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

Yes, we have seen a strong growth. If you look at it over the past years or since the Capital Markets Day, we've had a compound average growth rate of 7% on loans and 6% on deposits. That is above the 5% that we have indicated. But for us, again, we would like to continue growing where it generates profitability and where we also see that it's long term driving the customer value proposition. And then longer term, we have maintained our outlook of having a balanced growth between lending and deposits of around 5%. It will, of course, also depend on the macro and the underlying growth in the markets where we operate. But again, profitability and a long-term trajectory around 5% is where we believe that we could also continue to add value in terms of shareholder value going forward. But if we continue to see that we, with a higher efficiency, increased kind of time to yes, which is an important feature here as well, we are able to grow more than the market or grow more than 5%, then we would happily do so if it brings profitability.

That makes sense. And then just moving a bit along in terms of capital allocation and focusing on the wholesale bank a little bit. So at the last Capital Markets Day in 2024, ING spoke about 55% of RWAs in retail, 45% in Wholesale Banking. In the second quarter, that's already been surpassed. So how do you think about the allocation of capital now? And are you on track to improve the profitability in the wholesale bank?

To the latter question, yes, absolutely. In the sense that you look at, as I mentioned initially, we continue to see a strong loan growth in the wholesale banking side, but at cap risk-weighted assets almost, that's also due to the fact that we're now doing SRTs to a larger degree than what we have done before, started in November last year, did another SRT in the second quarter and expect to continue doing SRT to optimize the capital position. And that also means that we need to not only optimize the capital position in wholesale banking, but to a larger degree turn that capital around and really work with originate and distribute and further cross-sell beyond lending, which is a untapped potential in wholesale banking, which Liliana, our new Head of Wholesale Banking, is really focusing on and is developing in terms of continued skill set among our corporate bankers on the wholesale banking side. I see very promising development in terms of number of payments and cash management mandates being one, that should also continue to grow deposits on wholesale banking in addition to continuing using SRT as the way of optimizing the capital position and originate and distribute. And then we will continue to kind of prioritize growth on the retail side on -- in particular, if you look at mortgage lens, which is continuing to be profitable in most of the markets where we operate, but also bringing added value in terms of deposits, further cross-sell potential in their fee-related areas where we've seen a good growth historically.

That's perfect. And then just thinking about capital allocation in another way. So in terms of M&A, and I know that's another debate topic for ING. But Steven earlier at a conference this month spoke about M&A and especially related to Germany and on the insurance and investment side. So what makes ING attracted to this subcategory. And then can you just, in general, remind us of the attributes of a specific M&A target, which would be likable for ING?

First, I would say, ING has a unique position to grow organically. We have 41 million retail customers, of which only 16 million are mobile primary customer, just to potential to cross-sell even further with that customer base organically in the markets where we operate today and through continuing to drive fee income, I would say, is unprecedented in terms of looking at our peers. That is 1 area. And what we've said in terms of M&A is that we would look at areas to make acquisitions where it would either add to our organic growth story or where we are adding capabilities and product capabilities or competence in, say, private banking and wealth management, where we have a weaker proposition today or footprint than otherwise. But I think it's just so important for me to reiterate we have an enormous potential on the organic growth side, and it's important for us not to derail focus from that and investments into that by looking at kind of broadening M&A. M&A requires quite a bit of management attention to make it successful. And that's why we have very high hurdles of what we are doing, and what we're looking at as well, and we'll continue to do so. But if you look at more importantly, where we have done acquisitions lately, if you look at Singular, for instance, which was the latest one, which was a stake in a company that we strongly believe in, in the market being Spain, where we don't have a footprint or a position on the banking side or on the asset management side. We want to continue to grow organically by increasing or establishing ourselves on the private banking side in Spain. But at the same time, through the position that we now have and the stake that we have in Singular, it gives us a unique proposition or capability to also learn and gain part of a market that we would have quite difficulties, I would argue, growing organically. And then it's also an ability for us, a proposition for us to move from the stake that we have today to full ownership. But there, we also need to ensure when you acquire a company, that is not only a portfolio, but you're actually acquiring people and competence. We want to do it together in partnership with the management. The management is very positive in terms of the stake that we've taken now clear that this is a partnership and with the potential to increase that ownership to 100% further down the line. But again, we want to ensure that both the customers want to be part of this journey and also management want to be part of this journey. And there, I think Singular is a really good example of how we would like to do that and approach it going forward.

Indeed. And that brings me very well on to the next question, which is about the stakes ING has. So we saw in August ING reduced its stake in TTB once again. Just firstly, what's the rationale for this? And how do you think about the other stakes you have such as CLK and Bank of Beijing?

I would split Bank of Beijing and TTB in 1 bucket and BLK and Singular in another bucket in the sense that Back of Beijing and TTB were acquisitions that we did a number of years ago where we had a completely different international scope, a different strategy. There, you now also see that we are taking actions to reduce those stakes in order to also reallocate capital and reallocate in order to free up capital, but also in investments to other things or in terms of bringing shareholder value long term. That's why you're now saying in June, we reduced our stake in TTB, continued to do so in August. And this is a part of a longer-term strategy of reducing those areas where we're not having a strategic stake and where we also see potential to do it profitably in a way that, that also supports shareholder value long term. When looking at BLK and Singular, I've already talked about Singular, but BLK is an interesting investment for us. I would also say, if you look at the numbers, it's adding to our shareholder value proposition. And it also brings added value to ING in the sense that this is a different type of private banking setup than what we have in-house, and it's -- in a way it creates internal competition. but it also shows us that it brings added value long term to shareholders.

That makes sense. Does anyone in the audience have any questions? Okay. I'll keep asking them then. Just switching gears a bit and looking at ING's FTEs. So earlier this year, ING announced a reduction in 1,250 operational roles. And just in the last quarter, we've seen group FTEs decline a bit quarter-on-quarter. So firstly, how is the reduction in the 1,250 roles going? And how do you see FTEs progressing?

Well, the 1,250 FTEs are well underway. And for us, it's important to do this in a structured way and also in a responsible way towards our employees and ensure that everyone also understand what is that we're doing and why are we doing it? It's linked to increased efficiency in our processes, continued straight-through processes, continued focused on using digital and automated processes internally. And of course, AI is a very clear indication here or a use case, a clear example of how the use cases that we're putting in production are actually showing also in terms of our numbers. Here, we're seeing that using AI, in particular, on KYC and in the onboarding process and then related to AML process overall, has continued potential, but this is a clear indication of how we're using it and how it's also standard senior processes globally for ING. That's why scale is so important for us and reinsures how we can use a scalable mindset in our way of working across the board using our hubs to a larger degree than what we have done before and really streamline those prices. I think that there is more to do by using AI going forward to also achieve efficiencies, but also in further automation and further standardization across the group, where we come from a situation where ING Direct had quite local setup in different geographies. We are now moving it more in terms of how can we think of global platforms in the sense that how we operate, not necessarily talking about the tech stack, but more importance of how we operate and how we meet our customers on how we handle the more operational tasks where there is more potential also going forward.

So, I think you have a question.

[indiscernible]

I'll repeat the question, perhaps if people in the audience didn't hear it. Are we seeing a trend or a tendency from the regulators to easen up in terms of capital requirements in Europe, similar to what we've seen in the U.S. and more importantly in terms of the Dutch regulations. We are ECB regulated. So for us, the regulation coming through ECB is the main driver for us. And then, of course, you have the local supervision from DNB in the Netherlands that is added to that. Overall, I would say we are seeing trends of simplification from Europe as a response also to what we're seeing in the U.S. On the other hand, I would say that I believe that the communication from ECB has been quite clear that it's not -- we're not talking about easening capital requirements necessarily, but we're talking about the simplification, standardization of the processes. How they, in terms of reporting requirements from banks in terms of also simplifying the -- what we told the SREP process, SREP process, which is now significantly simplified in the sense that it's less pages, less folks in terms of the micro level and more at the macro level. These are very important steps for us. It reduces the burden internally, and it also makes us more risk base, which I think is the most important thing for banks overall that we continue operating in a risk-based approach. We see more standardization between the local regulators, not only in terms of the Dutch regulator in ECB, but as we operate across the board in a lot of different jurisdictions, I think simplification, standardization and a more harmonized regulatory environment is important for us. And that's why we are also advocating that quite strongly in our dialogue with ECB, but also with local regulators. I don't expect to see capital easening in Europe in a broad-based effective. That's why we need to continue working with capital optimization tools, how do we think about using our capital in a smarter way, how can we also think more smarter in terms of where we operate and how we allocate capital. And that's going to be -- continue to be the feature for us, level playing field is the most important thing rather than thinking about how we optimize kind of in a macro level. It's more the level playing field, both in terms of U.S. banks operating in Europe but also across the European countries to see more harmonization, less local deviations compared to the overall European standards. And that's where we also put the most focus from our perspective.

Thank you. Does anyone else have any other questions?

[indiscernible]

I think there is significant opportunity. If I take AI, we haven't talked about that. But if I look at AI in 3 different dimensions at least. But first of all, I would say we use AI to ensure that our staff, our 60,000 employees continue to be highly relevant and highly skilled in terms of using AI to a larger degree across the board. The second part is where can we make the more manual processes more efficient and less time consuming, but also in terms of reducing the number of employees. That's where we see a good development on AML, I would say, AML related tasks we're already now seeing a significant reduction in number of people working with AML related or KYC-related task driven by AI. There, there is a significant potential, I would argue also going forward. When you continue looking at the end-to-end processes rather than just adding AI to an existing manual human-built process, if you managed to really redesign the process end to end and that goes beyond AML, that's where you will see the largest potential, but also the quality enhancer in terms of using AI to a larger degree. And then the third element is where you see increased productivity or increased potential in terms of income generation, there, if you look at the identic mortgage where we use generative AI in terms of identic mortgages in the Netherlands, where we are seeing a massive improvement in terms of time to yes, not necessarily that it's reducing costs from our perspective, but it's enhancing the quality of the process and it's reducing time to yes, in a market where we are digital first, where the market overall and our customers are highly digital and our competitors are highly digital time to yes just becomes even more important. And that's where we see a great potential also to look beyond cost efficiencies and then looking at where can we also add more income potential and also make us even more competitive going forward. So short answer to your question, yes, there is more potential using AI in some of the manual back-end operational task that we're still doing, but not only in terms of reducing -- I'm not targeting reducing full-time employees. I'm targeting how we can using -- how can we use AI in a way that it frees up time our employees to focus on customer value, adding services more than anything else.

We have time for one final question. So I wanted to touch on Belgium because it's an element dose in terms of profitability than other countries ING operates in. So I really wanted to ask where do you think returns can go? And what's being done to improve profitability?

I think Capital Markets Day in 2024, we said that we had a target of improving the return on equity to 14%. We are well on our way to deliver on that. And I think, yes, you could look at it by saying that Belgium is not performing in line with some of our other countries, and it's true. But if you look at the shift and the changes that have been made locally in terms of focusing more on cost efficiency, reducing the number of branches, really focusing on counteracting changes in terms of that has -- the cost level has remained flat in an environment where inflation pressure, inflationary pressure in indexations would have meant that costs would have increased significantly more. I would say that the management team in the ExCo in Belgium has done a fantastic job. Also, when looking at how they're balancing the growth in deposits as well as on mortgages, where we've seen a slower growth in mortgages, but at the same time really building the fee base. You see the growth on fee income in Belgium and linking it to the investment proposition that we have there. I would say that there is more to come. There is more potential to come in the Belgium market. But I actually think it's a bit unfair to say that it's not delivering in line with our expectation because if you look at what they have achieved year-to-date and also the trajectory that they're on to in terms of delivering on the targeted 14% of return on equity, I think that's a tremendous work that is being done. And it's all about the customer proposition also there. There is more growth potential on business banking, where we can do even more moving into deposit growth and fee-based growth in terms of payments where we haven't focused historically, but there's more potential going forward.

Great. Well, we've come to the end of our fireside chat. And thank you very much for joining us, Ida, and it was a pleasure.

Thank you.