DBRS Maintains ING Intrinsic Assessment at A (high); AA (low) Snr Ratings remain Under Review Neg

DBRS Ratings Limited (DBRS) has today maintained ING Bank NV’s (ING Bank or the Bank) intrinsic assessment (IA) at A (high). The Bank’s Issuer & Long-term debt ratings remain at AA (low) Under Review with Negative Implications (URN), with the URN reflecting the action taken on 20th May 2015 to review the systemic support assumptions of 38 European Banking Groups. The short-term debt rating is confirmed at R-1 (middle), Stable.

This action follows a detailed review of the Bank’s performance and outlook. The Bank’s IA is underpinned by ING Bank’s leading retail and commercial banking franchise in the Benelux region, and the substantial progress the Group (ING or the Group) has made in executing its European Commission (EC) mandated restructuring plan. The Bank also benefits from wide diversification outside of the Netherlands, a solid liquidity profile, and a relatively conservative risk profile, which is supported by an improving capital position.

In maintaining the Bank’s IA at A (high), DBRS recognises the substantial progress the Group has continued to make in executing its restructuring plan, including the repayment of state support in November 2014, six months ahead of the original, and the complete disposal of its stake in Voya Financial Inc. (formerly ING US), a retirement, investment and insurance company. ING has also successfully reduced its stake in NN Group, ING Group’s European insurance business, to 38.2% at end-June 2015, following the initial IPO in July 2014. In light of the progress to date, DBRS expects ING Group to complete the remaining elements of the restructuring plan within the required timeframe (i.e. by end-2016).

In 2014, ING continued to report good underlying earnings generation, reporting an underlying income before provisions and tax (IBPT), excluding CVA/DVA, of EUR 6.6 billion, broadly stable year on year (YoY), as net interest income growth offset higher expenses. In 1Q15, the Bank reported underlying IBPT, excluding CVA/DVA, of EUR 2.1 billion as a result of further strong underlying income growth in both the Retail and Commercial Banking divisions. Expense control remains a key target for the Bank, especially in light of increased regulatory expenses, which the Bank estimates could cost approximately EUR 650 million in 2015. As a result DBRS views positively the Bank’s commitment to target further material gross annual cost savings (EUR 555 million until 2018) to compensate for increasing regulatory costs, inflation and investment spending.

ING’s asset quality remains reasonably solid, with the impaired loan ratio remaining relatively stable at 3.0% at end-1Q15, and the cost of risk decreasing significantly to EUR 1.6 billion in 2014. DBRS, however, notes that risk costs continue to be elevated against historical trends, and that the Bank’s domestic Business Lending and commercial real estate (CRE) exposures remain challenging. However with the gradual improvement of the domestic economy the Dutch Business Lending portfolio has shown tentative signs of recovery, and the Bank has been successful in de-risking its CRE portfolio, boosted by the sale of non-performing loans (NPLs) in 4Q14.

DBRS notes that the Bank’s ratings are also supported by its strong funding and liquidity profile, which is underpinned by its broad deposit base in the Netherlands, Belgium and Germany. Usage of short-term wholesale funding continues to decrease substantially, whilst the Bank reported a loan-to-deposit ratio of 108% at end-1Q15, down from 120% at end-2011. DBRS also notes that the Bank’s Liquidity Coverage Ratio is above 100%, meeting the Capital Requirements Regulation (CRR) and CRD IV requirements.

ING Bank also benefits from a well-positioned capital position, reporting a fully-loaded CRDIV Common Equity Tier 1 (CET1) ratio of 11.4% at end-1Q15, ahead of both the Bank’s internal fully-loaded CET1 target of greater than 10%, and the Dutch Central Bank’s additional capital buffer requirements, which result in a minimum CET1 ratio requirement of 10% by end-2019. DBRS also notes that with the Group’s restructuring, the Group’s capital position has improved.

While the Bank has made considerable progress, downward pressure on the IA could be driven by a failure to maintain an acceptable level of consistent profitability, or from any indication that the current downward trajectory of loan loss provisions were to reverse. Additional pressure could arise if the credit quality of either the Real Estate lending, or domestic Business Lending were to deteriorate further. Upward pressure on the IA is unlikely in the medium-term given the still weak European economy, and the Bank’s already high rating level.

The Bank’s long-term ratings remain Under Review with Negative Implications due to DBRS’s review of the systemic support assumptions for a number of European Banks initiated on 20th May 2015. The review reflects DBRS’s view that recent developments in European regulation and legislation mean that there is less certainty about the likelihood of timely systemic support. Currently, ING has a support assessment of SA-2, which results in a one-notch uplift from ING’s IA of A (high) to the final rating of AA (low). During the review period DBRS is considering whether to change the support designation of a number of European banks from SA-2 to SA-3, which is the category for banks in countries where DBRS has no expectation of systemic support or is not confident enough that timely systemic support would be forthcoming in times of need to add a notch for systemic support. Such a conclusion would lead to the removal of any uplift and a downgrade of the senior ratings for any affected banks. The review is expected to be completed in September.

Notes:
All figures are in EUR unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (June 2015). Other applicable methodologies include the DBRS Criteria: Support Assessments for Banks and Banking Organisations (March 2015) and DBRS Criteria: Rating Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities (February 2015).These can be found can be found at:
http://www.dbrs.com/about/methodologies

The sources of information used for this rating include 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

This rating is under review. Generally, the conditions that lead to the assignment of reviews are resolved within a 90 day period. DBRS reviews 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: 20 May 2015

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