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Regulatory costs could be long-term problem for ING

was hit hard by regulatorycosts in the first quarter of 2016, and management said it would take time to absorb.

"Thecost-income ratio and the return on equity … are impacted by the dramatic increasein regulatory costs for this quarter," CEO Ralph Hamers told analysts on aMay 10 earnings call.

The bank'snet result was €1.26 billion in the quarter, down from €1.77 billion in the sameperiod of the previous year. Return on equity was 8.2%, down from 12.2% in the year-agoquarter, while the underlying banking cost-to-income ratio jumped to 64.5% from51.7%.

Unexpectedlyhigh regulatory costs came in at €496 million for the quarter, with the total regulatorycost for the whole of 2016 expected to be €960 million, up from €620 million in2015. CFO Patrick Flynn broke the first-quarter costs down into contributionsto various deposit guarantee schemes, payments for new bank levies, notably in Poland,and expenses related to the euro zone's Single Resolution Fund.

Hamerssaid the first-quarter costs were so large because of new accounting norms forcingING to book the bulk of the charge in the first quarter. Responding to an analystwho asked about plans to offset ballooning expenses, the CEO replied: "Clearlythis is such a big amount that you can't absorb [it] in a quarter, not even in ayear."

He saiddigitization would go some way toward offsetting the costs.

At thesame time, Hamers said the company is on track to deliver almost all the targetsoutlined in its Ambition 2017 plan. ING is confident in its ability to mitigatethe impact of Europe's low interest rates, he added, guiding for net interest margin"in the high 140s" during the rest of the year, and broadly flat comparedto 2015. The bank is shifting lending away from retail mortgages and into high-yieldingassets, mainly in corporate banking, the CEO said. ING Bank's net interest marginin the first quarter was 1.51%, up from 1.47% in the fourth quarter of 2015.

Regardingthe continuing pressure on capitalratios from the Basel Committee, executives suggested that rules couldease as a result of lobbying.

"Weare working very hard on the regulatory lobbying front to make sure that there isa very clear awareness with the powers that be of what Basel is saying and thatit's not consistent with the expressed wish of the leaders of the ECB," saidWilfred Nagel, ING's chief risk officer.

A studyby S&P Global Market Intelligence showed that ING would lose more than 220 basispoints from its end-2015 common equity Tier 1 ratio if it is forced to adopt minimumrisk weights of at least 40% for its mortgage loan book, under new rules detailingcapital floors. Its CET1 ratio stood at 12.9% on a phased-in basis, and 12.7% fullyloaded, at the end of 2015; this moved to 13.0% phased-in and 12.9% fully loadedat March 31.