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ING Groep NV (NYSE:ING)

Q1 2012 Earnings Call

May 09, 2012 3:00 am ET

Executives

Jan H. M. Hommen - Chief Executive Officer, Chairman of The Executive Board, Member Management Board Insurance, Member of Management Board Banking, Chief Executive Officer of Ing Bank and Chief Executive Officer of Ing Insurance

Matthew J. Rider - Chief Administrative Officer

Wilfred F. Nagel - Chief Risk Officer, Member of The Management Board Banking and Member of The Management Board -Insurance

Patrick G. Flynn - Chief Financial Officer, Member of Executive Board, Member Management Board Insurance, Chief Financial Officer of Ing Bank and Chief Financial Officer of Ing Insurance

Analysts

Spencer Horgan - Deutsche Bank AG, Research Division

Michael van Wegen - BofA Merrill Lynch, Research Division

Michael Huttner - JP Morgan Chase & Co, Research Division

Francesca Tondi - Morgan Stanley, Research Division

Francois Boissin - Exane BNP Paribas, Research Division

Unknown Analyst

Farooq Hanif - Morgan Stanley, Research Division

Hans Pluijgers - CA Cheuvreux, Research Division

William Elderkin - Societe Generale Cross Asset Research

Benoit Petrarque - Kepler Capital Markets, Research Division

Jan Willem Weidema - ABN AMRO Bank N.V., Research Division

William Hawkins - Keefe, Bruyette & Woods Limited, Research Division

Federico Salerno - MainFirst Bank AG, Research Division

Matthias De Wit - Petercam, Research Division

Operator

Ladies and gentlemen, thank you for holding. This is Yvonne, welcoming you to the ING Q1 2012 Conference Call. Before handing this conference over to Mr. Jan Hommen, Chief Executive Officer of ING Groep, let me first say that today's comments may include forward-looking statements such as statements regarding future developments in our business, expectations for our future financial performance and any statement not involving a historical fact. Actual results may differ materially from those projected in any forward-looking statements. A discussion of factors that may cause actual results to differ from those in any forward-looking 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, Jan. I will now hand the conference over to you. Please go ahead.

Jan H. M. Hommen

Thank you, and, welcome, everyone, to the ING first quarter 2012 results conference call.

First of all, let me say that we had a relatively strong first quarter, particularly when you see that against the backdrop of weakening economic environment and the ongoing sovereign debt crisis in Europe. The impact on markets and the de-risking continue to impact our results. They were down compared to the first quarter last year, but if I compare that with the Q4 of last year, significantly up, demonstrating, in particular, a strong commercial performance at both the bank and the insurance company. I will talk you through the presentation. Patrick Flynn and Wilfred Nagel and Matt Rider are here, and together, we will answer your questions afterwards.

Looking at Slide #2. You see the results. Underlying net of EUR 705 million, improvement compared to Q4, both for Bank and Insurance, but down compared to Q1 of last year. Underlying results in the Bank were up 65% up to EUR 1,126 million when I compare that with Q4, supported by lower impairments and lower de-risking losses, but despite a negative credit adjustment of EUR 304 million.

Insurance recovered from Q4, and operating results were reduced at EUR 475 million. Underlying results were heavily impacted by the mark-to-market result on hedges that we use to protect our regulatory capital. Successful in protecting our capital, but it had a price in our P&L.

Net result for the group were EUR 680 million. That included a gain on the sale of ING Direct U.S. That was EUR 489 million. Also included a charge, a provision that we are taking for potential settlements of an investigation that we have been working with U.S. authorities into transactions that were conducted by our Commercial Bank prior to 2007. Capital ratios remained strong. ING core Tier 1 ratio is up to 10.9%, and the insurance IGD remains stable at 225%.

Slide #3. You'll see that the result's up in the Bank, 65%, compared with Q4. EUR 1,126 million is the number. And that despite the EUR 304 million loss that we took on -- or charge that we took on credit adjustments, consisting in credit and debit valuation adjustments in our financial markets business and also fair value changes on our own issued Tier 2 debt that we reported in the corporate line.

Adjusted for the negative credit adjustments, the bank result was, in fact, 6.8% lower than if we compare that with the very strong Q1 results of last year. Insurance underlying up to EUR 475 million. That is down slightly compared to Q4, and the results are driven by higher fees by premium base revenues and by very strong performance in investments. On an underlying basis, the result in insurance was a negative EUR 18 million, and they reflected the negative results basically to protect our capital in the Benelux and in the U.S. VA business.

Slide #4. You'll see in -- a comparison that we take out the special items, so that you have a better sense on what the, let's say, the more underlying numbers are, and then you see that market-related impacts continued to have a negative impact on the results, but not as severe as we saw in Q4. The most significant item already mentioned is the EUR 304 million from CVA and DVA charges and fair value changes on debt on the Banking side. And of course, a significant negative revaluations of the hedges and insurance.

On Slide #5, you'll see that we are making good progress on the restructuring that was demanded by the EC. The sale of ING Direct U.S., we completed in February. We are now exploring options for selling our Asian Insurance and Investment Management business. We successfully addressed proactively asset disposals clauses in 3 senior debt security issues that were issued by ING Verzekeringen, with a total nominal value of EUR 2.6 billion.

In April, our Insurance operations in the U.S. completed a USD $5 billion unsecured credit facility, completely standalone. So on their own credit strengths, without support from the ING Group. It's a very important step to independence for our U.S. Insurance operations. And in March, we had a favorable court ruling on our appeal against the European Commission. And we have started discussions with the Dutch State, and together, we will soon start discussions with the European Commission. I must say, though, that we are committed and remain committed to the decision to separate Bank and Insurance, and that we continue to make progress as we prepare Insurance and Investment in the U.S. and Europe for standalone activities.

Let's deal with the bank, Slide #7. Results improved strongly from Q4, but down compared to Q1 because of the credit adjustments. Excluding CVA/DVA and changes in fair value, changes on our own debt, the results -- the gross result was, in fact, up by 5.3% compared to the first quarter. Risk costs declined slightly, but we expect them to remain elevated for the remainder of the year, given the economic circumstances. And underlying result was up to EUR 1,126 million.

Slide #8. You see the impact of impairments and the losses on de-risking. They were substantially less than they were in Q4. The largest impact, as mentioned already, is the EUR 304 million from valuation adjustments; EUR 198 million was due on CVA/DVA financial markets; and EUR 106 million on our own Tier 2 debt that was reported in the corporate line. And then cleaning up the numbers, then you see that the gross result, in fact, went up 4.6% compared to the strong quarter last year and 43.5% compared to the fourth quarter last year.

Okay, a little bit more information on the CVA/DVA charges in the Commercial Bank. You saw that the results were heavily impacted by EUR 337 million from the debt evaluation adjustments and have had to do with rapidly tightening of our spreads of our own structured notes. The spreads on counterparties narrowed at a much slower pace, and this was only partly compensated by positive credit valuation adjustments on the derivatives, and that had an impact of EUR 139 million. Under normal circumstances, CVA/DVA move in opposite directions and then loosely offset each other. Credit adjustments are changes in the valuation, but not a realized loss or gain unless a real credit event has occurred.

Page 10, Slide #10. Interest results for the bank have remained steady, as volume growth has helped to offset some pressure we had on interest margin where we saw really competition being very strong for savings. The underlying interest margin was down to 1.32%, compared to 1.36% in Q4. But if we take out the impact that the additional liquidity we maintain at very low compensation at the ECB, then we take out about 3 basis points, the result of having so much cash at the ECB. That was also one of the main reasons why our balance sheet went up to EUR 921 billion.

On Slide #11, you see that despite strong competition for savings, we were able to attract, on a net basis, EUR 5.3 billion of new funds, which has further strengthened our funding profile. Retail banking was exceptionally strong, with EUR 11.4 billion in the quarter, of which EUR 4.4 billion came from the Netherlands, but basically all regions were showing a net inflow. Our strong funding position has enabled us to continue to support our customers and to maintain lending in these uncertain times. The net production in residential mortgages was EUR 1.6 billion, that was mainly outside the Netherlands. And the net production of SME and Mid-corporates was about EUR 1.8 billion.

Slide #12. We maintain a favorable funding mix dominated by deposits, but at the same time, we are steadily increasing our long-term funding. Last year, the bank had EUR 10.7 billion of debt maturing, but we were able to issue EUR 23 billion of new debt. And so far this year in Q1, we have issued EUR 9.2 billion in new debt composition of covered bonds and senior unsecured, and we're making good progress to cover the refinancing needs we have for this year that is a total of EUR 18 billion.

Slide 13. You'll see operating expense. I'm happy to say that they declined on both quarters, reflecting ongoing cost-containment measures. In addition to cost control, the decline also reflected that we had lower marketing expenses. So cost/income ratio of 58.8%, but if we exclude the market impact and the changes on the credit adjustments on our own debt and CVA/DVA, then the cost/income ratio was at 54.0%, and that really comes close to the target we have -- long-term target of 50% to 53%, which we still see as our objective and which we will certainly try to reach by making structural efficiency improvements in our processes, and for which we are willing to invest in new IT.

Looking at Slide 14, you see an example of what we are doing in efficiency improvement and further cost reductions. We announced that last year, in November, that we were making some changes in our environment in the Netherlands. The program will lead to cost savings. There's a significant reduction of workforce, but we are maintaining our focus on customers and further improving operational excellence here.

The program is well on track. It will result in a EUR 300 million savings per year from 2014. But at the same time, I must say we are facing a lot of regulatory challenges. In April, the Dutch government has come to an agreement on the new budget, and that has an impact on the bank tax. It has doubled for the whole industry in the Netherlands to EUR 600 million, and something like about 1/3 of that will come to ING. Fortunately, then the new Deposit Guarantee system that was planned is now being postponed to the later years. So that's the positive part of that.

Looking at risk costs, Slide 15. Our loan loss provisions came down somewhat from the previous quarter, but still at elevated levels. And part of the lower risk cost in the Netherlands were offset by a provision for a CMBS booked under other.

Slide 16, nonperforming loans. Yes, still doing well. The percentage increased to 2.1% of total loans, and particularly, by Commercial Banking, Structured Finance, but I must say in total, still very manageable. NPL ratios and Mid-corporates and real estate finance remained elevated. Yes, and we expect, given the economic circumstances, that we will continue to have elevated levels at around the levels that we see today for the coming quarters.

Slide 17. You see here the Dutch mortgages. NPL at 1.2%, despite declines in home prices since 2008 of about 12%. The main reason for the low NPL is the relatively low unemployment in the Netherlands at 5%, among the lowest here in Europe. And nevertheless, we expect that unemployment is rising because we are in economic recession, and that house prices can continue to show further declines. So we see -- I mean, expect some increase in the risk cost on our Dutch mortgages this year. But overall, I must say our portfolio has been performing well.

The Dutch government in April announced some new reform packages, including the housing market that will have a gradual reduction of the tax deductibility of new mortgages but also has an impact on the repayment schedule of mortgages. On balance and I think in a favorable plan with some further opportunity for improvements, but we are supporting the plan, although we like to see the full plan before we can really make up our total minds.

And looking at Slide 18, you see the real estate finance. We had some provisions. They were elevated since the start of the crisis, but the actual write-offs and the actual losses have been rather limited. Nevertheless, the NPL ratio remained relatively high, and economic environment remains uncertain. So therefore, we expect that risk cost will remain elevated.

Results from retail banking, that’s Slide 19, improved to EUR 617 million from EUR 347 million last year in Q4, lower impairments and lower losses for de-risking. Interest result declined on both quarters, that is reflecting the lower margins as competition for savings is continuing. Although we are seeing early signs that competition is easing, and we have at least reduced the rate somewhat in some markets in May.

On Slide 20, you see the Commercial Bank and the performance, very strong. And certainly if you eliminate the negative credit adjustments of CVA/DVA, then the profit before tax would have been EUR 809 million. That is up 4.9% compared to a very strong quarter last year. Loan loss provisions increased in Q1 and also compared with Q1 last year, and that included -- last year, we had a favorable development in net release in industry lending. Financial markets, excluding CVA/DVA, again a strong first quarter, up about 30% compared with 1 year ago.

Tier 1 -- core Tier 1 increased to 10.9%. The impact, of course, of the sale of ING Direct U.S., but also our own capital generation contributed to the increase. Risk-weighted assets increased by EUR 2.4 billion compared to Q4. That reflects the stake we have now in CapOne, and also the counter-guarantee that we have written to the Dutch State, but it was offset by lower volumes and mitigating measures. And the market risk-weighted assets declined by EUR 3.2 billion.

Now we move to Insurance. Page 23. You see that operating results remains robust at EUR 475 million, driven by strong investment margin and higher fees and premium-based revenues. Underlying results in insurance in the first quarter were strongly impacted by market-related items and negative results on hedges as we continue to focus on protecting our regulatory capital against the volatile financial markets we operate in.

On Page 24, you see the investment spread. Investment margin was EUR 459 million, up 24% compared to Q4 on the first quarter last year, and 4.3% compared to Q4 of last year. Investment spread improved, both the first and the fourth quarter, despite de-risking actions that we took in the second half of 2011 in the Benelux. And we expect that the de-risking actions will gradually reduce the full year investment spreads in 2012.

On Page 25, you see the fees and premium-based revenues were up 11.2%, driven by seasonally higher sales mainly in Asia, especially in the Japanese COLI business, with also higher sales in the Benelux. Technical margin declined due to lower results in the Benelux and the U.S., but partly compensated by higher technical results in our Central and Eastern European activities. And that was the result of increased surrenders.

Expenses, up 6.2%. That is mainly as a result of a nonrecurring EUR 45 million expense reduction in Q4 of last year, but the ratio of expenses to operating income, 41.9%, is basically flat compared with Q4.

Page 27. If we take a closer look at our business areas, then we see that Life operating results in the Benelux improved from Q4, but offset by lower results in the non-Life business. Underlying result continue to be impacted by de-risking and the negative hedge results.

Despite macroeconomic challenges and regulatory changes in Hungary and Poland, our Insurance business in CRE is showing steady performance, with operating results that is flat compared to Q4 last year. And our business in Asia posted very strong increase in both operating result and underlying compared with both quarters last year. The higher sales and gross and premium income drove the fee revenue much higher.

On Page 28, you see the Closed Block in the U.S. I must say the U.S. delivered solid operating results in Q1, mainly driven by a strong investment margin and higher fees and premium-based revenues. The retirement business, in particular, was strong, up from both Q1 and Q4 last year. Underlying results impacted by the losses in the U.S. Block, the VA business. The rise in equity markets during the quarter had an impact on the hedges, and created a loss on the hedges, because we are protecting our regulatory capital rather than mitigating earnings volatility.

On Page 29, you see the reserve adequacy improved to the 64% confidence level, which changes the earnings sensitivity that we gave you last quarter. So here you see an update on the sensitivity. So rising equity will still lead to an IFRS P&L loss, but will also improve our reserve adequacy. Falling equity markets would lead to P&L gains rather than losses, because a buffer has been built up already in reserve adequacy of up to 50% confidence level. Now the P&L volatility is the result of an accounting treatment of hedges, while economically, we prefer rising equity scenarios as they reduce the in-the-moneyness of the policyholder guarantees.

Page 30. New sales increased by 5.1%, mainly due to a higher sales in Asia-Pacific, in the U.S., as well as Eastern Europe, but partly offset by lower sales in the Benelux. Compared to Q4, sales were up 30%, mainly attributable to Asia-Pacific, as well as higher Full Service Retirement Plan and Employee Benefit sales that we had in the U.S.

Page 31, you see the capital ratios. They were constant for the ING Solvency ratio, 225%, and in the U.S., the regulatory capital required ratio was up to 500%. And that leads me to conclude, to say, again, that we had a relatively strong quarter, particularly when you look at the economic environment that we were in. Good results compared to Q4, up 65%. Insurance recovered from Q4, and operating results were strong at EUR 475 million. And despite losses we took on hedges, we were still able -- and because of that, we were able to maintain strong capital ratios in the Bank, the core Tier 1, up to 10.9%; Insurance, the IGD at 225%; and the RBC at 500%.

So with that, let me ask you to ask your questions, and then we will try to answer them for you.

Question-and-Answer Session

Operator

[Operator Instructions] The first question is from Spencer Horgan from Deutsche Bank.

Spencer Horgan - Deutsche Bank AG, Research Division

Spencer Horgan from Deustche Bank. Two questions. The first one is could you give us a bit more color on where we are within European Union-Dutch State aid discussions? I mean, obviously, you've reentered negotiations with the Dutch State, but I think I've seen the European Union is intending to appeal the March decision. So maybe if you could just give us your thoughts and a bit more detail around that. And then the second one, I guess, it's a relatively smallish point. But if I look at the insurance operating profit, the non-Life result is quite weak this quarter, which I think is coming from the accident, health and disability business. So I guess the question is, in your view, is that a function of the weakening economic environment, rising unemployment, and linked to that, should we, therefore, expect it to either remain weak or deteriorate if unemployment continues to move up?

Jan H. M. Hommen

Okay. Yes, let me say the discussions with the European Commission and with the Dutch State, first of all, we are committed to continue the plan we have to separate Bank and Insurance company, and we continue to make progress on that, as you can see, from the list of activities that we have listed here. Secondly, as a result of the court case and the appeal that we won, we are having new discussions now with the Dutch government followed by discussions with the European Commission with respect to making adjustments in order to reflect that court case. The fact that the European Commission has gone into an appeal is not a surprise. They had indicated that I think already from the very beginning that they will do, and they had so much time to do it, which I think was basically expiring May 12. So they have used that opportunity they have to go into appeal. In the meantime, we have discussions with the Dutch government. I cannot go into more detail than that, to say that they have started and that we plan to have them soon together with the Dutch State with the European Commission, and then we will see what the outcome will be of those discussions. We will report on them, but I think we cannot report on them until we have them. It would be really premature for me to comment on them now. And with respect to the non-Life, I think that's right. That had to do with disability insurance that we have in the Netherlands and that has a correlation that is quite close to the unemployment or the economic activity in the country. Maybe, Matt, you want to add to that?

Matthew J. Rider

Yes, you rightly point out, we did see a deterioration in the non-Life operating result, and what we did is we saw emerging claims experience deteriorating a bit in the fourth and the first quarter. And we've now reflected a provision, and I think, importantly, under the assumption that the experience that we're seeing today continues throughout the balance of the year. So if it gets any worse, then we will have additional provisions. If it gets better, then we recover it.

Operator

The next question is from Michael van Wegen from Bank of America Merrill Lynch.

Michael van Wegen - BofA Merrill Lynch, Research Division

Mike van Wegen from Bank of America Merrill Lynch. Three questions, please. First one, I'm afraid I'd go back to the state support again as well. Last year, you repaid part of the state support on the 13th of May. That was a good date from a perspective of penalty cost. You're saying you're in discussion with the Dutch State right now, which seems to be largely focused on amending potentially the restructuring requirements. Do you feel that, that could contain a change in penalty? And if not, I guess, it still makes a lot of sense for you to repay part of the state support back in May. Could you talk a little bit about that, and what your thinking is there? That's question number one. Question number two is on the Dutch housing market. You pointed out that you're still missing maybe the full detail of the, let's say, adjustment to the Dutch tax deductibility for mortgage interest. Nevertheless, could you give some sort of thought about how you see this change impacting house prices and potentially your loan loss provisioning for the Dutch retail business? And then the third question, within the Commercial Bank, you've shown that the NPLs for corporate loans and Structured Finance went up quite a bit in Q1. Can you talk us through what's behind that and how you expect those to progress?

Jan H. M. Hommen

Okay, Michael. Yes, the state and the repayment, we are committed to repay the Dutch State as quickly as we can, but we need to do that in close consultation with them, as well as with the European Commission. So I cannot make any more comment on that. To say that we like to do it as quickly as possible, and we like to do it at the same time in a way that we are not in any way violating any type of rules that are associated with that nor that we do it in a way that we create a problem for ourselves with respect to Basel III and the requirements for capital, or given the economic circumstances. So we need to have a very balanced and very, let's say, careful approach to repayment. But the principal stance we like to do it as quickly as possible, and we like to do it in a way that we are not creating a problem, either today or later, for ourselves. The housing markets, yes, I'm quite positive about the housing markets and the plan that is developed. But we haven't seen the full details yet, and I believe you need to look at the whole market, not just the market for homes that are being purchased, but also homes that are being rented. I think you need to have the full picture because a lot of people in the Netherlands are renting homes that could be potential buyers, and if you could get them to start buying homes, then I think you can get a kick start in the whole market that could be very beneficial. And that, I think, has been, in my opinion, insufficiently taken care of yet. So I would like to see a more wholesale -- or a wholesome proposal than we have seen so far today. But in principle, what I see is we can support. Wilfred, do you want to make any comments on NPLs?

Wilfred F. Nagel

Yes, I think the question was specific to Structured Finance, and what we're seeing there is mainly an uptick in provisions in the transportation and logistics sector, which, as we all know, is cyclical and very sensitive to what is happening in the economy at the moment. And if you look at the overall composition of the provisions of the risk cost, we don't see massive swings that would represent a trend to the overall level. As we said, this is about where it was in Q4 and then the composition, the biggest change was that the Benelux, SME and Mid-corps came down somewhat, and that we had the specific provision for CMBS that Jan already referred to.

Michael van Wegen - BofA Merrill Lynch, Research Division

Yes, on that last one, I was actually asking about the NPL, sorry.

Wilfred F. Nagel

Well, if you look at the NPL levels overall, they're almost stable, a slight uptick in Q1. And if you were talking specifically about Structured Finance NPLs, they are up a little bit more from about 2.1% to 2.5%.

Michael van Wegen - BofA Merrill Lynch, Research Division

And could you explain why that is? Is there any specific behind that or is that just general weakness in the economy and the transportation sector?

Wilfred F. Nagel

Yes, it is the latter indeed.

Operator

The next question is from Michael Huttner from JPMorgan.

Michael Huttner - JP Morgan Chase & Co, Research Division

Just 3 questions. On the -- can you give us a feeling for the -- your flexibility on the potential repayment in terms of Tier 1 bps. If you're at 10.9% now and the Basel III forward loading would be 9.2%, and if I'm kind of assuming 8.8% would be okay, how much is 40 bps in terms of potential repayment capacity? It's just so I understand the math a little bit. The other thing, you haven't said anything about any progress, potential progress on Asia disposal. There was an article in the FT. It seemed very, very detailed a few weeks ago, saying that you'd open the data room and it's listed many firms, and then it even said the timetable to open the course of bids, which was mid-May. And I wonder if you can give any kind of color to that or maybe any -- if that article is wrong, say well, no the timing is not May, it will be December or something. And then the final point is on the U.S. variable annuities, you had that huge provision in Q4, and I just wondered what would be the trigger for any more recognition of in-the-moneyness in the U.S. If you could talk about that, that'd be very helpful.

Jan H. M. Hommen

Yes, Michael, there's something wrong with your phone. We could barely hear you, and there was a noise that precede you when you were talking, so we didn't understand what you say.

Michael Huttner - JP Morgan Chase & Co, Research Division

No, well, in which case, I'll pass and I'll just listen then.

Jan H. M. Hommen

Yes, but we did not get all your questions. So we have a problem.

Michael Huttner - JP Morgan Chase & Co, Research Division

I'll raise them [ph] separately. It's fine.

Operator

The next question comes from Francesca Tondi from Morgan Stanley.

Francesca Tondi - Morgan Stanley, Research Division

A couple of further questions on the Bank, if I may. I'm sorry if we're going back to asset quality. I know you're saying deterioration is mild in the NPLs and I would agree with that, but if you could enlighten us a little bit more on the commercial real estate and the real estate finance, the small deterioration that you have seen in terms of regions, where is that coming from? If you could also comment a little bit more on how you see evolving the quality of your Dutch exposure. We actually hear some borrowers emphatically deteriorating, some companies in difficulties. Can you update also where you are on that, also in terms of your loan to value? A little bit also more color on your Spanish exposure. What deterioration have you seen up there, if any? What we should be expecting, again, referring to real estate finance? On a separate subject, well done on deposits on the retail side. You also, however, mentioned some decline in corporate deposit. Can you actually describe what has been driving it? Where that has happened, in what region or what kind of corporates and what has been driving it in your view?

Wilfred F. Nagel

To start with your question on real estate finance, in the overall book, we see a slight deterioration in NPLs from 5.6% in previous quarter to 5.7% this quarter. If you look at risk cost overall, pretty much the same as the average of the previous 3 quarters, so no big swings there. The upswings so far have been coming down pretty much at the same pace as the valuation of the underlying collateral, so we're seeing relatively constant loan-to-values, which hover around 70%. And obviously, the risk cost as such are at an elevated level. They have been since the start of the crisis, and that is, I think, no surprise. And what I would note is that the actual write-offs actually have been fairly modest, and that is in line with ING's longer-term experience. We tend to be relatively conservative when it comes to provisioning, and we rarely ever see write-offs that go beyond the provisioning that we have done. And I'd point out that we always primarily focused on large and prime properties, and a lot of the news coverage that you see tends to focus on secondary market properties where the risks are indeed different, which is not to say that the overall portfolio is not under pressure, but I think not everything that comes up in the press is relevant to our portfolio. We also have not done construction or hotel finance for a number of years. And on average, this book has a duration of about 3 to 4 years, which means that a large part of the portfolio has been up for some form of renewal over the past 3 years, and that has given us opportunity also to tighten covenants and structures in general. And a very small part of what we have in terms of exposure at this point is to construction or land. That is a minimal part of the book. And specifically to the Netherlands, what we're seeing there is an NPL uptick from 4.4% to 4.7%. And again, risk costs that are somewhat similar to what we have seen in the recent past. The loan-to-values there are very similar to what we see in the overall portfolio at about 70%, 71%. And we do, by the way, a cycle of appraisals, which is every 3 years, there's a formal external appraisal. But we do an annual indexation where we ignore increases in values, but do reflect the decreases that we see from indexation. The office market, as you will have picked up from the press coverage, is the main concern. We believe that the quality of what we have there is good, but of course, banks are de-leveraging, investors are de-risking, and we do see pressure. What's given the limited liquidity in the market is very important to us and as important as these appraisals, if not more so, is to look at what the rent rolls look like and what the weighted average lease expiry is. And looking at our book in the Netherlands, the remaining contracts for more than 50% of our book are beyond 3 years, but we do see a shortening there. So clearly, there is a bit of an increase in pressure in the longer run. And then turning to Spain, which I believe you asked about as well, total book there is about 2.6%, and the NPL percentage is stable at about 18%. Loan-to-values are slightly higher in Spain, given the pressure on the prices, which leads to about 74%. We have a pretty decent coverage ratio in terms of provisions against that, and the risk costs were actually slightly down from the previous quarter, which in itself doesn't mean that much, but there is no trend to massive upswings. We've never been an aggressive lender in Spain. It's a fairly diversified portfolio with the exception of 2 somewhat larger clients. The focus has been entirely on professional clients, not on private individuals. And then there is, of course, in the Spanish market a very limited activity at the moment. So we focus on cash flow rather than asset value, and the weighted average lease expiries in Spain are stable. So yes, it is a portfolio under pressure, but no specific concerns came up during the quarter.

Francesca Tondi - Morgan Stanley, Research Division

And just to conclude on the asset quality, again on the corporate loan side, deterioration is quite mild, just 30 basis points NPLs increase in the quarter. Could you flag any specific area or region which is originating that and maybe, again, a little bit of focus on your exposure into Southern Europe there.

Wilfred F. Nagel

No, there isn't a particular region. As I mentioned earlier, the industries that we see in some difficulty are the cyclical ones like transportation and logistics. But other than that, also, if you look at it geographically, there's not a very clear pattern in any of our bigger countries.

Francesca Tondi - Morgan Stanley, Research Division

And the last point was corporate deposits. If you can just give a bit of color on where did you see some of the decline. It's not significant, just to get a bit of the color there.

Jan H. M. Hommen

Yes, the decline was basically in the Netherlands, where we had seen, last year in Q4, a lot of corporates putting the money with ING basically on a very short-term basis. What we have seen in Q1 is that they have lengthened -- a number of them have lengthened these deposits with certificates of deposit, and they are no longer classified under the same balance sheet item, but they are securities in issue. And also, you see that we have replaced some of the short-term money by more longer-term funding that we were able to obtain from the CP market as well. So nothing special, I would say, but a lengthening of the deposits that they had put versus over year end.

Operator

The next question is from Francois Boissin from Exane BNP Paribas.

Francois Boissin - Exane BNP Paribas, Research Division

Francois Boissin from Exane BNP Paribas. Three questions, please. The first one is on Slide 8. Basically for the Bank, you mentioned 119 positive market impacts. I just wanted to ask more detail on that. And second question was in Insurance. Slide, I think, it's 27. Basically you showed a very strong improvement in Asia. I just wanted to have a feel of the impacts there. What is sustainable in your opinion, and what is considered as one-off? And then finally, still on the insurance. Basically, you mentioned that the investment spread is likely to go down in coming quarters. Could you give a bit more detail on your asset allocation and the type of impact we should be expecting for the rest of 2012?

Patrick G. Flynn

In respect of Slide 8 and other market adjustments, I mean, this largely is gains, realized gains in bonds. It's all in our treasury area.

Matthew J. Rider

With respect to the Asia results, I think you've seen very strong operating results and underlying pretax results out of Asia. A lot of it is sustainable because it's just basic fees and premium-based revenues, as well as increasing investment margin. But I think as you go through the detail, you'll find about EUR 20 million worth of incidental one-off items for the quarter. And I would also say that the expenses for the quarter relative to the way that they're going to go for the rest of the year are relatively low, and that is because we'll increase our spend on sales and marketing. And we're going to have some expenses coming through, for example, on retention packages related to the strategic investigation of Asia. So those are likely to come down a bit from where they are. They are very good results for the quarter, but they will likely come down a bit. Now with respect to the Insurance investment spread, what you've seen is an increase overall to about 118 basis points in the quarter. We had telegraphed in the last quarter that for the Benelux only, we would expect to see somewhere between 10 and 15 basis points decline in the margin for the full year due to de-risking that we had done within the third and the fourth quarters. So that's popped up a little bit actually in the first quarter, but some of those things are incidental. We still maintain our guidance for the Benelux, 10 to 15 basis points down from the fourth quarter, which was 113 for the Benelux. I think what you're seeing there also is in the U.S. businesses, a little bit of an improvement in the investment margin, and that's due to better, let's say, credit and rate management. We're also seeing increases in volumes, both in the Benelux and in the U.S. In the U.S., mainly driven by shifts of client assets from equity-related deposits to general account investments as even clients expect to de-risk. So I would say that we had given that advice of about 10 to 15 basis points for the Benelux reduction. It'll come in about that level, but we're going to see a bit of an uptick in the U.S. business, so let's maybe take half of that amount for the total Insurance business.

Francois Boissin - Exane BNP Paribas, Research Division

Okay, very clear. And just maybe a final question on Insurance regarding the Asian disposal. Can you give a bit more color on the calendar here and basically do we -- what we read in the press, is this accurate or not?

Jan H. M. Hommen

Our sale and review of our Asian business Insurance and Investment Management is on schedule. But we are not in a position at this moment to tell you exactly where we are. The review is still going on. We hope by the end of Q2, I think that we have a more firm position. But it's either beginning of Q3 or end of Q2 that we will be more firm on what it is that we are going to do, what options we are taking and what it means. So you have to stay with us for a little bit, but we are not in a position today to give you more color, except to say that things are going well.

Operator

The next question is from Anka Rangan [ph] from Royal Bank of Canada.

Unknown Analyst

It’s Anka [ph] from RBC. I have some questions on the banking side, please. Firstly, with respect to the repayment of the core Tier 1 securities, you mentioned obviously, the Basel III Tier 1 ratio was one of the criterias for when you start repaying. And I was just wondering what you're sort of like looking at as a target level, and would you be -- do you reiterate your previous guidance on the Basel III impact at 80 basis points and 165 basis points on a pro forma basis given with the Investor Day. And secondly in terms of margin pressure, can you maybe talk about what you expect what you're seeing on the retail side at the moment? I think you mentioned the deposit pressure in May has somewhat eased. So are you taking comfort from this? And then I was wondering, given you had a 3-basis-point hit from additional liquidity, what are you planning to do with this liquidity is going to remain to sit with the ECB and should there be potential for margin uplift longer term? And then on your investment portfolio, I was just wondering if you could maybe give some color on the impairment and de-risking costs? I mean, I know it's very difficult to forecast, but I was just wondering if you have a budget for the year, how much de-risking costs you are seeing? And then lastly, sorry but, on the Spanish RMBS portfolio of 3 point [ph] -- is it still in the bank's EUR 3.7 billion, and I was wondering can you give us a bit more color on the credit rating, and what the valuation is in terms of cost in that?

Jan H. M. Hommen

Lots of questions. So we'll ask a number of people to answer them. Our repayment, as I said earlier, we are dedicated to make the repayment to the Dutch State as quickly as we can, but we need to do it taking into account a number of issues, including how we deal with the state, the consultation with them, the conditions under which -- we also need to look at Basel III and the economic environment in which we operate. So altogether, I think that to be evaluated prudently and carefully. Our target is still 10%, what we try to maintain, and the impact, if we would go to Basel III at this moment, is indeed still the 80 basis points that I think we mentioned to you earlier. Patrick, you want to deal the margin pressure?

Patrick G. Flynn

Yes. On the interest margin in the Bank, it came down from 136 bps to 132 bps, albeit as you've noticed the bulk of that, the 3 basis points out of the 4, is attributable to expansion of the balance sheet, principally due to receipt of EUR 22 billion of CPCD [ph]. The underlying -- the 1 basis point fall comes from the type of pressure we've alluded to in the past, namely continued pressure in terms of deposit margins in the competitive environment. A competitive environment where ING is actually winning because we increased our deposits from retail by EUR 11 billion in the quarter. We're beginning to see some early signs, as Jan mentioned, to easing in that respect, and that we've reduced in the Netherlands our pricing by 10 basis points, also in some of the ING Direct countries, notably [indiscernible] and Germany reduced by 25 basis points in March. So there's some early signs of a moderation. We have a target to get to, 140 bps, 145 bps, which we announced at the Investor Day. Clearly, that'll take some time. Asset repricing is -- lags deposit repricing, and we'll take a little bit of time to grade into that. But we're beginning to see, as was mentioned, a little bit of easing on the deposit margin front, which is good. In terms of what we're going to do, well, with the CPCD [ph]. Yes, we're in a sort of a luxurious position here, where we did find ourselves receiving on the back of the improvement of the credit markets, and the LTRO clearly improved liquidity and we find a lot of customers putting money with us, which we were glad to accept, including, I must say, some U.S. money market funds as well were coming back in. So in a market, where -- in an environment where previously this has been a tight market, we were pleased to see this money coming our way, albeit it's not great for our interest margin, it inflates the balance sheet. So what we're doing here a bit is, Jan also mentioned, we're looking to extend tenure. We're sort of pricing down for the shorter end and trying to encourage a longer duration, which may lead to this reduce a little bit over time. But for the time being, I know this was the push right back out to central banks and the ECB. But it's a good place to be and to see our clients wanting to put money with us.

Wilfred F. Nagel

Yes, on the question with regard to the RMBS portfolio in Spain, it is still there. It's coming down gradually, it's below EUR 4 billion now. The composition of that is -- it's 73 different originally AAA transactions. I think it's important to note that this book was bought mainly between 2003 and 2007, which means that the underlying assets did initially experience a run-up in value before they also became subject to the downward trend. So we had a bit of the plus at the tail end of the upswing of the market there. And if you look at where it is today, 95% of the ratings are still A or better, although realistically given what's going on with the rating environment in Spain, we do expect that to come down. And if you look at the performance of the underlying, then what we see is that delinquencies are ticking up a bit but so is the credit enhancement. So on balance, not a big deterioration. And if we think about it in terms of risk-weighted assets, the current weighting of this book is about 8%. Obviously, if ratings come down, that may go up. We don't, at this point, see it go beyond 12%, and in some cases, maybe 20% weighting. And in terms of accounting, this is in a long-term receivables book, and so it wouldn't have any direct impact from any ratings changes.

Unknown Analyst

When you say the delinquencies are going up but so is the credit enhancement, but the EUR 3.7 billion is net of hedges or credit enhancement, isn't it or...

Wilfred F. Nagel

The EUR 3.7 billion is the overall exposure. That's the size of the book.

Unknown Analyst

And de-risking cost for the rest of the year, please?

Patrick G. Flynn

In terms of de-risking, I think as we've mentioned in previous calls, we try to actively manage our portfolios. And if we see areas where we think our view on the credit of a particular estimate is not reflected in the price, we will actively de-risk it. In terms of the amounts, it's more of a process that we will go through and execute when we see it. But broadly at the same level if you want to get a number, I'd use a number.

Operator

The next question is from Farooq Hanif from Morgan Stanley.

Farooq Hanif - Morgan Stanley, Research Division

Most of my questions have been answered, but I just got a few left. Firstly, on the Capital One ownership, have you made a decision on whether you're going to put somebody on the Capital One board? And what are your intentions about how long you're going to keep this? What was your latest message? Are you going to help them, for example, with integration of ING Direct U.S.? Second question is how happy are you with the size and how clear are you on the size of the EUR 370 million provision for settlement with the authorities that you referred to as special one-off item? And I guess my last question is on the technical margin in the Insurance business. That's always very volatile, but would you say that the first quarter's a bit under-earning compared to what you expect on average?

Jan H. M. Hommen

Okay, Farooq. Capital One, yes we have one of our board members on the board of Capital One. It's Eli Leenaars. He is running our Retail business and responsible for our Retail business international and responsible for ING Direct. He's on the board, and he will be on the board given the contract that we have, either for 1 year or as long as we have more than 33% of the shares that we still have. The decision on what to do is I think we will take over time. I have no comments to make on that one at this moment, but it's clear that this is not a strategic ownership position. And -- but where we can help them in making integration, we certainly will. And by the way, we have some very good people in ING Direct. They have both one of the best franchises, so they will be certainly be helpful in making sure that we integrate the business well. The provision we made for the issue in the U.S. is a best estimate that we have made given the progress that the discussions we're have and that we had with the U.S. authorities. So it's a best estimate, but I think it's the one that is at least very close to where the final number will be. But I can't say much more than that because we have not seen the final number yet. And then with respect to technical margin, Matt?

Matthew J. Rider

Yes, on the technical margin, you've seen a slight decrease in the first quarter, mainly due to additions to provisions for group pension contracts in the Netherlands, and also a slightly lower reinsurance recoverables in the U.S. And you're right, it is a bit arbitrarily low. We think that the fourth quarter figure is probably a better guidance for the balance of the year.

Operator

The next question is from Hans Pluijgers from Cheuvreux.

Hans Pluijgers - CA Cheuvreux, Research Division

Most of my questions also have been asked, but few -- 2 questions remaining. First, on the Retirement business in the U.S., can you a little bit elaborate on how do you see that business developing? It was a quite good development in Q1, but how do you see that going forward, and what are the main drivers of that result? And secondly, going back to Page 29 of the presentation on the sensitivity of the VA Closed book, you see that -- with an increasing equity market, the sensitivity has increased somewhat. Is the main driver that the total book is going bigger due to the rising equity markets. Could you give some indication what the reason behind it is, is my assumption correct? Or -- and secondly on that one, how do you see the run-up of the book going forward, progressing, do you -- give any numbers on that?

Patrick G. Flynn

In respect to the retirement services, clearly given the very strong market position we have in this market is somewhere -- something which is we would seek to develop and grow further. We're very pleased with the positive sales and clearly, we'd be delighted to see that continue, which is one of our ambitions. In terms of the VA, I didn't quite hear your question. Could you repeat it, please?

Hans Pluijgers - CA Cheuvreux, Research Division

The sensitivity to rising equity market has increased. If you compare that to the sensitivity that you gave at the end of -- Q4 numbers, what's the reason behind that? Is that because of the total book has increased due to the increased equity markets? And secondly, could you give some indication on the run-up the book, how that's progressing?

Patrick G. Flynn

Yes, in terms of the sensitivity, there are basically 2 elements involved in the hedge result. One is we have a capital hedge and we also then have the delta hedge on the underlying equities, which is offset partly by the change in reserves, whereas the capital hedge does not have an offset in reserves, IFRS reserves. Yes, what's happened really is the composition there has shifted a bit more towards the capital hedge as opposed to the delta hedge of liabilities, which gives you a little bit more sensitivity when markets rise, as you see in the numbers. In terms of net flows, yes, it's about $3.5 billion per year reduction.

Hans Pluijgers - CA Cheuvreux, Research Division

Back on the Retirement business, were that any special marketing, things you did to boost the sales, why is that performance was so, so good or to get some feeling there?

Matthew J. Rider

Yes, there've been some additional marketing expenses that we incurred in the first quarter, but I think with the Full Service Retirement Plan's up 10%, it was a good quarter. And we would expect that to continue. That's really the core of the business.

Operator

The next question is from William Elderkin from Soc Gen.

William Elderkin - Societe Generale Cross Asset Research

It's William Elderkin from Soc Gen. I've got 4 questions, please. First of all, on the Asia-Pacific divestment, could you just elaborate on your thinking in terms of how you treat the joint venture businesses and particularly what you do with the associated bank equity stakes that you hold? Secondly, you mentioned that the Asian disposal process seems to be going very well. I just wondered in terms of the U.S. Life business, where you continue to refer to a base case IPO, I think, why you do that and don't adopt a more sort of broader strategy appears to have been taken in Asia? Thirdly, in terms of the bank and the bank expenses, is the first quarter level of expenses a good guide to the full year, given, I think, you mentioned that marketing expenses were quite low this quarter? And finally, with the, again, on the bank with the bank tax, Dutch bank tax coming in, could you just update us of where the sort of overall normalized level of tax rates is likely to fall for the bank going forward?

Jan H. M. Hommen

Okay. The sale of Asia, indeed, is going -- the process is going quite well. We need to review various alternatives, including if there will be a sale. To what extent there will be a sale of the whole unit or whether they'll be done in pieces and how we deal with the joint ventures, all these questions will be answered by the time we have more information about that. So again, here, I would say you have to wait until we come forward with more details. With respect to the -- what was the question on the bank equity? On the expenses, yes, IPO preparation in the U.S., that topic, why we did an IPO? I think an IPO is always the most elegant way to prepare for a divestment because it leaves all the options open in principle, but it's the most stringent and the most complex way of preparing for a divestment. And I also believe that when we look at the alternatives and we look at the potential for creation of value, that at this moment, this has the best potential to create value for shareholders and will be the best thing for our customers as well. With respect to expenses, I'll leave Patrick the bank tax. I would say is not a impact on the tax rate. The bank tax is a charge that is not included in the tax rate in the Netherlands. It is an -- basically a fee that we have to pay to the Dutch government and is part of the expense. I must say we are not in favor, as you can imagine, on the bank tax, we believe it's not smart at a time that the banking system is requested and required to increase capital that this is a charge on capital. And either you reduce your business or you have to charge it back to the customers. Either way, it will have an impact on the economy. So I believe it's not a good idea, but it is what it is. Patrick, the expense?

Patrick G. Flynn

Yes, okay. On the bank expenses that have been held, they're actually reduced compared to prior quarter and the preceding first quarter, strong discipline shown there. In terms of the outlook going forward, yes, you're right. There was lower marketing, and there may well be a little bit of an uptick for marketing for the European championships. And for example, during the summer, we may well do some marketing around that. Now the guidance that we've given at the Investor Day, low-single digit, we stick to. But obviously, just to remind you, that excludes potential changes to things like Jan just mentioned on the bank taxes and the Deposit Guarantee Scheme, which were interlinked. So yes, focus is to maintain discipline here and try and minimize deposit -- sorry, expense growth.

Operator

The next question is from Benoit Petrarque from Kepler.

Benoit Petrarque - Kepler Capital Markets, Research Division

Yes, a couple of questions from my side. On the taxation for Dutch mortgages, I understand you don't want to give your view on what the housing price is likely to do following this new ruling. But is that something we can expect in Q2? Is that something we can expect in Q2, like what are your thoughts on risk-weighted assets migration on the Dutch mortgage book given the risk weightings are quite low on this book? And also on the coverage ratio, which is at group level down from 40% to 39%, what can we expect there in terms of -- on specifically on your Dutch mortgage book, probably higher coverage ratio, but I wanted to have your thought. Second question is on the Commercial Bank. I see especially a very strong bank treasury business line and that's a new business line. So I just wanted to check with you whether that's a normalized level where we are now or, for example, it was impacted by the CDCP inflow you mentioned in Q1. And also, could you comment on the operating expense level for the bank treasury line? It's quite low if I compare it to last year. And then finally, on ING Direct for the rest of Europe, it's a pretax loss of EUR 75 million. Just wanted to know how much one-offs you have there? And then on the Spanish RMBS, which are mainly on the loans category, what is the fair value at the end of Q1 of this book?

Jan H. M. Hommen

Okay, with respect to the Dutch mortgage markets, I think that the steps that are being taken now by the political parties in the Netherlands are steps in the right direction. So we support that. Whether they are yet the complete package, I think we need to see when the final details are available to us. I would like to see also not just the homes that are being purchased, but also the homes that are being rented included in the policy because I believe that a lot of people that are today renting homes are in a position that they could buy homes. And if you can get that stimulated, then the impact on the house prices could be completely different than what we are seeing today. So to me, that's still a question that I cannot answer yet. If the package is what it is, I think you could see a small further decline in the house prices for 2012, certainly not unrealistic given the fact that we have unemployment rising, and we see that the economy is not that strong. But depending on the package, the final package that's coming, that could revert the changes that we are seeing today. The other question, the second one, Patrick, is that yours?

Patrick G. Flynn

Bank treasury?

Jan H. M. Hommen

That was it [ph].

Benoit Petrarque - Kepler Capital Markets, Research Division

Specifically just a sub question actually to the Dutch mortgage market. I mean, is there something we should expect in Q2 on the risk-weighted assets or the coverage ratio for the Dutch mortgage book?

Wilfred F. Nagel

On risk-weighted assets, and this is obviously a book and a set of ratings and LGDs that does not change dramatically quarter-by-quarter, so obviously, if there is going to be a change, I would say that it's more likely than not, that the risk-weighted assets will go up a bit, but it won't be a massive move. And in terms of coverage ratio, obviously, what tends to happen in a period when NPLs go up is that initially, the coverage reduces a little bit, and then it picks up again. But I would point out, as I did earlier, that the history in ING is that our provisioning is almost always more conservative than what we see in the ultimate write-off, so we're comfortable with our coverage ratios. And then there was a question, I think, about the Spanish RMBS and the fact that we hold that in long-term receivables, but what is the fair value? Well, I think the liquidity in this type of instrument right now is extremely, extremely small. So meaningful pricing is not really something that we see in the markets. And it's clearly not trading at par, but not at massive discount. And indicatively, you would be looking at around 80%.

Patrick G. Flynn

The bank treasury, the bank treasury you mentioned earlier the news on bond sales, they're mainly recorded in this bank treasury area. We also have some one-offs here in respect of -- it was actually gained on the translation of Greek bonds, a small gain there. So in terms of expenses, I don't really want to get into guidance in this level of granularity because it's quite small, but you have to be aware, also, that the expense line here can also include impairments on real estate items. So...

Operator

The next question is from Jan Willem Weidema from ABN AMRO.

Jan Willem Weidema - ABN AMRO Bank N.V., Research Division

Yes, 3 questions from my end. On the Dutch banking tax, is there an offset for the tax you pay in Hungary and Belgium? Secondly, the Dutch government is putting in place forced treasury banking for non-central government, will that have an outflow as a consequence for ING? And thirdly, could you please elaborate on the loan-to-value for the Dutch office loans?

Jan H. M. Hommen

Yes, Willem, the tax on the -- we don't really know whether we can offset that yet because the taxes we get in Hungary. I say it would be fair to assume that we can because otherwise, you have double jeopardy here, but I don't know the answer to that question, but certainly, that we are pursuing, I can tell you. And with respect to the new requirement by the Dutch government that lower governments have to bank with them, the outflow, I expect to be rather minimal because we have some, but not really that much, I believe, of the lower governments in our deposit base. But that's, again, something that we are evaluating in this point in time. But to me it looks like the impact is quite minimum, and then, Wilfred, the loan-to-value.

Wilfred F. Nagel

Yes, loan-to-value on Dutch offices is, at the moment, about 71%.

Operator

The next question is from William Hawkins from KBW.

William Hawkins - Keefe, Bruyette & Woods Limited, Research Division

It's William at KBW. I'll restrict myself to one question. Could you maybe give us an update of the capital structure of the insurance group? I'm interested in particular in what's happened to the financial debt. I think that was EUR 5.5 billion at the end of last year. And if there's any kind of update on the mix by country, because obviously, there's been an uptick in the Benelux at the end of last year.

Patrick G. Flynn

I think in terms of the structure, the numbers are fairly similar to what we've shown you before. So even the financial debt numbers, it's not materially changed from the number you mentioned.

Operator

The next question is from Federico Salerno from MainFirst.

Federico Salerno - MainFirst Bank AG, Research Division

Just some clarification, really. Do you expect the Dutch bank tax to apply from this year already? That's the first thing. Then on Sul America, I guess, you might be reluctant to say very much, but can you at least say the stake is still for sale these days or not? And then last point is CVA/DVA, I didn't quite get it. It's included, I mean, the negative impact is included in the net interest line or it's in some other lines of the bank P&L?

Jan H. M. Hommen

Okay, the bank tax is being voted on, I believe, in Parliament in the next couple of days. So we'll see from when on that will be applied, but I believe could already apply in the second half of this year. Sul America, I can't tell you much about that one at this moment. In principle, yes, we are willing to sell, but we have, at this moment, not too many discussions, I believe, at that topic. And CVA/DVA, Patrick?

Patrick G. Flynn

No, the CVA/DVA does not go through interest margin. It goes through other.

Operator

The final question is from Matthias De Wit from Petercam.

Matthias De Wit - Petercam, Research Division

One question, please. To come back on the Spanish exposure, you shed some light on the commercial real estate book in the RMBS, but what could you say about the other assets you're exposed to? I'm particularly interested in the covered bond book and whether or not there is a big gap between the carrying value and the current market price of these assets?

Wilfred F. Nagel

Okay. Well, we provided quite a bit of detail on the Spanish exposures in the annual report and also this quarter, so I won't dwell too much on the actual numbers. But if you look at the quality of the book, first of all, it is still rated well above A on average, and again, the Spanish bank downgrades will have some impact on that. But we hope this book also, and mainly, the maturity of long-term receivables and there is going to be limited impact there from an accounting perspective of what exactly happens with the pricing of this book. Same applies to risk-weighted assets. These are not securitizations, and therefore, they are not subject to that very punitive regime. Now when you ask about values at the moment, and they've been stable over the past few months, we're looking at around 96% at this point. It is a sizable book, but I think it's important to remember that Spain is one of the biggest, deepest covered bond markets in Europe and has a very good legal regime around these assets. And we know that our -- overcollateralization is still well above -- in average, well above the legal minimum of 125%. And the underlying in terms of qualifying collateral, that means the underlying has to be lower than 80% loan-to-value, and that qualifying collateral is indeed well above the minimum according to the legal requirements at this point. So you could sort of deduct from that, that the average loan-to-value from our perspective is in the low 60s, still.

Matthias De Wit - Petercam, Research Division

Yes. And considering that it is trading close to par, you could divest without any major capital or P&L impact. Are you doing that already or have you got any intentions to do so?

Wilfred F. Nagel

Well, if you look at the recent history, you would see that the total exposure has been coming down and it continues to do so. And we do this in a measured way to manage the portfolio and act as and when we think it is appropriate, and when indeed pricing and liquidity are at an interesting level for us.

Operator

Sir, there are no further questions.

Jan H. M. Hommen

Okay, then I would like to thank everyone for being on the call, and wish you all a very, very nice day. Thank you very much. Bye-Bye.

Operator

Thank you, sir. Thank you, ladies and gentlemen. This does conclude today's presentation. Thank you for participating. You may now disconnect.

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