Ing Groep NV Q4 FY2023 Earnings Call

Good morning. This is Saskia, welcoming you to ING's Fourth Quarter 2023 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 as discussions 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. Nothing in today's comments constitutes an offer to sell or a solicitation of an offer to buy any securities. Good morning, Steven, over to you.

Thank you very much, Saskia. Good morning, and welcome to our results call for the fourth quarter. I hope you're all well and had a good start to the year. And as usual, I'm joined by our CRO, Ljiljana Cortan; and our CFO, Tanate Phutrakul. In today's presentation, I would like to highlight our exceptional results in 2023, discuss the developments that we saw in the fourth quarter, and share our outlook for 2024. As always, there will be room for questions at the end of the call. First, I will start with explaining how we were impacted by the developments in the world around us on Slide 2. Notably, we live in a world with increasing geopolitical tensions and conflicts in many countries, resulting in the loss of many lives. We are saddened and concerned by the devastating impacts that these conflicts are having and the threat they pose to international stability and security. These tensions also have an ongoing effect on the global economy and have led to heightened economic uncertainty and increased pressure on supply chains. At the same time, inflation remained elevated for most of 2023 and only came down toward the end of the year. To tackle this inflation, central bankers around the world have increased policy rates at an unprecedented speed. Now, with inflation at a much lower level, the market expects rates to come down during 2024. The economies have proven to be resilient, and the IMF is forecasting growth for '24. We've also witnessed political and regulatory uncertainty in 2023. Several government elections have already had surprising outcomes, and other important elections are on the horizon in '24. On the regulatory side, we've seen increased volatility following the collapses of Silicon Valley Bank and Credit Suisse. In the aftermath, the European banking sector has proven its strength. Lastly, we see a continued and accelerating transition to a more sustainable economy, reinforced by a promising outlook. Given our strong ESG focus, the transition offers significant opportunities for ING, and we look forward to continuing this front-runner role. Moving to Slide 3, we have shown exceptional results in this challenging environment. More importantly, we are well positioned to deliver value through the cycle. Through our continued investments in our digital capabilities and our focus on offering a superior customer experience, we are able to grow our Retail Bank across our countries. Our well-diversified Wholesale Bank is highly regarded by our clients who appreciate our global reach, local knowledge, and strong sector expertise. Our pioneering role in sustainability and our ESG focus positions us well to capture growth opportunities. The bank is built on healthy fundamentals with a highly insured retail funding base and a senior well-diversified and mostly collateralized loan portfolio, resulting in the lowest risk cost within our Eurozone peer group. Finally, our capital position is strong, with ample resources, and all this has resulted in an excellent track record of delivering value to all our stakeholders and market-leading returns, and we are confident that we will continue to do so. On Slide 4, we highlight our outstanding results for '23. We have achieved significant growth in primary customers. At the end of '23, 40% of our total customer base had active payment accounts with recurring income, and at least 6 million customers have chosen us as their primary bank. This growth in primary customers reflects the appreciation of our products, underscored by market-leading Net Promoter Scores in both Retail and Wholesale Banking. On sustainability, we are increasingly integrating climate into our decision-making and business processes, and we are making good progress in introducing sustainable alternatives for key products in most of our Retail Banking markets. In Wholesale, our business models grew by 14% compared to '22. Our balance sheet remains strong with over 64% funded by customer deposits. The strong asset quality is reflected in lower risk costs, which came in at only 8 basis points over customer lending this year, well below our cycling average of around 25 basis points. Moreover, our capital ratio strengthened again, while we distributed almost €6.5 billion to shareholders in 2023. Now, starting on Slide 6, I will highlight the main developments driving our results in '23 also in the context of a longer period. Looking closer at our total income in the past 6 years, I would like to emphasize a few developments on Slide 6. What clearly stands out is that ING benefits from a positive rate environment. This is particularly visible in the strong impact on total income, which is now roughly 25% higher than the 2021 period, which was still impacted by negative rates. This increase was somewhat offset by subdued loan demand impacting our lending NII, although we do see first signs of loan demand recovering, which bodes well for future income growth. Another important development in '23 was the lack of fee growth. Although we grew by 750,000 primary customers and implemented strategic pricing actions, fee income remained stable, reflecting lower trading levels in investment products. The market expects demand for mortgages to pick up in 2024, and we are observing early signs of that rebound. On the next slide, we provide some more details on the drivers of net interest income. The impact of the sharp increase in interest rates is evident, especially when considering the margin we make on liabilities. The average liability margin in '23 was at a historical level of around 100 basis points in a positive rate environment. This was driven by the positive impact from reinvesting part of our replicating portfolio at higher rates, which more than offset the increase in core rates throughout the year. In the fourth quarter, we paid a core rate of around 120 basis points corresponding to a pass-through of roughly 30%. We also recorded significant growth in our core deposits, especially from strong contributions from Germany, Spain, and Poland. In lending, we noted a decrease in the margin compared to '22, although the margin stabilized over the course of the year at around 130 basis points. Lending NII was noticeably impacted by subdued loan demand; yet, we managed to increase our market share growth opportunities. The market expects loan demand to return in '24, and we observe initial signs of this in our books as well. On Slide 8, we show the evolution of our fee and commission income. Although growth has been muted in the last two years, fee income has grown at an average rate of over 5% since 2018. Looking at the various product categories in detail, there are noticeable differences. Fees on daily banking and retail have nearly doubled since 2018, driven by continued customer growth and strategic pricing actions we have implemented in several markets. Moving forward, we expect a continued focus on this area. We did observe a slight decline driven by lower demand for new loans, particularly visible in Retail Banking. In Germany, for instance, the fee income from the largest residential mortgage broker in the country fell by 40% year-on-year and decreased by more than 50% compared to 2021 due to rapidly increasing rates. Yet, we are beginning to see some signs of recovery, which should support lending fees going forward. Lastly, lower trading activity over the past two years has impacted fees from investment products. For example, in Germany, despite the number of investment product accounts increasing by more than 20% since '21, the total number of standard trades decreased by around 35%. Therefore, we are well positioned to benefit from the anticipated turnaround. Operating expenses, excluding regulatory costs and incidental items, increased by 6.8%. This increase was primarily driven by the effect of high inflation on staff expenses, reflecting indexation and CLA increases across most of our markets. We continued to invest in our business to benefit all our stakeholders, and we will maintain this approach. As we indicated during our Investor Day in '22, regulatory costs have decreased from their peak in '21, now being roughly €200 million lower than in 2022, partly driven by lower contributions in the deposit guarantee scheme and the single resolution fund. In '24, we expect regulatory costs to decrease by another €100 million despite additional bank taxes in various countries. Despite the growth in expenses, we have achieved a cost-to-income ratio of 51% in 2023. Moving forward, we anticipate ongoing inflationary pressure, which will be partially offset by efficiencies due to our focus on operational excellence. More on this will be covered in the outlook for 2024. Next, we move to risk costs on the next slide. In '23, our strong asset quality and robust approach to risk management resulted in low provisions for new defaults coupled with effective recoveries. Additionally, we achieved a significant reduction of our Russia exposure, leading to a release of provisions established in 2022. Total risk cost in Wholesale Banking amounted to negative €92 million for the full year, while the total risk cost for the bank was only €520 million, or 8 basis points of average customer lending. All in all, it was a very benign year in terms of risk costs. We remain vigilant as the cost of living and doing business increases for our customers, but we are confident in the quality of our loan book. Slide 11 shows the development of our CET1 capital ratio, which strengthened from 14.5% to 14.7%, while we returned €6.4 billion to shareholders. The increase in CET1 ratio was primarily driven by our ability to generate capital. Additionally, RWAs decreased due to disciplined capital management and an improved overall profile of the loan book. Our fully loaded CET1 SREP requirements decreased year-on-year due to an announced reduction of 50 basis points in Pillar 2 requirements. These increases were only partly offset by higher countercyclical buffers, which increased by 34 basis points. Consequently, the buffer to both our target ratio and the regulatory requirements has increased, positioning us well to continue returning attractive shareholder value. More on that will be discussed on the next slide. As I mentioned earlier, we returned €6.4 billion to shareholders in 2023, consisting of almost €3 billion in cash dividends and slightly less than €3.5 billion from completed share buybacks. At the end of '23, €0.5 billion of the latest share buyback still needed to be completed. The share buybacks have a structural impact on the earnings and dividends per share, and we have already repurchased more than 14% of shares outstanding since our first buyback in 2021. Given our strong capital position and market-leading profitability, we are well-positioned to continue providing attractive returns. Now, starting from Slide 14, I will highlight some key developments in the fourth quarter. Although these developments are mostly in line with the broader trends presented earlier, I will focus on the highlights. Total income was again strong and increased compared to last year, driven by higher liability NII and other income. Compared to the third quarter, total income decreased, primarily due to a negative swing in reserves in financial markets and lower investment income as the previous quarter had included annual dividends from the Bank of Beijing. The ECB's decision to adjust the minimum reserve requirement remuneration to 0 basis points had an impact of €69 million on NII, yet the decrease in liability NII was limited as the higher costs for retail deposits were almost fully compensated by the positive impact from reinvesting our replicating portfolio at higher rates. More details on the development of our margins are provided on Slide 15. Net interest income, now on Page 15, excluding the impact of TLTRO, increased slightly year-on-year. Liability margins and liability NII remain at significantly higher levels than last year, although this was offset by lower NII from treasury and financial markets, reflecting the impact of accounting asymmetry between NII and other income. In lending, the margins stabilized after increasing by 1 basis point for three consecutive quarters. This stable margin, combined with higher volumes, has led to a small increase in our lending NII. Our overall net interest margin for the quarter decreased by 3 basis points to 154 basis points, primarily due to the lower ECB remuneration. Slide 16 illustrates our growth, mainly visible in Australia and the Netherlands from commercial performance in Business Banking. In Wholesale Banking, we observed a slight increase in net core lending, though demand remains subdued as we continue to optimize our capital usage. We expect loan demand to increase, although uncertainties persist, given the heightened geopolitical and macroeconomic uncertainties outlined earlier. We are confident that our business model and geographic diversification position us well to capture growth opportunities when they arise. Regarding liabilities, core deposits declined by €900 million in the fourth quarter, driven fully by Wholesale Banking, reflecting seasonal outflows. Core deposits in our Retail Bank increased, although we observe some shifts from deposits to assets under management, notably in Germany. Moving to Slide 17, in the fourth quarter, operating expenses, excluding regulatory costs and incidental items, rose compared to both comparable quarters. This increase was mostly due to high inflation, but it was also fueled by higher marketing expenses and continued investments in our business. Regulatory costs were slightly up year-on-year, mainly from a higher annual Dutch bank tax, which is typically recorded in the fourth quarter. Next, we address risk costs on Slide 18. Risk costs were €86 million in the quarter, equivalent to 5 basis points of average customer lending. In Wholesale Banking, risk costs reflected a slight improvement, including the impact of improved macroeconomic forecasts and ongoing reductions in our Russia exposure, which diminished to €1.3 billion by year-end. Risk costs in Retail Banking included a previously announced €21 million addition for Swiss franc indexed mortgages in Poland. Overall, the mortgage portfolio continues to perform excellently with low payment arrears. As I introduced, I will now share our perspective on the outlook for 2024. It's important to reiterate that the world around us remains uncertain, limiting visibility on crucial operating drivers such as interest rates. The cycle of recent Central Bank rate hikes has paused, and the market anticipates some rate cuts in 2024. If this occurs, it will impact our liability NII, particularly. The scenario illustrated on this slide assumes a gradual normalization of liability margins to around 100 basis points by the end of 2024, implying that the average liability margin would be about 10 basis points lower than last year. Given our total customer deposit base of €625 billion, this would reduce the liability NII by approximately €600 million. Part of this decrease will be offset by an increase in lending NII. We are witnessing early indications of a recovery in loan demand across the bank. If loan growth reaches 4%, our lending NII would rise by over €200 million, assuming stable margins. As previously indicated, the impact of the ECB minimum reserve requirement remuneration that we benefited from until September '23 will not be present in '24. Our NII in '24 is projected to range between €15 billion to €15.5 billion, lower than in '23, but significantly above the 2022 level. In terms of fee income, we're aiming for growth of 5% to 10% in 2024. To reiterate, the development of our fee income in '22 and '23 was constrained by diminished loan demand and lower trading volumes in investment products. For 2024, we are optimistic that fee growth will improve from the stable levels observed over the last two years, driven by several factors. Firstly, in investment products, trading activity was low during the last two years. For instance, in Germany, while the number of standard trades decreased by 35% relative to 2021, the number of accounts increased by 20%. Given our continued client growth in investment products, we are well-positioned to benefit from increased trading activity and generate higher fees. Secondly, the market is anticipating a recovery in mortgage volumes this year. If this occurs, we stand ready to take advantage, given our market-leading positions across various geographies and through Interhyp, the largest residential mortgage provider in Germany. Interhyp is poised to benefit from higher mortgage volumes, and it’s worth noting that fees linked to mortgages in Germany are almost €60 million lower than two years ago due to a substantial drop in mortgage volumes, which have declined by more than 30% over the same period. Thirdly, our solid primary customer base forms the foundation of our leading retail franchise. The implementation of strategic pricing actions has already resulted in structural growth in daily banking fees, and we will continue to focus on this area. Lastly, loan demand is expected to return in Wholesale Banking. With these four levers, we feel very confident that fee growth will rebound from the levels seen in the last two years. Transitioning to our cost outlook on Slide 22, we anticipate total cost growth of around 3%, excluding potential incidental cost items. This is primarily driven by the ongoing delayed effects of high inflation levels from '22 and '23, which will mainly impact staff expenses. Additionally, we expect the implementation of the Danske ruling on VAT in the Netherlands to affect costs by approximately €100 million, while regulatory costs are also projected to decline by a similar amount due to reduced contributions to the single resolution fund. We will continue to invest in our business to support both growth and improved efficiency. This includes marketing investments to support customer acquisition and commercial growth in select markets, as well as further enhancements to our payment infrastructure and core banking operations. A significant portion of these investments will be offset by structural cost savings. Examples of such savings include branch reductions in several markets and efficiency gains in our KYC processes. Overall, ING delivered outstanding financial results in 2023, and Slide 23 summarizes our achievements and our perspective on the outlook for 2024. To recap, 2023 was an exceptional year characterized by strong growth in primary customers, a 16% increase in income, a low cost-to-income ratio of 51%, and a further strengthening of our CET1 ratio, despite announcing €4 billion in share buybacks, leading to a healthy return on equity of 14.8%. For '24, we anticipate that total income will remain strong as we continue to benefit from a normalized interest rate environment, although it may come in somewhat below the '23 level due to expected normalization of the liability margin in conjunction with recoveries in loan demand and trading activities. We reaffirm our ambition for fee growth of 5% to 10% in 2024, along with our commitment to operational efficiency. We expect expenses to reflect the high inflation levels observed in 2023. We will continue making selective investments in our business alongside maintaining cost discipline, anticipating moderate growth in total expenses. Our CET1 ratio will continue to converge towards our target of around 12.5%, and we retain the capacity to provide attractive shareholder returns. We will update the market on our next quarterly results, aiming for a 12% return on equity. Looking ahead, I am confident in our ability to deliver robust financial results while effectively executing our strategy. We will provide a more stable rate outlook during our Capital Markets Day in June, at which point, we hope to have further discussions with you. With that, we will move on to the Q&A.

And first up, we have Mori from Autonomous.

Just two questions, if I may, both kind of digging into the outlook statements on Slide 20, if possible. Firstly, you're indicating that the Eurozone replicating income will increase in 2024. Could I just ask, is that driven by volumes? Because I would have thought that the replication yield would actually maybe dip a little bit this year before moving better in '25. And then secondly, just following on from that, what is driving the convergence of the liability margin towards 100 bps since if the replication yield is not coming down, I presume the suggestion is that deposit rates will be sticky downwards. So, which side is pressuring the margin in '24?

Okay. I'll get this question to Tanate.

I think if you look at our simulation on Page 20, there may be volume increases. For the sake of this simulation, we don't anticipate that. Additionally, in Q4, we also see continued growth in the level of replication income. However, a couple of other points to mention, particularly for Q4: we actually increased the deposit for core rates in the Netherlands and Germany, which are two of our biggest books. When you increase the core rate, it prices the whole savings book. That's something to take note of. As for the future, it's not so much that the replicated income will decrease; it's more a reflection of the fact that the ECB curve is expected to reduce next year by 150 to 200 basis points. That's more the reason we indicated that the liability margin, which is at the high side now, will revert towards the historical average of 100 basis points.

Thank you. And our next question now comes from Giulia Miotto from Morgan Stanley.

Two questions from me as well. I mean, I know that you have given the 2024 NII guidance, but I was trying to ask a question about 2025. Essentially, looking forward and assuming an interest rate of 2%, is the direction of NII downwards because you think liability margins will go down to 100 basis points? Or in fact, given that in 2025, you can cut the deposit remuneration, could NII potentially remain stable or even grow? So this is my first question.

Tanate?

Yes. If you look into 2025, it's a question of the different levers at play. One factor is the replicated margin, and we have approximately half of our replicated book in the bucket of below one year. However, there are other drivers that will affect our NII, including loan growth and potentially higher spreads in lending, as well as deposit growth numbers. For these reasons, we observe positive impacts that could negate some of the downward trends. Lastly, we don't provide guidance on future deposit rates offered to customers, but you would expect deposit rates to trend downwards in a lower rate environment. That aspect remains uncertain.

Thank you. And next, we have Tarik El Mejjad from Bank of America.

Just a couple of questions, please. First, on NII. Coming back to that again, I just want to understand the liability margin dynamics. So now we are at the level of 100 basis points. You guide for the full year, but I guess the downward trend will continue into '25 of the liability margin before we hope to see some improvements in the back end of '25 when you can start to cut deposit rates. Is that the correct way to look at it? And then obviously, volumes and asset spreads are another discussion.

I think it's not accurate to say that we expect the deposit margin to dip below 100%. There are several actions we can take in that case through promotional rates for customers, core rate reductions, and managing deposit growth. From that perspective, we see a sustained ability to maintain the 100 basis point NII as a long-term level that we can manage.

Very helpful.

Thank you. And from JPMorgan, we have Raul Sinha with our next question.

Two questions from me, one follow-up and one on capital distributions. Firstly, Tanate, I want to clarify that you're indicating the liability margin can be maintained at 100 basis points—essentially implying that you'll manage around that level even with rate cuts expected in 2025. Is that fair to conclude?

You had two questions. Do you want to ask both questions?

And the second one is just regarding the capital ratio on distribution. This is primarily for Steven. I apologize for pointing this out, but the capital ratio has increased to 14.7% from 14.5% last year despite your best efforts to suggest a target of 12.5%. What are your plans regarding this? It seems that the semi-annual capital return is insufficient based on the trajectory, and are you perhaps considering more frequent distributions, maybe including special dividends if you're unable to buy back enough?

Yes. Thank you very much, Raul, for pointing out the increase in our capital from 14.5% to 14.7%, which is correct. This increase reflects strong performance. However, we're still aiming to gradually trend towards around 12.5% by the end of 2025. We will continue evaluating how best to approach capital distribution and will return with announcements in the first quarter regarding what we plan in terms of capital distributions, including potential share buybacks.

To confirm, yes, our view is that we can maintain the liability margin at around 100 basis points over the long term.

Thank you. And we're now moving on to our next questioner, which is Benoit Petrarque from Kepler Cheuvreux.

A few questions on my side. I wanted to revisit Slide 20 regarding NII outlook. If I summarize everything, it appears that your convergence towards the 100 basis points is occurring faster than expected for '24. It also seems that you'll maintain that level in '25. I would like to clarify why you have updated your guidance now for '24. Obviously, this seems tied to the anticipated cuts by the ECB. Would you assume adjustment factors will play a role, where competition will influence the ability to change deposit rates leading to a stable liability margin?

Regarding the liability margin, there are multiple factors at play in determining this outlook, and it is possible that the ECB may influence these dynamics. As indicated, half of our replicated portfolio is below one year, which may affect our decisions based on market rates. Additionally, the speed at which ECB rates are reduced could dictate the tracking speed of our liability margin. A gradual reduction would lead to slower tracking, whereas a more dramatic decline could allow for quicker adjustments.

Just to confirm, regarding the lending margin, is there an expectation of upward movements in lending margins as we move into a lower interest rate environment?

Yes, it's a potential scenario. The assumption presented is just one of several possibilities regarding our outlook. We note that in Q4, for ING, when rates decline, the mortgage margin tends to widen, presenting a more favorable scenario than the one outlined.

Final question: you mentioned total income would be somewhat below the '23 level at 22.6%. Can we assume something around €22 billion to help us model the bank?

We do not provide guidance on total income at this point in time.

We're now moving to a question from Sam Moran-Smyth from Barclays.

Just the first one. Regarding the bridge on Slide 20, if I could clarify, for the other segment which includes the MRR, I wondered if you could outline the assumptions behind that. You model an increase to 2% and then further in a scenario where this does happen, could you expect any dispensation on the gross deposits, which are often quite different? Should we see the €8.5 billion doubling if you transition from 1% to 2%?

Yes. Regarding the MRR indicated, indeed, the €8.5 billion reflects a 4% deposit rate. If that changes, and if rates do not increase further, we can expect to see €300 million in additional P&L impact. If that were to occur at 1%, effectively doubling to 2%, this could yield an extra €300 million.

Secondly, could you discuss the loan growth assumptions of 4%? Can you take us through the assumptions you have across different geographies and products? Where do you see particular growth opportunities?

Yes. We see growth across various sectors. For example, in the fourth quarter, Wholesale Banking saw an increase of around €3.5 billion, which reflects roughly 4% annualized growth over the previous years. In the mortgage markets, we're noticing that the number of houses being sold has increased this year compared to last year. While the Netherlands experienced a 6% drop in dwelling sales, we expect this to rebound by 3% in the coming year.

We're moving on to a question from Kiri Vijayarajah from HSBC.

Two questions from my side. First, regarding NII guidance, I wanted to ask whether you're factoring in another round of the aggressive deposit-led marketing campaign you executed earlier in 2023. I recall that helped you to add new customers, but with you're also optimistic about deposit volumes. So how much should we consider repetition in your plans moving forward?

In terms of specific marketing campaigns, we will not provide advance notices on timing or specifics. However, we have budgeted for marketing to grow our customer base. Our target in Germany is to increase from 9 million customers in 2023 to 10 million by 2025. I am confident we can achieve this, hence the need for marketing investments.

Secondly, regarding the costs on Slide 22, I see that 3% of the cost growth in that waterfall is coming from business investments. Can you elaborate on whether this is aimed at driving operational efficiencies as shown on the same slide, or whether it's primarily additional investments needed to support your volume growth assumption or to bolster fee growth in your projections for 2024?

This covers several areas: first, we are investing for growth, which includes marketing, but we will also invest in payment infrastructure since we aim to rank in the top decile of cost-efficient payment providers in Europe. Our investments will support the enhancement of financial markets and core banking operations for improved performance throughout.

Next, we have Mike Harrison from Redburn Atlantic.

Two aspects, please. One on margin and another on capital. Your NII guidance—I'm presuming it's predicated on the replicating portfolio with the significant increase from 45% last quarter and 40% year ago. Might it also reflect a shift in the duration mix of the portfolio as rates fall?

I will address the operational risk-weighted assets question. The €3.5 billion increase in RWAs this quarter is not related to the prior 20 basis point standardization flagged last quarter; this change is due to alterations in our operational risk-weighted asset model, which can fluctuate from quarter to quarter, as seen in earlier periods. We are transitioning towards standardized operational risk-weighted assets, which relates to that previous 20 basis point observation.

As for replication, the adjustment to shorten the duration is driven by interest rate outlooks and client behaviors influenced by rate movements. Given the current environment, our models indicate shorter durations are favorable, which resulted in the changes we saw from Q3 to Q4.

And we're moving now to Marta Sanchez Romero from Citi.

Thank you very much. You had a drop of almost 9% due to an NII miss that was long in the making, stemming from a lack of transparency. Have you considered enhancing your disclosures? Other banks in Europe seem to provide frameworks that allow markets to have clearer visibility regarding NII trajectories, eliminating the disconnect observed today.

I will address that question. I appreciate your feedback and acknowledge the need to clarify our guidance for 2024. We will assess the situation moving forward. However, I believe we communicated our positions clearly about rates for 2024.

Regarding the decline in deposits in the Netherlands, this was mainly treasury-related and does not considerably affect our core deposit numbers, which remain stable or have even increased. Concerning the success of our deposit campaigns in Germany, it should not be interpreted as indicative of what we can expect in 2024. We witnessed significant deposit competition in 2023, which we believe was exceptional.

Now we're moving to Johan Ekblom from UBS.

Just two clarifications on NII, please. Do I understand it correctly that the rate assumptions you're using are based on the forward curves as they were at the end of December, implying a rate of 2% by the end of this year? Also, regarding accounting asymmetry, which has led to much volatility or uncertainty in recent quarters, you assume it doesn't change from the Q4 run rate. Can you discuss how simplifying or predictive this assumption is—does this indicate a long-term expectation?

Regarding the deposit curve, yes, the simulation was based on the December curve. On guidance for NII and other income in the treasury segment, we project more stability and consistent outcomes throughout 2024. If there were to be any changes, updates would occur during our quarterly result announcements.

Two more questions regarding the liability margin. First, does the liability margin you've presented include the drag from the treasury rate differential effect? Therefore, would an adjusted liability margin be even higher? Secondly, how did you determine the 100 basis point normalized level? What time period or frame of reference did you use to establish that, as it appears you're looking further back to find a previous normalized rate environment?

Regarding our confidence in maintaining a 100 basis point level, we have navigated multiple cycles and successfully managed at this level in the past. Additionally, our account types—comprising a higher quantity of current accounts compared to savings accounts—afford us robust standing. Furthermore, the percentage of our primary customers, who tend to be more stable, has also remarkably increased, contributing to our confidence in sustaining this margin.

To clarify your question regarding treasury trades affecting NII: if not included, the adjustments would result in higher liability margins.

We are moving to Hugh Moorhead from Berenberg.

Could you explain the assumptions related to other income while maintaining the expectation of €3 billion for 2023, given the guidance indicating lower revenue in 2024? Additionally, concerning the cycle level of cost risk, particularly the through-the-cycle level included in your 12% guidance, might this be reviewed during your Capital Markets Day?

I apologize, but we typically do not provide specific guidance on risk costs for a designated year, including 2024. As mentioned in relation to our projected return on equity, we assume our risk costs through the cycle are around 25 basis points. We feel confident regarding the resilience of our loan book and asset strength—which was reflected in our risk performance over '23—but specific guidance is withheld.

Concerning other income performance, we recorded strong results from our Financial Markets division and Treasury in 2023; this partially accounts for our elevated figures this past year. We will not speculate on future outcomes but want to clarify that those in '23 were exceptionally robust.

As there are no further questions in the queue at the moment, I would like to hand the call back over to you, Mr. Van Rijswijk, for any additional remarks.

Thank you very much for your time and attention. I appreciate the insightful questions. Wishing you all the best for 2024, and we look forward to seeing you again soon. Thank you.

And you may now disconnect.