UPDATE 1-ING regulatory costs drive Q4 pre-tax profit below estimates

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AMSTERDAM, Feb 6 (Reuters) - ING Groep, the largest Dutch financial services company, reported a fourth-quarter pre-tax profit of 1.34 billion euros ($1.47 billion) on Thursday, slightly below analysts' estimates as regulatory costs rose.

Analysts polled by Refinitiv had forecast an average of 1.61 billion euros in underlying pre-tax profit for the three months ended Dec. 31, compared with 1.69 billion euros a year earlier. "Pricing discipline and growth helped counter the pressure of negative interest rates," said CEO Ralph Hamers.

ING shares have slightly underperformed European sector peers over the past year amid wider worries about the impact of low interest rates, and are down 1.2% over the past 12 months at 10.29 euros.

The company's net interest margin, a key measure of profitability, rose by three basis points to 1.57% from a quarter earlier, thanks to improved lending margins and better return on funds stored at the European Central Bank.

However "we recorded a 4.5% rise in underlying expenses for 2019, which includes a marked increase in regulatory costs, as well as costs related to our KYC (know your customer) enhancement programme," Hamers said on a media call, adding that most of those costs will be recurring.

ING has spent heavily on staff and systems to detect money laundering among customers, after being fined $900 million in 2018 by prosecutors in 2018.

The cost increase hurt ING cost-income ratio, which rose to 56.6% for the full year from 54.8% in 2018.

Provisions for bad loans also increased in the quarter, due in part to what ING said was a single provision for a fraud case at a customer in Asia. ING did not disclose the identity of the customer. Loan provisions rose to 303 million euros from 266 million euros a year ago, which ING said was still lower than a through-the-cycle average.

The bank said that it continued to win new customers throughout the year, and at year-end it had 13.3 million "primary" customers, a 6.7% increase. Primary customers are those that use at least two different ING products.

Customer deposits increased by 3.8 billion euros to 555.8 billion euros in the fourth quarter of 2018, driven by a strong influx from Germany. ($1 = 0.9093 euros) (Reporting by Toby Sterling; Editing by Subhranshu Sahu and Alexander Smith)