr. [indiscernible], I will answer it in 2 ways because the article that he wrote was mentioned in a different way, and that was meant that he stated in the article that Europe would benefit from the setup of an asset management company for loans that were not performing to then deal with those loans and, i.e., function, if you will, a sort of a bad bank. And that was something to further support the European economy but also the banking industry. Now if I speak about ING, we have a very healthy capital level, a very good risk management and low NPL level. So I don’t think that is needed for ING, but I think that was the reason why he wrote that article. That was the context in which he wrote it. If I answer you, and that’s the second part, and more directly, if you look at our insurance businesses or the sale of insurance and the fee that we make on that, again, since we came from an environment with our direct banks, which actually had no fees whatsoever, in the past, these banks were saving banks. And gradually, they moved into mortgages, and gradually, they’re now moving into fees. We’re actually punching well below our weight in developing our fee business, also in insurance and also in brokerage. And hence, you now see, since we are stepping up to the plate, for example, in Germany, that has given us a big boost. And this is exactly the area that we need to increase in as we came from these small amounts in the past.

Next question is from Mr. Guillaume Tiberghien of Exane BNP Paribas.

My first question relates to the net interest income. If I look at consensus for next year, the consensus is around €3.47 billion per quarter. You’re running at €3.3 billion. So I wanted -- obviously, there’s €140 million mix -- sorry, [indiscernible]. And a big chunk of that is due to the FX ratio hedging. But I wanted to know whether we simply need to take the current run rate and back the FX ratio hedging and then slip from that given the pressure on deposit margin, or can we stay stable from that level? The second question relates to the wholesale division. And you explained that given the lower equity Tier 1 target, you can price, I guess, at a lower price given that you’ve got less of a capital requirement. But don’t you think that prior to the reduction in the equity Tier 1 target, you actually had to increase your price in order to meet satisfactory return on the previous target? So I’m a bit confused whether you intend to price at lower rates or still improve the discipline in Wholesale.

Yes. That’s a good question. Let me say upfront, we price to -- first of all, we’re part of the market. And we -- therefore, we are not setting the price of the market, but we price what is the market price. If we could direct the price of every market, then I’m sure that we would be talking to some regulatory authorities. But it’s just a market price that we take or not take, and in that, we will see whether it makes our return. Clearly, if it doesn’t make a return, we will need to price up. And hence, it may also mean that if we price up and others don’t, that we actually may not get the deal or the transaction. Now -- so the fact that we go to a lower capital targets gives us more room to still win the transaction and still make adequate return. But first and foremost, we price at markets. And we want to make a sustainable return through the cycle with our clients. So in bad times, sometimes you see the returns becoming a bit lower. But through the cycle, you have seen that we have made an adequate return. So that’s how we deal with that. On NII, I give the floor to Tanate.

Yes. Just to explain a little bit about our view on NII. Clearly, there are 3 components to why the NII is compressing that you see in Q3. Part of it is to do with the FX impact that we discussed on the corporate line, and that -- we don’t see that going forward as being a bigger challenge given the fact that the rates are normalizing in our books already. So that’s one. The second, I think, in the Wholesale Bank, as you mentioned, that it really depends on the prospects for loan growth in the future. But we also see that we are not seeing further decline, for example, in the Trade & Commodity Finance activity. That is plateauing. So again, depending on the future, we don’t see too much further compression because of that and potentially growth as economies return to more normal levels. And then the last piece is really the negative rate compression that you see, particularly in the retail bank. And as Steven mentioned, we have already taken actions with respect to negative rate charging in the Netherlands, in Belgium. And yesterday, you see the announcement of charging for negative rates in Germany that has been executed as well.

Next question is from Mr. Raul Sinha, JP Morgan.

Can I have 2, please, as well? The first one is just on dividends. If the ECB were to allow dividend payments next year, are you intending to pay the 2019 reserve dividend to the €1.8 billion roughly as well as 50% for 2020? Otherwise, I’m struggling to understand why you’re accruing the €788 million that you have taken in the third quarter. So that clearly implies you intend to pay into 2019 as well as 50% payout for 2020. If you confirm that, that would be helpful. And then the second one is a broader question on the return on tangible equity target that you’re reiterating the ambition of 10% to 12%. I’m really struggling with that, I have to say. I mean you’re at 5.1% this quarter. The cost of risk is not that far away from a through-cycle normalized level. And in terms of your sort of cost messaging put against the NII pressures, it doesn’t look to me like that it’s going to be a very significant step-down in the cost-to-income ratio. So even if I sort of rightsize your capital base, which I suspect will take you many, many years to do, what am I missing that would double your returns from the current capital?

If you -- thank you. So if you look at the ROE ambition, if you look at the past 5 years, we have largely met that ambition. And only this year, we are significantly below the ambition. And we continue to look at costs and diversifying our business into fee business to get back to that 10% level and that we’re helped by a lower return hurdle of 12.5% compared to 13.5%. Please note that also, if you look at this year, it’s being modeled by many provisions that are currently being taken. But also -- and I know that the risk costs that we had in this quarter were around €470 million. But if you look at the previous years, the risk costs were a lot lower still at between €600 million and €1 billion. So those are different elements. You clearly see that in that sense also, IFRS pulls forward risk costs. So if there’s no changes in macroeconomic circumstances, you would see those risk costs from IFRS coming down. And hence, we’re still focused on that ROE ambition of 10% to 12%. With regards to the dividends, yes, so we have reserved €1.8 billion. We have reserved the amount in 2020. And if we would be allowed to pay it, we will pay it out.

That’s really helpful. If I can just follow up on the ROTE point. I suspect the cost-to-income ratio is obviously going to be a key driver of the improvement going forward. And I think you referred to how low rates have impacted, structurally, your cost-to-income ratio. Should we think about the ROTE ambition as something which also considers a normalized rate environment?

Yes. Well, of course, I mean a normalized rate environment will help, but that’s not what we’re currently in. So we are currently dealing with what is the current rate environment, and we will -- in this environment, we currently take steps to get to the right level of return. And as we said before, if we cannot price to the right return, we will not grow our business and give capital back to shareholders. But we’re very much focused on, again, making that return. It needs to bring us back in a normalized risk environment, I would say. But other than that, we take the current forecasts as they are in our medium-term plans.

Next question is from Mr. Tarik El Mejjad of Bank of America.

Just a quick question on costs, please. Just Raul said, I mean to bridge the gap with your 10% to 12%, clearly, cost is a key component. And I guess CET1 ratio and capital as well is another one as the denominator will come down. So on the capital first, I mean I understand you want to take your time and have visibility on how the pandemic could evolve. But I guess you’re taking that action through your provisioning Stage 1 and 2, so on. So why this extra level of cautiousness there, which basically will delay as well, I guess, the profitability recovery? And then on costs, I mean it would be really helpful to give us a sense of how much savings you could generate from the projects you’ve announced today, or should we have to wait for Q4 to get these savings numbers?

Yes. On capital, the reason why we have done this is that we are in a second wave of uncertainty with, yes, the name says it, the second wave of COVID-19. And if we would not have taken a management overlay, that would have -- excluding the Stage 3 provisions, we would have had a release of €380 million risk costs, so negative €300 million risk costs. And why is that? Because IFRS, in our Stage 2, looks 3 years ahead. And every quarter, that means that the last quarter of economic development falls off and then the new quarter in 2022 comes on. And it gradually means that in your models, you get a positive, and the negative ones fall off. And that’s what we see because we had a very negative quarter in the second quarter, that is then taken out, and then you then add a quarter in 2022. Now we’ve not done that as we are in a second stage or lockdown stage. And therefore, we say, well, we do not see in our models what we normally would see. If GDP would come down, then you would see defaults, but we don’t see that many defaults. And in a normal crisis, you would see those, but we don’t see them yet, and that may have to do with the measures that are being taken left, right and center by governments and the ECB and the Fed and what have you. Secondly, we have a number of clients in payment holidays. Also, there, we don’t see that much. As I said, of the €20 billion, €6 billion, it has already resumed a normal payment schedule. But there is no increase in terms of payment default compared to what we normally see. Now there is €14 billion remaining, but in that €14 billion, there are still a number of SME and mid-corporate companies. Those companies are typically the hardest hit in this crisis with a number of higher risk sectors. And for those, we’ve taken additional provisions. So yes, it is cautious, but I think that is prudent in these days. And as soon as we have the visibility, then these costs will be released. Sorry, you had a -- then on second question, I will go to Tanate.

So I think the steps that we make is we make this announcement today about the reduction of the 1,000 FTEs. The next step for us is to be in consultation with our various different workers, councils and unions to basically inform the affected employees. And in Q4, based on the mix between internal and external staff, then we would likely announce some kind of a redundancy provision at that point in time. To address your question about how much the cost reduction would be, I think you can assume a certain FTE costs and then make your calculations from that. But this roll-off will happen starting probably the beginning of next year. So we’ll give more clarity in Q4, but I think you can do your own internal calculation based on this information.

And to follow up on costs. I mean to Steven’s comment that you will do -- announce measures as you see them materializing and as you identify them instead of having like a get-together strategy there, are you working now on another project than Maggie or scaling back? Or can you -- are you envisaging to work on something else?

I think as Steven mentioned, we will announce things when we believe to be appropriate and with a very high degree of execution certainty. So that’s a rhythm that we like to be in.

Next question is from Mr. Robin van den Broek, Mediobanca.

My first one is around NII. I’m a little bit confused still on TLTRO because I think you indicated you’re confident of getting the benchmark. And yes, it’s a management decision, and you haven’t put it in NII for Q3. So I was just wondering how to think about this. You also said the growth in U.S. and Asia is picking up, not so much in Europe. So if you would close your books today on the benchmark, are you there already? Or do you still need some growth in Europe? And I would just want to make the remark that I think French and Italian peers, most of them are booking this up to full 100 basis points. And I think in the Q2 conference call, you were mentioning that there would be, I don’t know, a coordinated effort that these TLTRO bookings would be similar across Europe, but apparently that’s clearly not the case. Secondly, I wonder if you could quantify the impact for NII from the rate-mitigation actions you’ve announced today. And lastly, a quick one. Are you going to also put the Q4 profit fully in your shareholder distribution bucket? Or should we expect some of that to go to the ratio?

Sorry, Robin, can you repeat the last question? So the second was rate -- impact rate mitigation action, and the last one is?

It’s basically your -- whether you’re going to accrue the Q4 profits in your capital ratio, yes or no, or that you’re going to add it to the dividend reservation.

Okay. These are all good questions. There are all questions for Tanate.

I think different banks take different treatment with respect to the threshold that you need to meet with respect to accruing the impact of the TLTRO III. Our internal view is that the date for the measurement is a one-off measurement in the end of March 2021. And we want to be virtually certain of hitting it before we book that particular income. So I don’t want to comment on how other banks do it, but that’s one. And the second one, I think, is on your question on negative interest rate. And with that in mind, the impact of the announced plans, whether in the Netherlands, Belgium or Germany, we expect to have an annualized impact of approximately €140 million on an annualized basis. So that will come through. And then the last question is whether we would accrue the net profit of Q4 into dividend. Yes, indeed, we are planning to do that. The percentage cost, we will try to land on what ultimately gets us to the 50% over resilient profit. That’s what we’ll do in Q4.

Following question is from Mr. Farquhar Murray, Autonomous.

Just 2 questions from me. The first is just on the deposits, which is actually a bit of a follow-up to Robin’s question there on the mitigations. But can you give us the numbers around how much deposits fall into negative rates in the fourth quarter and the first quarter, which I presume is behind the €140 million you just gave? And then secondly, just on capital management. Can you give us a little bit of an outline of how you’re going to think about the split potentially between cash dividend and share buybacks when you reach those decisions? Is it going to be -- and when you talk about predominantly, what’s the maximum amount of share buyback you’d expect to do within the total capital return in a given year?

I will give to -- on both of these, I will give the floor to Tanate.

So in terms of deposits, Farquhar, we don’t disclose that information, but you can see that over the course of the last 12 to 18 months, the level of threshold is declining deeply, right? We started with the Netherlands at €1 million, then €500,000 and now €250,000. In Belgium, from not charging at all, now we go to €1 million threshold. And we started introducing it in Germany for accounts opened with us, about €100,000. So you can imagine that the threshold gets lower and lower over time. Then on the stock buyback, to you, Steven?

Yes. So what you can expect, Farquhar, is that we will pay out a majority in cash. We do not comment at this point in time how much we would think about doing in terms of buybacks or -- stock distribution or buybacks. I mean that depends on the price at the prevailing time to the intrinsic value, and that’s how we look at it. But as soon as we start to make the distributions, we will announce it as well.

Okay. But it’s very clear that price clearly will matter. And presumably, do you think your stock is cheap currently?

We have no comment on our own share price. But I can only say we’re trading below book.

Next question is from Mr. Jason Kalamboussis, KBC Securities.

A couple of things. The first one is on AXA. It’s often mentioned, but the contribution to results is still insignificant. When do you expect this to start being more significant? And do you expect to have more such deals now that you showed how you are structuring, if you want, the products? The second question is on costs. With this change in the model bank, basically, what we are missing is that before we would have had a number of IT systems being decommissioned. That was a bit of a long-term plan, but it’s still something that we -- is not going to take place. Are there, therefore, other structural areas where you can see potential for cost efficiencies? And finally, just to -- again, on costs. You are reducing now by 1,000 FTEs, but your FTEs basically are standing at around 56,500. In 2019, they were 54,500. So it looks like you have -- over the last 3 years, you have had a significant increase between 2% and 4% of your FTEs. So could you give us a bit of your thoughts on this and how you position this reduction of 1,000 versus the larger increases we have seen over the last 3 years?

Yes. Thanks, Jason. Indeed, we have a partnership with AXA. We have been rolling out a number of products in 5 countries. We keep rolling them out as we speak also in more countries. So that contribution will grow over time. We also have a collaboration with Amazon, for example, in Germany, where we are on their SME seller platform so that we can sell loans to SMEs. And we will continue to develop these partnerships either with others or do them ourselves, but actually provide then a differentiating experience, i.e., insurance or travel insurance only when you need it that you can gain through your app rather than having an annual insurance that you pay for each and every month. With regards to the cost and the structure area for cost efficiency, all the elements that I mentioned, so both the foundational building blocks, including our modular software, which we call TPA, including the use of our clouds and including the use of our Data Lakes, are meant to be consumed by each and every entity as to avoid that we need to develop things 2, 3 or, if you look at all the retail activities, 13x. And hence -- and the same goes for all the app components, and the same goes for -- also goes for the global product solutions that we roll out in different countries. That is meant to actually avoid double cost, and we should see the benefit of that coming in. With regards to the FTEs that you see, it’s a good point. Those are actually the internal FTEs that we have. But next to that, we also work with work packages and external FTEs. And what you have seen over the past year or so is actually a shift from more expensive external FTE to less expensive internal FTE. And hence, that figure does not give you the complete picture as you need to look at it from an overall point of view.

If I may just follow up on the last question. Is there a lot more to be done on that front?

Yes. I realize that some of you are asking the same question in a different way. And as I’ve said before, I will be focused on costs. And the nose of the plane with the cost needs to come down. It has been going up for the past 5 or 6 years or so, and the nose of the cost will come down. And that’s what I work on. And as soon as I have something to announce with projects with execution certainty, I will announce it.

Next question is from Ms. Anke Reingen from RBC.

Yes. Actually, I wanted to ask the same question on -- in a different way. But like on the cost -- is flat cost, is that realistic? Or does nose down even mean you could bring them down under sort of like normalized environment? And then just lastly, a small clarification. When you talk about the NII pressure, is that including the benefits from the TLTRO or excluding?

Yes. Yes. Thanks, Anke, for -- at least, it’s good that you said that you’re going to ask the question in a different way. But I said down. So I didn’t say flat, I said down. The nose needs to come down, and it will come down. On NII, currently, it is excluding the TLTRO, the benefit of that when we take it because that’s towards the end, and that’s also what it says. You need to meet it at the end, and the end lies in 2021, so in March. So if we book it, it will be then.

So you -- so the excluding -- so is it fair to assume the TLTRO might offset the structural pressure on NII?

Well, it does not offset at all, but it gives us a benefit given the amount that we got from TLTRO. So -- and that’s a significant amount. I think, Anke, we disclosed already earlier, the amount of that benefit will be €300 million.

Next question is from Daphne Tsang, Redburn Europe Limited.

Two, if I may. So on -- first, on NII, can you give us some color on where you think NIM will go from here? I mean, quarter-on-quarter, it’ pretty weak, but the denominator effect from picking the sizable TLTRO III is certainly a big factor there. But just thinking about -- now that you have lower capital ambition and that you -- it means that you have high competitiveness, does it mean that you’re happy for NIM to come down going forward to stay competitive, assuming the profitability angle still fits your criteria? And also, as part of my NII question, if I can say that, what is the additional or incremental negative charge coming next year versus this year? Because some of the lower threshold and the charging -- the new charge on more customers are actually effective from January next year. So regarding the €140 million that you mentioned earlier, is it the annualized amount next year or this year? Just trying to think if there is any tailwind. So that’s my first question on NII. And then secondly, on costs. I totally get what you’re saying about taking a look at the cost base and see where you can see more initiative with higher -- with high execution certainty that -- at which point you will announce. But actually, taking a look at Q3, what have you done in Q3 to lower cost? Because quarter-on-quarter, even adjusted for the impairments, you are kind of flat. Year-on-year, you’re up. Assuming KYC cost is there, but you’re -- surely, you have taken some underlying costs out. But can you give more color on what actually happened in Q3 on your costs?

Yes. Thank you very much. I think that on costs, I mean please note that you need to continuously look at where you cut since CLA’s costs will increase every year. So to maintain flat, you need to cut. But as you may have seen in July of this year, we have been announcing that we will close a number of branches in the Netherlands. COVID has shown us that the digital direction that we have is proving to be the right one. Clients have actually increased with higher speed digital interaction that they have had with us. So we will continue to look at our branch footprint, and we’ve also done so in the third quarter. And hence, you see the costs being largely flat, but that includes also a provision for branch closures. With regards to NIM and the €140 million annualized negative charging, I’ll give the floor to Tanate.

Thanks, Daphne. I think if you -- let me kind of break it down with respect to the 6 basis points reduction that you see in our NIM this quarter. I think about 2 basis points is the impact of the arbitrage between FX, the interest rate arbitrage U.S. dollar, Turkish lira against the euro. So we expect that 2 basis point reduction to be the end of it given the fact that these rates are already in our numbers as of Q3. About 2 basis points is related to the balance sheet extension because of TLTRO. But of course, we don’t book the income there. So that represents another 2 basis point of reduction. And the third is a combination of the negative rates, margin compression in our deposits and somewhat lower volume. So you can see that is the 3 legs of why our net interest margin is down by roughly 6 basis points. We, of course, over time, would expect to try to increase our net interest margin through various different actions that we discussed, whether it’s pricing discipline, whether other actions. And in terms of potential charging of further negative rates, we don’t comment on that. We will announce as we take decisions, of course. And as Steven mentioned, the effects of actions we’ve already taken is approximately €140 million on an annualized basis.

And that’s €140 million on an annualized basis for next year?

It starts now, in fact. So it’s over Q4 into next year, yes.

And we have a follow-up question from Benoit Petrarque, Kepler Cheuvreux.

On the collective labor agreement for the Netherlands for 2021, what can we expect? Because that’s been pretty negative in ‘19 and ‘20 in terms of salary inflation. What is your pitch to unions going forward?

Well, the pitch is clear because that has been in the newspapers. And so the pitch was 0% increase. And the unions have reacted differently. But those discussions are just starting, so we need to go through those discussions first.

And we have a follow-up question from Robin van den Broek, Mediobanca.

Sorry to come back in the queue again. Just one conceptual question for you, Steven, because I feel bad that I directed all my questions to Tanate. But Lagarde is thinking about digital currency. So I was just wondering if you could highlight your, I don’t know, the opportunity sort of headwinds that could come out of that for ING specifically?

I’d rather have Tanate’s question asked to be honest. So thanks, Robin. So -- I mean on digital currency, I think that what the -- what the intent of it is that it is a backup in case there would be a nonfunctioning banking system. So that is actually a -- it deals with, let’s say, we would call it, a tail risk. In case banking system, for whatever reason, would stop functioning, then how can people still get money? And that is the background of the digital currency initiative. It, of course, also has its backdrops because does it then also mean that central banks need to retain certain levels of capital, and to what extent do you then make -- give access to consumers and to what extent not? So, I think that we’re following the idea with interest. And of course, also part in working groups to give feedback on that. But that was the idea about that. It was not so much meant as using it as a Bitcoin or something like that, but much more as, I think, a backup in case there was a systemic risk for all the banks not to function anymore at the same point in time.

And we have a follow-up question from Stefan Nedialkov.

Me again. Just a quick one. I think this question got asked earlier, but I might have missed the answer. Are you planning on having a sort of Investor Day/Capital Markets Day in the next few quarters?

Yes. Well, the question was asked before, not exactly in the same way, but we have currently not necessarily any intent to do so, to have that Investor Day, but I already said to one of the previous people who asked the question, I will defer this to Mark Milders, the Head of Investor Relations, to actually contact you to see when and if that will be appropriate.

We have no further questions, sir. Please continue.

Yes. Thank you very much. Then I will wrap up. So summarizing again, we continue to help our clients. We had good underlying results. We have announced a new CET level and dividends. I will thank you for all your questions today, and I will speak to each other next quarter. Thank you.

This concludes the quarter three 2020 analyst call. Thank you for your attention. You may now disconnect your lines. Thank you, sir. Bye, bye.