ING Groep NV Q4 2024 Earnings Call Transcript

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

Question: Benoit Petrarque - Kepler Cheuvreux - Analyst : It's Benoit Petrarque from Kepler Cheuvreux. So I actually have two questions on capital. So first one will be, are you see share buyback in front of M&A opportunities in '25? I think you've done recent comments on M&As. I think you mentioned Germany, Spain and Italy potentially. But on the other side, we see potential share buyback at EUR4.5 billion. So just wanted to see how you see both sides of the equation. And the second one will be on SRTs. Quite a number of banks are talking about SRTs and execution of SRTs in '25. I think you talked about that in the CMD as well. So just wondering what are your plans for SRTs in '25. How much capital will that be representing? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 06, 2025 / 8:00AM, INGA.AS - Q4 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 Yes, indeed look, we are growing with 4% to 5% per annum towards 2027. And we're also broadening our services by diversifying in the markets in which we are already active, also in Business Banking and Private Banking where we currently do not yet have these operations or have them only to a very small extent. And therefore, we can also grow our fee business a bit also further diversify our business. So that's good. And as I've said previously, if there are abilities for us to accelerate that, so to realize bigger scale in markets or broaden our product base so that we can provide a broader service offering to our customers, then we will look at it. Of course, we still have excess capital. We're moving towards the 12.5% or around 12.5%. And the way that we compare that is that we look at all these elements and also the share buybacks and M&A to see how does that compare from a long-term ROE value creation. And that's how we compare share buybacks versus M&A. SRTs, I mean clearly, we are already taking actions, whether it is primary syndication or secondary sales of loans or securitization of loans that we could do to actually move the needle in Wholesale Banking to further recycle the capital better and in the balance thereby as a result of it, move capital from wholesale to retail, SRTs are part of it. And we expect the first SRT in Wholesale bank to happen in the second half of this year.

Question: Farquhar Murray - Autonomous Research - Analyst : Just had two questions from me. Firstly, could you give us an update on the announced core deposit rate reductions coming into effect this year so far? I think in early January, you gave us a very helpful indication of about 20 to 25 basis points for total retail in eurozone. It would be just interesting to see how that's progressed. And then a little closer to home for ING, you don't seem to have cut the per quarter deposit rate yet in the retail Netherlands section. I just wondered what's the reasoning for that. And in particular, is there a change of competitive backdrop or attitude there? Steven Van Rijswijk - ING Groep NV - Chairman of the Executive Board and the Management Board Banking, Chief Executive Officer I'll give the first question to Tanate on the deposit rate reduction and then I'll talk about the Netherlands. Tanate Phutrakul - ING Groep NV - Chief Financial Officer, Member of the Management Board Banking, Member of the Executive Board Farquhar, I think your question is how much of the, in euro terms, does the rate cut affect our rate reduction announcement. It's approximately EUR200 billion in core deposit that was subject to reductions, which will have a positive impact in terms of revenue of EUR600 million full year. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 06, 2025 / 8:00AM, INGA.AS - Q4 2024 ING Groep NV Earnings Call

Question: Giulia Miotto - Morgan Stanley - Analyst : The first one is on costs actually. The guide for 2025 comes as a surprise versus consensus. What do you think has changed versus the Capital Markets Day back in June? Was it driven by higher inflation, higher CLA or in fact, you see a better opportunity for growth now? That's the first on costs. And then secondly perhaps one for Liliana on the RWA increase due to current risk increase in the loan book to the some migration of files in the Wholesale bank. So can you give us a comment on how you see asset quality developing? Is there any area which is now warning you on the early warning, the new system that you have? Steven Van Rijswijk - ING Groep NV - Chairman of the Executive Board and the Management Board Banking, Chief Executive Officer I'll give the first question to Tanate on cost and then asset quality to Liliana. Tanate Phutrakul - ING Groep NV - Chief Financial Officer, Member of the Management Board Banking, Member of the Executive Board I think on cost, collective labor agreement and inflation remains sticky in the course of 2025. I think that's one item I like to mention. And I think if we stick in line with our outlook for investments that we will make, particularly client acquisition and the savings that we would achieve during the course of '25, but I think we also want to reiterate that our guidance for the outlook for 2027 remains the same. That costs should grow between 3% to 4%, between '24 to 2027. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 06, 2025 / 8:00AM, INGA.AS - Q4 2024 ING Groep NV Earnings Call Ljiljana Cortan - ING Groep NV - Chief Risk Officer, Member of the Management Board Banking, Member of the Executive Board It's a very broad question that you gave to me. I'll try to summarize it in two developments that I see. And first I will comment on the S3 ratio, and you've seen it's 1.7%. We still deem it very low and a good asset quality. And if you're looking even at the absolute of the NPs, they are at the same level as in the third quarter. So we do not see increase there. If you're referring to the Stage 2, which I suppose you are, in terms of the movement, well, this is due primarily to some methodological and model changes. And this is happening both in Wholesale Banking and in the residential mortgages. And I'll try to explain why. In Wholesale Banking, we have actually reclassified the parts of our low default portfolios for which we have taken provision overlays. So this is just alignment, I would say, with provisions that we have already taken. We have, as well, moved this exposure to the Stage 2. This does not mean an aerial shift in our change in the quality, but just different treatment of those loans. While on the retail side, we have enhanced, I would say, our early warning model in a way to earlier detect some certain clients, and specifically in residential mortgages where we see extremely low percentages of S3, so below 1%, and keeping really well throughout the year. We have, as well, decided to take a look at the broader range and be able to react earlier. Again, as well here, I do not see -- also looking at delinquencies, I do not see an aerial shift or change in the quality of that portfolio. So those are the main movements and I think if you look at the overall risk cost in the last quarter, they're actually better than the third quarter. They go down. And what specifically looks good is that Stage 3 risk costs go down both in Wholesale and in Retail.

Question: Tarik El Mejjad - BofA Global Research - Analyst : Actually I have just a couple of quick questions, follow ups. First on Russia, if you can explain a bit the onshore business you had and I think we all thought that the focus was more on the offshore part and that we were running down at the low losses. But just trying to understand a bit on the onshore and what we and I personally missed there? And secondly on the deposit campaign, that was very supportive for deposit growth. What's the status now of all these campaigns and what's your plan for '25, and how that actually fits within your guidance and expected campaign versus the guidance on NII? Steven Van Rijswijk - ING Groep NV - Chairman of the Executive Board and the Management Board Banking, Chief Executive Officer So on Russia, yes, the onshore business was largely with Russian and foreign customers, local accounts, local payments in deposit business, so for the local subsidiaries. And you're right, the lion's share with the business that we had with Russian companies were in the international loans, not on that P&L or that local subsidiary. So it's more an operational unit than a large lending unit. Then on the deposit campaigns, yes, I mean depending on the time of the year and whether it's Back Friday or whether it is an opportunity that we have in the market, when we see an opportunity to grow our customer base or our primary customer base, or to do more business with our customers than we do it, we do it in many countries with a couple of big campaigns. We have made more public that were taken in Germany, for example, we did one in '23 and then we did one in '24, and then we did in the beginning, and we did of course also Black Friday, which was a big campaign in Germany. We did a campaign in Belgium when the state bonds came to mature. But also in the Netherlands, we're doing campaigns as well. So every time that we can see we can increase from an NPV basis the value that we can attract from our customers, and that we can then do that in a timeframe whereby from a NPV value perspective, we can do that at a value comes REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 06, 2025 / 8:00AM, INGA.AS - Q4 2024 ING Groep NV Earnings Call back in two years to three years, then we will look at it. So as they choose that channel, of course, I cannot make forward-looking predictions on that.

Question: Kirishanthan Vijayarajah - HSBC - Analyst : A couple of questions if I may. So firstly, going back to your Investor Day, you talked about taking the share of RWAs in the Wholesale bank down to 45% of the group, and you've pretty much done that already and actually achieved it quite quickly, so kind of well done on that. But given the commentary you said earlier about SRTs and other leavers, is the plan to maybe move that mix shift even further, is say, I don't know, like a 40% share of group RWAs in the Wholesale bank achievable in the next year or 2? And then my second question, just on the commercial NII guidance, just some color on what you've assumed happens in Belgium when a lot of the term deposits mature later this year. Do you expect them switching into higher margin products or have you assumed it's just fairly neutral? I know it happens relatively late in the year, so the impact is probably more for 2026. But just in color on what you think or what you expect in Belgium when things normalize with the term deposit spike. Steven Van Rijswijk - ING Groep NV - Chairman of the Executive Board and the Management Board Banking, Chief Executive Officer I'll take that one on the RWA. Tanate will talk about the term deposits in September in Belgium. Well, we were -- in the beginning of the year, we were at 50-50 when we talk about RWA Wholesale-Retail. We're now at 52 Retail and 48 Wholesales. So, yes, we're moving in the right direction. There's different elements that we use to actually shift that mix. So whether it is syndication or insurance or hedges or packaging through securitization or SRTs, those are all means to shift that capital mix and therefore, indeed an SRT in Wholesale Banking is a means to that level. We, of course, trade that off with growth. And so it means we can do more with Wholesale Banking clients for the same amount of RWA and at the same time grow faster in Retail Banking when needed. So we are on that trajectory to 45 Wholesale, 55 Retail by 2027, and then we'll take it from there. So let's first make more progress and then we'll update you on where we want to go with this, but the direction is clear. Tanate Phutrakul - ING Groep NV - Chief Financial Officer, Member of the Management Board Banking, Member of the Executive Board Then, Kiri, on the deposit campaign in Belgium, it's coming due more at the latter end of this year. But I think we are taking efforts in terms of cross-selling the customer with current account payment, investment accounts. Those are actions that we are taking already, and we do expect that the term deposits, when they come due, to move to -- partly to different price points as term deposit and partly into normal savings accounts.

Question: Chris Hallam - Goldman Sachs - Analyst : Just two questions from me. Another one on deposits. You are guiding for liability and lending growth of 4% this year. I just wonder how that splits between loans and deposits. Is it 4% for both? And then within deposits, how much of the growth is sort of predictable growth in quarter for deposits versus specific campaigns? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 06, 2025 / 8:00AM, INGA.AS - Q4 2024 ING Groep NV Earnings Call And then the second is just a follow up on Giulia's question earlier on cost. Tanate, I think you said no change to the 3% to 4% cost CAGR that you gave us last June, but that there's a bit more inflation that's sort of harder to shake off. Should we infer from that at the margin that there are some efficiency projects you may be needing to push a bit harder on? So just sort of trying to get a sense, if I look underneath the surface, how is the mix of expenses, growth and efficiencies changing, I mean if at all over the next couple of years? Steven Van Rijswijk - ING Groep NV - Chairman of the Executive Board and the Management Board Banking, Chief Executive Officer I'll take the question on deposits and Tanate will take it on the cost side for '25. So on deposits, we are indeed targeting both customer balances -- sorry, customer balances to grow. That is both for deposits 4% and lending 4%. That's also the basis of the outlook on the slide 20. And yes, I mean like you have seen over 2024, we have been able to grow our deposits there with EUR47 billion and lending with EUR28 billion. So there was 6% in total. But as part of it, you've seen also the number of primary clients going up with 1.1%. And that, of course, is very helpful because those are customers that do a lot more with the bank, including more -- putting more deposits in there. So customer growth helps deposit growth and in turn lending growth. Another thing to say with that is that a few years ago, and we now also embarked, so only in the course of '23, we started with that, but you see it coming through in 2024 as also. On the Wholesale Banking side, we have been able to increase deposits, which was in the past not so much of strain but has increasingly become one. So now we have two levers to pull from when we talk about our deposit strategy. But in short, 4% on both sides of the equation. Tanate? Tanate Phutrakul - ING Groep NV - Chief Financial Officer, Member of the Management Board Banking, Member of the Executive Board Then I think to, Chris, on the inflation or collective labor agreement, the elevation that I talked about is for 2025, and we expect that to be more subdued in '26 and '27. And I think we gave a bit of a better insights on how we would achieve those savings target, which indeed we're looking for opportunity to enhance that on Page 23 where we already see signs that we are able to scale our operation and take out FTEs from many of our areas like in the call centers, in KYC processes and in part of our tech operations.

Question: Anke Reingen - RBC Capital Markets - Analyst : The first is on the cost income ratio. I think at the Capital Markets Day, you talked about 54% to 55% over the years '25 and '26, and I was wondering if you think that's the achievable especially in 2025 and then I guess '26 as well, and how it would drop down into the '27 target. And then a small question on RWA growth. Are you still planning on around 4% RWA growth or could that be coming in lower considering the SRT while lending growth is at the 4%? Steven Van Rijswijk - ING Groep NV - Chairman of the Executive Board and the Management Board Banking, Chief Executive Officer I'll give the question on the cost income to Tanate. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 06, 2025 / 8:00AM, INGA.AS - Q4 2024 ING Groep NV Earnings Call Tanate Phutrakul - ING Groep NV - Chief Financial Officer, Member of the Management Board Banking, Member of the Executive Board I think in terms of cost income ratio, you see in the outlook that was given by Steven that we expect by 2027, we would get to between 54% to 52% cost income ratio. And if you work the math through for 2025 based on our revenue guidance and cost guidance, you'll see that our cost income ratio is expected to be below 56% for 2025. Steven Van Rijswijk - ING Groep NV - Chairman of the Executive Board and the Management Board Banking, Chief Executive Officer On the RWA growth, yes, that of course the growth in RWA as such depends on where is the growth coming from. What we do see is that the growth is coming from Retail Banking more than from Wholesale Banking, given the fact that there's a lot of mortgage demand currently out there because there are shortage in houses and therefore the number of dwellings sold out is expected to grow in the main markets in mortgages in which we are active. And as you know, approximately 50% of our loan book CC mortgages. So as a result of that, we would expect in the current market circumstance to that RWA growth before mitigating action such as SRT is a bit lower than the loan growth that we show.

Question: Benjamin Goy - Deutsche Bank - Analyst : Maybe one more on cost to income and the cost measures. You obviously announced more measures, but flat revenues and cost up higher is not ideal every year. So I was wondering what needs to change to be more drastic and be more significant efficiencies? And then secondly when I look at your three key markets or largest markets, Netherlands, Belgium, Germany, everywhere corporate defaults are taking up almost every quarter, but we don't see it in the numbers. Maybe you can explain why you are simply better positioned in those markets in terms of the quality. Steven Van Rijswijk - ING Groep NV - Chairman of the Executive Board and the Management Board Banking, Chief Executive Officer Sorry, can you repeat the second question, Ben, because it was a bit garbled? So can you repeat that please?

Question: Marta Sanchez Romero - Citi - Analyst : It was great to see the exit from Russia. So does it mean that management is looking at the footprint more closely and that we should expect more actions this year to address those markets where you have a suboptimal presence? Steven Van Rijswijk - ING Groep NV - Chairman of the Executive Board and the Management Board Banking, Chief Executive Officer Well, look, the Russia situation, of course, is a specific one. I don't need to explain that I believe. But we have said already a couple of years ago that we did not see ourselves a future in Russia. And that's what we have taken action on by decreasing our loan book, localizing our operations and when sufficiently ready, starting to start a sale process for those local operations. So that's part of that, given the war that started in 2022. Other than that, we are always looking at how to optimize our operations and make sure that we get sufficient return for different business lines that we have. In that regards, you've seen a couple of years ago that we have started to take -- we took actions on a number of markets including the Czech Republic, Austria and France, especially on retail because retail in the current construct still is more local in nature than wholesale obviously. That means that local skills are important. And on the flip side, a few years ago, we said now we want to diversify in these markets to realize local skill. But continuously we are evaluating the businesses and if they do not provide the right return long term, then we will review them.