Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- ING Groep NV (ING, Financial) reported strong commercial performance in Q2 2024, with an increase in the number of customers in lending and deposits.
- The number of mobile primary customers increased by almost 250,000 in Q2, contributing to a total growth of over 900,000 customers in the last 12 months.
- Net interest income remained resilient, with an increase compared to the previous quarter, despite the negative impact of higher accounting asymmetry.
- Fee income was close to EUR 1 billion for the quarter, driven by structural increases and strong performance in retail banking.
- ING Groep NV (ING) announced an interim dividend of EUR 0.35 per share, bringing the year-to-date yield to over 13%.
Negative Points
- Risk costs increased to EUR 300 million in Q2, or 18 basis points of average customer lending, reflecting the quality of the loan book.
- The overall net interest margin decreased by 3 basis points due to the impact of increased accounting asymmetry.
- Total expenses in the first half of the year increased by roughly 3% compared to the first six months of 2023, driven by inflation and higher VAT costs.
- The CET1 ratio decreased due to the ongoing share buyback, although it remains at a healthy level.
- Growth in wholesale banking lending was offset by loan sales, impacting the overall lending growth figures.
Q & A Highlights
Q: Can you provide more details on the net interest income (NII) outlook, particularly for lending and liability NII?
A: We are quite positive about the NII outlook. Lending volumes, especially in mortgages, are strong, with market share gains in the Netherlands and gradual recovery in Belgium and Germany. Wholesale banking also shows growth, though offset by loan sales. We had about EUR2 billion in loan sales this quarter. For liability NII, we expect the margin to remain resilient, supported by higher volumes and a favorable deposit mix.
Q: Can you elaborate on the EUR6.5 billion temporary increase in risk-weighted assets (RWA) and how you plan to offset it?
A: The temporary increase in RWA is primarily due to model updates in the low default portfolio in wholesale banking. We expect most of this to be reversed by year-end through various mitigating actions, including risk transfers, insurance policies, and derivatives hedging. This temporary increase has no impact on our capital outlook.
Q: How are you managing deposit pricing in your main Eurozone retail markets, and what are the competitive dynamics?
A: Deposit pricing varies by country. In the Netherlands, the base deposit rate is relatively high, while Belgium uses loyalty premiums, and Germany employs marketing actions. We balance customer growth with profitable deposit gathering, adjusting strategies based on market conditions and competitive dynamics.
Q: Can you provide more color on the strong fee income performance, particularly in insurance?
A: The strong fee income is driven by increased customer acquisition and engagement. We have seen growth in investment accounts and insurance products, supported by specific agreements with insurance providers. Additionally, favorable market conditions have led to higher mortgage brokerage fees.
Q: What is your approach to managing costs in light of high inflation and wage increases?
A: We expect cost increases to remain sticky in the short term due to wage inflation and collective labor agreements. However, we continue to optimize costs through restructuring and efficiency measures. Our long-term guidance remains to achieve a cost-to-income ratio of around 54% by 2027.
Q: How do you view the evolution of risk costs and the use of overlays?
A: Risk costs were EUR300 million this quarter, or 18 basis points of average customer lending. Overlays are used when our models cannot fully capture risks. This quarter, we had an additional EUR39 million in risk costs related to Russia. We will continue to use overlays as needed to manage risk costs.
Q: Can you explain the dynamics of current account growth and its impact on deposit margins?
A: Current account growth is driven by new customer acquisition and seasonal factors like holiday allowances. We also had a campaign in Italy this quarter. The stabilization of current accounts positively impacts deposit margins, and we expect continued growth in transaction fees during the holiday period.
Q: How do you plan to manage deposit pricing in a potential rate-cutting cycle?
A: We will remain nimble in our approach to deposit pricing, balancing customer growth with profitability. Our strategy will depend on market conditions and competitive dynamics, and we will adjust rates as needed to optimize our balance sheet and customer base.
Q: What are the key drivers behind your strong loan volume growth and market share gains?
A: Our strong loan volume growth is driven by a focus on customer experience, particularly in digital channels. We have streamlined processes for quicker approvals and disbursements, which has helped us gain market share in mortgages and other lending products.
Q: Can you provide more details on the impact of model updates on RWA and the associated costs of mitigating actions?
A: The model updates primarily affected the low default portfolio in wholesale banking. We use various risk transfer mechanisms to manage RWA, and we expect the impact on revenue to be minor. The costs of these mitigating actions are factored into our overall risk management strategy.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
