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ABN AMRO keeping an eye on possible 'Basel IV' capital impact

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ABN AMRO keeping an eye on possible 'Basel IV' capital impact

posted"mixed" results in the first quarter, as its potentiallytroublesome mortgage portfolio is showing signs of improvement, executives fromthe Dutch bank told analysts during their results presentation.

WietzeReehoorn, chief risk officer and head of strategy, said that while the bank'sloan-to-value ratio for mortgages was above 110% in the first quarter, it is turninga corner and the impaired ratio for the mortgage portfolio was "stilllow" at 0.7%.

Headded that ABN AMRO's "mortgage risk metrics further improved in line withimprovements seen in the Dutch housing market and economy. Both the number oftransactions and house [prices] continue to increase."

Butwith an average risk weighting for mortgage loans of 12.6% in the first threemonths of 2016, the bank's common equity Tier 1 ratio could be negativelyimpacted if proposedglobal rules for minimum risk weights of 40% are adopted.

ABNAMRO's CET1 ratio rose to 15.8% at the end of the first quarter from 15.5% atyear-end 2015, but CFO Kees van Dijkhuizen said during the call that "therecent Basel proposal could have a significant impact on the bank's regulatorycapital position and pricing of certain specialized lending activities. Hence,we'll continue to grow our capital position to above our target range of 11.5%to 13.5% until there is more clarity on 'Basel IV.'"

VanDijkhuizen cited the "volatile and subdued markets" and higherregulatory levies for the year-over-year decline in ABN AMRO's IFRSattributable profit, which fell to €474 million from €543 million.

Thebank's ROE also fell year over year, dropping to 11.1% from 14.1%, while thelender's cost-to-income ratio of 66.9% was above 2015's average of about 61.8%.Impacting the ratiowere the lower income and the higher regulatory levies van Dijkhuizen said,pointing out that "if regulatory levies had been divided equally overquarters, the cost-to-income ratio would have been 65%."

Likewise,first-quarter ROE would have been 11.5% if regulatory costs had been equallyspread out over the year, while in the first quarter of 2015 it would have been12.9%, he added.

Digitizationwill increasingly make a positive impact on the cost-to-income ratio, which ABNAMRO expects to be in the range of 56% to 60% in 2017. "We will [also]take additional measures to reduce costs," van Dijkhuizen said, addingthat the bank will likely provide guidance on those measures in the second halfof this year.