DBRS Confirms ING Bank N.V.’s Long-Term Issuer Rating at AA (low), Stable Trend

DBRS Ratings Limited (DBRS) confirmed the ratings of ING Bank N.V. (ING Bank or the Bank), including the Long-Term Issuer Rating, at AA (low) and the ratings of the holding company, ING Group N.V. (ING or the Group), including the Long-Term Issuer Rating, at A (high). The trend on all ratings remains Stable. The Support Assessment on the Group is SA3; the Bank’s Intrinsic Assessment (IA) is AA (low) and Support Assessment is SA1. See the full list of ratings at the end of this press release.

KEY RATING CONSIDERATIONS
The confirmation of the Bank’s Long-term Issuer rating of AA (low) reflects ING’s leading retail and commercial banking franchise in its core markets of the Netherlands and Belgium, along with its growing presence in select countries, particularly Germany. The ratings also take into account the Group’s sound earnings generation ability, in spite of the low interest rate environment, its sound asset quality and its strong funding and liquidity position along with a solid capital position, supported by a sound internal capital generation and good access to capital markets. This, in DBRS’s view, should help the Group meet regulatory requirements (including TLAC and MREL) and offset the expected impact from the implementation of Basel IV. In addition, DBRS considers that although some risk and control deficiencies have recently emerged, particularly in relation to anti money laundering, the Group seems to be working towards improving controls and resolving these issues.

DBRS has assigned a SA3 Support Assessment to the Group and has changed the Support Assessment of the Bank to SA1, in line with DBRS’s approach for Support Assessments for Holding Companies and subsidiaries in Jurisdictions with no systemic support (see DBRS’s Global Methodology for Rating Banks and Banking Organisations).

RATING DRIVERS
Positive rating pressure on the Long-Term Issuer Rating would require material improvements in profitability and efficiency levels, whilst maintaining good asset quality and a sound capital position.

Negative pressure on the Long-Term Issuer Rating would likely be driven by further evidence that deficiencies in risk controls or policies negatively impact the Group’s reputation and franchise; and/or by a significant deterioration in the Group’s capital position and asset quality.

RATING RATIONALE
ING has a strong retail and wholesale banking franchise across the Netherlands and Belgium, as well as an increasingly meaningful position in various countries in Europe, particularly Germany. In these countries, the Group aims to further strengthen its franchise, and its products are predominantly offered through low-cost online platforms. The Group also has a solid wholesale banking franchise in Asia, the Americas and Central & Eastern Europe.

Despite the low interest environment, ING has reported resilient profitability supported by strong revenue generation thanks to its geographical and business diversification. In 2018, the Group’s net attributable income, however, was down 7% year-on-year (yoy) to EUR 4.6 billion, largely as a result of a one-off charge of EUR 775 million related to the settlement agreed with the Dutch authorities for shortcomings in the execution of customer due diligence policies to prevent financial and economic crime at ING Netherlands. Excluding this charge, the Group’s underlying net attributable income was up 9% yoy in 2018 to EUR 5.4 billion, largely supported by good growth of net interest income and commissions. Cost control remains a key focus for ING, given the significant investments undertaken in digitalisation and platform infrastructure, and the ongoing pressure from regulatory costs, compliance investments and growth initiatives. The Group aims to achieve an underlying cost/income ratio of 50-52% in the medium-term, which compares to 54.8% in 2018.

DBRS views that ING has a conservative risk profile, supported by relatively good diversification and sound asset quality, also benefiting from the good economic conditions in its core operating markets. The Group reported a Stage 3 ratio of 1.5% at end-March 2019. DBRS notes that the Dutch property markets are showing signs of overheating in certain segments over the past few months, however, ING’s exposure to residential mortgages in the Netherlands represents only 17% of the total loan book. The Group’s exposure to more volatile industries, such as Real Estate Finance, Oil & Gas, Metals & Mining and Shipping & Ports accounts for nearly 15% of the total credit outstanding at end-March 2019 with the performance of these portfolios improving yoy.

Operational risk challenges have become apparent over the past few months, although DBRS notes that the Group has been strengthening its compliance function in recent years and that a global know-your-customer enhancement programme is under way. In September 2018, ING reached a settlement agreement with the Dutch Public Prosecutor Service on regulatory issues in the ING Netherlands business, in particular regarding serious shortcomings in the execution of customer due diligence policies to prevent financial economic crime at ING Netherlands during 2010-2016. Moreover, in March 2019 ING announced that Banca d’Italia, the Italian Central Bank, has produced a report which includes Banca d’Italia’s conclusions regarding shortcomings in AML processes at ING Italy, following an inspection conducted from October 2018 to January 2019.

ING’s funding profile is solid, supported by the Group’s broad deposit base in the Netherlands, Belgium and Germany, with the Group reporting an overall loan-to-deposit ratio of 108% at end-March 2019. The Group’s liquidity position is also robust, with the 12-month moving average Liquidity Coverage Ratio (LCR) at 125% in 1Q19, while ING’s high-quality liquid assets covered 1.65x the short-term wholesale and institutional funding outstanding (i.e. interbank funding plus certificates of deposits and commercial paper) at end-March 2019.

DBRS views ING as having a strong capital position and considers the Group to be well-placed to manage the impact of the evolving regulatory environment, including the impact of higher risk-weighted assets (RWAs) from Basel IV and model changes. This is supported by the Group’s track record of generating capital internally and good access to capital markets, as well as the relatively long implantation phase for some of the requirements. At end-March 2019, the Group reported a fully-loaded Common Equity Tier 1 (CET1) ratio of 14.7%, which implies a buffer of approximately 290 basis points over the minimum regulatory requirement set under the SREP (Supervisory Review and Evaluation Process) for a CET1 ratio of 11.8% in 2019. ING estimates a pro-forma increase in its RWAs of 15%-18% in the coming years from Basel IV and model changes (including TRIM). ING has an ambition for a CET1 ratio of around 13.5% in the medium term, on a post-Basel IV implementation basis.

The Grid Summary Grades for ING Bank N.V. are as follows: Franchise Strength – Very Strong/Strong; Earnings Power – Strong; Risk Profile – Strong; Funding & Liquidity – Strong; Capitalisation – Strong.

Notes:
All figures are in EUR unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (June 2019). This can be found can be found at: http://www.dbrs.com/about/methodologies.

The sources of information used for this rating include SNL Financial, company reports, the Dutch Central Bank (De Nederlandsche Bank), the European Banking Authority and the Financial Stability Board. 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 and US regulations only.

Lead Analyst: Maria Rivas, Senior Vice President - Global FIG
Rating Committee Chair: Elisabeth Rudman, Managing Director, Head of European FIG - Global FIG
Initial Rating Date: August 18, 2010
Last Rating Date: June 19, 2018

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