DBRS Revises Trend on ING Bank N.V.’s A (high) LT ratings to Positive

DBRS Ratings Limited (DBRS) has today confirmed the ratings of ING Bank N.V. (ING Bank or the Bank) at A (high) for Issuer & Long-Term Debt, R-1 (middle) for Short-Term Debt, as well as the Critical Obligations Ratings at AA/R-1 (high). The Intrinsic Assessment (IA) for ING Bank is A (high), whilst the support assessment remains SA3. The change in the trend to Positive on the long-term ratings reflects ING Group’s (ING Group or the Group) consistent progress over a number of years in improving underlying fundamentals, with enhanced capital levels, ample liquidity and an improving credit profile.

In confirming the ratings, DBRS recognises ING Group’s completion of the extensive European Commission-mandated restructuring plan ahead of the end-2016 deadline, following the successful sale of its remaining stake in NN Group, its European insurance business, in April 2016, which followed on from the repayment of the state capital received, as well as ING Group’s divestment of its entire Insurance and Investment Management operations. As a result of the Group’s restructuring, the balance sheet of ING Bank now represents 99.7% of the Group. Despite challenges in the broader European macro-economic environment, DBRS does not expect the Group to be significantly impacted by the UK’s vote to leave the European Union.

DBRS also notes the strength of the Group’s leading retail and wholesale banking franchise in the Benelux region, as well as increasingly in Germany where it operates through ING-DiBa and is the third largest private sector bank. These operations are supported by its strong banking capabilities in other international markets, with solid market positions in Australia, Spain, Italy and France through its ING Direct business. ING Group also has a solid wholesale banking franchise across Asia, the USA, and Central & Eastern Europe (CEE), and retail branch-banking operations in select CEE countries, most notably Poland and Turkey.

ING Group continues to demonstrate its good underlying earnings generation capacity, reporting income before provisions and tax (IBPT), excluding CVA/DVA, of EUR 7.1 billion in 2015, a 9% increase year-on-year (YoY). Although in part supported by strong trading income growth, DBRS notes positively the YoY increases in both net interest income (NII) and net fee and commission income. The Group’s income growth also offset a 3% YoY increase in operating costs, driven in part by an increase in regulatory costs. With regulatory costs expected to remain elevated in the near-term, DBRS views positively the Bank’s cost reduction programme, with EUR 884 million of costs savings achieved to end-1Q16 against a target of EUR 1.2 billion by 2017 and EUR 1.3 billion by 2018.

ING Group’s asset quality continues to improve, benefiting in part from improved credit quality, especially in the Netherlands. This is reflected in the Group’s DBRS-calculated non-performing loan (NPL) ratio which improved to 2.6% at end-1Q16, from 2.8% at end-2015, and 3.3% at end-2014. The improvement in credit quality is especially apparent in the Group’s commercial real estate (CRE) portfolio, with NPLs down to 3.6% at end-1Q16, compared with 8.9% a year before. DBRS also notes that the Group’s lending exposure to sectors and geographies experiencing increased stress, such as energy, appears manageable. At end-1Q16, only approximately 16% of the Bank’s EUR 28.1 billion oil and gas lending was directly exposed to oil price risk. DBRS will, however, continue to monitor these exposures.

The Group’s funding and liquidity position has also strengthened further in recent years, with the loan to deposit ratio down to 107% at end-1Q16, from 120% in 2011, following good customer deposit growth and some loan deleveraging. ING Group also maintains a significant liquidity buffer that totalled EUR 183 billion at end-2015, approximately two times in excess of the Group’s wholesale funding with a maturity of less than one year.

As ING Group has made further restructuring progress, the capital position of the Group has begun increasingly to mirror that of the Bank, with the ECB and Dutch National Bank now setting capital requirements (SREP) and systemic risk buffers (SRB) at the Group level rather than at the Bank. DBRS views ING Group’s capitalisation as strong, with the Group reporting a fully-loaded common equity tier 1 (CET1) ratio of 12.9% at end-1Q16. On a pro-forma basis, taking into account the full divestment of NN Group, which took place in April 2016, and including the net profit generated in 1Q16, DBRS notes that ING Group’s fully-loaded CET1 ratio would total 13.6% at end-1Q16, whilst the pro-forma leverage ratio was 4.3%. This leaves the Group well placed with regards its end-2018 fully-loaded CET1 requirement of 12.5%. DBRS also expects the Group to be well positioned to meet future Total Loss Absorbing Capacity (TLAC) requirements.

RATING DRIVERS

Continued strong operating performance and further progress on cost reductions, whilst maintaining a stable risk profile, could result in positive rating pressure. A substantial deterioration in profitability or an increase in the Bank’s risk profile, potentially from its exposure to the oil and gas industry, could have negative implications.

Notes:
All figures are in EUR unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (December 2015). Other applicable methodologies include the DBRS Criteria: Support Assessments for Banks and Banking Organisations (March 2016), DBRS Criteria: Rating Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities (February 2016) and Critical Obligation Rating Criteria (February 2016). 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.

This rating included participation by the rated entity or any related third party. DBRS had no access to relevant internal documents for the rated entity or a related third party.

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, Senior Vice President - Global FIG
Rating Committee Chair: Elisabeth Rudman, Managing Director, Head of EU FIG, Global FIG
Initial Rating Date: August 18, 2010
Most Recent Rating Update: February 4, 2016

DBRS Ratings Limited
20 Fenchurch Street
31st Floor
London
EC3M 3BY
United Kingdom
Registered in England and Wales: No. 7139960

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com.