ABN Amro Bank NV

OTC:AAVMY

Q2-2025 Earnings Call

[Operator]

Welcome to ABN AMRO's Q2 2025 Analyst and Investor Call. Please note this call is being recorded [Operator Instructions].

I will now hand the call over to the speakers. Please go ahead.

[Marguerite Bérard-Andrieu, executive]

Good morning. This is Marguerite Bérard-Andrieu, and welcome to ABN AMRO's Q2 results presentation. I am joined by Ferdinand Vaandrager, our CFO; and Serena Fioravanti, our CRO. Following our presentation, we will hold a Q&A session.

But first, let me start by taking you through the highlights of the second quarter on Slide 2. All in all, the second quarter is a solid one. Our net profit amounted to EUR 606 million, and we posted a return on equity of 9.4%. Our mortgage portfolio continued to grow strongly, and increased by a further EUR 1.8 billion during the second quarter. Total client assets grew by EUR 8.6 billion to EUR 355 billion. Our operating income was stable and the results were tighter control on external hiring and user consultants are starting to become visible.

This quarter, we had net impairment releases continuing the low cost of risk level of recent years. We maintained a strong capital position with a CET1 ratio of 14.8%, including the new share buyback of EUR 250 million. This is our fourth buyback foundation to date. We will gain a review our capital position in Q4 to assess the potential room for further share buybacks. We set our interim dividend at $0.54 per share.

Before I discuss these highlights in more detail, let me start with our strategic achievement this quarter on Slide 3. Well, first, I'm really proud of BUX, [indiscernible] developed within a year by the ticket team and it's designed for the digital lifestyle of younger generation. BUX offers a visually reason interactive experience designed to help GenZ manage their finances more effectively. The app also supports financial education for families with features that allow parents and children to learn about money together. This quick development would not have been possible without the progress we made with the modernization and modernization of our application landscape.

We also completed the acquisition of HAL, and we are now a strong top 3 player in Germany in Wealth Management. As part of our commitment to sustainability, we are increasingly embedding secular economic principles in our financing activity. The cumulative volume of our secular deals has reached EUR 2.5 billion, putting us well on track to meet the EUR 3.5 billion ambition by 2027. In line with our ambition to play a role in important transition teams, we made our first commitment to invest in a dedicated European discounts bond. This commitment aligns with also both to the European sovereignty and defense industry.

Now turning to economic development. Dutch GDP slowed to 0.1% in Q2 2025, down from 0.3% in Q1, and this is reflecting a broader loss of momentum since mid-2024. Positive contribution came from government spending and investments, notably in defense, while net exports and private consumption declined. Private consumption is contracting as households prefer to say, given elevated uncertainty and this despite rising real incomes and strong labor market fundamentals.

Near-term growth is expected to remain subdued, but prospect improved for 2026 with potential support from lower rates and positive spillover effects from German fiscal spending. The Dutch housing market remains resilient with house prices rising almost 10% compared to last year, driven by higher householding comps, low mortgage rates and basic shortage of new homes.

Transaction volumes are also surging up 16% year-on-year, largely due to investors selling rental properties ahead of new tax rules. Looking ahead in 2026 house price increases are expected to slow to 3% and transaction volume to 1% as wage increases level off and mortgage rates stabilize.

Now moving to our second quarter performance, starting with client lending on Slide 5. I will start with our lending projects. There again, we had a strong quarter in mortgages and our portfolio increased by EUR 1.8 billion, continuing the trend from last year. The corporate loan book was more or less flat when excluding the lower volumes we had in asset-based finance and the impact of FX movements. Lower volumes at ABF reflects the wind down of nontraffic client portfolios in the U.K. and in Germany, and we now recently also decided to start rounding down our activities in France.

Within our corporate loan book, we saw continued growth in our transition teams being new energies, digital and mobility with growth this quarter mainly in mobility. Client deposits rose significantly, up by almost EUR 8 billion during the quarter, mainly due to seasonal holiday allowances that people are also saving more with current economic uncertainties.

Another factor driving higher deposits is increasing allocation to cash within DPM. Time deposit volume came down, driven by clients with maturing contracts, placing their cash and savings products as rates have come down.

I will now move to our net interest income on Slide 6. NII decreased by EUR 28 million, compared to the previous quarter, while interest income on client loans and deposits were stable. The savings coupon, as you remember, was lowered by 25 basis points on May 1. So over May and June, we benefited of savings margin. The growth in flying deposits also improved the NII. On the other hand, margins on current accounts and time deposits declined, offsetting the positive effects.

With regards to our lending products, the mortgage portfolio continued to grow, however, at slightly lower margins. Margins on corporate loans were stable, while our corporate loan book was more or less flat when excluding the impact of winding down nonstrategic client portfolios at ABF. The lower NII compared to Q1 reflects lower treasury results in Q2 and value smaller positive items during Q1, mainly within Corporate Banking. We still expect our full year 2025 NII, excluding HAL, to end in the middle of the EUR 6.2 billion to EUR 6.4 billion range. Given current forward rates, we expect that the treasury results will increase in the second half of this year, while the inflection point of the replicating yield [indiscernible] sometime during the first half of next year.

I will now discuss key developments on Slide 7. Fees declined by 3% compared to the previous quarter. So compared to Q2 last year, these are still up by 6%. While financial markets in April were quite volatile, leading to a good month for clearing, May and June were relatively quiet as many market participants took a risk of view.

Overall, this led to lower fee income for clearing compared to Q1. Easing corporate banking were further impacted by higher fees paid for credit risk insurance. The asset management fees in Wealth Management were slightly lower, reflecting negative equity markets in April.

Moving to other income. We saw higher equity participation results and this result was partly due to a successful exit from our Sustainable Impact Fund.

Now turning to costs on Slide 8. Overall, our underlying cost decreased further in Q2. Personnel expenses increased by EUR 10 billion, reflecting an in-rent salary adjustment, which occurred on April 1 of each year, an increase in restructuring costs. Other expenses declined by EUR 31 million, reflecting mainly our cost discipline as we have tightened new controls on hiring external staff. External FTEs declined by over -- by over [ EUR 228 ] this quarter with a decline of close to [ 600 ] since the beginning of the year, representing a 16% reduction.

We are in part internalizing this people, which explains why internal FDs increased during Q1 and were flat in Q2. With a tighter hiring discipline, we are now starting to see a decline in internal FTEs and I do expect this to become more visible in the coming quarters.

Turning now to impairments on Slide 9. Impairments were again limited this quarter, reflecting solid credit quality and a resilient Dutch economy. During Q2, the impaired ratio was stable at 2.1%, while the coverage ratio for deposit loans declined slightly. The latter is the result of some highly provisioned corporate loans that were written off this quarter. Across value sectors we took some additions to new and existing impaired loans. Additions were more than offset by the release of the management overlay for the Newflize challenge. Overall, we believe 6 million of impairments over the quarter.

Excluding the release of the management of delay, the cost of risk for this quarter is around 4 basis points. Our management overlay now stands at around EUR 100 million, largely related to interest-only mortgages and a small amount for climate and environmental risk. We have done a deep dive into the effects of the tariffs by analyzing potentially impacted sectors. The results show that we should only expect a limited direct impact. However, we continue to monitor the developments closely.

Given the good first half of this year, supported by healthy macroeconomic indicators, we now expect the cost of risk for 2025 to end well below the through-the-cycle cost of risk of 15 to 20 basis points.

Proceeding to Slide 10 on our capital position. We announced [ EUR 250 million ] share buyback following our delayed capital assessment, which rounds off our capital distributions of 2024. This is a modest amount given today's capital ratio. However, we want to maintain ample capital headroom for potential distribution of our full year results at Q4.

In our capital assessment, we also incorporated the uncertain geopolitical and economic environment. The remaining impact of the HAL acquisition and an expected increase of 35 basis points in our pilot requirements as of January 2026. This increase mainly reflects the ECB views on Dutch interest-only mortgages specifically, since these mortgages do not amortize during the lifetime transaction and require specific risk management measures.

So far this year, our capital generation has been very good, reflecting data improvements, capital allocation decisions and a solid net profit. This quarter, data quality improvements result another EUR 1.4 billion of RWA add-ons largely related to collateral eligibility. The capital used by asset-based financing declined further, reflecting, as I mentioned, our decision to wind down most of our activities outside Netherlands. We expect ABF to reduce RWAs by another EUR 1.5 billion by around 2026.

Turning back this quarter, the securitization transaction with the European Investment Fund delivered equivalent of EUR 650 million of RWA release. We started this relief booked to capital. All in all, this has led to a pro forma CET1 ratio of 14.8%, which includes the capital impact of the share buyback we announced today. We will carry out our net capital assessment in Q4, incorporating our full year 2025 results.

Now to finish with our financial targets. But first, the Dutch economy remains resilient despite all uncertainties. We benefited from the continued strong performance of the housing market, [indiscernible] demonstrated a solid financial performance in Q2 with significant growth in mortgages, cost management, EBITDA priority, we do expect we can keep total cost between EUR 5.3 billion and EUR 5.4 billion this year, including regulatory levies. We expect to end in the middle of our guidance for full year NII of EUR 6.2 billion to EUR 6.4 billion. We set our interim dividend at EUR 0.54 per share, and we announced a share buyback of EUR 250 million.

With that, I would like to thank you for your attention, and I will ask now the operator to open the line for questions.

[Operator]

[Operator Instructions] Next question comes from Giulia Miotto from Morgan Stanley.

[Giulia Miotto, analyst]

I have 2. The first one is on the capital framework. So how should we think about the 13.5% target in the context of the Capital Markets Day? Basically, can we expect an update on that? Or shall we assume that given that the SAP is now 11.5%, the 13.5% is basically setting stone and then the next thing on capital is basically Q4 results where there might -- there will be another share buyback. So that's the first question.

And the second question is on NII. So I share the EUR 6.3 million guidance reiterated. I was just wondering, is Q3 basically going to be sort of flattish to Q2 and then you see an inflection point in Q4. Or how should we think about that evolution because, of course, then the exit rate impact our 2026 estimates.

[Marguerite Bérard-Andrieu, executive]

Thank you very much for your question. So Ferdi will answer on NII. And basically, as far as our capital framework is concerned, and the target was set, this will be indeed a topic for the CMD, and we will take into account all developments. Ferdi, NII.

[Ferdinand Vaandrager, executive]

Giulia, on NII. I think Marguerite explained the underlying drivers for this quarter. So the decline you have seen Q2 versus Q1 was mainly due to lower treasury results, and we expect that to reverse in Q3 already and also some various smaller positive one-offs in Q1, we have not disclosed at that time. One element was the payment of amortized fees related to the infrastructure portfolio sale. And the other one was a smaller positive one-off in Q1 for clearing tax adjustments. So those were the 2 main drivers, but we do expect already a quarter-on-quarter increase Q3 over Q2. So that means also going towards our full year guidance that the exit rate will be at a high level.

[Giulia Miotto, analyst]

Okay. Very clear [indiscernible] to make sure I understood you correctly, so the 13.5% might change at the Capital Markets Day, we should expect an update on that?

[Marguerite Bérard-Andrieu, executive]

Well, the Capital Market Day is to discuss our capital allocation. So we will, of course, discuss everything at our Capital Market Day.

[Operator]

Next question comes from Tarik El Mejjad from BofA.

[Tarik El Mejjad, analyst]

A few questions from my side, please. Marguerite, you've been now a few months into the job, and I would like to please to know what's your mindset into the CMD? What's the key priorities? We all know what needs to be done. But just to see what you find out from your ongoing review and what's -- how much you can tell us so far? And then still strategically on the M&A and I mean, the wealth management looks like still unfinished job, you fixed -- Netherlands, is strong to fix Germany. So what would be the strategy for Belgium and France? Are there assets that could be interesting or you would consider actually reallocating more focused into the 2 strong markets.

And then, I mean, sorry, I know I ask this question every quarter, and I'm still struggling to understand the movements in treasury results and if you can give an indication why you think it will reverse? Why it's been lower this quarter? This is a big swing factor in your NII, and it's very difficult to model and anticipate.

[Marguerite Bérard-Andrieu, executive]

Thank you very much for your questions. So the first question, and of course, I realize you're impatient to know what we are going to announce at our Capital Markets Day, but then it wouldn't be some to -- for the Capital Market Day we had nothing to announce. So as I said, we are currently working hard in reviewing all our activities and building up on solid foundations and strong market positions. So we will indeed focus on enhancing our profitability, optimizing our capital position and rightsizing our cost base in order to achieve meaningful growth. And this will be indeed where the Capital Markets Day is going to be about. Ferdi, on the treasury?

[Ferdinand Vaandrager, executive]

Yes, Tarik, I know, so the answer will not be very different. I always remind you that on a quarter-by-quarter basis, it can be volatile because it depends on the timing of hedges or the repricing dynamics of the receiver swaps. We try to be helpful last year and sort of indicating what we expect, what the overall delta for the full year and treasury results would be, which is clearly a positive delta, '25 versus '24. And if you look at the forward curve further steepening, what we see is being supportive for that trajectory. So it can be more volatile on a quarter-by-quarter basis. But clearly, we expect a positive effect in the second half.

[Tarik El Mejjad, analyst]

Anything on the wealth management part, maybe?

[Marguerite Bérard-Andrieu, executive]

This was a question related to M&A. So first of all, we are very happy to have closed the acquisition of HAL this quarter. And now there is quite a bit of work to be done in order to make it also a successful integration. So this is what we are busy with at the moment. And yes, I heard your question on Wealth Management. This is indeed, I think, a strong point of [indiscernible]. And so every time we can consider what we will judge as accretive targets. We will, of course, look at them closely.

[Operator]

Next question comes from Delphine Lee from JPMorgan.

[Delphine Lee, analyst]

Just had a follow-up questions, sorry, on capital on NII. So on capital, I definitely a bit confused because you talk about Q4 and waiting for full year '25 results before you evaluate additional share buybacks. But isn't capital distribution a big component of what you intend to kind of share with the market for the CMD. It is -- just to confirm that sort of capital allocation and distribution is -- we should hear a little bit more about this already in November as opposed to Q4 results early next year.

Second question is on -- so just to follow up on NII. I just wanted to kind of like if you could share a little bit kind of thank you for giving a bit of color around second half. Just more for '26 and onwards. I mean you still have a little bit of headwind from the replicating income next year, but the volume growth is there. So just wondering what we should expect and how much growth can we get on NII next year?

[Marguerite Bérard-Andrieu, executive]

Thank you very much for your questions. So just to reiterate, the share buyback we announced today is indeed a delayed share buyback. As you remember, the bank had announced in Q3 '24 that it will postponed to '25, its announcement of the share buybacks to have the full view of Basel IV impact for the bank. So this is what we are doing now. And just to provide some clarity, I just mentioned Q4 of this year because the policy of the bank is indeed to have an annual assessment of its capital position and its share buyback transaction annually at Q4. So this is just what I reiterated. But you're right. We have the Capital Markets Day on November 25. So I imagine it would be disappointing for everyone if we were not giving some clarity then on how we will allocate capital, including shareholder returns. NII, Ferdi?

[Ferdinand Vaandrager, executive]

Yes, Delphine. It's too early now to give guidance for 2026. So we are reiterating our guidance for 2025. So we expect an increase in NII in the remainder of the year. And for your benefit, we have updated the replicating yield sensitivity in the analyst presentation. You should always look at that replication. And there, you do see that we expect an inflection point in the replicating income in the first half of next year, but you should take into account that this is fully based on constant volumes, and it shows that there are no changes in the [indiscernible] coupons. So this is only based on the replicating income so this provides you some direction, but you should not look at this in isolation.

[Operator]

Next question comes from Namita Samtani from Barclays.

[Namita Samtani, analyst]

Just the first question, given the disclosure of the replicating portfolio on Slide 15, it's based on constant volumes. If you continue to grow your deposits like you did this quarter, would you consider adding to the replicating portfolio, the steeper curve and spread versus cash would suggest it makes more sense to add to the replicating portfolio. So I'm just interested in your thoughts there.

And my second question. It looks like you have EUR 79 million of overlays for interest-only mortgages. I think that's right, but correct me if I'm wrong. And now there's a 35 bps [indiscernible] added on to interest earning mortgages. Do you think this product is still attractive from an ROE perspective?

[Marguerite Bérard-Andrieu, executive]

Thank you very much for your questions. So replicating portfolio, this will be for Ferdi. Serena will answer your question regarding our over lays an interest-only mortgage, but let me just tell you that as an opening sentence that interest-only mortgages are project we are comfortable with in the Dutch market, and we will, of course, continue to offer it to our clients every time it is suitable. Ferdi, replicating portfolio?

[Ferdinand Vaandrager, executive]

Yes, Namita. Number one, looking at client deposits, you saw a very healthy increase in Q2 of EUR 8 billion mainly in demand deposits, EUR 8 billion and EUR 3 billion in current accounts, and you still see some migration from term into demand deposits. So this translates into your question, yes, the size of the replicating portfolio, given this migration and growth has increased. So it's now around EUR 165 billion and for the rest, the underlying dynamics where we earlier disclosed 40% to 45% of the replicating portfolio reprices within 1 year.

We do expect further deposit growth in the second half of the year, but you should take into account that part of the increase in Q2 is related to holiday allowances. And normally, the expectation is that you will see some spending after the holidays. So you might see the effect of that in Q3. But off on a net basis, we still expect a positive growth in the second half.

[Marguerite Bérard-Andrieu, executive]

Although maybe we can add on this study on the holiday allowances, I think the amounts that we've seen coming into bank accounts have been higher than what we were expecting. And we do expect, as I mentioned, people to say broadly, but even more even current uncertainties.

[Serena Fioravanti, executive]

Thanks, Namita, for the question on interest only. You are really right. It's a EUR 79 million of overlays in our provisions. The interest standing mortgages are suitable products, as Marguerite said, but we have been seeing in the past that the new production is going down and is redeeming. So the new inflow has been very little, not very attractive. So our proportion of interest on the mortgages has been declining and is now at 38%. It used to be 59% in 2012, so to give you a comparison. But indeed, we are continuously offering this product when it's suitable and when is appreciated by the clients.

[Operator]

Next question comes from Benoit Petrarque from Kepler Cheuvreux.

[Benoit Petrarque, analyst]

So the first one is on the MDA, 11.5% on first of Jan versus your guidance of your target on CET1 of 13.5%, that's 200 bps. Will that be a good level for you? And is that not getting towards while a little bit tight zone, let's say, on the buffer? Or how do you see that?

On NII, I was wondering if you take into account some NII from HAL also now in your guidance of EUR 6.3 billion. I'm asking because we do see a pretty steep actually recovery of NII in the third and fourth quarter based on your guidance. I think that will be putting you towards EUR 1.6 billion in both Q3, Q4, which is a 4.5% increase quarter-on-quarter. So I just wanted to make sure that we're going to see that steep increase of NII in the coming quarters.

And then maybe on data quality improvement, you've done quite well in the second quarter. Can we expect more in the coming quarters before year-end?

[Marguerite Bérard-Andrieu, executive]

Thank you very much. So first of all, the indication we gave you, and this is also a top end of our transparency because bear in mind that at this stage, the letter we received from the ECB regarding our threat is not final. But we have an indication because we wanted to share it with you of an increase in our Pillar 2 requirement of this 35 basis points, primarily linked to, as we mentioned, interest on the mortgages.

So yes, the MDA is expected to increase by 20 basis points as part of this Pillar 2 increase because it can be filled with AT1 and Tier 2. So this is how you come up with a 20 basis point MDA. As far as our capital framework is concerned, and as I mentioned already, this will be, of course, a topic for Capital Markets Day. Regarding NII...

[Ferdinand Vaandrager, executive]

Yes, NII, Benoit, no. We reiterate our guidance, and our guidance was excluding the impact of the HAL acquisition, we try to be helpful and provide you with the first half P&L of HAL, keep in mind that these are still unaudited numbers, but at least for your indication where NII would end up you can use that as a reference.

Then looking at RWA trajectory, specifically on the back of data improvements. yes. So we're quite glad to see that a big part was related to around EUR 1.4 billion improved monitoring and revaluation of collateral and data quality improvements. And so if you look over the past few quarters, the overall impact has been or really has been around EUR 4 billion to EUR 5 billion, and that has really been on the back of better sourcing of collateral coverage of external ratings and also reduce proxies or conservative assumptions for collateral valuation. And so we will continue to work very hard on this, but the benefit will be spread more over time. And the focus will mainly be as mentioned before, on the SME support factor. So hopefully, we might see the first benefit of the EUR 2 billion to EUR 3 billion at the end of the year. And next to that, it's clearly focusing on the coverage of external ratings and improving collateral data.

So at this top of mind, we're working very hard for that about the further sort of benefits will be more spread out of time.

[Operator]

Next question comes from Johan Ekblom from UBS.

[Johan Ekblom, analyst]

I just wanted to come back to the interest-only mortgages. And I guess the thinking there would be you're now looking at a bigger capital charge, you hold overlays relating to this portfolio. Is there a double counting of kind of buffers on buffers that you're the increase or the supposedly higher credit risk is reflected in more than 1 place now? And do you need to have both? And then I guess related to that, that if this is the Dutch market phenomena should we not expect the higher capital charges to relatively rapidly be passed on to the end consumer? Or is there anything preventing you from doing that?

And then maybe a second question just on volumes. I mean we've seen this is the long-running trend, right? But you've been giving up share in corporate lending and a lot of that's been kind of strategic exits of certain portfolios. When do you think you can kind of start to approximate market growth in terms of corporate lending in the Dutch market?

[Marguerite Bérard-Andrieu, executive]

Thank you very much for your very relevant questions. So first, and I will let [indiscernible] elaborate on overlays and whether or not the reason of an accounting with [indiscernible] additional requirements on that. But let me first tell you about the project itself and what we see in the market. Yes, indeed, this is, I would say, [indiscernible] rather specific Dutch project. And I think this is also the reason why the ECB is paying attention to it because overall, I think ECB sees it as a riskier product versus MET mortgages.

As far as we are concerned, we see the risk on average to be low, especially considering a relatively low average loan-to-value of about 44%. The issue we mentioned we've -- interest on the mortgages, as far as ECB is concerned [indiscernible], but yes, we have a view on the projects for the Dutch market. So when pricing these projects, we take, of course, all factors into consideration, including potential additional capital. But we -- this is not the only factor we take into consideration when we price the product. But yes, this is part of our assessment in pricing. Serena, overlay and P2R.

[Serena Fioravanti, executive]

Yes. No, indeed, we have 2 different calculations. The management overlays, it's more of a perception of our expected exposures on our clients and related risk. So we -- our overlays are updated on a quarterly basis based on the development, also of our client outreach. So we reach out to clients to get better information. And as the information are coming through, we expect the overlay to be adjusted over time, and absorbing to the regular provisioning process.

The P2R is more determined with the ECB based on their unexpected capital needs over a longer period of time and under severe strat conditions. They consider both quantitative and qualitative considerations to the risk management of the entire book, and Marguerite has already mentioned to that, so specific to the product. Therefore, we don't believe that they are necessarily Director that are counting, the P2R is not assessed quarterly, but it's more a result of our regular interaction with regulators and the credential assessment on an annual basis. So this would have a different update in time.

[Marguerite Bérard-Andrieu, executive]

And on corporate bank?

[Ferdinand Vaandrager, executive]

Yes, on the corporate bank. And one element to mention as well, Johan here because you are talking about buffer, you should take into account that we still have the macro prudential for 58 rule, so that is the Dutch market [indiscernible] that has been rolled out [indiscernible] I just wanted to give that reference there.

If you look at the corporate loans, you should look at the underlying effects there. Yes, it was down quarter-over-quarter, but the biggest part here was related to the wind down of asset-based finance in Germany and the U.K. where they're in line on the path we are winding this down. And secondly, you have also seen some FX impact and that mainly comes from the shipping portfolio. So overall, the outlook is healthy, specifically for the transition sectors in the Netherlands and in the countries where we are active. But we clearly see, if you want some color, yes, you do have some clients in uncertain times that they are more hesitant to choose for larger investment decision. But if you look underlying working capital finance, et cetera, it's still help.

[Johan Ekblom, analyst]

4 Maybe just a follow up on that. [indiscernible] I mean how much do you still have in runoff. So the ABS that's left in Germany, U.K. and France is what, something like EUR 2 billion, EUR 3 billion? And then is there anything else that you would like that headwind? I mean is there any other headwinds in portfolios you're specifically exiting? Or is that it?

[Ferdinand Vaandrager, executive]

No, it's not Johan. ABF is very specific. You've seen earlier quarters where you did see some impact, for example, where we sold some commercial real estate. And indeed, we recently said that also the ABF business in France will be wound down over the coming period. So total what is left is EUR 1.5 billion RWA in the next 1.5 years because we provide an indication at the end of 2026 to wind down [indiscernible].

[Marguerite Bérard-Andrieu, executive]

But where you're right is that we do continue to improve our RWA density in the corporate bank, and this is what you see in all the actions we are taking here.

[Operator]

Next question comes from Alberto Artuni from Intesa Sanpaolo.

[Alberto Artoni, analyst]

So I just have a quick follow-up on this point on the risk-weighted assets. And so if you can just give a little bit more color, how do you intend to continue -- if you intend to continue to optimize and -- what is the -- just an indication of what is the potential that we can reach -- you can reach on that side?

And the second question would be on the competition on deposits. What is the competitive landscape at this point in time, you lowered as well as your peers the remuneration of saving accounts? Do you expect that this trend can continue going forward? I mean, you've been doing a good job in terms of volumes. So I would expect this could be a possibility. So what's your -- what you think?

[Marguerite Bérard-Andrieu, executive]

So as I think we described and I will let Ferdi and Serena elaborate on that. But yes, we are steering on our RWAs, and we gave you some color on that as far as data quality improvements were concerned up to EUR 4 billion to EUR 5 billion in the past quarters already. So we will continue to steer on that. So I think this is an important element. We will -- I won't elaborate more there because this will also be part of the presentation, we will give you at our Capital Market Day, but this is the direction.

As far as deposits are concerned, well, of course, we adapt our pricing to all, I would say, all macroeconomic developments, including, of course, monetary policy. But at this stage, in the guidance we are giving you for NII. We have not taken into account any changes in our coupon looking forward.

[Ferdinand Vaandrager, executive]

No. And we always said that as an indication, near [indiscernible] roughly 10 basis point lowering at on an annual basis, EUR 100 million to NII. And then more on capital optimization, yes, you have seen we've done our inaugural significant risk transfer with the European investment, a bank that has relieved of overall the EUR 650 million, partly RWA and the rest in capital. And in the first quarter, we disclosed a credit transfer of infrastructure portfolio to a third party of roughly EUR 1 billion. So we are implementing a more structural approach to capital management to really actively manage RWA and balance this in the context of P&L, capital and ROE. So you will start hearing more on that in the coming quarters.

[Operator]

Next question comes from Farquhar Murray from Autonomous.

[Farquhar Murray, analyst]

Just 2 questions, if I may. Firstly, with regards to the [indiscernible] discussions interest-only mortgages have kind of long been a [indiscernible] with ECB. But could you just clarify whether there's been any fundamental deterioration in recent quarters or years? -- on say, probability of default or loss given default on that specific portfolio that kind of might help us rationalize the new approach taken there.

And then secondly, with regards to how [indiscernible] for the first half '25, I presume there is like-for-like for the acquired scope given the notation. But is there anything you would call out in those first half '25 numbers? Or can I think that's a solid indication of the run rate into the second half?

[Marguerite Bérard-Andrieu, executive]

Thank you very much. So Serena will elaborate on interest on the mortgages. But no, the -- I mean, the answer to your question is very clear from -- on our point of view, we consider the risk on average to be low, and Serena will give you also all the actions that we are taking on this portfolio, just to ensure it remains the case.

[Serena Fioravanti, executive]

No, absolutely. I mean to your questions, the ECB has a concern with this product, largely because it's also different from other jurisdictions. So they see riskier as the annuity mortgages. And they see this as a risk that they want to consider as part of the credential statement. There has been absolutely no deterioration, neither on [indiscernible] the LGD on the opposite, we have extremely low cost of risk on the mortgages and basically no default. When you look at the LTV, I think Marguerite said it before, on average, 44% on the 100% interest-only mortgages to give you a flare, we have even an LTV of 31%. So we really look at the risk on average at low. We see it as a very limited part of our general book. And we see it stronger.

So all of our -- the majority of our customers don't have arrears, have no reason or I have no reason to doubt on their stability. So we will continue our client outreach to inform them and assess the potential risk and refinancing risk, and we will also share with the ECB as we go along. So we're fairly comfortable with that.

[Marguerite Bérard-Andrieu, executive]

And before we move to your HAL question, let me tell you a French person speaking, that I find in the Netherlands that there is a very high payment morale. So indeed, we don't see any specific risk to this project. And also bear in mind, I think some of the specificity on this product comes with the fact that in the Netherlands, which has among the best pension schemes in Europe, clients primarily build up equity retention rather than through for properties. So that also explains why you have seen over time, the development of these projects compared to other jurisdictions. But I agree this is a bit of a that Dutch specificity. Ferdi, on HAL.

[Ferdinand Vaandrager, executive]

Yes, Marguerite and yes, Farquhar. I mean the acquisition is completed on the 1st of July. So you will see the consolidation effect in the Q3, so numbers provided in the analyst presentations are the unaudited number after the first half of the year on the perimeter we acquired, right? And we said earlier, the [indiscernible] business is the part we are not acquiring. And there you see for the first half, NII of [indiscernible]. What you have seen in Q2 is a capital impact of 7 basis points, and that's really related to the prepayment of EUR 672 million. It is not a final price that will be based on the actual book value. So what you're going to see in Q3, then you see the capital impact visible through the consolidated accounts. And you can see on the pro forma numbers, RWA is just above EUR 3 billion, so that has a roughly 30 basis point impact. So on a net basis, expect around 25 basis points impact in Q3, and the rest will come later because that's also dependent on the integration and restructuring costs, and it's too early to comment on that.

[Farquhar Murray, analyst]

Just a follow-up on the interest earning mortgages [indiscernible] -- actually, just a follow-up on the interest earning mortgages, [indiscernible] there's possibly a divergence between the economic view on those and the ECB view, would it become more susceptible to SRT?

[Marguerite Bérard-Andrieu, executive]

It is another good question. I mean, basically, at this stage, when we consider ways to optimize our capital, we look, of course, at all our portfolios with no specific exclusion. We take all factors into consideration. So when it is relevant, it is a possibility.

[Serena Fioravanti, executive]

[indiscernible] IRB portfolio. It is one of the IRB portfolios, our risk-weighted asset density is not extremely high, even if you back up this capital add-ons and also the specific CMD, I don't impose on all residential mortgages in the Netherlands, which we expect to be released, so potentially we reviewed by the end of December 2026. And therefore, we look at it as Marguerite said, from a portfolio perspective, overall and looking at risk-weighted assets entities.

[Operator]

Next question comes from [indiscernible] from Goldman Sachs.

[Chris Hallam, analyst]

Just a couple of questions left for me. So just coming back to the recent stress test, there was a higher depletion assay [indiscernible] versus some of your peers, I guess, part of that is due to specific assumptions on the Dutch economy, but I guess it was also the case relative to your local peers. So I guess the 2 parts within that stress test question. Is there anything you would want us to bear in mind there. And second, whether there's any connection between that higher depletion and whether or not you may wish to change the target CET1 ratio in Q4, as you discussed earlier?

And then my second question, just coming back to some comments you made earlier in Q&A, mentioned earlier, the focus for the CMT was going to be to mobilize the organization to achieve meaningful growth. I guess your 2026 targets are around efficiency and returns, and those 2 endpoints can be to a degree mutually exclusive. So I just wanted to get a sense from you whether the North Star ABM is going to remain ROE and capital efficiency or whether absolute growth is becoming a higher priority?

[Marguerite Bérard-Andrieu, executive]

Thank you very much. On the stress test, Fredi will elaborate. All in all, when you see the results of the recent EBA stress test compared to 2023, we actually did perform better comparatively to 2023. Serena, you want or Fredi, you want to comment on the [indiscernible].

[Ferdinand Vaandrager, executive]

No, the only thing I can say here, Chris, we remains in the same bucket [indiscernible] as a overall transitional impact of 4 basis points as Marguerite says, that is lower than the 484 basis points in 2023. And so yes, you would end up below your MDA trigger level, but please do take into account that we have a countercyclical buffer with an overall impact of 1.76%. So I think many of you look at that in that context that there's potential for balance on that. So if you would -- if you would take that into account, you'll come to a different conclusion.

[Marguerite Bérard-Andrieu, executive]

Thank you, Fredi. And as far as our targets that will be discussed for the CMD are concerned, yes. I think profitability is important. And so this is why when I mentioned growth, I always talk about profitable growth. This is the key to us. Profitability is important.

[Operator]

[Operator Instructions] Next question comes from Anke Reingen from RBC.

[Anke Reingen, analyst]

Just on costs, please. I guess the run rate in the first half would point to EUR 5.2 billion. But I just wonder, in terms of what we should expect in terms of levies and is there the usual seasonality that would define where you land from within that EUR 5.3 billion to EUR 5.4 billion range? Or is there actually already some structural changes that might mean structural benefits you can end lower in that range. And then the FTE numbers, the internal remains flat. You reached a point where they can actually come down going from Q2 onwards?

And then sorry to follow up on an earlier question on how is there anything we need to consider in terms of the first half run rate that isn't potentially sustainable -- and are you reiterating the cost savings of EUR 60 million and the return on investment?

[Marguerite Bérard-Andrieu, executive]

Thank you very much. So yes, on our FTEs, I think you heard correctly, we -- as I mentioned, we do expect our overall numbers, both internal and external, to come down in the coming quarters. Regarding the [indiscernible] for the remainder...

[Ferdinand Vaandrager, executive]

And first of all, let me start also on the second half of the year. Anke, please take into account that the CLA increase as of the 1st of July needs to be taken into account as well. That's a 3.75% increase. So that will add EUR 40 million to the second half of year. If you look over a levies, as we said before, there are no need for additional contribution in 2025 for the single resolution fund, deposit guarantee scheme is very limited. It is based on a deposit level, which is expected to increase. So we might be asked to -- at additional contributions from now, we expect around EUR 10 million. And then clearly, you have the annual banking tax, where we expect EUR 120 million. So regulatory levies is around EUR 130 million expected for the full year.

[Marguerite Bérard-Andrieu, executive]

You had an additional question on HAL?

[Ferdinand Vaandrager, executive]

Sorry, on HAL, yes Anke, as I said before, we just closed the transaction as of the 1st of July. These numbers are unaudited it's really too early to start saying how should you look at the underlying trajectory in the second half of the year versus the first half.

[Operator]

Next question comes from Juan Pablo Lopez Cobo from Santander.

[Juan Lopez Cobo, analyst]

I got 2 questions. First, I'm sorry to come back to this regarding the [indiscernible] I guess we can agree it's been a bit modest below consensus expectations was probably around EUR 500 million. The market cap today is down around EUR 1 billion probably mainly due to this lower share buyback. It would be interesting to know your thinking process on this, how the Board decides. I understand the impact from HAL and the [indiscernible] you understand, I'm a bit confused if we should expect in the Capital Markets Day a higher CET1 target or higher share buyback. So I don't know if you could help us on that. So I'm trying. I know your comments before.

And second question regarding FTEs. So good news. It's more than 200 [indiscernible] down. Could we assume average cost of around [indiscernible] on these externalities. I know that probably some of them will become internalists, but I don't know if that's the right way to look at this in terms of potential cost savings going forward?

[Marguerite Bérard-Andrieu, executive]

Thank you very much. And I think, yes, you use -- the objective I use, i.e., modest when referring to the share buyback. So let me close by saying that I certainly -- I understand your question. So I will just reiterate the way the Board has been looking at -- or share buyback, given capital position and capital generation. First, as I mentioned in our assessment, we took into account the following points. We wanted to retain ample headroom for [indiscernible]. We will be doing annually, i.e., in Q4, as I mentioned, even though, of course, it will be for us to also give some clarity on this topic at the Capital Markets Day. We have also taken into account in our [indiscernible] remaining impact of the HAL acquisition. The preliminary outcome of the [indiscernible] that we've already discussed that is 35 basis points increase in [indiscernible] basis points increase of MDA. We have also showed some prudency for the certain geopolitical and economic environment.

And yes, basically, our capital optionality and capital framework, we will discuss -- will we discuss at the Capital Market Day, as I mentioned. Fredi on...

[Ferdinand Vaandrager, executive]

Yes. On FTEs, yes, under the more straight [indiscernible] being the higher freeze effective as of April we really focus on limiting consultancy expenses, which is not FTE, and secondly, the external FTEs. So that this includes contractors and IT vendors and both of them are at relatively high rates. So although a part of the minus 600 external FTEs since the start of the year, in Q1, it was really partly transfers into internalization, but you saw a more flat level in the second quarter on internal FTEs. And I think what Marguerite already said earlier, we do start to see also a decline in the internal FTE. So an overall decrease of our FTE count should start contributing towards the cost level in the second half.

[Serena Fioravanti, executive]

Do we have additional questions?

[Operator]

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

[Marguerite Bérard-Andrieu, executive]

Okay. Well, I just wanted to thank you very much for your attention, for your questions. If some of you take some vacations, please do enjoy them. And we are looking forward to talking to you again soon. Thanks a lot. Bye-bye.