Earnings Call Transcript - ING Q2 2025

Operator, Operator

Good morning. This is Saskia, welcoming you to ING's Second Quarter 2025 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 statements 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 statement is contained in our public filings, including our most recent annual report on Form 20-F filed with the United States Securities and Exchange Commission and our earnings press release as posted on our website today. Furthermore, nothing in today's comments constitutes an offer to sell or a solicitation of an offer to buy any securities. Good morning, Steven, over to you.

Steven van Rijswijk, CEO

Great. Thank you very much, and good morning, everybody. Welcome to our results call for the second quarter of '25. I hope that you're all well, and thank you for joining us. And as usual, I'm joined by our CEO, Ljiljana Cortan; and our CFO, Tanate Phutrakul. The second quarter started with sharp market volatility as well as macroeconomic and geopolitical uncertainty. And in that context, we are pleased with our strong results, which we will discuss in today's presentation. We have continued to successfully execute on our strategy, and I will start with sharing some highlights of the progress that we're making on the priorities that we set on our Capital Markets Day just over a year ago. And thereafter, Tanate will walk you through the quarterly financials. And as always, we will be happy to take your questions at the end of the call. Now, let's move to Slide 2. This slide illustrates our continued strong growth trajectory in the second quarter. We grew the mobile primary customer base by more than 300,000 customers, which underscores the strength of our offering. With growth of more than 1.1 million mobile primary customers in the last 12 months, we are doing well compared to the target that we set at Capital Markets Day. We also recorded significant growth in our loan book. Net core lending in retail banking grew by a record of EUR 11.3 billion, which was again mainly driven by mortgages, while we also support our clients with additional business lending and consumer lending. In Wholesale Banking, net core lending growth was EUR 4 billion as we financed more working capital and increased our short-term trade-related financing. Demand for long-term corporate loans has remained subdued in the current uncertain macroeconomic environment. Net core deposit growth was over EUR 6 billion, also driven by retail banking, which benefited from the seasonality of holiday allowances. In Wholesale Banking, we continue attracting deposits in payments and cash management and money markets, but this was more than offset by lower short-term client balances in our cash pooling business. With 7% annualized growth in customer balances in the first half of the year, we are well on track to reach our target of 4% per annum. On the P&L side, our focus on further diversifying our income streams is yielding solid structural changes to income composition. Fee income increased by 11% versus the first half of 2024 and now makes up almost 20% of our total income. We are confident that we can grow at the higher end of our 5% to 10% range this year and confirm our EUR 5 billion fee income target for 2027. Our fourth quarter rolling average ROE was 12.7%. And also there, we have improved our outlook for the full year. We continue to support clients in their sustainability transitions and with the volume of sustainable finance mobilized rising 19% from the first half of last year to EUR 68 billion. Now we go to the next slide, where I will give more insight on customer growth. On Slide 3, we show that we have significantly increased the pace of customer acquisition in the last few years, which is clear evidence of the appreciation of our products and services. And over the past 12 months, our customer base has expanded by almost 1.2 million customers, and we are currently serving more than 40 million private individuals globally. Customer acquisition is a key driver of future value as it also leads to a growing mobile primary customer base. Cross-selling products and converting customers to mobile primary customers is most successful in the first year after onboarding, a period which we call the honeymoon phase. However, also, after this honeymoon phase, our customers continue to buy more products from us and choose us as their primary bank. Now on the next page, I will explain why we focus on increasing our mobile primary customer base. Then we move to Slide 4. And there you see on the left-hand side of the slide that the number of primary and mobile primary customers is increasing. At the end of the second quarter, more than 41% of all of our customers chose ING as their primary bank. And these mobile primary customers buy more products, show lower attrition and generate higher revenues. And we see significant upside to further increase conversion rates, especially in countries with relatively low conversion rates, such as Germany and Spain. And this also drives our focus on broadening our product foundations. The second quarter growth in customers also resulted in further growth in customer balances, and as we show on Slide 5, average customer lending balances have increased significantly, especially in the last 12 months. This growth was fully driven by retail banking and mortgages, in particular, which is in line with our strategy to allocate more capital towards this business line. Average customer deposits have also risen considerably since 2024 due to good momentum in both Retail and Wholesale Banking. This growth in volume has helped offset the margin pressure on NII in recent quarters and will be a key driver for value going forward. On Slide 6, we recap how our strategic execution has also enabled us to consistently deliver value for our shareholders. We have distributed cash dividends in line with our distribution policy and have been executing share buybacks for a number of years now. In total, we have distributed close to EUR 30 billion since 2021, including the announced interim dividend over the first half of 2025, which will be paid on the 11th of August. As a result of these distributions, we have consistently delivered a yield of more than 15% in the last few quarters, which is significant, but even more impressive given the increase in our share price over the same period. Going forward, we remain committed to generating a healthy shareholder return, and we will update the market with our third quarter 2025 results. And now we go to Slide 8, where we discuss the outlook for '25. Before going to the usual outlook and target slide, I would like to give more details on the expected development of commercial NII going forward. In the third quarter of this year, we expect commercial NII to be roughly stable, driven by the continued impact of the stronger euro and increase thereafter. Overall, we forecast commercial NII in the second half of 2025 to be higher than in the first half, and the increase is expected to be driven by continued volume growth as margins are expected to remain stable for the remainder of this year before gradually increasing in 2026 and 2027. Then I move to Slide 9, where we show our updated outlook for 2025. I would like to reiterate that we are confident in our ability to continue progressing on our targets, supported by the strong results in the first half of the year. We have already grown the number of mobile primary customers by almost 500,000 this year and are well on track to reach our annual growth target of EUR 1 million in 2025. Fee income growth is expected to come in at the higher end of our 5% to 10% range, which helps to offset pressure from FX on our commercial NII. As a result, we confirm our outlook for total income and expect it to be roughly stable compared to 2024. Prudent expense management remains a priority, and we are taking proactive measures to ensure we continue to operate efficiently while also selectively investing for growth. We now forecast total expenses to end up at the lower end of the range we gave earlier, including incidental items recorded in the first half of 2025. The outlook for CET1 remains unchanged for the year at 12.8% to 13%. Considering our improved outlook for fees and expenses, we've also increased our outlook for ROE this year, which we now believe will be around 12.5%. I will hand over to Tanate, who will take you through the second quarter financial results in more detail, starting on Slide 11.

Tanate Phutrakul, CFO

Thank you, Steven. I would like to start on Slide 11, where we show that our total income has continued to grow compared to the previous quarter. Commercial net interest income was bolstered by the repricing of customer deposits and ongoing volume growth, which nearly offset the effects of the lower ECB deposit facility rate and a stronger euro mentioned by Steven earlier. Sequentially, the euro's appreciation had a EUR 37 million negative impact on commercial net interest income. Fee income saw a significant 12% year-on-year increase, largely driven by structural growth, prompting us to raise our expectations for the full year. Additionally, all other income, comprising various income sources, was enhanced by strong performance in financial markets, treasury, and higher income from our stake in Van Lanschot Kempen Bank. Now, let's move to Slide 12, where we highlight continued growth in customer balances. We experienced another quarter of strong commercial momentum, especially in retail banking, with net core lending climbing by EUR 15.4 billion due to record retail growth of over EUR 11 billion. We performed well in mortgages and expanded our loan book in most markets during the second quarter, along with an increased business lending portfolio, particularly in Belgium, the Netherlands, and Poland. Wholesale Banking also contributed to net core lending growth through working capital solutions and short-term trade finance. Demand for long-term corporate loans remains low amid ongoing economic uncertainty. Regarding liabilities, core deposits rose by more than EUR 6 billion this quarter, thanks to strong Retail Banking performance, aided by payment holiday allowances. In wholesale, growth in PCM and Money Markets was offset by reduced short-term balances in our cash pooling business. On Slide 13, you can see that our commercial net interest income remained resilient. Liability net interest income was pressured by lower ECB deposit rates and the full quarter effect of the successful promotional campaign in Germany launched earlier this year. These impacts were nearly offset by repricing of customer deposits and strong volume growth. Without the effect of the German savings campaign, the liability margin would have remained stable. Lending net interest income was affected by the euro's appreciation against other currencies, yet it still grew compared to the previous quarter due to volume growth. The lending margin continued to be impacted by the shift towards a more profitable retail business, with substantial growth in mortgages that have a lower lending margin but a higher return on equity. I will provide further insights on this in the next slide. The progress in our strategy to allocate more capital to a more profitable retail banking business is evident on Slide 14. At our Capital Markets Day, capital distribution between the two business lines was approximately equal at 50-50. We set a target to adjust this to 55% Retail and 45% Wholesale by the end of 2027. By the end of the second quarter, the capital share allocated to retail has already surpassed 53%, highlighting strong growth momentum in retail banking and a focus on capital optimization in Wholesale Banking. The return on equity for retail lending is higher than that of wholesale, as despite the lower lending margin, the relative risk-weighted asset consumption and risk costs are lower. Therefore, faster growth in Retail Banking positively influences the group's return on equity by mitigating impacts on the overall lending margin, with a shift effect of roughly 2 basis points in the second quarter. Moving on to Slide 15. Year-on-year fee growth remained robust, driven by structural revenue factors, or what we refer to as Alpha. Wholesale banking fees reached EUR 360 million, setting a quarterly record for our franchise, driven by strong lending, daily banking, and trade finance fees. Retail Banking's growth was propelled by a continuing rise in mobile primary customers, leading to higher daily banking fees. Investment products had a strong quarter, driven by an increase in investment accounts, assets under management, and customer trading activity. Additionally, Retail Banking saw an 8% increase in fee income from insurance products, totaling almost EUR 70 million this quarter. Given the strong overall bank performance, we are confident in our ability to grow fee income toward the high end of the 5% to 10% range this year, aiming for our EUR 5 billion goal by 2027. On Slide 16, we detail the development of all other income, primarily driven by client activity in financial markets. We continue to support our clients during challenging times, which is reflected in our results. Treasury had another strong quarter with steady income, largely due to positive results from our FX ratio hedging, alongside benefits from the positive revaluation of derivatives related to the forward purchase contract for our stake in Van Lanschot Kempen, where we now hold a 20.3% stake following last week's regulatory approval. Next, on Slide 17, our expenses, excluding regulatory costs and incidental items, increased by 4.5% year-on-year but remained stable compared to the previous quarter. The year-on-year rise was mainly due to wage inflation, ongoing investments in business growth focused on customer acquisition, enhancing our tech platform, and developing products for new customer segments. For instance, in Spain, we've launched a digital bank account aimed at customers aged 14 to 17, providing a tailored experience within the existing ING app. Operating efficiencies helped offset some of the cost increases, and we continue to digitize services and infrastructure to enhance operating leverage. We've successfully rolled out our app in six different retail markets and introduced generative AI-powered chatbots in the Netherlands, Germany, Belgium, Romania, and Spain. Incidental expenses also included EUR 85 million for workforce rebalancing in Wholesale Banking, resulting in around 230 redundancies. Due to our focus on managing expenses, we have improved our 2025 outlook, expecting total expenses, including incidental items recorded in the first half of this year, to be at the lower end of our earlier projected range. Now, let’s address risk costs on the next slide. Total risk costs reached EUR 299 million this quarter, representing 17 basis points of average customer lending, which is below our through-the-cycle average and indicates the quality of our loan book. Net additions to Stage 3 provisions amounted to EUR 221 million, primarily due to collective provisioning across various retail markets. Individual Stage 3 costs have decreased, reflecting a limited influx of new defaults. This also contributed to a further decline in our Stage 3 ratio. Stage 1 and Stage 2 risk costs totaled EUR 78 million, including additions reflecting updates to our macroeconomic outlook. We remain confident in the quality of our loan book. Slide 19 illustrates the development of our core Tier 1 ratio, which has declined since last quarter. The decrease in core Tier 1 capital is entirely due to the ongoing EUR 2 billion share buyback, partially offset by EUR 800 million from this quarter's net profit. This decline has been somewhat mitigated by lower risk-weighted assets. Credit risk-weighted assets, excluding currency effects, grew by EUR 5.2 billion this quarter, driven predominantly by volume growth, though this was partially offset by positive model updates and changes in the loan book profile. Operational risk-weighted assets remained unchanged, while market risk-weighted assets fell by EUR 2.4 billion due to hedging and FX activities. The interim dividend for the first half of 2025 is EUR 0.35 per share, payable on August 11, continuing our established record of providing attractive returns to our shareholders. Now, Steven will conclude today's presentation.

Steven van Rijswijk, CEO

Indeed. Thanks, Tanate. And I would like to recap a few messages before going into Q&A. At the start, I would like to say that despite the ongoing geopolitical and macroeconomic turmoil, we have been able to generate continued commercial growth in this quarter. Commercial NII was resilient, and we expect this to grow. In the second half of this year, fees have grown by 12% compared to 2024, and we feel confident we can grow fees at the higher end of our 5% to 10% range this year. Costs remained well within our guidance. We are taking proactive measures to ensure we continue to operate efficiently and now forecast total expenses to end up at the lower end of the EUR 12.5 billion to EUR 12.7 billion range we indicated earlier. All in all, this translates into an improved outlook for profitability in 2025, and we now expect to deliver a healthy return on equity of around 12.5%. And with this, I would like to open the floor for Q&A.

Operator, Operator

And our first question comes from Giulia Aurora Miotto from Morgan Stanley.

Giulia Miotto, Analyst

I have two questions. The first is that we may have underestimated the currency exchange sensitivity that ING experiences. Could we receive information about the revenue and cost mix to help us estimate it moving forward, especially since the euro-dollar exchange rate is quite volatile? For my second question, you mentioned that corporate loan demand is subdued due to uncertainty. Do you see any signs that this might change in the upcoming quarters, particularly in Germany, or is it too early to tell?

Steven van Rijswijk, CEO

All right. I will talk about the corporates, and Tanate will talk about the FX sensitivity. Yes. So what we have seen this quarter was a growth in the wholesale bank of EUR 4 billion, but that was largely working capital solutions and trade-related financing, so short-term receivable type of financing structures. On the longer term, maybe term loans, we saw more syndicated loans than we saw in the previous quarter, but not the big jumbo deals that we saw previously. And, of course, we did offset, there was limited growth in the term loans, but that was offset by capital velocity that we used to bring that down again. So there was a bit of growth in the corporate term loan, but that was still muted. In that sense, it's a bit too early to call whether that will change or not. So of course, there is now a trade deal. Let's see if the signatures will be put on paper. That should then alleviate some concern, but it's for now a bit too early to say.

Tanate Phutrakul, CFO

Giulia, yes, we'll consider a bit of our disclosure if this volatility of the U.S. dollar will continue. But to give you a sense, already with an 8% reduction in the U.S. dollar against the euro in Q2, that has an impact of 37 million in NII and an overall impact of maybe around 60 million to 70 million on total revenue, right?

Giulia Miotto, Analyst

Got it. That's very helpful. Do you have the number for the costs? You gave the number for revenues? Do you have the number for costs?

Tanate Phutrakul, CFO

No, we don't. But we'll consider it in future disclosure.

Operator, Operator

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

Benoit Petrarque, Analyst

The first question is about commercial net interest income. I understand the downgrade due to the foreign exchange rates. I'm interested in discussing the underlying trends in commercial net interest income, specifically regarding replicating income and lending margins, and whether these are aligning with your plans, excluding the foreign exchange impacts. The second question is related to guidance for commercial net interest income. Looking at the guidance for the fourth quarter, I see an expected quarter-on-quarter improvement of 2.5% to 5%. Could you explain the factors contributing to this expected improvement in the fourth quarter? Lastly, to Steven, I noticed an interview in the Dutch Financial Daily recently where you mentioned the uneven capital requirements in Europe. You also indicated that relocating the head office near the German border would be advantageous from a capital perspective. We discussed this previously, but could you provide more insight into this and whether you are seriously considering a move to Germany?

Steven van Rijswijk, CEO

Yes. I'd like to discuss the remarks I made in the newspaper regarding Gelsenkirchen, and then Tanate will address the net interest income and the implicit guidance for the fourth quarter. In that article, I mentioned several points. Firstly, Europe still has many trade imbalances between countries, including our own import tariffs and uncoordinated regulations, which affect various sectors. We need to address these issues to enhance our competitiveness in Europe. This is also evident in the banking sector. For instance, if I were to relocate the head office to Gelsenkirchen, which is near the Dutch border, the current regulations would allow me to hold less capital while engaging in the same activities, resulting in lower taxes. This situation is peculiar. I am also concerned about the business climate in our country, emphasizing the importance of having strong banks to support businesses and households during both favorable and unfavorable times. Countries should aim to cultivate strong banks rather than drive them away. In that regard, European regulations are not sufficiently harmonized. It seems unfair that banks from Germany and France, even while serving clients here, have to maintain lower capital reserves and pay fewer taxes, while we pay taxes on our overseas business. We should seriously consider how to enhance the competitiveness of our banks in this country.

Tanate Phutrakul, CFO

Thank you, Steven. In terms of our commercial net interest income, there are positive comparisons to last quarter, but we are facing challenges, particularly with the ongoing soft demand for long-term lending in Wholesale Banking, which is expected to remain difficult. These are the aspects I wanted to discuss.

Benoit Petrarque, Analyst

Maybe on the Q4 improvements?

Tanate Phutrakul, CFO

Yes, I think on the Q4 improvements, the big driver is really volumes and maybe less impact on FX in Q4. At the same time, we never comment on further rate actions, but you can imagine that we will manage our margin at around 100 basis points on liability and rising to 100 to 110 in 2026.

Operator, Operator

And Tarik El Mejjad from Bank of America has our next question.

Tarik El Mejjad, Analyst

Just a couple of questions on my side, please, focused on M&A and deposit strategy. So can you give us a bit of an update on what have been your main deposit gathering campaigns in Q2 and those that you probably launched in Q3? And then on the M&A, is my understanding is correct to see that the focus you have at the moment is more into buying deposits and kind of going back to your ING Direct DNA of making much more spread on deposits versus targets on fees, where for the fees, you're still mainly focusing on getting more primary clients and cross-selling. Those are my 2 quick questions.

Steven van Rijswijk, CEO

Talking about the deposit strategy first, we didn't run major campaigns in the second quarter. We had a significant campaign in Germany during the first quarter that resulted in a total increase in deposits of EUR 23 billion, with about EUR 16 billion coming from Germany. That campaign is now concluding, which means some of the funds gained may exit in the third quarter, potentially affecting deposit growth during that time, especially as it aligns with holiday spending from the second quarter. Currently, there are no major campaigns underway, and the impact of past campaigns in Germany shows that approximately two-thirds of the money tends to remain while one-third leaves, which is positive. Regarding M&A and our activities, we are focused on diversifying our business. We are becoming more specific in the services we provide to existing customers, tailoring our approach to segments like Gen Z, expats, mass affluent, and affluent clients. This specificity helps attract more primary mobile customers who are likely to engage in more business with ING. Additionally, we're looking to expand our presence in markets where we currently only operate in wholesale banking and private individuals. We aim to incorporate SME, self-employed, mid-corporates, private banking, and wealth management services to broaden our offerings, as reflected in our growth figures in both lending and deposits.

Operator, Operator

And our next question now comes from Chris Hallam from Goldman Sachs.

Chris Hallam, Analyst

Just a few clarifications, I guess. So first of all, what's embedded in the commercial NII guide with regards to savings rates cuts in H2? And is the planning there around the rate mainly in response to your own planning or, I guess, relative to competition, i.e., are you driving to a predetermined liability margin outcome? Or are you just paying what needs to be paid relative to this? And then second, on market share, what are you seeing on mortgage market share, particularly given the extra capital you're putting to work there? And do those share trends differ much across your main markets?

Steven van Rijswijk, CEO

In terms of our market share in mortgages, we focus on pricing the mortgage relative to the return. Our goal isn't just growth for its own sake; we expand when we can achieve the right returns. Over the past year, we've streamlined our processes and enhanced digital ease, whether through direct selling or brokers. This has resulted in increased market share in some regions, especially in the Netherlands, where our new production market share is now approximately 17%. This figure is stabilizing, and we are pleased with the growth we are experiencing.

Tanate Phutrakul, CFO

Chris, obviously, we can't give any guidance around any further deposit rate action in the future. But I think as you see, we manage commercial NII on margin, and we have been able to manage the liability NII at around 100 basis points this year, and that continues to be our guidance. You can see that despite the rate action we've taken earlier this year, liquidity remains strong and deposit growth remains strong.

Operator, Operator

And from KBW, we have Hari Sivakumaran with our next question.

Hari Sivakumaran, Analyst

I just wanted to ask on the fee guidance. I appreciate you improved it to the upper end of the 5% to 10%. But you're currently running at kind of 11%, half 1 versus half 1 last year, and that's EUR 2.2 billion. Is there anything that's holding you back from going above 10% fee growth this year? And then my second question is on the wholesale business, and I appreciate the slide on the change in the mix of capital consumption. But the ROE has sort of been stuck at around 10.5% for the last 2 quarters. I'm just wondering if there's anything more that can be done to improve that.

Steven van Rijswijk, CEO

Let me first start with the return on equity and the Wholesale Bank. We have provided guidance for 2025, indicating a combined return on equity of 12.5% or around 14% by 2027, and we are confident in both projections. We aim to make improvements in both segments, which will require greater diversification. While I previously mentioned retail, the same principle applies to wholesale. We have been consistently investing in transaction services and financial markets to enhance our cross-selling alongside our significant lending operations in Wholesale Banking, aiming for higher returns. The second aspect of improving our returns involves enhancing capital velocity, meaning we aspire to achieve more with the same amount of capital or maintain our output while using less capital. This is also why we are reallocating some capital from wholesale to retail. However, we are in the early stages of our first specific risk transfer, which is expected to occur in the second half of this year, and this will also contribute to improving the return on Wholesale Banking. This is just the beginning; in 2026, we plan to continue with these specific risk transfers in the subsequent years as well. Regarding our fee guidance, we have seen strong growth at 12%. Over the past five years, we have managed to achieve an average growth rate of 5% to 10%. We are maintaining this guidance for the period from 2024 to 2027, and we are satisfied with our progress. We aim to sustain these levels but will stick to our current guidance of 5% to 10%, leaning towards the higher end of that range to provide more clarity.

Operator, Operator

And from Barclays, we now have Namita Samtani with our next question.

Namita Samtani, Analyst

Just my first one. Just wondering on the liability margin when you guide to 100 to 110 bps in 2027 when the replicating portfolio becomes the severe tailwind. To me, 110 bps would be the floor. Would you agree with that? So what stops the group from printing above 110 bps liability margin in 2027? And secondly, I just wanted to ask Steven, I just wondered related to Tanate's intentions to step down as CFO. In the press release, you write after 7 years as CFO on the Board, it's a logical moment for Tanate to step down. I just wondered why it's a logical time. ING has targets up to 2027, which we're yet to see if they can achieve.

Steven van Rijswijk, CEO

All right. Thank you very much. And by the way, I heard it's your birthday today. Is that correct?

Namita Samtani, Analyst

It's my sweet 16.

Steven van Rijswijk, CEO

Very good. Congratulations in that case. Yes. Look, the 7 years logical time to step down, I think what I meant with that is this has been a very good period. Tanate and I know each other for a long time; we have been working together since I believe the year 2000 when we were both stationed in Asia, and I'm very grateful that he has been with me for 7 years at the Board. Now Tanate is retiring from ING. This was my expression to be grateful. There was nothing particularly meant by 7 years or what it should be exactly, but this is a very good time at our Board, which I'm very grateful for. Nothing more, nothing less. In terms of candidates, yes, we never disclosed who we are exactly looking for. But of course, you can be sure that this is a rigorous process, and we have ample time to announce a successor before the AGM of 2026. Tanate, on liability margin?

Tanate Phutrakul, CFO

Yes. More to mundane topics, liability margins for next year. I think, look, it's always a balance when you look at liability margin around competition in the market. Our ambition to grow our volumes and managing margin, right? If we look historically, we see that the margin has been around that 100 to 110 over the long cycle. So that's something that we plan on. Maybe something that I think gives me comfort around that 100 to 110 is that the mix of our deposits has stabilized, right? The current account has now normalized to before the 0-rate level. The level of term deposits is coming down, and the level of savings is going up. So that also bodes well for improving the net interest margin on liability. So to summarize, it's a balance between volume and margin.

Operator, Operator

Our next question now comes from Farquhar Murray from Autonomous.

Farquhar Murray, Analyst

Just 1 question for me and really just a follow-up to a degree on Hari's question earlier on fees. I mean, the upper end of 5% to 10% full year '25 seems a bit more confident than earlier in the year. I just wondered if that is indeed slightly more confident and also what kind of products or geographies are behind that? Then more generally, what kind of proof points can you give for your kind of view that that's alpha-driven rather than beta?

Steven van Rijswijk, CEO

Indeed, that indicates increased confidence compared to the previous range. The reason for this heightened confidence is evident in the growth of our primary mobile customers and the associated increase in payments. There's a greater percentage of our customers becoming primary customers as well. The number of trading accounts has grown from 4.6 million last year to 4.9 million now, showing more individuals are trading with us. Over the past few years, we have also introduced insurance products for both private individuals and business banking. Insurance operates like a snowball; it gradually accumulates momentum and becomes bigger over time. Additionally, we've seen an increase in lending deals in Wholesale Banking, including syndicated loans, which has contributed positively. By expanding our customer base and the variety of services we offer, we are gradually increasing our business. Consequently, we're experiencing a larger number of clients engaging in fee-based services, which boosts our confidence.

Farquhar Murray, Analyst

Just a follow-on, would you have a magnitude on the insurance revenues now?

Steven van Rijswijk, CEO

Yes. It's with this, for the first time that we put it in the presentation, it's now EUR 69 million this quarter. So we split that out now.

Operator, Operator

And up next, we have Benjamin Goy from Deutsche Bank.

Benjamin Goy, Analyst

Two questions, 1 follow-up and 1 more general question. The first on the implied increase in the Q4 NII. I was just wondering, Tanate, you mentioned volume growth is part of the assumption there. Are there any specifics that you can share? Is there an uptick expected in long-term corporate lending that you would need to see to get this increase, or yes, volumes across the board loans and deposits? And then secondly, your digital business banking is part of your growth area in the retail business. In Germany, you entered the Amazon partnership. I mean I know it's only one partnership and probably don't want to overinterpret it. But never it looks promising, and it seemed to be below expectation. I was wondering how successful is the digital business banking in your markets without branch-based networks? And how much can growth be driven by that?

Steven van Rijswijk, CEO

All right. I'll answer on the business banking and Tanate on NII. If you look in general, in business banking, it consists of 3 parts: self-employed, SME, and mid-corporates. Self-employed is being done fully digitally like private individuals. SME is being done mostly digital first, supported by sales teams who are remote, and mid-corporates, or what you may call Mittelstand in Germany, you would do with a relationship model with sector knowledge supported by digital. So a large part of activities in business banking are digital. In Germany, in particular, we started from the low end, because we are already with private individuals. The move towards self-employed and SME is not so difficult to make because we already have a number of digital services. In the past, we only did that indirectly through a partnership with Amazon, but now we approach these customers directly compared to the significant mortgage and customer lending book and wholesale banking book that we have in Germany. Business banking in Germany is relatively small, but it's almost like with the insurance. Like I just said, it starts small and then we do it step by step by step, and we grow it to diversify our business.

Tanate Phutrakul, CFO

Benjamin, just on the commercial development in the fourth quarter. I think we look at a number of factors in giving our scenario. I think we look at volume, right? We have a longer-term planning estimate of 4%, but we're ending up at least the first half of the year high at around 7%. So that's something that factors in our thinking. We're still planning on another ECB facility rate cut in September of 25 basis points, and we will take the necessary rate action to maintain a margin of 1%. So those are the considerations that go into our guidance about commercial NII.

Operator, Operator

And from UBS, we now have Johan Ekblom with our next question.

Johan Ekblom, Analyst

Just maybe if we can come back to NII and look a bit further ahead into next year. I mean, you flagged in the presentation a further headwind from the replicating book. But then I guess there are some tailwinds on the deposit repricing. If I add those up, that's about a EUR 400 million tailwind into next year and then you plan on 4% volume growth. Are there any other significant drivers than those that we should think about in terms of NII '26 versus 2025? Because I guess that pickup you're flagging for Q4 should really continue throughout all of next year if I'm not mistaken. Then maybe digging a bit deeper on the volume side. I mean, we've seen a couple of quarters of very strong volume growth, and I think you flagged in the past that the strong mortgage growth at a system level in the Netherlands is probably not long-term sustainability levels. But maybe if you can give us an update on what you're seeing there. I also noted that there was quite a strong pickup in the Belgian loan book, in particular in the non-mortgage side. Is there anything structurally going on there? I mean, you've been losing share in Belgium for a number of years. Is there any chance of a decent turnaround there?

Steven van Rijswijk, CEO

All right. If we look at mortgages in the different markets, we see actually sales volumes that are growing in all these markets. The reason being that there are still shortages on houses. If we look at the Dutch housing market, there is a 17% year-on-year increase expected in terms of number of houses sold in this country. If we look at the Belgian housing market, we also see an increase of about 15% when we talk about building permits in some months and 18% mortgage production year-on-year up in total compared to the previous year. We're also benefiting from that. Same in Germany, whereby we saw mortgage lending coming down, but now really recovering well. So we are benefiting from that, and we have been working on improving our processes over the past years. Therefore, that helps us in our mortgage share on new production. But in the end, we will only print if we can also make adequate returns.

Tanate Phutrakul, CFO

In terms of looking to 2026, on the lending side, we plan on a recovery in terms of lending margin from 125 for 2025 to between 125 and 130 in the coming period. That kind of better outlook is driven by the fact that we have seen higher business banking loan growth, right? That is coming in with better margin, high consumer lending growth, again, with better margin and more return to normalization in terms of corporate lending, which has higher margins. These are driving our expectations for higher lending margin. And if you talk about the liability side, we give now a bit more detail about the impact on replication on Page 26 of our presentation, where you see that based on the curve prevailing in June, there's a EUR 300 million reduction in terms of replicated income. We have also given a better look into 2026 that without any further rate action on savings, we expect that the EUR 1 billion additional income from savings repricing would go to EUR 1.3 billion and term deposits will go from EUR 400 million to EUR 800 million. So that helps compensate for that additional headwind from replication.

Operator, Operator

We're now moving on to a question from Matthew Clark from Mediobanca.

Matthew Clark, Analyst

A few questions again on NII, I'm afraid. Firstly, in terms of the German deposit campaign of the first quarter. Should we still expect an outflow from that to come through in the third quarter? I think the special interest rate period ended during the second quarter, but near the end. So just wondering if we've seen any of that outflow effects yet or whether that's still to come? Second question is on commercial NII, in the third quarter, which you're guiding flat. I'm just trying to understand why it can't be more positive. You've got a very positive kind of volume tailwind, even despite the FX, and actually the FX has rebounded quarter-to-date. And then flat margin guidance effectively for both the lending margin and perhaps even implicit a bit of an improvement in the liability margin guidance in order to meet that full year 100 basis point guide. So why can't we see commercial NII up already in the third quarter is the question.

Steven van Rijswijk, CEO

Yes. Thanks, Matt. On the deposit campaign, you have seen it rightly that we started in the first quarter and ended early June. There was some outflow, but we will continue to see some outflow in the third quarter. We expect that based on what we have seen in previous campaigns, where typically 2/3 of the money stays and 1/3 of the money goes. So that's why we also said that this may have an impact on deposit growth in the third quarter, as also in the third quarter, people typically go on summer holidays, and that means that they spent a bit more money than they do in other quarters. So that could be a seasonal effect. Tanate, NII?

Tanate Phutrakul, CFO

Yes. NII guidance. I think what you see is not a full impact of foreign exchange impact in Q2. We expect the full impact in Q3. That's why we think that the impact of FX would be more significant in Q3, hence our guidance on flat commercial NII.

Operator, Operator

And from RBC, we now have Anke Reingen with our next question.

Anke Reingen, Analyst

First, regarding the liability margin, with the conclusion of the German campaign, should we expect the liability margin to return to 100 basis points in Q3, assuming all else remains equal? Additionally, about your upgrade to the 2025 return on equity, do you anticipate better trends in 2025 leading to a more favorable outcome in 2027, or is it primarily about timing with some of the measures being implemented more quickly?

Steven van Rijswijk, CEO

Okay. Look, we don't give current new guidance on 2027, but we are comfortable about '25, but we're also very comfortable on 2027. Tanate, on liability margin, how is that developing?

Tanate Phutrakul, CFO

On a like-for-like basis, with the German campaign ending, liability margin would be at around 100 basis points. In fact, a little bit better than 100 basis points.

Operator, Operator

And we're moving to another question now coming from Juan Pablo Cobo from Santander.

Juan Pablo Cobo, Analyst

I have a question about expenses. Can you provide more details on your initiatives related to KYC contact centers? It would be helpful to know how much you are spending on this and if there is potential to cut costs. Additionally, could you share insights about the new expenses related to incidental items and some information on future initiatives? Specifically, what is the expected payback for the EUR 85 million wholesale banking business initiative, and what savings might we anticipate in the future? My second question pertains to your ROE guidance. Can you elaborate on the rationale behind the recent upgrade? I understand that equity is declining, likely due to FX effects. What percentage of the ROE upgrade is attributed to improved net income and how much is due to the lower equity?

Steven van Rijswijk, CEO

All right. I'll talk about expenses and the initiatives that we've taken in wholesale banking, and Tanate talks about ROE. So talking about expenses. I mean, we have experienced so far still higher inflation levels that came in our cost line from previous years. We, of course, are investing for growth. That includes marketing and new products. We're partly offsetting that by digitalizing our operations further. There, we look at KYC, how can we utilize that? How can we further digitalize our contact center operations with AI, but also with generative AI chatbots? We also look at generative AI in lending and coding. Those are initiatives that are currently being developed centrally steered. Step by step, we will integrate them into our operations. We will let you know as soon as we have outcomes from that. With regards to the initiatives we've taken in wholesale banking, where we did the restructuring in the front office side of Wholesale Banking resulting in around 230 redundancies, the annualized benefit of that will be EUR 40 million, but that will only start to come in 2026.

Tanate Phutrakul, CFO

In terms of the composition for our updated outlook on return on equity, it's a combination of factors. We're more fee-intensive in terms of our revenue, which is more ROE accretive. This is part of our strategy even going to 2027. We operate at the lower end of our cost guidance that also improves profitability, and a combination of that improved fee intensity and lower costs drives the different guidance on ROE.

Operator, Operator

And next, we have Delphine Lee from JPMorgan.

Delphine Lee, Analyst

I wanted to revisit the net interest income to clarify the improvements you anticipate in 2026 and 2027 regarding the lending margin. Based on your earlier comments, it seems this is mainly due to a better mix with stronger growth in higher-margin products. Is there anything more to add? I would appreciate your insights on how much increase we might expect. Regarding the liability margin for 2027, you mentioned there's some significant pickup in replicating income. It seems you're indicating that the deposit mix is enhancing, and you're also seeing volume growth.

Tanate Phutrakul, CFO

I'm not sure how many different ways I can answer the same questions. But I think really on the lending, it's about the resumption of commercial lending growth in the wholesale bank. That has been solved in the last 2 quarters. In our outlook for the next couple of years, we expect that to resume to a more normal pace. We also expect that consumer loans and business banking loans will take a greater share, and that's why our guidance of 125 and 130 basis points. Then coming to the liability margin, yes, we have some positive tailwinds coming at us. The pressure from the facility cuts by the ECBs is according to the forward curve, coming to an end. The long-term replication is getting there. At the same time, we think competition will be normalized, which means that we need to balance between margin and volume on deposits, and we think the guidance of 100 to 110 is a good number to plan for.

Operator, Operator

Thank you very much. And as there are currently no further questions in the queue, I'd now like to hand the call back over to you, Mr. van Rijswijk for any additional or closing remarks.

Steven van Rijswijk, CEO

Thank you very much, and thanks, everybody, for your time and your questions. I know it's probably a busy time for you as well, given that many companies are coming out with their figures this week. So I hope that you deal with it all well. And I hope that you can also enjoy a summer break. Thanks again, and we'll speak, in any case, in 3 months' time again. Thank you.

Operator, Operator

Thank you for joining today's call. Ladies and gentlemen, you may now disconnect.