ING Bank reports a solid third-quarter
4 November 2015
ING reported an underlying result before tax of EUR 1,495 million compared to EUR 1,486 million in the same quarter last year, reflecting continued positive momentum in Retail and Commercial Banking. Income remained strong, risk costs were lower and core lending continued to grow.
Compared to the previous quarter, the underlying result before tax fell 6.6%, due to lower income and higher expenses which were only partly offset by lower risk costs.
Key Points
Accelerating our innovation efforts
“ING recorded a successful third quarter during which we made good progress on our Think Forward priorities”, said Ralph Hamers, CEO of ING Group. “We accelerated our innovation efforts by establishing partnerships with financial technology companies, generating new ideas which will help us to further create a differentiating customer experience. At the same time our strengthened sustainability focus was recognised by leading external sustainability benchmarks in their annual reviews. In terms of financial performance, ING Bank delivered another solid quarter, with increased lending, lower risk costs and a continued strong capital position.”
“ING is constantly looking to develop new and improved services for our customers. To complement our in-house capabilities and maximise the potential of relevant technologies, we are steadily investing in partnerships and other forms of cooperation with outside parties. An example of our continuous innovation and commitment to develop our SME business in a digital way is the strategic partnership we launched with Kabbage, a leading US-based technology platform that enables automated lending to SMEs, reducing the loan application and approval process to just a few minutes. In addition to taking a small equity stake in the company, we will run a pilot project with Kabbage in Spain.
We are excited about bringing this technology to our customers. Furthermore, in both Belgium and the Netherlands, we have set up facilities where start-ups can experiment with their new business models, enabling us to share expertise and benefit from each other’s creativity and innovative spirit.”
“One of our key beliefs is that we should support and stimulate economic, social and environmental progress. I am proud that ING is again included in the Dow Jones Sustainability Index, with an improved score that is well above the banking industry average. ING also received a higher rating from Sustainalytics, where our score of 88 out of 100 made us the third best performer among the 409 reviewed international banks. These external assessments validate our sharpened sustainability focus, and the robustness of our strengthened environmental and social risk policies.”
“ING Bank delivered another solid financial performance this quarter. The underlying result before tax was EUR 1,495 million, reflecting the continued positive momentum in both Retail and Commercial Banking. Risk costs decreased on both comparable quarters, particularly in Retail Netherlands where evidence of the economic recovery is now clearly visible in our risk costs. While this is encouraging, we remain vigilant for any potential impact that imbalances in emerging economies and financial markets could have on our clients and business units.”
“Net interest income improved on the back of continued growth in our core lending businesses and a slightly improved interest margin. We remain committed to supporting our clients’ lending needs. Notwithstanding reductions in the mature Benelux markets, we grew our core lending portfolio by EUR 1.6 billion in the third quarter, driven mainly by Retail Challengers and Growth Markets and Industry Lending.
Year-to-date, total customer lending in the core portfolio grew by EUR 17.2 billion, or 4.5% on an annualised basis. Despite higher regulatory costs in the quarter and a significant impairment on an equity stake, the Bank’s underlying return on IFRS-EU equity was 11.2% for the quarter and 11.6% year-to-date, which lies in the middle of our Ambition 2017 target range.”
“ING Bank’s fully-loaded CET1 ratio remained stable at 11.3%. The ING Group CET1 ratio was also unchanged at 12.3%, which figure does not include interim profits - for the second quarter in a row. In the third quarter we reduced our stake in NN Group to 25.8%. The regulatory environment remains uncertain. However, with our capital strength, we are well positioned to deliver shareholder returns while we invest in further innovation of the products and services that empower our customers.”
Adjusted underlying profit before tax
Although the underlying profit before tax rose slightly (up 0.6%), once positive CVA/DVA impacts** (accounting adjustments to certain items in the balance sheet) were excluded, underlying profit before tax fell 6.5%. The fall was mainly due to an impairment taken on an equity stake and lower commission income. Higher expenses, mainly due to business growth and the new resolution fund charge in Belgium, were partly offset by lower risk costs.
Income higher
Total underlying income rose by 1.5% compared to the third quarter last year, as positive CVA/DVA impacts largely offset the impairment charge and lower commission income. Total income fell 4.1% compared to the previous quarter.
Expense vigilance
ING kept a close eye on costs while continuing to invest in its strategic priorities and in business growth. Rising regulatory costs continue to put pressure on our expense base. Underlying operating expenses rose 5.3%, partly due to a contribution to the new Belgian resolution fund, but also because of business growth in Commercial Banking (Industry Lending and Financial Markets) and the Retail Challengers & Growth Markets, as well as higher expenses in Retail Netherlands.
Compared with the second quarter, and excluding regulatory costs, expenses fell, especially at Commercial Banking and Retail Turkey. The cost/income ratio for the first nine months of 2015 improved to 53.6% compared with 55.5% in the same period of 2014.
The cost-saving programmes at ING Bank, underway since 2011, are expected to reduce total annual expenses by EUR 1.2 billion by 2017, and by EUR 1.3 billion by 2018. Of these targeted amounts, EUR 796 million of cost savings have already been achieved.
Strong commercial momentum
Core lending continued to grow and was EUR 1.6 billion higher, boosted by residential mortgage lending. Other customer lending in the core lending businesses remained flat. In Commercial banking, growth in the longer-term lending in Structured Finance, Real Estate Finance and General Lending was more than offset by a decline in short-term lending in Financial Markets and International Trade and Export Finance.
Total customer lending (core plus non-core lending) fell due to declines in Bank Treasury lending and the run-off portfolios of WestlandUtrecht Bank (WUB) and Lease, currency impacts, changes in mortgage hedges and additional transfers of WUB mortgages to NN Bank.
Customer deposits at ING Bank (excluding Bank Treasury and adjusted for currency impacts) recorded a net outflow of EUR 1.3 billion in the third quarter of 2015 due to a net outflow of EUR 1.6 billion in Commercial Banking. In Retail Banking, net customer deposits rose by EUR 0.3 billion, driven by growth in the Other Challengers & Growth Markets.
Risk costs lower
Risk costs (net additions to loan loss provisions) were lower compared to the third quarter last year and the previous quarter.
Risk costs in Retail Netherlands fell substantially to EUR 82 million, supported by the recovery of the Dutch economy and higher house prices, resulting in the lowest level of risk costs since the first quarter of 2011.
Most of ING’s core lending businesses are now operating close to the longer-term risk-cost average as the general economic environment continues to gradually improve.
Customer focus
ING’s customer promise is to be clear and easy, to be available anytime and anywhere, to empower people and to keep getting better. We plan to achieve this by developing new and innovative services and business models.
An example of this is our partnership (announced in October) with Kabbage, a US company that uses real-time business data to substantially reduce the time required for loan application and approval. As a result, small and medium-sized enterprises (SMEs) with an existing business account can get an approved loan of up to EUR 100,000 within minutes. Kabbage and ING will run a pilot in Spain to offer this platform to ING’s local SME clients. In addition, ING announced taking an equity stake in Kabbage.
We also bring in outside knowledge by creating facilities where start-ups can experiment with their new business models, enabling ING to learn from their creativity and innovative spirit. In Belgium we started the ING Fintech Village with several organisations, and in the Netherlands we opened the ING Innovation Studio. ING also supports StartupDelta, a Dutch government initiative aimed at increasing the number and quality of start-ups in the Netherlands.
Accelerating sustainable transitions
ING believes that banking plays a significant role in creating a fairer and greener economy. We can facilitate this transition by financing projects that accelerate our clients’ own sustainable transition and by supporting clients who develop solutions to broader environmental and social challenges.
In the third quarter of 2015, ING participated in green real estate transactions in the UK, Italy, France and the US for a total amount of approximately EUR 900 million. The most notable transaction was a EUR 534 million loan to Canary Wharf Group to acquire a landmark building in the London Canary Wharf area that has a BREEAM Excellent certification. This means the building meets best practices in areas such as energy monitoring, water consumption and sustainable procurement. ING acted as Joint Coordinator and Sole Facility Agent in the transaction.
Additionally, ING’s Financial Markets team issued a sustainable note of EUR 30 million. The returns are linked to the performance of companies whose operations are considered sustainable.
Strengthening lending capabilities
ING serves its Commercial Banking clients through a wide international network in over 40 countries. In the first nine months of 2015, ING Commercial Banking grew its lending to clients by 11% to EUR 142.7 billion.
To further strengthen our lending capabilities and better serve our clients in running their international business, we are strengthening our international network. We intend to open representative offices in Sweden, Colombia and India, pending regulatory approvals. In the United States, the New York office has added trade commodity finance to its product offering, and we have opened a satellite office in Chicago.
In Asia, we are upgrading our representative office in Kazakhstan to a subsidiary and have upgraded our representative office in Beijing to a branch. ING now has eight branches in Asia/ Pacific, with a strong local presence in 13 markets across the region.
*ING Group now consists primarily of its banking operations, so therefore the underlying results of ING Bank are effectively also those of ING Group.
**CVA/DVA are adjustments to certain asset and liability items in the balance sheet that are measured at market value. CVA (on the asset side) refers to changes in counterparty credit risk, which are related to changes in the market value of derivative assets. DVA refers to changes in the market value of derivative liabilities and ING’s funding liabilities that are measured at fair value, resulting from changes in ING’s own credit spreads.
For more information about ING Group’s results, please go to the press release and the presentation in the Investor Relations section of ing.com.