DBRS: Improved Retail Banking Performance and Lower Impairments Drive Solid Q1 Results for ING Bank

Summary:
• Underlying Profit before tax (PBT) of EUR 1.2 billion driven by lower impairment charges, and underlying income growth in Retail Banking.
• Core franchise remains resilient, with lending growth in the quarter and solid capital and funding positions.
• DBRS rates ING Bank NV at AA (low) with a Stable trend for Issuer & Long-Term Debt.

DBRS Ratings Limited (DBRS) considers ING Bank NV’s (ING or the Bank) Q1 2014 results as solid. On an underlying basis, the Bank reported Profit before tax (PBT) of EUR 1.2 billion (up 1% on Q1 2013) following good underlying income growth in Retail Banking. Impairment charges reduced by 17% (on Q1 2013) to EUR 468 million including a substantial reduction in the Real Estate Finance division. Despite these positive developments, DBRS notes that ING’s loan losses are still elevated against historical trends, and are expected to remain so in Retail Banking in the Netherlands.

DBRS also notes ING’s continued efforts to reduce costs, with underlying operating expenses, adjusted for restructuring costs, Belgian bank taxes and the Dutch bank tax, down 1% on Q1 2013, and 2% on Q4 2013. To date, ING has achieved EUR 491 million of cost savings as part of its restructuring programme, against a target of EUR 880 million by 2015.

The operating environment in the Netherlands, however, continues to impact on ING’s asset quality, with the stock of non-performing loans in the Dutch mortgage book continuing to increase. The overall non-performing loan ratio, however, remained stable at 2.8%, as higher non-performing loans were offset by EUR 5.1 billion of net loan growth in Q1 2014.

DBRS notes that ING has operations in both Russia and Ukraine, focused solely on commercial banking business. At end-Q1 2014, ING had total outstanding exposure to Russia of EUR 8.6 billion, 88% of which was related to lending. ING’s end-Q1 2014 exposure to Ukraine amounted to EUR 1.5 billion, of which 99% was lending. These exposures compare to common equity tier 1 capital of EUR 29.4 billion at end-Q1 2014. DBRS will continue to monitor these exposures in light of the elevated risks related to Ukraine and Russia at present.

ING has continued to strengthen its balance sheet, and posted solid capital ratios at the end of Q1 2014. The pro forma fully-loaded CRD4 Common Equity Tier 1 (CET1) ratio was 10.1% and the Basel 3 fully-loaded leverage ratio was 3.7%. DBRS notes that ING already meets the Dutch Central Bank’s additional capital buffer requirements which will result in a minimum CET1 ratio requirement of 10% by end-2019. As a result of this, and the Bank’s solid internal capital generation, DBRS considers ING to be in a good position to manage the evolving regulatory framework. Funding also remains robust with a 102% loan-to-deposit ratio in Q1 2014, following deposit inflows of EUR 8.3 billion in the quarter.

DBRS notes that the ING Group reported a net loss of EUR 1.9 billion in Q1 2014 (compared to a profit of EUR 1.9 billion in Q1 2013), reflecting the deconsolidation of the Voya operations (formerly ING U.S.), which triggered a loss of EUR 2 billion, and the impact of changes to the Dutch pension fund, which resulted in a loss of EUR 1.1 billion.

DBRS rates ING Bank NV at AA (low) with a Stable trend for Issuer & Long-Term Debt.

Notes:
All figures are in Euros (EUR) unless otherwise noted.