ING Groep N.V. (INGA) Earnings Call Transcript & Summary

Good morning, everyone. Thank you for being with us today. I'm pleased to be joined by Tanate Phutrakul. Thank you, Tanate, for being with us. And I have many questions for you, but let me ask a question to the audience first. So what do you think is the main driver of ING share price over the next 12 months? NII, costs on the lower end of the guidance, which is 12.5% to 12.7%, asset quality continuing benign, continued capital distribution via buybacks or capital reallocation towards M&A? Okay. We are going to get to NII.

Really? Yes. Okay.

Yes. You weren't expecting those questions, right? But I want to start with M&A, in fact.

Okay.

So what are the key criteria that ING would consider if you go for an M&A transaction?

Yes. Thanks, Giulia, for that question. I think, first of all, our key strategy for growth is organic, right? We have been setting ourselves a target to grow our customer base by 1 million customers per year. We're looking for balanced growth, both lending and deposits by 4%, and that's our go-to strategy, fee income growth. We came out of 2024 with a lot of organic momentum, and that's our go-to strategy. But having said that, I think the way we also look at it is that if there's an opportunity to accelerate our organic growth, if it's something which is ROE-accretive and it's something that makes us less interest rate-dependent, that's something that we certainly will look at. And those would be kind of the main criteria as we would look at in terms of acquisition. We made a small acquisition of a stake just announced a few weeks ago in a private bank in the Netherlands. So that's a bit within that theme.

So if I can just follow-up on that, what would it take for you to buy the whole Van Lanschot, not just a stake?

Well, at the moment, it's only a long-term financial stake. We are supportive of management, and we're happy where things are with the current time.

Got it. And just to round off the questions on this topic. Through the years, you have done some disposals, right?

Yes.

Do you see more coming there?

Well, what I think we have done in the past few years is that we have analyzed, particularly the retail banking franchise. We looked at where scale doesn't really exist, and we have exited from those markets. For example, we exited from retail banking in the Philippines, in France, in Czech Republic, to name but a few. And I think we have optimized our franchise. So we don't have any major plans to optimize further our network. We did announce plan that we have entered into a sale purchase agreement to sell our Russian business. And we have already indicated that we don't see a future for ING in Russia, and this is an execution of that optimization.

Very clear. So let's get into NII then.

Yes.

With the -- in the Q4 results, you announced that you had already cut deposits for an equivalent of about EUR 600 million of NII.

Yes.

Have there been further cuts since then?

Yes. So I think with our first quarter -- sorry, Q4 results announcement, we have indicated that we have cut materially a number of our deposit rates in a number of our major markets. We have further cut since our announcement a further rate cut in Belgium. I think the only remaining major market we haven't cut rates is the Netherlands, right? But, of course, we're thinking what is the right balance between maintaining balanced growth, net interest margin and keeping in touch with competitors. But yes, the Netherlands deposit rate is a material decision for us to make.

Yes. Very clear. And -- but in the meantime, since Germany has announced the most recent stimulus, forward rates have increased.

Yes.

So how does that impact your 100 basis points deposit margin guidance for '25?

Yes. So this is quite a recent development, right, a few weeks old. I have to say when we did our Q4 results, I think a number of analysts and a number of investors were asking me, Tanate, can you simulate rates going to 1%, can you simulate -- can ING survive at 0% interest rate to what we see now, right? So it's quite a dramatic shift in tone. I think we need to wait a little bit to see how things settle down, right? But having said that, I think if the current rates were to remain where they are, I think we would benefit in 2 parts. We benefit because the forward curve is much more positive, right, which means our longer-term replication is more accretive. And then also the short-term rates have also seems to plateau, right? That we were talking about rates going to 1.75%, 1.50% in the short end, but now the talk is much more above 2%. So both of these is accretive. I don't think that it gives me a certain cause to say we need to revise our guidance, but it certainly makes me more confident that whatever guidance we give, the execution certainty has increased fairly significantly.

Perfect. And if I can ask you about deposit campaigns?

Yes.

You do quite a few. You recently did -- well, in Q4, you did one in Germany. And sometimes investors are confused because they see the day 1 impact, I think for Germany it was like EUR 50 million.

Yes.

And what can you share with us in terms of the metrics that make this campaign appealing for you, payback time or any economics?

Yes. Well, I think there's 2 flavors to deposit campaigns, the campaigns that we do to attract fresh deposit money, right? And the payback period for that kind of fresh money campaign, of which we just completed one in Germany, is between 12 to 18 months, right, in terms of raising the money, seeing how much remains sticky, see how much flows into term deposits, flow into investment funds. So those kind of campaign has a fairly short cycle of returns, sometimes accretive already in 12, but at the longer end, depending on assumptions and behavior, 18 months. We then also do what we call payment accounts campaign. This is to attract new primary customers to our bank. And those campaigns have a little bit longer payment -- payback period, between 2 to 3 years, right? But that's really building the primary customer base for the future. But the fact that we do it almost every year, twice a year in Germany, means that it is working for us, right, that we analyze the assumptions of every campaign. We look at where the money flows from. We look how much flows into our core deposits. So this is a very analytical, very data-driven process that we go through.

Clear. And if I can ask one more on this important topic of NII growth, loan growth and deposit growth, I mean, balances in general. So the CMD has a 3% to 4% target. What do you see the best prospects from growth?

It's more -- what I see is continuation of momentum in the retail bank, right, particularly on mortgage growth that we see good growth coming out of Q4 that continues into the first quarter of this year. And what I like is that the growth in mortgages, I don't see in one particular market. It's across multiple markets, right? So I think the trend line is strong. I think given what the German government has announced, I think it gives consumer even more confidence, right, that there's economic growth. So I think that would bode well for both consumer lending growth as well as mortgage growth, okay? Where we have seen more of a mixed picture is really in the wholesale bank, where I think we have seen a good buildup in terms of deals in pipeline. So customers who would like to do an acquisition, do an investment in infrastructure major programs. But I think for the first period of this year with all the talks about tariff, counter tariff and all that, I think it's a question of how much of that wholesale pipeline gets converted into actual loan growth. So that will be a potential upside that we could see with what is announced by the German government.

Understood. But you would say that year-to-date, you are tracking in line with the 3% to 4% ambition?

Well, I don't want to give Q1 guidance, but I would say that the momentum we saw in Q4 continues to flow through in Q1.

Clear. So if I move on to SRTs. The ECB seems very supportive of this. And ING is one of the few banks that has done almost nothing in this space. But I understand, correct me if I'm wrong, that you are setting up a program to potentially do more SRTs in the future. So how long does it take to set up such program? And what is the potential?

Yes. I think we have been a bit more prudent and conservative with respect to using SRTs, but it's something that we plan to do this year. We already have within our toolbox different other types of capital management initiatives in the wholesale bank, whether it's through actual loan sales, securitization, usage of insurance to ensure our portfolio. And this is one further step that we take to complete our roster of tools that we would use to keep risk-weighted assets in the wholesale bank modest, right, the growth modest. And we're in the process of working on some fairly sizable SRT this year, and we expect those deals to close in the second half of 2025.

Fairly sizable?

Yes. Maybe I'll stick with that.

Right. And -- but if I can follow up, so we had a document yesterday from the Commission on the Savings and Investment Union. And part of this is mobilizing savings, but part is also securitization. And do you see that to be additive so to help even more than what the current framework already allows you to do or not? What are your views there?

Yes. I suppose the question is, is capital markets union and banking union good for the banking system? I would say, yes, right? I'm still more conservative how fast capital markets union will bring in terms of actual P&L impact in the short-term, right? But it's all heading in the right direction. So we're supportive of these initiatives. And I think looking at our plans, one of the big initiatives we have is to convert our savings clients into investment clients, and those investment clients to invest in securities, which are capital markets-driven, right? So that theme plays well. Banking union is less talked about, but I see also, hopefully, given this new momentum that we would actually be allowed to see more momentum around banking union as well, right? One example we give is that we have subsidiaries in Belgium and Germany. But the flows of liquidity and capital among our own 100% subsidiaries are still limited by constraints on regulation. So any small steps in that direction to allow banking group like ING to actually move liquidity and capital among our own 100% owned subsidiary will already be a great help in terms of optimizing our balance sheet.

Yes. If I can follow-up to that, I was surprised that in the document yesterday, there was a mention of banking union, and specifically EDIS, the European Deposit Insurance Scheme. I basically thought that was not happening, and it was rather the capital markets union piece. So are you slightly more encouraged even on the banking union front? Do you think that there is a chance there?

Yes. I'm more optimistic by the tone and the reception of people within the regulatory stakeholders who are willing to consider both capital markets union and banking union.

Okay. And when I look at different banks in Europe, I think ING is precisely, as you said, the subsidiaries issue in Germany and Belgium. It would really benefit you. Have you ever quantified it?

We have. We don't disclose what it is. But I think you can imagine that we have certain balance sheet, which is asset-driven, like our Belgium balance sheet is more asset-driven, meaning we have more assets and liability. Our loan-to-deposit ratio is on the high side. We have our German bank, which is more liability-driven, right, where we have more deposits than loans, right? So to be able to optimize that would be quite a good optimization of our balance sheet.

Clear. And my last follow-up on this regulatory discussion on the savings and investments union, it will be nice if Europe managed to move some savings into investments. But -- and I think the Netherlands is actually a great example in terms of different assets, these occupational pension plans. Do you feel in your geographies that there will be material incentives to households to do that? I mean, in my view, it needs to be tax incentives, for example.

It's too early to tell, Giulia. But I think if the Capital Markets Union gets traction, if there's more securitization being done by the financial system, surely, that bodes well for funds that would invest in this and that there will be a flow of savings into these funds.

Perfect. So let's go back then to the fees now. We have discussed NII. We've discussed capital. So ING target EUR 5 billion by '27, and '24 you printed EUR 4 billion. So perhaps can you remind us of the key initiatives that are going to get you from EUR 4 billion to EUR 5 billion?

Well, first of all, I think we were extremely proud of making EUR 4 billion in fees in 2024. It's a record high for us in terms of franchise, right? It grew by almost 11%, 12% growth, right, which is pretty high historically speaking and what I think are the major biggest driver of that fee growth, which is why we talked about primary customer growth, right? Because primary customer deposit with us have payment accounts with us, buy insurance with us, have investment account with us. So that's why we target first around 1 million primary mobile customer growth. And if you want to track ING and look at what is the leading indicator of our fee growth is that primary customer growth, right, which is bringing in the intensity of fees. The second thing that you look at is really in the 3 buckets. One is daily banking fees, right? So fees that you have for customers to operate their payment accounts. And those fees have grown quite significantly over time and that we see room that we can increase those fees further. And we have announced certain fee growth already in a number of markets we operate in, in particular, the Netherlands and Germany, for example. So daily banking fees is a big proportion. The second big pillar for us is really investment fees, right? These are fees related to trading, related to mutual fund sales. These fees are today around EUR 1 billion. So out of that EUR 4 billion, around EUR 1 billion is these investment fees. We have focus on what we call Alpha, is what we can do as management to drive those fees. And also last year, we were helped by the Beta, the market actually grew, right, in terms of asset under management, which helped fees in a number of markets and the trading volumes. So that's a big bucket. But I think what we track is the number of our customers. We have roughly 40 million active customers, of which around 4.5 million have an investment account with that. So we keep tracking. We keep trying to increase the proportion of our customer who have an active investment account with us. So that would be a second aspect. And then third aspect is loan origination fees, in particular, origination, debt capital markets, wholesale banking fees. These will be the 3 legs. And we're confident with our guidance of 5% to 10% growth and that's why we want to achieve a further growth of EUR 1 billion over the next 3 years.

So let me move on to costs now.

Yes.

Perhaps the market was taken a little bit by surprise with Q4 with the new guidance, 12.5% to 12.7%. So what came in worse than what you had expected versus the Capital Markets Day, first? And then looking forward, you have a 3% to 4% growth range beyond '25, which is when you have already guided. Given the new environment, higher rates, but perhaps higher inflation as well, should we assume ING lands on the high end of this range?

Yes. Well, I think we gave 2 guidance. We gave a guidance for 2024 cost number of around EUR 12 billion, which we met. We also gave guidance for 2027 of 3% to 4%, right, which we commit to continuing to target that level. But I think what we have also given more clarification is the step in between, right, which is a 2025 number. What we do see is that in '25, 2 things happened. We think that the market momentum is there for us to invest more in client acquisition and that there's opportunities to invest to improve our platform in terms of developing segments that we are targeting, right, mass affluent, private banking, certain aspect of the wholesale bank capabilities. So those are areas of investment, which we expect to bear fruit over the coming period. But our investment in our franchise comes in higher than perhaps the market expect. That would be one. The second one is also the fact that wage inflation has remained a bit more sticky than we had anticipated. So that drives the explanation around the investments that we made. But we're on track to deliver the scalability that we have in our franchise, and that's why we guided the market that we would invest somewhere around 3% extra in 2025 with approximately 2% of that compensated by savings.

Clear. Before I ask more questions, let me see if the audience has any questions. Okay. I will ask you one on artificial intelligence.

Yes.

There is a lot of hype over artificial intelligence. Can you give us if you have some examples and some use cases on how you're leveraging this for ING?

Yes. So I think there's a distinction that you need to make around AI and Generative AI, right? That AI, I think most banks, including ING have deployed for quite a number of years, right? And what is new for us is the use of Generative AI. And what I think we have already deployed in our activities are things related to, for example, using Generative AI in our chatbot, right? That 60% of our replies are now actively involving Generative AI, for example, okay? We also use Generative AI to help with our coders who are programming, right? This is also done within a fairly controlled risk framework. So Generative AI is also used in terms of coding as well. And the third area that we use quite significantly is really using Generative AI in terms of the processes around anti-money laundering, customer due diligence, right, that these files, when we do a customer due diligence, you can prepare the files faster by having Generative AI forming the files, which our analysts use to basically do the CDD for clients. So it is something that is evolving, and it's baked into our plans that the use of this technology drives the scalability that I talked about already.

And when you compare ING versus other banks, how do you feel you are on AI?

It's hard to say. I think I'm quite pleased with the progress that we make, right? You know us as a house tend to be quite prudent in terms of initiating new technology, but at the same time, quite innovative in terms of our ability and our deployment of such technologies. So I think we are certainly on the spectrum of somebody who is wait and see and somebody who is scaling. I think we are in the -- certainly in the camp of people who are willing to scale Generative AI tools.

I'm going to ask you one on private credit. That's another hot topic.

Yes.

Maybe more in the U.S., but in Europe, it is also growing. Do you see that as a threat to ING in the wholesale bank space? Or perhaps is it an opportunity if you can offload some of your book?

It's a combination, right? I think private credit finance is maybe half the financial assets of the world these days. And I think that we also feel that they're both parties that we do business with and at the same time, to a certain degree, compete with. But I think in terms of ING, we tended to finance really high investment-grade credit, highly collateralized credit. So the level of competition we see with private credit is more limited in that space, where they tend to operate in a much more higher credit risk space than we're used to. So we don't see so much cannibalization, but we do see it as both an opportunity and competition at the same time.

On the opportunity side, some banks have announced some partnerships.

Yes.

Do you have something similar?

No, we don't have any plans for partnerships. We work with them as clients, and we work with them on a transactional basis, but not as like a partnership or joint venture. We don't do that.

Understood. Let me check if we have any questions from the audience? I think I see one there. [ Aadya ], yes.

I have 2 questions. The first is on ESG and whether you are ready to lend more on the defense space given this is -- you are one of the strongest banks in terms of ESG topics. And the second is the political tone in Netherlands' surrounding banks. It seems that now Dutch politics are changing their stance, and whether it is changing something for you.

Yes. Thank you for that question. So 2 questions. I think in terms of ESG, we commit to our stated goals, particularly on sustainability, right? So our financing, for example, we don't shape our stance in terms of moving away from upstream oil and gas. Those actions, those continued mobilization of our funds away from carbon-intense industry into sustainable industry remains unchanged. But at the same time, I also want to address that we are willing and more than happy to take a forward step in terms of financing the defense industry as well. We have our ESR policy to make sure that what we finance is responsible. But within that context, we're open to finance defense initiative to safeguard European security. So that's to address your first question. The second question is around the political stance in the Netherlands. I think we see more recognition about the role and the important role of financial institutions to finance the economy. So we do see a couple of developments, more -- or actually less talks about bank taxes, right? That seems to have come off the agenda to impose further bank taxes on banks in the Netherlands. So that's a good development. And the second development, there's a debate in the Netherlands about becoming much more risk-based around customer due diligence, anti-money laundering requirements. And if you're more risk-based, you can actually optimize your processes more, deploy more Generative AI tools to basically do customer due diligence and transaction monitoring. And both of that, I think, bodes well for further optimization of our cost base.

Do we have other questions? Okay. And Chase is entering Germany. And what disruption do you think they can cause to the market and to ING specifically?

Well, Chase is not the only one entering. There's been multiple, numerous neobanks who have entered the market, right? And they are just one of the many big players that will come through. But I want to say that to build a sustainable bank in any market, you have to have a multiproduct strategy, right? And it takes years to build that capabilities. I give you a sense in Germany, if you go back 10 years ago, ING was only a savings bank, right? We started with savings products. And after we stabilized our savings product and scaled our savings product, we said we need to deploy that capital beyond investing in government treasury. So we started a fairly sizable mortgage book, okay? So that suddenly gives balance to the market. After we had those 2 pillars, we said we need to do consumer loans, so we started consumer loans. We say we needed to be a complete bank. So we started payment accounts for our customer. We say, well, we want more fees, so we wanted to have investment products, right? So you build a more complex environment, right? And that's what I truly believe that differentiate ING from the classical branch-based banks and the neobanks is to have a complete universal bank, but in a digital manner with a multiproduct set, right? And I'm sure Chase, along with Revolut and others, will go through the same process of trying to build out a franchise, right? And it takes time, it takes expertise to build out this multifaceted bank, right, rather than simply offering a savings account, which I think through our experience, you can't survive through every cycle on a mono product basis. You need a multifaceted balance sheet to do that.

Very clear. And I actually wanted to follow-up to the question that [ Aadya ] asked. On defense, in my understanding, the Netherlands is going to 1.9% to 3.5% of GDP spending, which is roughly, I think, EUR 20 billion, close to, additional. And does that create an opportunity for ING or not?

Certainly, right? We are one of the 3 banks in the Netherlands. We are very active in the wholesale banking space. We are -- as you say, we are responsive to the need for European security. So if there's investments, whether in the Netherlands, in Germany, in France, our Wholesale Banking franchise is standing ready to participate in these investments.

But are you already seeing demand? Are there conversations or not yet?

No. Well, it's been about 2 weeks, right? So...

Just checking.

I think we stand ready, right? In the past, we have not invested much in defense as a portfolio because there wasn't really a big demand for investments in Europe until recently.

Very clear. Let me see if there are any final questions from the audience. Last chance. No? Okay. Tanate, thank you very much, and thank you, everyone, for listening.

Thank you very much.