ING Groep NV Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Benjamin Goy - Deutsche Bank - Analyst : Hi, good morning. Two questions please. And the first on your replicating income. You downgraded it 15% to 20%, but you keep the margin. So effectively, I think you have more confidence in repricing deposits. Maybe you can give a bit more color around that. Why this is the case? And the second question, thank you for the new disclosure, the retail AUM and e-brokerage volumes. Can you talk a bit about the net inflows you have been seeing -- so outside of market effects and is there any recurring fee income share on those AUMs in terms of pricing or is it mainly activity-driven? Thank you. Steven Van Rijswijk - ING Groep NV - Chairman of the Executive Board and the Management Board Banking, Chief Executive Officer All right. So I'll I'll answer the answer on the inflows and Tanate answer the question on the replication income. So yes, I mean, if you look at the total asset under management last year, we were at around EUR200 billion. Now we're at around EUR230 billion. So that's an increase of around 15% already. But more importantly, I think and that is part market, but also part inflows -- but more importantly, if you go to the fees slides, there you also see that 9% of -- we had a 9% increase in investments for the customers to EUR4.6 million. And that's important, I also come back to the Capital Markets Day, because only 10% of our approximately 40 million customers have a active trading account with us. And now we've grown that with 9%. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 31, 2024 / 8:00AM, INGA.AS - Q3 2024 ING Groep NV Earnings Call So yes, on the one hand, this is about an inflow and getting more investments and money from our investors to us, we'd also just do more business with more customers, and still -- and that's what I said on Capital Markets Day, that is gigantic, because 4 million, or 40 million's 10%, which is very low. And that's why we're able to continuously increase the penetration rate and with that, the asset management, and with that, the fees. Tanate Phutrakul - ING Groep NV - Chief Financial Officer, Member of the Management Board Banking, Member of the Executive Board Hi Ben. I think the question on replication is -- you're right, on page 13, we show the new replication based on the curves of September. But I think the reason why we're confident that we can manage the margin within the 100 to 110, is just take a look at Q3 margin that is stable at 112 despite two rate cuts by the ECB, right? And it's three moving parts within that number. The tailwind from the replication remains strong. That's one. The second one, we have volume growth that you know (technical difficulty) on NII; and the third, the liability deposit that we pay to our depositor have also started to come down. You can see that at the bottom of that page, same page, 13, that the combined deposit of savings and term deposits is around 164 basis points, which is lower than the same prevailing number as of Q2. So we do see that the cost of deposit we pay to customer is also coming down as well.

Question: Guillaume Tiberghien - BNP Paribas Exane - Analyst : Yes, good morning. Thanks for taking the question. Just a question on M&A, actually. Can you remind us the M&A strategy, if there's going to be a bit more cross-border consolidation in Europe? I saw obviously, your comment on Poland. Would there be any interest in a cross border from your side? Thank you. Steven Van Rijswijk - ING Groep NV - Chairman of the Executive Board and the Management Board Banking, Chief Executive Officer Yes. Well, look, first of all, our organic growth is good, and we continue to do so. So that's our first focus. But yes -- and I've said it also earlier that we would be looking at potential opportunities with strict criteria with regards to return on investment or return on equity, but also very much focused on either domestic consolidation in retail because -- if local skill in retail is important, so if we can increase skill there, and therefore realize synergy benefits in a given market, then we will look at it. And secondly, if there is a skill set or product skill that we do not have, whereby we would be able to grow and diversify our income to our customers. So those are the two areas that we are looking at. As a matter of fact, we are looking at opportunities, but so far, we have not been able to find something that would fit us and our criteria. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 31, 2024 / 8:00AM, INGA.AS - Q3 2024 ING Groep NV Earnings Call

Question: Tarik El Mejjad - Bank of America Merrill Lynch - Analyst : Hi, good morning, everyone. Thanks indeed for the more disclosure on the margin side. So I I have two questions. First, on the volume growth. Can you take us through what you see in terms of main drivers of growth coming in the next few quarters (technical difficulty) in the pipelines, maybe sectors, geographies -- just to have a better view on this. And secondly, on costs. Despite the good resilience on the NII and maybe a bit volatility on the trading side, I mean, the jobs will remain a bit under pressure. So now two quarters also, I mean -- most two quarters into the plan, have you identified or do you see some room for more optimization of cost? As I understand your strategy is more ongoing basis when you see opportunities you implement them? So do you see any new opportunities to save a bit on running costs? Thank you. Steven Van Rijswijk - ING Groep NV - Chairman of the Executive Board and the Management Board Banking, Chief Executive Officer Yeah. Okay, thank you. On the volume growth, what we continue to see is clear growth, mainly in retail. So we see that mortgage markets are coming back. The biggest part of the retail loan book sits in mortgages. We see mortgages coming back. We already have seen that in the Netherlands. And to some extent in Belgium. The Netherlands, the number of houses being sold this year is around 200,000. That is still a bit lower than two years ago. But coming back to that level, in Germany, for example, the housing market still has been quite benign. So it has come back to the 56% -- well, it was 56% of normal levels a year ago. It is now a bit higher. But still not back to the normal levels that we've seen two, three years ago. And that's, we believe, will gradually come back. So in the mortgage market, we see in general, the market is picking up in that. And you've seen that in the Netherlands, for example, because of our digitalization of processes, which is -- the better, if not the best, of what is there in the market. As a result of that, we are increasing our market share. That's where we see the main growth in wholesale banking. It still depends on the recovery of GDP growth and yeah, that is still a bit, I would say lukewarm, if I were to call that, I guess. There we will stay disciplined in terms of where we can grow, depending on the outlook of the industry. But the most growth will be expected from the retail in the next couple of quarters. Tanate Phutrakul - ING Groep NV - Chief Financial Officer, Member of the Management Board Banking, Member of the Executive Board Tarik, on cost. Maybe a few points to make. First of all, the collective labor agreement increases are somewhat high, as you can see on page 15, around 4%. And the stickiness of wage inflation is likely to last through 2025 as well. So that's the first point I want to make. The second, we have optimized our balance between investing in our franchise and reaping the benefit from that investment. The three big buckets of our investment is really client acquisition costs. So these are marketing expenses and other promotional expenses to bring in our targeted 1 million new primary mobile customer. The second bucket is really any expenses related to more front office hires in wholesale banking, as we become more capital light in terms of our model. But the majority of our investment is really building out our product and tech platform. These are the major investments that we have. And with respect to savings, it's really seeing the optimization and the investments coming through. We continue to optimize our network. So people that works in our branches in, in Belgium, in Turkey and in Poland, those are coming through. As you can see in our numbers, we also see contact center expenses also coming down as we digitize more and make our mobile channels more user friendly for our customer. And we also see the first signs of KYC optimization feeding through in that 2% reduction in cost. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 31, 2024 / 8:00AM, INGA.AS - Q3 2024 ING Groep NV Earnings Call

Question: Farquhar Murray - Autonomous Research - Analyst : Good morning, all. Just two questions from me. Firstly, on the Belgian deposit inflow, obviously, congratulations on the EUR5.5 billion there. I just wondered if you could outline how ING intends to recoup the initial loss on the one year term offer there. Specifically, I'd be quite interested in what products you're hoping to cross sell into and perhaps the retention you're assuming around that. And then secondly, some more point of detail. Just on the treasury income within NII, could you give us maybe some sense of where you think we stand versus a normalized rate there? And also possibly what you think the structural trend is in your treasury results from here? Thanks. Steven Van Rijswijk - ING Groep NV - Chairman of the Executive Board and the Management Board Banking, Chief Executive Officer Okay. Tonight, we'll take the question on treasury, and I will take it on the Belgian deposits. Yeah, that was indeed quite a steal with that deposit campaign which brought in EUR5.5 billion. Well, look, there are different reasons why you do campaigns -- you can do a campaign because you then make money on that particular deposit amount on the fly, and/or you return them into primary clients. And that means that you then do cross sell with them in terms of daily banking. That's where it typically starts. And then investment products and mortgages. So those would be the typical products that we would cross sell them into. To give you an example, are the last two campaigns in Germany that we had. So both the one in the first quarter of '23 and the first quarter of 2024. Two-thirds of the money after the campaign was overstayed -- and those customers therefore became primary customers. So that's the way that we are structuring these campaigns and we're confident that we can also do that this time. Tanate Phutrakul - ING Groep NV - Chief Financial Officer, Member of the Management Board Banking, Member of the Executive Board Then on other NII (technical difficulty), I think we, we give quite a clear disclosure in terms of what we make on lending NII, what we make on liability NII, and the other NII is more volatile. We give you the lines of what we call the treasury asymmetry, and as well as the financial asymmetry, which results in a negative number of around EUR400 million. And when you look at that number and strip that out, you see that the volatile items within our treasury results ranges this quarter on income of around EUR200 million. And for the previous quarter, around EUR300 million. These are quite volatile items. So it's hard to predict, but I think a good range over time is between EUR200 million to EUR300 million in other NII in terms of these volatile items. That will be what we experienced in the past few quarters.

Question: Kiri Vijayarajah - HSBC Bank - Analyst : Yes, good morning, everyone. A couple of questions, if I may. So firstly, in the wholesale bank, when you think about the [RWA] efficiencies. And given the short-term demand at the moment for things like SRTs, and is there a sense that you want to accelerate a bit, maybe get some transactions done before year end while the mood is still positive for those type of deals? Or do you think about the wholesale bank, the capital efficiency was more of a medium term story. So no real sense of urgency on a one to two quarter view. And then still sticking with the wholesale bank in Germany and the Mittelstand sector there, I wonder if you're seeing any early signs -- fresh cracks appearing, maybe in the automotive supply chain sector, for instance. I know overall, you're seeing positive ratings migration at the moment, but just wondered if there were any early warning signs you're seeing there? Thank you. Steven Van Rijswijk - ING Groep NV - Chairman of the Executive Board and the Management Board Banking, Chief Executive Officer I will give all these questions to Ljiljana. Ljiljana Cortan - ING Groep NV - Chief Risk Officer, Member of the Management Board Banking, Member of the Executive Board Good morning, and thank you for the questions. Well, on the wholesale banking and [RW] efficiency. Well, we have started really looking into that more intensely and we do expect some first, I would say reaping off of the impacts of the SRTs in '25. So you clearly know that the process is also requiring the regulatory approval, we have built internal capacities. So we are I think fully loaded to do this more seriously in '25. On the Germany Mittelstand, first, let me start with a statement that we are very small there in that area. So our portfolio on that part is really minuscule and there are strong, I would say attempts and also wishes to grow there. Clearly, the macroeconomic environment also needs to be taken into account. But as we've discussed during our Capital Markets Day, the intention to start there is as well from the liability side, so from deposit side, so get in the clients with the current accounts and savings accounts and making sure that they are also then after a certain time transferring this, I would say relationship into more asset heavy relationship, which will clearly be differently as well remunerated. We also are very much focused on being digital and this is where we believe in Germany, specifically in Mittelstand, we can make the difference and so making sure that our offer also going forward is fitting with our digital prerogative is something that we are taking into place when we are deciding about the timing of putting certain products in place.

Question: Sam Moran-Smyth - Barclays - Analyst : Hi morning. Thank you for taking my questions. Two questions on liability, if that's okay. So one specifically on deposits in Belgium. You noted that you brought in EUR5.5 billion of term deposits from the offer in September. I wondered if you could help me square that with the Q-on-Q increase in total deposits in Belgium of EUR2.4 billion, so EUR3 billion less if I understand correctly, the term deposit offer was just for new money. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 31, 2024 / 8:00AM, INGA.AS - Q3 2024 ING Groep NV Earnings Call So should I understand from that that there was kind of EUR3 billion deposit outflows working in the other direction and then more specifically on the replicating portfolio? Apologies if I missed it on the slide, but is there any update on the 50% less than one year maximum 50% more than one year or should we assume that that's the same? Thank you. Steven Van Rijswijk - ING Groep NV - Chairman of the Executive Board and the Management Board Banking, Chief Executive Officer So that's there's only one -- that's one question, right, Sam?

Question: Sam Moran-Smyth - Barclays - Analyst : Sorry. Second question was on the replicating portfolio. Whether we should still consider 50% less than one year maturity and 50% of the more than one year maturity or whether there's been any changes there? Steven Van Rijswijk - ING Groep NV - Chairman of the Executive Board and the Management Board Banking, Chief Executive Officer All right. So Tanate will take the question on replication portfolio, and I'll take it on liability and I -- in Belgium. So indeed, so the campaign gave us EUR5.5 billion. And you asked, why is that an only an increase of about EUR2.5 billion? That's correct, that it has to do with outflows from the business banking side, particularly one customer with big amounts that where the deposits depending on the activities come in or go out. So there is no structural. Tanate Phutrakul - ING Groep NV - Chief Financial Officer, Member of the Management Board Banking, Member of the Executive Board And Sam, do confirm the replication distribution hasn't changed, it's roughly 50% less than a year and 50% more than a year.

Question: Giulia Aurora Miotto - Morgan Stanley - Analyst : Yes. Hi, good morning. Two questions for me, please. The first one is actually back to Ljiljana on asset quality. If I look at slide 16, the stage three ratio in wholesale banking increasing. I know it's super low, 1.9, but still increasing. And if I look at cost of risk, 20 basis points. I know it's through the cycle, but because you're using some release of overlays. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 31, 2024 / 8:00AM, INGA.AS - Q3 2024 ING Groep NV Earnings Call So what do you expect on the evolution of cost of risk? Do you think we could -- 2025 see a deterioration, especially on the corporate side? And which areas are you watching more closely? That's the first question. And then sorry to go back to slide 13, which is my favorite slide of this quarter. How do you square the idea that you can lower the compensation on deposits with the trend we have seen from ING of essentially being a leader in offering higher rates and gaining market share via deposit growth. So would you be willing to essentially give away some growth on deposits in order to defend the margins or how are you thinking about the balance between the margin and the growth in a much lower rate environment? Thank you. Steven Van Rijswijk - ING Groep NV - Chairman of the Executive Board and the Management Board Banking, Chief Executive Officer All right. Good questions. We'll start with asset quality with Lilijana and then we go to liability NII with Tanate. Ljiljana Cortan - ING Groep NV - Chief Risk Officer, Member of the Management Board Banking, Member of the Executive Board Good morning Giulia. Thank you for the question. Yes, as you've said, our risk costs in the third quarter are at the -- through the cycle average at 20 bps and EUR336 million. And this is in line with our expectations. Clearly, as you mentioned, there is an impact of overlays in it, but this is exactly what overlays are being built for, and this is how we manage our risk costs through the cycle and not a point in time. Clearly, the majority of the impact also this quarter comes from the Stage 3. But if you compare it to the quarter on quarter, you will see that they remain broadly stable, if not slightly lower at the wholesale banking side. This is again, I would say, related to a number of additions for new and existing S3 files that are affected with specific circumstances. And part of these circumstances clearly comes from the delayed impact of the macroeconomic environment that is uncertain and already for quite some time subdued. However, while we do have the confidence that we are actually doing a good job in a quite difficult environment is that our low Stage 2 ratio remains low and yes, on wholesale bank is increasing due to this lumpiness on the few clients that I've mentioned. However, also, if you're looking at the Stage 2 stock and the trend in the third quarter, you will see that it's decreasing. So this is something that is giving us a confidence that the new inflows are low and that probably going forward, we will be able actually probably definitely going forward. I'm sure we will be able to manage through the cycle as we've done so far. You asked -- apologies, you asked about areas to watch. Yeah, clearly, also just looking around in the environment, we've seen that commercial real estate is still I would say very high in the headlines. However, we do see this stabilizing and we do see as well in our numbers. However, we remain very vigilant because -- aware of of possible spillover effects in different areas which we don't see yet. But as I say, we are not complacent there. And definitely, we do see some of the cyclical industries being under temporary stress through a few of these clients that I mentioned. But also due to the competitiveness, for example, that is becoming more and more important specifically for the European clients. We do see automotive industry facing, I would say some industry trends and challenges and they are not just related to technology part which we have been managing, I think well in our selection criteria of the clients, but also connected to -- as I said, with the lacking of demand against subdued economic growth. Nevertheless, our portfolio remains performing quite well in that area based, as I said on the selectivity criteria that we have put in place quite early in order to differentiate the winners of the future. Tanate Phutrakul - ING Groep NV - Chief Financial Officer, Member of the Management Board Banking, Member of the Executive Board And Giulia on your question on deposits, I think we are competitive in terms of our pricing in most of all of the markets we operate in. But I want to differentiate between normal offering in terms of rates and promotional campaigns that we run from time to time, right? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 31, 2024 / 8:00AM, INGA.AS - Q3 2024 ING Groep NV Earnings Call And as you can see in Belgium, we ran a promotional campaign during Q3, we also ran a promotional campaign twice a year in the past in Germany, right? And those comes with somewhat higher promotional term rates. But of course, we expect that as these customers join us, we are able to cross sell payment accounts, investment funds and attract them to remain with us when the promotional campaigns are over. And that we have done successfully. We model this quite carefully and we're confident that these promotional campaigns are accretive to our NII and you see that's the case for the last three months in terms of maintaining a net interest margin in liability of 112 basis points.

Question: Benoit Petrarque - Kepler Cheuvreux - Analyst : Yes, good morning. So first question on my side will be on the lending and I which was yeah, quite weak quarter on quarter despite the very strong -- growth momentum on on the landing side. So I mean, there have been some reasons like they're risking in the quarter, probably loan sale and production into low margin business. But could you help to notify, let's say the drop link to do the risking actions versus the kind of underlying picture on the landing NII side quarter on quarter. And what do you expect in terms of landing going forward? Thank you for that. And then the second one is, actually two small ones, liability NII, so 110 bps maintain. Could we get one quarters or two quarters just below 100 potentially or do you think we will remain above the 100 bps liability margin every quarter in '25. And then maybe on the other income, which was very strong and consensus does not believe the strong figure obviously. But -- is that a sustainable level you think? Do you expect this the current other income generation to be maintained going forward? Thank you. Steven Van Rijswijk - ING Groep NV - Chairman of the Executive Board and the Management Board Banking, Chief Executive Officer Okay. Thanks Benoit. I'll take the one on lending NII and Tenate will take it on the liability side and our income. No, I mean, look at the -- if you lending NII, indeed, it was impacted this quarter by someone else whereby we had last quarter in the road, some deals that were in a somewhat more risky spectrum at this quarter. We have more high investment grade clients and that brings in the margin down. It's a combination of many sectors in many markets and a few deals here. And there can flip the margin depending on what the new production actually does, but there is no trend in it. So if you ask us, okay, is this giving a signal in terms of the margin is coming down on more pressure and also banking, the answer is no. And we do expect that the lending margin will continue to hover around 130 basis points as we have said before. Tenate, liability? Tanate Phutrakul - ING Groep NV - Chief Financial Officer, Member of the Management Board Banking, Member of the Executive Board Yes, on liability, our sguidance is that we're guiding towards over 110 for 2024 and then around 100 to 110 for the coming period. What I think is determining where we are within that range is the shape and how fast the ECB lower rates, right? And if the current curve that we see in September were to manifest itself, you would expect that we would be operating at a lower boundary of that 100 to 110 net interest margin on liability. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 31, 2024 / 8:00AM, INGA.AS - Q3 2024 ING Groep NV Earnings Call And then to answer your question on other income, yes, it's been a strong quarter for us and back by -- do -- some requests from analysts? We have also given a bit more highlight in terms of other income on page 23 we break it down into what is NII coming from client business? What is other ni I related to accounting asymmetry and what are true volatility within that line, right? You can see that that client businesses around [EUR400 million] to [EUR470 million]. Accounting as symmetry is quite clear. And yes, indeed, in this quarter, we had some higher volatile items in other income, but we will give you this breakdown to give you more transparency in that line.

Question: Anke Reingen - RBC Capital Markets - Analyst : Yeah, thank you very much for taking my question. It's just actually to follow up on the lending margin. In Q3, I mean, we talked about the decline in the whole time margin. Are you able to give us some color on what's happening on the retail lending margin side? So I guess it's stable or but pockets, you see different trends. And then about the lending margin, the hover around 130 basis points. In 2025, could we expect maybe more towards the lower end considering? I mean, the outlook on volume goals as well as if they move to it might, you might want to lock in some and I guess there's a concern more on asset quality. So could lending margins be at the lower end of a hovering 130 basis points in 2025? Thank you very much. Steven Van Rijswijk - ING Groep NV - Chairman of the Executive Board and the Management Board Banking, Chief Executive Officer All right. Thank you very much. So if we talk about the wholesale banking margin again, and maybe I'll repeat myself to what I told to Benoit, but these are a number of individual files in wholesale banking that can tip it to one end or the other whereby in some quarters, when you see some big underwritings or big deals that are in the -- let's say, low investment grade or shipping, investment grade spectrum that you then see the margin increase or depending on certain sectors that are specialized circuit finance sectors at the margin increases. But then if you do more, let's say plain vanilla large blue chip corporate transactions, then the margin goes down a little bit. But going forward, we are comfortable with our margin of 130 basis points even more. So if we do we -- what we do see in the mortgage side, which is currently a big growth engine for us with the interest rates coming down and there's always a lag in it, that is beneficial for our mortgage margins as well. So we're very comfortable with the margin level of 130 basis points.

Question: Anke Reingen - RBC Capital Markets - Analyst : Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 31, 2024 / 8:00AM, INGA.AS - Q3 2024 ING Groep NV Earnings Call Steven Van Rijswijk - ING Groep NV - Chairman of the Executive Board and the Management Board Banking, Chief Executive Officer Thank you.

Question: Matt Clark - Mediobanca - Analyst : Hi. Can I come back to the Treasury, other NII line? Thanks for the, the guidance that it should run between the second quarter and third quarter level. But over the longer period over the last kind of, I guess, two years since you've been disclosing that it has come down from more of a EUR400 million per quarter down to that EUR200 million to EUR300 million level. So I'm just wondering what was driving that deterioration and why is that deterioration now over? And that's the first question. Second question is on the Belgian, time deposit campaign. I'm just curious to what extent you pre hedged. The, the interest that you will have to pay to those customers before we saw the steep decline in swap rates into September. So just trying to gauge whether you're on the hook for the full negative spread at the start of September or whether you've got a more benign negative spread because you've locked in better returns ahead of time. Thank you. Steven Van Rijswijk - ING Groep NV - Chairman of the Executive Board and the Management Board Banking, Chief Executive Officer All right. On the second question, the answer is yes, we did pre hedge part of it. So therefore we locked it in. Tanate Phutrakul - ING Groep NV - Chief Financial Officer, Member of the Management Board Banking, Member of the Executive Board And then the first one, Matthew, the decline year on year is due to the unremunerated minimum reserve requirement by the ECB, right, depending on rates, but it costs us somewhere between EUR70 million to EUR90 million per quarter in terms of lower NII from that new rules from the ECB.