DBRS: ING to Repay Final State Aid Early; Bank Reports Robust Q3 Results

Summary:
• ING Group to repay the final tranche to the Dutch State on November 7
• ING Bank reports Underlying Profit before tax (PBT) of EUR 1.49 billion, up 35% YoY, driven by higher net interest income and lower impairment charges
• Fully-loaded CET1 ratio and leverage ratio improved further
• 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) 3Q14 results as positive, providing evidence that the Bank’s restructuring and recovery remains on-track. Following the Bank comfortably passing the ECB’s Comprehensive Assessment (the transitional CET1 ratio was 11.4% in the baseline scenario and 8.7% in the adverse scenario at end-2016), the Group announced that the final repayment of core Tier 1 securities to the Dutch State will be accelerated. As a result the Group will pay the final tranche of EUR 1.025 billion on November 7, 2014, six months ahead of the schedule agreed with the European Commission in 2012. The early repayment also reflects the improved financial flexibility of the Group with the remaining stakes in NN Group and Voya (the group’s European and US insurance companies) having a combined market value of EUR 7.9 billion.

On an underlying basis, the Bank reported Profit before Tax (PBT) of EUR 1.49 billion (up 35% on 3Q13, and 16% on 2Q14) reflecting higher net interest income and lower impairment charges. The improved net interest income was driven primarily by higher margins on mortgages, combined with higher volumes. Both Retail Banking and Commercial Banking reported solid performances in 3Q14 with PBT improving YoY, by 27% and 56% respectively. The Bank’s impairment charge continues to reduce with the quarterly charge of EUR 322 million down from EUR 552 million in 3Q13. Whilst the improvement mainly reflects the improved performance in the Commercial Banking division, DBRS also positively notes that the Real Estate Finance segment’s charge was minimal at EUR 4 million. Risk costs are, however, expected to remain elevated in the Retail Banking Netherlands segment reflecting the still challenging environment.

Asset quality improved slightly in 3Q14 with the non-performing loan (NPL) ratio reducing to 2.8% from 2.9% at end-2Q14. This reflected a 4% reduction in NPLs, although DBRS notes that this reduction was partly driven by the sale of some NPLs.

DBRS notes that although ING has operations in both Russia and Ukraine, focused solely on commercial banking business, the exposures are manageable compared to CET1 capital of EUR 32.8 billion at end-3Q14. At end-3Q14, ING had total outstanding exposure to Russia of EUR 7.8 billion, plus undrawn committed facilities of a further EUR 1.1 billion. The Bank’s exposure to Ukraine is much smaller and at end-3Q14 totalled EUR 1.3 billion, with undrawn committed facilities of a further EUR 89 million. DBRS will continue to monitor these exposures in light of the elevated risks related to Ukraine and Russia at present.

ING improved its capital position further in the quarter, with its fully-loaded CRD4 Common Equity Tier 1 (CET1) ratio at 11.1%, up from 10.5% at end-2Q14. The Basel 3 fully-loaded leverage ratio remains solid at 4.0%.

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.