DBRS Upgrades ING Bank N.V. to AA (low), Trend Stable

DBRS Ratings Limited (DBRS) has today upgraded the Issuer Rating and other senior ratings of ING Bank N.V. (ING Bank or the Bank) to AA (low), from A (high). The Bank’s R-1 (middle) Short-Term Debt ratings were confirmed. ING Bank’s Critical Obligations Rating (COR) was upgraded to AA (high) from AA, and the Short-Term COR was confirmed at R-1 (high). Concurrently, DBRS initiated ratings coverage on ING Group N.V. (ING or the Group), and assigned an A (high) Issuer Rating and Long-Term Senior Debt, and an R-1 (middle) Short-Term Debt Rating. The Trend on all ratings is Stable. For full list of actions, please see rating table. The Bank’s intrinsic assessment (IA) was upgraded to AA (low). As a result, the Bank’s final ratings are positioned in line with its IA.

The ratings upgrade reflects the consistent performance achieved by the Group in recent years while successfully executing its divestment plan, illustrated by its strong earnings generation, improving asset quality, increased capitalisation and strengthened funding profile. ING has emerged from its restructuring phase displaying a simplified franchise and solid financial metrics. The ratings also take into account the potential revenue headwinds presented by the ongoing low interest rate environment and ongoing uncertainty regarding the Basel Committee on Banking Supervision’s (BCBS) final decisions about the standardised and internal ratings based (IRB) approach for credit.

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

ING has demonstrated strong earnings generation capacity in recent years, with the Group generating average underlying annual net profit from Banking activities of EUR 3.8 billion over the last five years. Although supported in part by cyclically low risk costs, the Group’s recent good profitability has been driven principally by strong revenue generation across the franchise, and a continued focus on cost control, illustrated in 2016 with underlying operating costs remaining broadly flat YoY as a result of efficiency savings initiatives. With regulatory costs, however, still elevated, at EUR 845 million in 2016, and EUR 474 million in 1Q17, albeit due to seasonal effects in 1Q17, DBRS views positively ING’s recent strategic announcement, which aims to increase operating efficiency and provide annual cost savings of approximately EUR 900 million by 2021.

ING’s asset quality continues to improve. This is reflected in the Group’s DBRS-calculated non-performing loan (NPL) ratio of 2.3% at end-1Q17, down from 2.6% at end-1Q16, as improvements in the domestic operating environment resulted in a reduction in impaired residential mortgages and a higher number of Real Estate Finance clients returning to performing status. DBRS also notes that the Group’s lending to sectors experiencing increased stress, such as oil & gas, metals & mining and shipping & ports, appears manageable. ING’s oil & gas exposure continues to perform solidly, with NPLs accounting for only 2.7% of the Group’s EUR 36.5 billion lending exposure (including guarantees and letters of credit), whilst the performance of ING’s metals & mining portfolio has improved, with a 20% YoY decrease in non-performing exposures, to approximately 681 million, equivalent to 4.4% of the portfolio (vs. 6.0% at end-1Q16). Although the performance of ING’s shipping exposure deteriorated in 2016, driven principally by issues within the coastal and inland water freight market, DBRS notes that the Group’s overall exposure remains low, totalling EUR 14.4 billion at end-1Q17, equivalent to only 2.2% of the Group’s total lending credit outstanding.

The Group’s funding and liquidity position has also strengthened in recent years, with short-term wholesale funding accounting for only 38% of wholesale funding at end-2016, compared with approximately 70% in 2009, and good customer deposit growth supporting a reduction in the loan-to-deposit ratio to 105% at end-1Q17, from 120% at end-2011. ING also maintains high-quality liquid assets (HQLA), totalling EUR 82.7 billion at end-1Q17, above the Group’s wholesale short-debt debt including LT debt redemptions. DBRS notes that ING does not publicly disclose its Liquidity Coverage (LCR) or Net Stable Funding Ratios (NSFR).

DBRS views ING’s capital position as strong. DBRS also considers the Group to be well placed to manage the impact of ongoing developments in regulatory capital and risk-weighted asset (RWA) requirements, given current buffers over regulatory minimums, the Group’s track record for strong internal capital generation, and flexibility to access markets. Illustrating this is, the Group’s fully-loaded common equity tier 1 (CET1) ratio of 14.5% at end-1Q17, comfortably above the 2017 minimum SREP requirement of 9.02%, and a fully-loaded leverage ratio of 4.5%, also above ING’s internal target of 4%. In addition, ING reported a pro-forma TLAC ratio of 21.6% at end-1Q17, in excess of its 2019 requirement of 21.5%, in part supported by EUR 5.3 billion of senior holding company issuances carried out in 1Q17.

Concurrently, DBRS has assigned a Long-Term Deposits Rating of AA (low) to ING Bank, and a Short-Term Deposits Rating of R-1 (middle), and renamed the Bank’s Long-Term Debt rating as Long-Term Senior Debt.

RATING DRIVERS

Upward pressure on the rating is unlikely in the medium term given the recent upgrade, but could arise if the Group is successful in executing its strategic plans with regards cost reductions, whilst maintaining a similar risk profile.

Negative pressure on the ratings would likely be driven by a substantial deterioration in profitability, an increase in the Bank’s risk profile, or a reduction in liquidity or capital measures.

Notes:
All figures are in EUR unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (May 2017). This can be found at: http://www.dbrs.com/about/methodologies

The sources of information used for this rating include SNL Financial and company documents. DBRS considers the information available to it for the purposes of providing this rating to be 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 historical default rates published by the European Securities and Markets Authority (“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: Vitaline Yeterian, Vice President, Global FIG
Rating Committee Chair: Elisabeth Rudman, MD – Head of EU FIG, Global FIG
Initial Rating Date: August 18, 2010
Last Rating Date: March 7, 2017

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