Morningstar DBRS Confirms ING Bank’s LT Issuer Rating at AA (low), Stable Trend

DBRS Ratings GmbH (Morningstar DBRS) confirmed the Long- and Short-Term Issuer Ratings of ING Bank N.V. (ING Bank or the Bank) at AA (low) / R-1 (middle), and the Long-Term and Short-Term Issuer Ratings of the holding company, ING Group N.V. (ING or the Group), at A (high) / R-1 (middle). The Group's A (high) Long-Term Issuer Rating is one notch below that of the operating bank, in line with Morningstar DBRS's approach to rating bank holding companies. The trend on all credit ratings remains Stable. The Group's support assessment is SA3, while the Bank's Intrinsic Assessment (IA) is AA (low) and the Support Assessment is SA1. See the full list of credit ratings at the end of this press release.

KEY CREDIT RATING CONSIDERATIONS
The confirmation of ING's credit ratings reflects the Group's well established retail and wholesale banking franchise in the Netherlands and Belgium, along with its growing presence in selected European countries, particularly in Germany, as well as its strong liquidity and funding position. The ratings also takes into account the Group's solid earnings capacity, supported a high degree of business diversification and generally disciplined cost management and contained cost of risk. In Morningstar DBRS's view, solid earnings generation provide ING with flexibility to absorb a potential deterioration in the cost of risk which could materialise in the current environment, with inflation and higher interest rates potentially impacting borrowers.

The credit ratings also reflect that ING has maintained strong asset quality thanks to its diversified and conservative risk profile and that exposure to Russia has materially reduced. The ratings also consider that although capital ratios are expected to reduce from current levels, as the Group returns capital to shareholders, Morningstar DBRS expects regulatory capital cushions to remain sound.

CREDIT RATING DRIVERS
An upgrade of the credit ratings would be driven by a sustained improvement in profitability, while maintaining a conservative risk profile and sound capital ratios.

A downgrade of the credit ratings would occur in the event of sustained downward pressure on revenues, a material deterioration in asset quality and/or a significant reduction in capital.

CREDIT RATING RATIONALE

Franchise Combined Building Block (BB) Assessment: Very Strong/Strong
ING Group N.V., with its main operating entity ING Bank N.V., is a large and global systemically important bank with total assets of EUR 1,030 million at end-Q1 2024, serving 39 million customers in more than 40 countries at end-2023. The Group maintains a leading universal banking franchise in the Benelux (Netherlands, Belgium, Luxembourg) together with a growing meaningful market position in several countries primarily located in Europe (including a significant presence in Germany). In addition, the Group has a solid wholesale banking franchise in Asia, the Americas and Central & Eastern Europe. Morningstar DBRS considers that the Group's strong online banking capabilities and customer orientation have helped ING grow and achieve solid profitability even in mature and competitive banking markets.

Earnings Combined Building Block (BB) Assessment: Strong/Good
Morningstar DBRS considers ING's revenue generation as sound, supported by its well-diversified geographic franchise, fee revenue growth and sound operating efficiency. In 2023, the Bank reported a net profit of EUR 7.3 billion, significantly up 98% year-on-year (YOY), mainly driven by strong growth of net interest income (NII) against a background of higher interest rates, and lower loan loss provisions YOY. The return on equity (ROE) improved to 14.8% in 2023 compared to 7.2% a year earlier. However, net profit remained strong in Q1 2024 although largely stable compared to Q1 2023 as NII peaked. The cost of risk was 16 bps in Q1 2024, compared to 8 bps in 2023 and well below the through-the-cycle average of 25 bps. Going forward, Morningstar DBRS expects the benefit of high interest rate environment on NII to slow down as deposit reprice at higher rates, although this should be partly offset by higher fees and commissions on the back of increased business activity.

Risk Combined Building Block (BB) Assessment: Strong/Good
Morningstar DBRS views ING's risk profile as solid, supported by a granular and diversified loan book, including a high proportion of residential mortgages, and conservative risk management. Asset quality metrics remained strong at end-Q1 2024, with the Group reporting a Stage 3 ratio of 1.5%, flat quarter-on-quarter (QOQ) but slightly up Year-On-Year (YOY). The Group's Stage 2 loans declined to represent 7.7% of loan book at end-Q1 2024, slightly down from 8.0% at end-2023. Going forward, Morningstar DBRS expects some deterioration in asset quality, although it should remain manageable, mainly due to delayed impact of high inflation, high interest rates and the subdued economic environment. The Group has significantly reduced exposure to Russia to EUR 1.3 billion Q1 2024 (equity at risk was EUR 0.4 billion), significantly down from EUR 6.7 billion at end-February 2022.

Funding and Liquidity Combined Building Block (BB) Assessment: Strong
Monringstar DBRS considers ING has a strong and well-managed funding profile, underpinned by a large retail deposit base reflecting its strong market position in the Netherlands, Belgium and, to lesser extent, in Germany. The Group is mainly funded by customer deposits which accounted for 73% of the Group's funding at end-Q1 2024 and the loan-to-deposit (LTD) ratio was a sound 96% at end-Q1 2024. Moreover, 85% of household deposits are considered guaranteed by the Deposit Guarantee Scheme. The Group also has a solid liquidity position. At end-March 2024, ING's high quality liquid assets (HQLA) stood at EUR 195 billion, representing around 20% of the Group's total assets and the 12-month moving average Liquidity Coverage Ratio (LCR) was 146%.

Capitalisation Combined Building Block (BB) Assessment: Strong/Good
Morningstar DBRS view ING's capitalisation as sound, supported by good internal capital generation capacity and continued access to capital markets. The Bank reported a CET1 of 14.8% at end-March 2024 similar to 14.7% at end-2023 and 14.5% at end-2022, as internal capital generation offset some risk-weighted asset growth driven loan growth. The Group announced its intention to increase shareholder return with an additional share buyback of EUR 2.5 billion in 2024 in order to be aligned with its 2025 target. Pro-forma of the share buyback, the CET1 ratio would stand at 14.1% at end-Q1 2024. In addition, management has announced its intention to reduce CET1 to around 12.5%, still well above the minimum regulatory requirement of 10.76%.

Further details on the Scorecard Indicators and Building Block Assessments can be found at: https://dbrs.morningstar.com/research/433399.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS

There were no Environmental, Social, Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024) https://dbrs.morningstar.com/research/427030/morningstar-dbrs-criteria:-approach-to-environmental,-social,-and-governance-risk-factors-in-credit-ratings.

Notes:
All figures are in Euros unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (15 April 2024) https://dbrs.morningstar.com/research/431155/global-methodology-for-rating-banks-and-banking-organisations In addition Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024) https://dbrs.morningstar.com/research/427030/morningstar-dbrs-criteria:-approach-to-environmental,-social,-and-governance-risk-factors-in-credit-ratings in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

The sources of information used for these credit ratings include Morningstar Inc. and company documents, ING Group 2023 Annual Report, ING Group Q4 2023 and Q1 2024 Presentations, ING Group Q4 2023 and Q1 2024 Press Releases, ING Group Q4 2023 and Q1 2024 Credit Updates, ING Group Q4 2023 and Q1 2024 Historical Data and ING Group 2023 Climate Deport. Morningstar DBRS considers the information available to it for the purposes of providing these credit ratings to be of satisfactory quality.

With respect to FCA and ESMA regulations in the United Kingdom and European Union, respectively, these are unsolicited credit ratings. These credit ratings were not initiated at the request of the issuer.

With Rated Entity or Related Third Party Participation: YES
With Access to Internal Documents: NO
With Access to Management: NO

Morningstar DBRS does not audit the information it receives in connection with the credit rating process, and it does not and cannot independently verify that information in every instance.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS's outlooks and credit ratings are under regular surveillance.

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

The sensitivity analysis of the relevant key credit rating assumptions can be found at: https://dbrs.morningstar.com/research/433405.

These credit ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Arnaud Journois, Vice President - European Financial Institution Ratings
Rating Committee Chair: Maria Rivas, Senior Vice President, Sector Lead - European Financial Institution Ratings
Initial Rating Date: August 18, 2010
Last Rating Date: June 1, 2023

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