Good morning. This is your operator welcoming you to the ING's 3Q 2022 Conference Call. Before handing this conference over to Steven van Rijswijk, Chief Executive Officer of ING Group, let me first say that today's comments may include forward-looking 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 statements is contained in our public filings, included in 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 solicitation of an offer to buy any securities. Good morning, Steven, over to you.

Thank you, operator. Good morning, and welcome to our third quarter 2022 results call. I hope you're all well. As usual, I'm joined by our CFO, Tanate Phutrakul, and CRO, Ljiljana Cortan. I'm pleased to take you through today's presentation. After that, we will take your questions. It has become a recurring theme that we operate in a challenging environment, and also recurring is that we performed well under these circumstances, with our strong positioning and strategy. I'm confident that we will continue to do so. That confidence applies to a successful execution of our strategy as well as delivering healthy financial results. I'm proud to see our people making an effort every day to create a superior experience for our customers and to support the transition to a more sustainable society. The results of these efforts were again visible this quarter in more primary customers, a leading NPS position in more countries, as well as more sustainable deals and volumes mobilized. On our financial results, the accelerating NII momentum is a clear tailwind, while fee income proved to be resilient. Expenses were well contained despite the increasing inflationary pressure from indexation and continued investments to realize our strategy. Loan growth continued with good growth in Wholesale Banking and a slightly slower pace in retail. Risk costs reflect our prudent approach of taking management actions to incorporate the uncertainty posed by the economic environment, and we continue to operate with a low stage three ratio and with confidence in the quality of our loan book. Finally, our capital position remains strong, which allows us to take another step in returning capital to our shareholders, as we announced today a distribution of €1.5 billion. Separately, although not a third-quarter event, I would like to address the ECB's decision to change the TLTRO program. As a result of changed conditions, we had to unwind our TLTRO related derivative position. The impact of this action, adjusted for our TLTRO benefit until November 23, 2022, will lead to a negative impact on pre-tax profit of around €315 million in the fourth quarter. Now before we go into the quarterly figures, I will spend some time on our strategic priorities, our outlook in the current environment, and the return on capital. Slide 3 clearly shows how the world around us has continued to change since our investor update in June, fueled by growing political geopolitical instability and high energy prices. Interest rates are forecasted to remain at a much higher level while inflationary expectations for 2022 and 2023 have increased significantly before being expected to taper off in 2024. Most surprisingly, this impacts the GDP outlook, which now includes a recession, although the expected economic contraction is still relatively modest. Overall, the impact of the energy shock is cushioned by two main factors. First, labor markets have been tightening following the pandemic; employers can be reluctant to lay off workers while those losing their jobs can't quickly find a new one, which lowers the risk of high unemployment. Secondly, while consumer confidence has been impacted, governments have been quick to offer large support packages in this cost of living crisis to help both customers and companies cope with high energy prices. Although bankruptcies can be expected to increase from the low levels seen during the pandemic, the impact of difficult external conditions on corporate sentiment is still relatively mild. For the near-term, uncertainty remains high, and it is hard to predict how things will evolve. We will manage through these times, while we also keep our eye on the longer term executing our strategy, which brings me to the next slide. Slide 4 shows a selection of actions we have taken the results for our two strategic priorities: a superior customer experience and sustainability. In our retail business, we introduced new products and solutions focused on digital-only and mobile-first offerings to provide that superior experience we strive for. For example, we introduced a new account in Spain co-created with customers that offers instant digital onboarding. On the business side, we co-created an app used in stores for easy access to contactless payments partnered with a large retail chain in The Netherlands. The hard work of our people in improving the experience for our customers has yielded good results, with the share of customers using only mobile going up by four percentage points, now reaching 57%. In seven out of our ten retail countries, we are in a leading NPS position, a step towards our ambition to achieve the highest NPS score in all ten retail countries. This supported further growth of our primary customer base, as we added 139,000 primary customers this quarter, bringing the total to 14.4 million. On sustainability, in retail, we introduced eco-mortgages in two more countries, Germany and Italy, supporting our customers' transition to more sustainable homes. We will continue to expand our green product offering in line with our targets to have a green alternative for all our key retail products by 2025. In September, we published our 2022 client reports and updated the intermediate 2030 targets for the sectors covered by Terra. In wholesale banking, our colleagues' efforts on financing the transition have paid off, with both the volume mobilized and the number of sustainability deals growing compared to last year. As we continue to focus on executing our long-term strategy, our near-term financial results are affected by the changing world around us. To start with the rate environment on Slide 5, that shows the positive development for ING. We have mentioned before that we will benefit from high interest rates, with the benefit coming over time as our replicating book gets reinvested against higher rates and depending on the speed of pass-through. During our investor update, we gave you an estimate based on the sensitivity of our retail Eurozone book with an illustrative instant 50% pass-through scenario, which already provided insight into the potential upside. As we have seen the growth steepening since then, the upside has increased. The updated sensitivities include an illustrative gradual pass-through scenario to reflect the increased asymmetry with the replicating results in an environment with such rapidly rising interest rates. The sensitivity analysis clearly shows the increased NII tailwinds for the coming years. Already, after years of downward pressure from negative rates, the boost in liability NII is visible in our results. Then on to Slide 6, first, on how the outside world affects our cost base. The impact of increasing inflation rates does not require much explanation. We have talked about it before; that impacts our staff costs this quarter mainly through indexation. As an example, the bimonthly indexation required in Belgium has driven staff costs there up by more than 7%, a number you can't fully offset with all the good actions taken in Belgium to restructure the service model and change the footprint. Next, indexation in several countries. We announced voluntary compensation to help our people cope with rising energy prices, and these one-off amounts will be booked in the coming quarters. As mentioned, we continue to invest in our long-term performance and in digitalizing customer journeys and marketing campaigns to ensure we keep increasing the number of primary customers as the base of our future success, and going forward we steer to keep cost growth below the inflation rate. Then on to cost quality. Why I'm addressing the topic here is because we generally see thematic concerns from the outside world increasing as the economic environment becomes more challenging. I want to emphasize that we don't always share these concerns. We are confident in our asset quality, a conviction underpinned by a solid risk management framework and proven by our strong track record. To highlight some characteristics of our loan book that support our confidence, our retail lending primarily consists of mortgages, with only a small consumer lending book, and we operate at low LTVs, focusing primarily on affordability. To illustrate, our largest mortgage book is in the Netherlands, where 94% of the book has an LTV below 75%. In general, home ownership is concentrated among higher-income groups, who are the demographic more likely to have savings and less likely to be affected by layoffs. During the Global Financial Crisis, we did not experience material losses in this book. With a better risk profile now, we have no reason to believe it will be different in the current situation. On the loan book to companies, the majority of our lending is to large companies with a focus on investment-grade credits. These companies are not immune to e-commerce challenges; however, they generally have larger buffers to withstand economic headwinds. Then, moving to Slide 7. Over the past years, we have built a strong track record of delivering attractive yield to our shareholders. Going forward, ING continues to represent a good investment case with consistent strategy execution, income growth, well-maintained expenses, and strong asset quality. Combined with our strong capital position, we are in a position to return capital to our shareholders. I'm pleased that today we have announced another step in converging to our targeted CET1 ratio of around 12.5% with a €1.5 billion distribution. We aim to execute as much as possible in 2022 via a share buyback, with any remainder to be distributed in cash on January 16, 2023. Now let me take you through our second quarter results, starting on Slide 9. Our pre-provision profit was up almost 90% year-on-year and 9% quarter-on-quarter. I'm happy we realized another very good quarter in today's markets. As mentioned in NII, we see the impact from the improved yield curve. The drag on the liability margins from negative rates in the past years turned into an increasing tailwind. We also continue to benefit from higher rates in non-Eurozone countries. On lending NII, the picture was slightly different as client rates generally track higher funding rates with some delay. Prepayment penalty income continues to level off to more normal levels, although quarter-on-quarter, we see that effect bottoming out. Looking at the European Airlines, fees in daily banking continued to grow while uncertainty impacted fees on investment products and lending. Overall, with 4% fee growth realized year-to-date, we continue to target an average of 5% to 10% annual growth. Operating expenses reflected inflationary pressure, mainly in staff costs. Overall, with measures taken to control expenses, we contained the upward pressure and kept cost growth well below inflation rates. We did see some volatile items this quarter, including the previously announced expected impact from the Polish moratorium. In Belgium, we had an exceptional €288 million hedge accounting impact, with a mirroring positive impact to be recognized over the coming years. We also added €75 million to the compensation for customers on certain Dutch consumer credit products. Then we move to Slide 10. Year-on-year, NII was up 8.5%, excluding the expected impact from the Polish moratorium, mainly due to the accelerated recovery of liability margins I mentioned earlier, combined with a higher VIX ratio hedging results. We continue to see some pressure on lending margins in the third quarter, reflecting a delay in tracking higher funding rates and lower prepayment levels of mortgages, although we see this bottoming out. Quarter-on-quarter, NII was up 6.1% excluding the Polish moratorium, again supported by improved liability margins, offsetting some remaining pressure on mortgage margins due to the reasons I just cited. Excluding the Polish moratorium, our net interest margin for the quarter was up at 142 basis points, mainly reflecting the higher NII on liabilities. Slide 11 shows net core lending growth. In retail, mortgages continued to grow mainly in Germany and the Netherlands, although at a lower pace reflecting an overall slowdown of demand driven by uncertainty. Lower net core lending and business lending was mainly visible in Belgium. In Wholesale Banking, loan growth was mainly visible in lending, partly offset by credit multi-finance, reflecting lower commodity prices. Going forward, with increased macroeconomic uncertainty, we expect loan demand to be subdued. Net customer deposit growth was €10.5 billion, mainly driven by retail, with a continued inflow especially in Germany. Wholesale Banking also recorded an inflow, mainly visible in our cash management business and financial markets. Turning to fees on page 12, which show resilience despite growing uncertainty that affected the appetite for both investments and lending. Year-on-year, fee income was stable. Daily banking fees continued to grow this quarter by an impressive 26% compared to a year ago. This reflected growth in primary customers, the increase in payment package fees, and new service fees. Lending fees were down slightly, while in investment products, fees continued to show the effect of lower stock markets and less trading activity. Sequentially, we saw the same development with 8% higher daily banking fees, while investment products and lending were lower, driven by uncertainty. Then Slide 13. Excluding regulatory costs and incidental items, operating expenses were up on both comparable quarters. As I explained, this is mainly the effect of high inflation rates coming in through salary indexation and CLA increases, while we also keep investing for future growth. Regulatory costs were down on both prior periods. Year-on-year, this was due to a lower deposit guarantee scheme contribution in Germany, and quarter-on-quarter, this mainly reflected a one-off contribution in Poland to a new institutional protection scheme in the previous quarter. Incidental items this quarter included a €75 million addition of the interest-on-interest effect to the compensation for consumers on certain Dutch consumer credit products and €10 million for hyperinflation accounting in Germany. Overall, in light of the current operating environment, especially considering the high inflation rates, I'm pleased with how well operating expenses were contained. Then on to the risk costs on the next slide, which were €403 million this quarter or 25 basis points of average customer lending. We booked €116 million reflecting updated macroeconomic indicators and recorded a net addition of €89 million to management overlays for the potential impact of secondary risk in the current macroeconomic environment. In total, we built up €520 million in management overlays. Risk costs also included a release of €77 million in Stage 2, reflecting a further reduction of our risk exposure. The increase in the Stage 2 ratio is mainly the result of a methodology change following IFRS accounting rather than a deterioration in the risk profile of our loan book. This change primarily impacts investment-grade exposure with a very small impact on risk costs. The Stage 3 ratio improved to a low 1.3%. The next slide shows the CET1 ratio, which remained stable at 14.7%. CET1 capital was €0.5 billion higher, mainly due to the inclusion of net profit for the quarter. RWA were up by €2.7 billion, including €3.1 billion of FX impacts. Credit RWA were up slightly when excluding impacts, reflecting some model changes, while the overall profile of our loan book improved. Market RWA were lower, reflecting a decrease in the capital multiplier for trading book positions. Furthermore, higher operational RWA reflected the update of the AMA model. Concerning our distribution plans, today we have announced that we will distribute an additional €1.5 billion via share buyback in 2022. Any amount remaining after the 31st of December 2022 will be paid in cash on January 16, 2023. Slide 16 shows our financial targets as presented during our investor update. The CET1 ratio remains well above our target of around 12.5%. Also, including the €1.5 billion additional distribution we announced today, the combined income ratio remains an important input for our ROE. We continue to work on our ambition of 50% to 52%. This will be supported by the acceleration of liability NII and continued customer growth. We keep our expenses contained and continue to invest in our scalable tech and operational foundation that will enable us to grow at a lower marginal cost. ROE came in at 6.8%, including some exceptional items over the past quarters and based on a high capital position. On the 12.5% CET1 ratio, the pro forma ROE was 8.9%. We maintain our ambition to provide an attractive total return and are well positioned to do so with continued growth of customers and income, a focus on managing expenses and asset quality while optimizing our capital position. To wrap up with the highlights of the quarter, our people make an effort every day to build a superior experience for our customers and to support the transition to a more sustainable society. We see these efforts positively reflected in primary customer numbers, NPS, as well as sustainable deals and volumes mobilized. Our financial results show that accelerating NII momentum is a clear tailwind, while fee income has proven to be resilient. Expenses were well contained this quarter despite the inflationary pressures of indexation in some markets and continued investments to realize our strategy. Our capital position remained strong, which also allows us to take another step in returning capital to our shareholders, as today we announced a distribution of €1.5 billion. Overall, in a challenging environment, we have delivered another good quarter. With our positioning and strategy, I'm confident that we will continue to deliver healthy financial results as well as the successful execution of our strategy. And with that, I hand over for questions.

Thank you. Our first question comes from Giulia Miotto of Morgan Stanley. Please go ahead. Your line is open.

Yes. Hi. Good morning. Two questions from me. The first one, I will start with capital. I think the €1.5 billion distribution with a clear commitment by the 16th of January was very nice. Can I just double-check that nothing has changed in terms of your commitment to ultimately get to 12.5%. Therefore, we should expect potentially another one with the full year results? The reason I ask is just because we keep seeing these headlines from DNB, for example, that banks should keep as much capital as possible, exactly et cetera, so just a confirmation of that would be helpful. My second question is on costs. So costs came in a little bit worse than what the market was expecting. Inflation is above what probably you were expecting last time you gave guidance. Can you tell us what you expect for costs this year, but most importantly next? Thank you.

Yeah. Hi, Giulia. Thank you very much. I'll take the question on capital, and Tanate will take the question on cost. I mean, on capital, look, we have said also during the investor presentation in June that we would gradually move to around 12.5% in approximately equal steps. We have also said that we are in constructive dialogues with our supervisors. As you can see, that constructive dialogue has now led to the €1.5 billion that we announced today. We are still at a capital level that is significantly above our target capital level and the requirements of our supervisors. To that extent, we will continue to be in constructive dialogue with the supervisors for also next steps, but we will only announce them when we will announce them. Regarding your remark on DNB, I think that the DNB made a generic remark about banks remaining prudent and therefore being mindful of keeping adequate capital levels, which is exactly what we do because we have a capital level that is significantly above what we target and significantly above what our supervisors require from us.

Hi, Giulia. Then on cost. We have recognized that cost pressures are higher due to inflation, and we see that in markets where there's salary indexation such as in Belgium and in Central and Eastern Europe. A trend line that we see more frequently during the course of 2022 is that currencies in dollars or Asian currencies are appreciating due to the weakening of the euro, which has reflected in the increased translation of costs that we see in the year-on-year results. Our costs are up around €117 million, but about half of that is due to the aforementioned FX results or some higher-than-usual legal expenses. The underlying wage and procured expense increase is around 2.2%, which is the underlying increase year-on-year. To reiterate the point, we continue to ensure that next year our guidance is still that we will keep costs below inflation.

Thank you.

Thank you. Our next question comes from the line of Raul Sinha at JPMorgan. Please go ahead. Your line is open.

Good morning, everybody. Thank you very much for taking my questions. Can I have two, please, on NII? I guess the first one is just going to your new disclosure around NII sensitivity for this gradual pass-through scenario, which is very helpful. When I look at that, and I take your underlying NII run rate, which is sort of around €14 billion, it looks like the delta into 2023 and 2024 is obviously very significant and probably ahead of consensus just based on your Eurozone replicating results, sort of, the €2.9 billion uplift over 2022, which is €0.6 billion. Essentially, it looks like your NII is going to be up €2.3 billion on a net basis. So, I guess, the first question is, can you give us a little bit more holistic picture around what are the other factors that might be offsetting this when we consider the NII moving parts over the next two years? Any more color on that would be helpful. Or should we take this as sort of the main driver? And then secondly, I guess related to the NII and just to understand this TLTRO hedging, can I ask what type of risk you were hedging with your derivative position and in your repayment profile versus what you had previously assumed? Thanks very much.

Thank you, Raul. I will address the question regarding net interest income, and then Tanate will handle the inquiry about the TLTRO hedging. Concerning net interest income, your question pertains to the factors that might affect its growth and replication. One key aspect is the level of pass-through, and due to the rapid changes in rates, we are currently assuming a gradual pass-through scenario for illustrative purposes. Additionally, we need to consider the performance of the lending net interest margin. We are witnessing some contraction in the lending margin, particularly in the mortgage sector, which is influenced by reduced prepayment penalties resulting from rising interest rates, although this is stabilizing. At the same time, the duration of mortgages is increasing, which could also impact this dynamic. Finally, we are looking at loan growth, which we anticipate to be more subdued. While we still expect decent loan growth this quarter in mortgages and wholesale banking, it is lower compared to previous quarters, and we foresee loan demand being somewhat more subdued than what we have observed up to this point.

And then Raul, on your question on TLTRO, we are clearly disappointed by the change of terms that we see from the ECB so close to the end of the program. If you look at the TLTRO before the change, it was a fixed interest rate instrument. In our asset liability management, we always manage the volatility of our interest rate margin. We hedged our interest rate risk. Due to this announcement as of November 23, that fixed instrument has become floating, which means we needed to close our interest rate position, which we have done during the course of the last few days.

Thank you. If I can just follow up on the first question, Steven. What has been your actual pass-through so far? Just trying to think about the 30% you assumed in 2023. I know it's early days, but can you give us an indication of where your pass-through has been overall?

Well, if you look at what we see, in what we announced so far, we have Germany, where we announced 30 basis points; in Spain, I think we announced 30 basis points; and in the Netherlands, we announced 25 basis points. Those are the biggest announcements that we've made so far.

Thank you, and our next question comes from the line of Farquhar Murray at Autonomous. Please go ahead. Your line is open.

Good morning all. Just two questions if I may, both actually on the capital return point. Firstly, on the €1.5 billion. Last quarter, you indicated it didn't need to come with results, and there were incentives perhaps moving earlier. So I just wondered if you could explain why this ultimately did come with results. Is the regulator in the Netherlands maybe being still a little slow? Looking forward, you're still talking towards converting to 12.5% in roughly equal steps. Could you give us a sense of the likely frequency of those steps and might there be any chance of aligning it with the full year reporting from here? Thanks.

Yeah. Thanks, Farquhar. There is no story behind doing it differently either during quarterly results or the other times. We just are in dialogues. We look at forecasts, do our stress testing, submit stress testing, get feedback and then make a proposal that we discuss internally with the Board and the Supervisory Board, then get approval. These are procedural steps, but there is no agenda behind doing it now or before. That process coincidentally led us to be close to the quarterly figures. Like I said, we remain in context in good dialogue with our supervisors. We continue to do stress testing and build up capital and profitability. We will go through similar processes to look at further increasing our debt capital towards 12.5% in the future. Whenever there is a step to announce, we will do that. There is nothing to report on that at this point.

Just as a follow-on, I mean that process still sounds quite clunky. Does that mean it probably takes six months to really do each step?

No, that's not the case. Maybe I explained it quite clunky, so I apologize.

No, nothing to apologize for it. That's really helpful. Thanks.

Thank you. Our next question comes from the line of Benoit Petrarque at Kepler Cheuvreux. Please go ahead. Your line is open.

Yes. Good morning. So yeah, just to come back on the cost guidance of less than inflation. I think back to June, your own macroeconomists were going for roughly 3% for 2023. Now they are expecting 5.6% for 2023. Obviously, this is a quite large gap. So, for next year, when you say below inflation, is that below 5.6% or could that be below 3%, below 4%? Where are you for 2023? I guess you have a good idea now about the wage inflation in the pipeline. Could you update us also on the CLA negotiations in the Netherlands, please? Just wanted to come back on the asset margins, so the lending margin. Where do you see some pressure? Is that purely a timing issue, i.e. that should be resolved in 2023, or are we going to see the same type of behavior we've seen in previous cycles where lending margin is under pressure when rates are just higher? I'm trying to understand because it's quite clear to us that the NII uplift will be quite significant from the replicating portfolio next year. Any indication about more potential negative headwinds you expect will be useful. That's two.

Okay. That is clear. I will take the question on lending margins, and Tanate will take the question on cost guidance. On lending margins, the pressure comes in. Approximately half of our book is mortgages. As you know, with increasing interest rates, we see two things in that book. First, prepayment penalties are lower. People will not prepay their mortgages as quickly as they used to do, and that means our prepayment penalty income decreases, which is added to the interest income. Because that is decreasing, it causes margin compression. That element is now largely gone. So, you now see stabilization of prepayment levels in our book. Over the last few years, when interest rates became lower, prepayment numbers went up. Now they have decreased again to before-negative-interest-rate levels, so they are normalizing. The second element is that when we fund ourselves, those funding rates are only passed through gradually in our lending books. Therefore, if funding increases, the margin of our total book contracts because we fund ourselves at higher rates without having been able to pass these rates through, which takes time and is also dependent on the competitive environment. If the rates are stabilizing, the margin contraction will also stabilize, and what we already see is that prepayment penalties are not contracting anymore. Currently, we also see margins in the process of normalizing. We do expect that margin contraction on the lending side, NII will taper off.

Thank you very much. I think a bit more insight on inflation and cost evolution. We are clearly watching the revisions in inflation, which are higher next year compared to this year. Our labor counterparts are also watching it. We are in discussions with respect to our various different collective labor agreements, and we will let you know once those agreements are reached. Having said that, we continue to be disciplined about the various programs, making efficiencies. One thing I can assure you is that cost discipline and revenue trajectory means we will continue to converge on our target for cost-to-income ratio of 50% to 52%, and we don’t see anything in the environment despite the increased inflation that will stop us from making progress next year on our cost-to-income ratio.

Great. Thank you very much.

Thank you. Our next question comes from the line of Andreas at Goldman Sachs. Please go ahead. Your line is open.

Hello. Thank you very much for taking my questions. On deposit margins and the outlook for it, please, if I may. Given where market rates and your savings rates are, would you say that you could reestablish the historical deposit margin that you had achieved before the zero lower bound kicked in, or later this year potentially? And beyond that, can you help me think about what the new normal for deposit margins could look like? Is there anything structural that you see that would give you reason to believe in higher deposit margins than those you have achieved several years ago? To what extent could that be offset by lower asset margins? My second question on the topic is more on downside risks. The policy rate in the Eurozone is now well above your replication yield, I believe something we haven't seen for many years. Are you worried about retail customers or the public more broadly looking at 2%-plus policy rates soon and pressure building for you to raise retail rates beyond what the replication yield suggests, leaving you overhedged? Thank you very much.

If you look at historical margins on deposits, back 10 years ago, I think the margin for ING was around 1%, right? That margin had a very different composition from even a customer basis. As Steven mentioned, we have made a key focus on improving primary customers, and today a significant part of our deposit base is in current accounts, which attract no interest payments for the time being. So, with that in mind, I don't see any reason why we can't get back to those historical margins, because even back ten years ago, interest rates were barely zero as well. In terms of tracking, we've given a simulation of where things could go, but how that evolves in actuality really depends on market forces. That remains to be seen.

Perfect. Thank you.

Thank you. Our next question comes from the line of Kiri Vijayarajah of HSBC. Please go ahead. Your line is open.

Yes. Good morning, everyone. Just one question, really from my side. So, if you look at the extra NII you're going to get from the euro replicating book, clearly some big numbers there. My question is, do you regret exiting France and Austria? They were predominantly deposit-led franchises. Would the current rate environment have been enough for those businesses that you've exited to maybe have cleared their cost of equity? I know clearly cost income was a problem there, but with this rate environment, would those businesses actually have been more attractive? Just your thoughts on those business exits you did when you first became CEO. Thank you.

Yes, thank you. The short answer is no. In the end, you have to have sufficient scale to provide the right and superior services to our customers at a good cost-income level, with a diversified profile and profitable enough. Even with these interest levels or even higher, that would not have been the case. We made that analysis in terms of different scenarios. In the end, what you need to be successful in the market is to have sufficient scale with a sufficiently diversified business. If that's not the case, you need to reassess your situation. For those markets, we concluded that it was not the case. If you would ask me that question today, we would arrive at the same conclusion.

Thank you. Our next question comes from the line of Tarik El Mejjad of Bank of America. Please go ahead. Your line is open.

Hi, good morning. Thank you for taking my questions. The first one is on the TLTRO. I know it's a one-off small number in the scheme of things, but do you have the intention to take any actions against or discuss it with the ECB? This could set the precedent on revising any retrospectively any agreements or contracts in funding or whatever other agreements. I would be interested to have your view on that. The second question is on costs. I understand you'll be watching carefully the inflation for next year, but definitely it will be higher than your early estimates of 2.3%. Can you give me some elements of potential extra savings that would be able to offset that and keep you on track for your guidance? Or are you just hoping that the top line pass-through growth will more than offset that uptick on costs? Thank you.

Yes, thanks, Tarik. I will answer the question. I'll happily answer the question on TLTRO, and then Tanate will talk about costs. Why do I say happily? There is a bit of cynicism there. We are very disappointed with how the ECB made the announcement. If you look at the broader light of economic circumstances and interest rate movements, we understand that at some point you say, well, the TLTRO program is not needed anymore. However, we expected that to be done when such a program would lapse and not in midstream after banks put their hedges on to cater for interest movements on that support. We are unhappy with that and disappointed. I would like to leave it at that. I will also not comment on whether or not we're going to take actions; that is not for this call.

Tarik, just on expenses, you talked about visible levers next year. These are the same as disclosed before. We still have the closure of some business units flowing through our financials next year that will have a reduction in cost, for example, the closure of our businesses in France. We continue to be more efficient in our operations, particularly focusing on IT savings and moving the gravity of our operational staff from our home markets to our hubs, whether in Eastern Europe or in markets in Asia. These programs will continue to be the case, along with negotiating well on contracts to mitigate supplier increases due to inflationary pressures. Given our scale, we believe we still have that negotiating advantage.

Thank you.

Thank you. Our next question comes from the line of Benjamin Goy at Deutsche Bank. Please go ahead, your line is open.

Yes, hi. Good morning. Two questions, please. First, you are clear on loan growth, but actually I'm more interested these days in deposit growth. Deposit growth was good in the quarter, but it was driven mainly by Germany and daily banking. I wonder if that was somewhat of a one-off effect given you stopped negative rates charging? How do you generally view the outlook for deposit growth from here? My second question is about your views on the risks of bank levies or anything like that in your three biggest markets: Netherlands, Belgium, and Germany. Thank you.

Thank you very much. Ben, if you look at the deposit growth, the driver was that when we stopped negative charging deposits, they significantly increased. We are doing well in growing our deposit base and primary customer base in Germany. Regarding bank levies in our markets, there is nothing to report; we are not aware of anything new that will come on stream. If there is something new, then we will let you know.

Thank you. Our next question comes from the line of Anke Reingen of RBC. Please go ahead. Your line is open.

Yes. Thank you very much. My first question is on your 2025 ROE targets. I have seen now the NII expectations and absolute terms are higher than when you presented the plan. Is that an indication you believe there is upside to your ROE target, or is that offset by higher costs? Could you potentially reach your target faster than previously expected? Secondly, coming back on the buyback, your comment about roughly equal steps: should we assume the €1.5 billion plus the €300 million, or is one step the €1.5 billion you just announced? Are you able to request a new buyback from the ECB while executing your current buyback?

Regarding the buyback and the roughly equal steps, what we mean is roughly equal steps in terms of CET1 decrease. That is how we define it. Gradually, on that path, we'll move to around 12.5%. That is how we then do it—regarding the number of share buybacks or capital distributions we will work it out over the next quarters and years. Regarding the ROE targets, I appreciate your ambition. Let's first get to the 12% before we discuss further.

Okay. Thank you.

Thank you. Our next question comes from the line of Amit Goel at Barclays. Please go ahead, your line is open.

Hi. Thank you. My question aligns with the one Anke just asked regarding the NII outlook. With the better NII outlook, do you think you can achieve the 50% to 52% cost income ratio? Is that something to which you think you can do better? Additionally, regarding NII for 2023, could you remind me of the potential offsets to some or core partial offsets from tailwinds that are likely to arise? Thank you.

All right. Thanks, Amit. On NII, the offsets include prepayment penalties. However, prepayment penalties have come in, reducing penalty income in line with the recent adjustments. It is likely that our loan growth, particularly that predicted for the replication portfolio, may also affect it. Moreover, regarding cost-to-income ratios, our ambition is to continuously improve and make progress towards our targets, and we employ various levers for this purpose.

Thank you. Our next question comes from Flora Bocahut at Jefferies. Please go ahead, your line is open.

Yes. The first question I wanted to ask is on the NII again, just a clarification on the negative deposit charging—the €300 million run rate for the full year. I wanted to understand how much was already gone in Q3 and how much of a Q-on-Q decline we could therefore see again in Q4, if any? The second question is on regulatory cost. I'm not sure if this was answered before, but you guided at the Investor Day for a €0.4 billion decline in bank taxes in 2025 versus 2021. Does that still hold from today’s standpoint? Lastly, regarding the one-off negative €350 million you're going to have in Q4, will this be reflected in the NII? Since you only mentioned pre-tax profit so just to be sure.

The €350 million is pre-tax, but that's accounting. We're not going to disclose it as yet. Regulatory costs are, yes, our expectation of seeing a decline of €400 million in bank taxes has not changed. Regarding the NII impact this quarter, it's around €66 million, and it'll be gone next quarter, leading to a minor impact. In fact, most of the impact of previously noted TLTRO negative rates was already reflected in Q3.

Yes, the NII impact this quarter is around €66 million, and it will be gone next quarter. So it's getting very minor. In fact, most of the benefit from the TLTRO negative intra-charging is gone in Q3.

Thank you. And as that was the final question on the line, I'll hand back to Steven for the closing comments.

Thank you very much, operator, and thank you very much everybody for dialing in, for your time, for your good questions. I wish you a fantastic day. Thank you very much.

This now concludes the conference. Thank you all very much for attending. You may now disconnect your lines.