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

No, I think that the -- I think you're pointing out to the campaign we did during the Staatsbon, the state bond. Yes, I think that was because we saw an opportunity compared to other banks to raise deposits and get deposits out from other banks, which actually was very successful. It was not because we had an issue with loan to deposits. So I would like to correct that. Now look, our loan-to-deposit sits at around 100%. It's a level I feel comfortable with. It's also good. So it basically means we only need to go to the deposit market to raise money for our loans, which at this point in time is cheaper than go to the wholesale funding market. Yes, there are quarters whereby -- and we've seen that especially after Corona and at the start of the war in the Ukraine that you saw a number of quarters, actually a number of years that deposits rose faster than loans. Now, you see that loans are catching up and they are growing a bit faster than deposits. And so it will never move exactly in sync, but we're comfortable with that 100%.

Now moving on to the other side of the liability side on the replicated portfolio. You are sensitive to higher rates. So you upgraded the guidance in Q2 partly on the back of that, I suppose, in Q1 as well. So rates have moved since -- so can you maybe just remind the audience on your sensitivity on the replicated portfolio and how much actually upside you see if you embed the current curve in your model?

Yes. Yes. So we have 65% approximately of our deposits is savings and then about 35% is current accounts. And the replication of savings is typically a little bit shorter than on current accounts because current accounts are being held longer in banks than savings accounts. That's why it's so important that we are converting customers into primary customers. And we start in many of these markets as a savings bank because we were new, we were 25 years ago, came in many markets as a, where we now call it, neobank, but we were, let's say, a neobank avant la lettre, I would say, 2.5 decades ago. And then we start with the savings accounts. So that's why you see in ING, even compared to a number of other banks that we still relatively have more savings than current accounts because in most markets, we were not the incumbent bank, but we were the challenger bank. Now in that, we have what we call a Barbell strategy, and that is we invest in echelons from 1 to 10 years. But if you really look at it, we invest about 45% shorter than 1 year and 55% more long term, hence, the Barbell expression. On both of those areas, currently, we see where we are reinvesting those short-term echelons and the long-term echelons. Remember, 5, 6 years ago, the interest rate, at least the euro interest rate was negative. So when we're reinvesting those echelons, on both sides of that Barbell, that's currently positive. So when we reinvest short term, that's positive because the short-term interest has moved up in the past couple of quarters. And the long-term interest rate is better because we come out of that '16, '17, '18, '19, '20, '21 period, right? So that works good on all sides. So in the beginning of the year, we said, well, we're going to end up somewhere at the lower end between 100 and 110 basis points. If you look long term, we are -- have been hovering our deposit margin between 100 and 110 basis points. When the interest rate went up very quickly, so it is about the speed of the interest rate because markets are slow to respond to competition. There, we saw we broke out of that in 2021, '22 close to 120. Then, when the interest rate went down very quickly, the market is, of course, again, slow to react. Then we gradually moved down even a little bit below 100. And now we're back in that 100 to 110 territory, but now we see steps being made. And so we have now said for this year, in the second quarter, we gave guidance that we thought we would end up at the higher end of between the 105 and 110 or 100 and 110. So you could see it's more on the higher end of that. And we said based on where we currently see the rates that have been announced, based on the current forward curve, based on that we are confident that we will again break out of 100 and 110 on the upper side in 2027 and '28. Again, there's a lot of uncertainty in the market. There's a lot of volatility. But based on where we sit now, we would break out.

So it's good. That was my next question, but you answered it, and we, I mean, lasted 30 minutes before we talk liability margins.

Yes.

It's a record. So no, thanks. That was very clear. I'll move on to the fee growth. So clearly, I mean, in your first question, you detailed well, I mean, where you are in terms of fees. But I mean, what are the key drivers for this fee growth you see next? I mean, we discussed the private banking after, which I think is a key lever for you on this. But can you tell us, I mean, your ambitions beyond the current targets, not numerically, but more in terms of the vision you have?

Yes. So again, let me give again back that context. So like I just said, in many markets, we started as a very simple bank, focused on savings, deposits, mortgages, and now, have gradually started to embark on the broader relationship. ING started in many markets out as the other bank. So you have your main bank, and then, we are the other bank. And you put your savings on it and perhaps you can do a mortgage. And increasingly, we have been starting to do investments. So when I started in my role 6 years ago, the total assets under management were, I think, south of EUR 150 billion. Now, we are at EUR 330 billion. Every quarter, like I said, we grow our investment customers with 100,000 to 150,000. So in the year approximately 400,000 to 500,000 per annum. And currently, we, therefore, have 5.3 million customers now investing with ING, but it still means that of the 41 million, I have about 36 million people that are not investing with ING. If you continue to talk about investments, we still had that -- have a one-size-fits-all approach. When we came to those markets, we said we want to be easy, instant, personal and relevant. And we are very easy and instant straight through. 82% of our customer journeys is straight-through processing. So no manual intervention, only digital, and we're growing that percentage every year when beneficial for the customer, by the way, not because we just want to be digital. But we also -- we are not necessarily personal and relevant. And what do I mean with that? I mean with that you can approach people with the same products, but how you approach people can be different. So that means that you can't -- if you look at mass or mass affluent or affluent, you can -- you should approach them also differently. Look at Germany, we have 500,000 mass affluent customers. Those are customers that invest a couple of hundred thousand euros, and they sometimes need different products or they need a different approach or they need different advice. And we also see that 90% plus of their money that they invest, they don't invest with ING. And why? Because we don't necessarily invest specific products. If we do polls and ask clients do you know ING, we are probably the most European bank of all the banks. So many markets, we're a well-known bank. We're a top 5 bank in many of the markets which we operate. But if you then ask our clients do you know you can invest with ING, the percentage drops dramatically. And why? Because in many markets, we did not start as a bank to invest with. So what I'm saying is there is a world to win, and we're doing very well now in growing that, but to becoming more personal and relevant and specific and it means that we can grow that in much in many more ways. In that setting also, we did have in those 9 retail markets, 9 investment platforms. We all built those banks separately. Now, we're integrating that investment platform into one investment platform by which we also become a better partner for asset managers. We can say you have a private credit segment and a private equity segment and an ETF segment and a real estate segment. And then, we now choose global partners so we can make our offerings much better. And we also work much better together with these asset management partners as to how do we market these funds together. So that gives a lot of upside. And the same story I can tell you for insurance distribution. We -- when I started 6 years ago, and I asked my Head of Retail in the Board, I said, okay, can I talk to insurance experts in ING because in the past, we used to own an insurance company. And she said, "Don't worry, Steven, after we sold the insurance companies in 2014, we made sure we had absolutely zero insurance knowledge in the bank left." I said, "Oh, but that's not what I meant." I said, "Can I speak with experts so we can do better insurance distribution." And then, we start to develop that. So we started with new contracts with different players, improved journeys to make the journeys better because they were a bit clunky, have different type of propositions. Only 2 years ago, we started to develop also propositions for business banking. We did not have that. So now we have insurance propositions starting for segments of business banking. Credit cards, remember, the Netherlands, we don't use credit cards. We use debit cards. So only in Germany as of November this year, we will have a credit card offering because we didn't need a credit card offering because the Dutch, you thought, no, no, they all use debit cards in different markets. So now, we are going to also roll out the credit cards in all the markets and so forth and so forth. We also have package offerings. We have one package same for all clients. We now have 4 different packages that we're rolling out in all these markets. So what I'm telling you is a story about there is much more diversification and bespoke offerings we can do in -- for the private individual market, but the same goes for business banking, and I'm sure you also want to talk about private banking.

Private banking, I think you've touched on this as well, so on, but because of being aware of time, I would maybe move to the Wholesale Bank, which is still a big part of your business. What do you think really the realistic ROE for this business? I mean, your plan is still trailing below your group ROE. So we can say it's dragging a bit profitability down. But -- and this is using tools like SRT, as you said earlier, we step up in SRT and so on. So I mean, I ask you this question all the time, Steven, you know where I'm coming from here. But is it really time to be a bit more thoughtful about this segment and maybe go into -- I mean, restructuring is a big word, given, I mean, but just to look more in depth into the divisions and business and what actually you are right to do and not?

Yes. Well, first of all, I very much believe in the concept of universal banks because if you are a universal bank in the market, hence, why we're also filling the blanks in business banking and private banking because then in Germany, we are -- in Spain also and Italy also PI and wholesale, but not yet business banking, so no self-employed, no SME, no mid-corporates, no private banking. And the virtuous circle or cycle of being able to help clients through their lifetime in different phases, but also in different types of businesses is helpful, and you see that because the Netherlands, for example, but also Poland, are very remunerative, but those are universal banks. So I believe very much in that concept. And then still, and you're very right, then your question is, okay, but do you think that the return in Wholesale Banking is where it should be? And my answer is no. So we've said in Wholesale Banking, we need to do a couple of things. First of all, like with retail and retail in all the segments, PI, Business Banking, Private Banking, we also there need to diversify further. There, we came from an area where we were largely a lending bank. And so it came from in the past, Baring Brothers, BBL, which were the predecessor of ING. And so we had a great deposit bank, and they moved the deposit to the Wholesale Bank, and we became a lending bank. So also there, we need to diversify further into financial markets and mainly transaction services. PCM is very good annuity product to have. We're deep with capabilities in some markets. We're not so deep in other markets. So diversification in Wholesale Banking is the first lever that we need to pull. The second lever, to your point that we need to pull, is better capital management. So that's why I said 2.5 years ago that we put Wholesale Banking on the capital diet. We said that the first step is to get Wholesale Banking to return on equity to 12% in 2027. I think we're now at around 11%. But -- and we will meet the 12% by 2027. We're very confident on that, but it's still not enough. And therefore, I will continue the capital diet for Wholesale Banking until they get to a level that is more linked to where I want it to be. And that means that we will continue to see that the balance of capital will continue to shift to retail vis-a-vis wholesale.

Very clear. Let's move around costs. And -- I mean, given your DNA of -- with ING Direct and you are the first to digital, I remember the first time I heard about cloud was when you actually moved to your investment level many, many years ago. So where do you see actually the investments versus to fund the growth equilibrium is? Because you clearly look optimistic about growth, capability to capture profitable growth, but you need investment for this. So where should we see the growth? And maybe there will be a quick follow-up, and we can address at the same time on AI and where you're positioned there.

Yes. So first of all, our story is a growth story. We are not a cost story. We are focusing on growth because, like I said, we can do much more with the customers that we have. And in the PI side, the 41 million customers and with the 2 million business banking customers where we have not rolled it out in all the markets where we're active and private banking, which we also had only in 3 of the 9 markets in which we're active. And we can now roll out these building blocks in other markets as well. So -- and the same goes for Wholesale Banking, where we need to focus more on financial markets and mainly TS. So our story, therefore, is about growth and diversification. Therefore, you see positive jaws because we grow relatively fast compared to other banks in Europe. But we also want to keep the cost under control. And that actually meant that if you, therefore, look at the '27 date that we are able to take EUR 300 million out of that, and thereby, our cost CAGR was about 3%. We want to continue to be disciplined. Increasingly, we can become more scalable on the operational side with the hubs. On the technology side, there are -- functionally speaking, we are getting there because we are -- we have, like you said, one cloud environment. We have one engineering pipeline, which means that when engineers code something, they can code it one time for multiple countries, where in the past, it was not possible. But the next step is that we are becoming more scalable in the products that we issue. Currently, retail products are still because of the history of ING Direct, we're really tailored market by market. And only now we get to the stage that, for example, when we roll out investments, we can do it on one platform, on one technology stack. When we look at one app on web environment, we can really make it one app and one web for all the markets. When we look at business banking, we start to experiment with rolling it out in different markets on one of our tech stacks in one of the markets that we already have. So you will see increasingly the scalability coming through. And it means that, that will help in funding the investment that we have. Coming to AI, yes, look, I think that we were a digital frontrunner. And I think that the way to see what a digital frontrunner also means on the AI area, I would look at a couple of things. First of all, I would look at do you have a technology and data platform that can substantiate that. That's why I talked about our internal cloud environment. Two, what is your approach to AI and especially to Agentic or GenAI. We have joined for a very centralized approach with clear use cases that we say this is what we want everybody to do so that you really can focus on the big wins. Three, the question is, can you attract the talent then on it? And we have 600 people working in AI with 300 in a hub in Turkey and then a few other hubs. So it means that we have very good digital talent that we can feed the bank with who can build those use cases for us. And the fourth one is then do you have proof -- do you have a good partner? We use a number of partners, but the main partner is Google, where we use VISTA. And that is actually a data layer whereby we can then use all of our models to develop use cases, both for processing and client interaction. For coding, we do it separately. And then if you look at the use case, that's number five, we were the first bank to roll out Agentic mortgages in the Netherlands -- in Europe. So in the Netherlands, we did that now. We are going to roll it out in other markets as well. We're going to start to roll out conversational banking with AI. In terms of our chatbot, 75%. So a couple of years ago, 45% of the traffic was routed away through AI. Now with Agentic -- with GenAI, it's going to be 75%. So there, you see that we have a lot of use cases that we can really use in real life, not only to save cost, but also to improve the customer experience because we want these customers to do more with us.

Perfect. We have less than 1 minute. Just very quickly, just almost to tick the box here in terms of your M&A strategy. I mean, I have to ask this question. So I mean, you've been very clear. It's organic, it's primary clients. I mean, I think that's going to be clear. But can you just tell us where you stand today in terms of accelerating this with nonorganic?

23 seconds. So we have very good organic growth. So that's the primary focus. We do it very well. We grow this year things with 5% to 10%, balances with 8%, fees with over 10%. So we're very good. Then I would say bolt-on, but especially in skill sets that we don't have. Let's take an example, we took a 40% stake in Singular, that's a private bank in Spain because we did not have that -- the branding positioning in that market nor we do not have the private banking skill sets because we don't have private bankers. So if we can then accelerate growth, and we have a call option, by the way, to also buy the remainder. But first, it's about understanding private banking and collaborating better or we do an asset manager in Poland. So add-ons with things that we don't have. Yes. And opportunistically, we can always look at other things, but yes, that is opportunistic. So main focus organic and then bolt-ons. And when I become opportunistic, I will tell you.

Thank you very much, Steven. Thank you.

Thank you.