DBRS Confirms ING Bank N.V. at AA (low); Trend Stable

DBRS Ratings Limited (DBRS) has today confirmed the ratings of ING Bank N.V. (ING Bank or the Bank) at AA (low) for Issuer & Long-Term Debt and R-1 (middle) for Short-Term Debt. The trend is Stable. ING Bank’s ratings reflect an intrinsic assessment (IA) of A (high) combined with a support assessment of SA-2 that results in a one notch uplift to the final rating from the IA. The SA-2 categorisation reflects ING Bank’s importance to the financial system in the Netherland.

The ratings are underpinned by the Bank’s leading retail and commercial banking franchise in the Benelux region, and the significant progress the Group has made in executing its EC mandated restructuring plan. The Bank also benefits from strong international banking capabilities, a solid liquidity profile and a relatively low risk profile that is reinforced by the improved capital position.

In confirming the ratings, DBRS recognises the considerable progress that ING has continued to make over the past year in restructuring the Group to become a more-European oriented bank, and notes that this is now in its final stages. Over the last year, the Group has progressively sold down its stake in Voya Financial Inc, formerly ING US, to 32% at end-3Q14 and has reduced its stake in NN Group (NN), ING Group’s European insurance business, to 68.1% following NN’s successful IPO in July 2014. In addition, following the payment of EUR 1.225 billion to the Dutch State in March 2014, the Group reduced its remaining outstanding payments to the Dutch State to EUR 1.025 billion. In light of the progress to date, DBRS expects ING Group to complete the restructuring plan within the required timeframe (i.e. end-2016).

In 1H14, ING Bank continued to generate solid pre-provision income, reporting underlying Income before Provisions and Tax (IBPT), excluding CVA/DVA, of EUR 3.428 billion, an increase of 3% YoY, whilst making further progress in aligning its funding and lending across the franchise. As of end-1H14, deposits from customers and other funds on deposit totaled EUR 488.4 billion, resulting in a loan to deposit ratio of 103%.

ING Bank’s asset quality has also been relatively solid, with the impaired loan ratio remaining reasonably stable at 2.9% at end-1H14, and the cost of risk decreasing significantly YoY, to EUR 405 million in 2Q14. DBRS notes, however, that risk costs continue to be elevated against historical trends. Despite early signs of economic improvement, especially in the Netherlands, DBRS would expect these elevated levels to persist in the short-to-medium term. In addition, DBRS continues to consider the Bank’s commercial real estate (CRE) exposure as a challenge. Although ING Bank has made progress in de-risking the Commercial Real Estate (CRE) portfolio (which stood at EUR 24 billion at end-1H14), its impaired loan ratio remains considerable at 11.1% at end-1H14, an increase of 20 bps from end-1Q14.

DBRS considers that ING Bank’s capital position is well positioned, reporting a fully-loaded CRDIV Common Equity Tier 1 (CET1) ratio of 10.5% at end-1H14, and a Basel 3 fully-loaded leverage of 3.7%. DBRS notes that with the current CET1 ratio, the Bank already meets the Dutch Central Bank’s additional capital buffer requirements, which result in a minimum CET1 ratio requirement of 10% by end-2019.

Given the subdued operating environment, any positive rating pressure is unlikely in the short to medium term. Negative pressure could however increase if there is any further deterioration in the credit quality of the residential mortgage, domestic business or real estate lending. In addition, if there are indications that the separation from ING’s insurance business has impacted the overall franchise, or if divestitures and the repositioning of the Banking franchise result in permanently lower profitability on a risk-adjusted basis, this could result in negative rating pressure.

Notes:
All figures are in EUR unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (June 2014). Other methodologies used include the DBRS Criteria: Support Assessment for Banks and Banking Organisations (January 2014) and DBRS Criteria: Rating Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities (December 2013). These can be found can be found at: http://www.dbrs.com/about/methodologies

The sources of information used for this rating include company documents and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

This is an unsolicited rating. This credit rating was not initiated at the request of the issuer.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

Generally, the conditions that lead to the assignment of a Negative or Positive Trend are resolved within a twelve month period. DBRS’s outlooks and ratings are under regular surveillance

For further information on DBRS historic default rates published by the European Securities and Markets Administration (“ESMA”) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Lead Analyst: Ross Abercromby
Rating Committee Chair: Roger Lister
Initial Rating Date: August 18, 2010
Most Recent Rating Update: October 18, 2013

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