ING Groep - Q4 2025 Fixed Income

Transcript

Operator (participant)

Good afternoon. This is Laura, welcoming you to ING's 4Q 2025 fixed income call. Before handing this conference call over to Jaap Kes, Group Treasurer of ING Group, let me first say that today's comments may include forward-looking statements, such as statements regarding future developments in our business, expectation for our future financial performance, and any statement not involving a historical fact. Actual results may differ materially from those projected in any forward-looking statement. A discussion of factors that may cause actual results to differ from those in any forward-looking statement is contained in our public filings, including our most recent annual report on Form 20-F, filed with the United States Securities and Exchange Commission and our earnings press release, as posted on our website today. Furthermore, nothing in today's comments constitutes an offer to sell or a solicitation of an offer to buy any securities.

Good afternoon, Jaap, over to you.

Jaap Kes (Group Treasurer)

Thank you, operator. Welcome, all, and thank you for joining us today for the ING Fixed Income call around our fourth quarter 2025 results. My name is Jaap Kes, and I'm the Group Treasurer for ING Group. Today, I'm here together with Sjoerd Miltenburg, the Head of Investor Relations. In this call, we will take you through the Q4 2025 results, as well as ING's capital position and issuance plans for the coming year. At the end of the call, we will have some time for Q&A. Before we get started, I would like to point out that the fixed income presentation accompanying this call is available for download from our website. After the presentation, we'll be happy to answer your questions. With that, let me hand over to Sjoerd.

Sjoerd Miltenburg (Head of Investor Relations)

Yes. Thanks, Jaap. Let me start with slide 2, demonstrating the outstanding commercial growth that we have achieved in 2025. We added more than 350,000 Mobile Primary Customers during the quarter, bringing total growth for the year to over 1 million, fully in line with the ambitious target we set at our Capital Markets Day. Our growth in customer balances was well above our target level of around 4%. Our loan book grew by 8.3% in 2025, mainly driven by Residential Mortgages, while the deposit book grew by 5.5%, predominantly in retail banking from private individuals. Fee income continued its positive trend, growing by 15% on the back of continued customer growth and increased cross-sell. And altogether, the strong commercial momentum translated into very solid financial results as well.

Our return on equity for 2025 was 13.2%, well above our guidance at the start of the year. In addition, we remain fully committed to supporting our clients in their sustainability transitions. Our total sustainable volume mobilized reached EUR 166 billion for the year, representing a 28% increase year-on-year. Now, let's move to the next slide to look at how this commercial momentum drove our financial performance. On slide 3, you can see that despite the lower interest rates, our commercial NII remained very strong in 2025 at EUR 15.3 billion. This result was supported by the significant increase in our customer balances, disciplined repricing, and by our prudent deposit hedging strategy. Fee income increased by 15% compared to 2024, with strong contributions across all products and businesses.

Investment products performed particularly well, growing its fee income by 21%, with strong performance across all metrics: the number of customers, assets under management, and the number of trades. As a result of the strong NII and fee income performance, total income reached a record level for the third consecutive year. With that, let's move to slide 4. On this slide, we highlight the actions taken to strengthen our operational leverage. In 2025, we further reduced friction from the key customer journeys by increasing the share of number of customer journeys handled without any manual intervention. We also introduced our chatbot in 7 retail markets, providing customers with faster and more accurate answers to their questions, resulting in annual savings, as well as more satisfied customers. The fact that our customer experience is highly appreciated is well reflected in our strong NPS positions across all markets.

In retail banking, we maintained our number one position in 5 out of 10 markets, while being in the top three in all markets. These investments and scalability are also translating into higher efficiency, which is visible in our FTE over customer balance ratio, which has improved by more than 7% since 2023. And now moving to slide 5. On slide 5, we show how our robust commercial growth, strong development of total income, and proactive cost measures have resulted into strong capital generation. Over the past year, we delivered more than EUR 6.3 billion in net profit, contributing almost two percentage points to our CET1 ratio. The strong level of capital generation is driven by our consistent strategy and stable business model, operating across strong economies with a prudent risk management framework, all together leading to predictable cash flows.

The RWA consumption to generate the strong level of profitability is limited. In 2025, roughly 15% of our net profit was consumed by RWA growth.... This was also supported by a modest use of SRTs in order to optimize capital efficiency in Wholesale Banking, with our first two SRT transactions completed in November. On the back of this strong performance, we announced additional distributions for a total amount of EUR 3.6 billion, bringing our CET1 ratio closer to our target level of around 13%. Now, let's move on to slide 9. On slide 9, we present our outlook for 2026 and 2027. For 2026, we expect total income to grow to around EUR 24 billion. This outlook is supported by continued volume growth and an anticipated 5%-10% increase in fee income.

Total operating expenses, excluding incidentals, are projected to be in the range of EUR 12.6 billion-EUR 12.8 billion, leading to an ROTE that's expected to grow from 13.6% to more than 14%. Looking at to 2027, we now expect total income to exceed EUR 25 billion, which is at the upper end of our previous target range, including a higher fee income target, which we now expect to exceed EUR 5 billion in 2027. For operating expenses, again, excluding incidentals, we expect to be at around EUR 13 billion, reinforcing our continued focus on cost discipline and operational efficiency. Taken together, these targets translate into return on tangible equity of more than 15%. Now, moving to slide 10. Zooming in on our total income projections, let's start with commercial NII.

We assume our customer balances growth of around 5% per year, above the guidance we gave at Capital Markets Day and reflecting the commercial momentum in our franchises. The liability margin is expected to be at the lower end of the 100- to 110-basis point range that we gave, while the lending margin is assumed to remain stable compared with the fourth quarter. Fees are expected to grow by 5%-10%, building on the strong performance we achieved in 2025. All other income is expected to be around EUR 2.8 billion, excluding incidentals. Taken together, total income is expected to reach around EUR 24 billion in 2026. Finally, before handing back to Jaap, let me take you to slide 23 to give you an update on our risk cost and staging.

Total risk costs were EUR 365 million in the quarter, equivalent to 20 basis points of average customer lending, which is in line with our through-the-cycle average. Net additions to Stage Three provisions amounted to EUR 389 million, mainly driven by individual Stage Three provisioning for a number of new and existing files in Wholesale Banking. This was partly offset by releases of existing provisions due to repayments, secondary market sales, and structural improvements. As a result, the Stage Three ratio increased slightly. For Stage One and Stage Two, we recorded a net release of EUR 24 million, reflecting a partial release of management overlays and updated macroeconomic forecast. Overall, we remain confident in the strength and the quality of our loan book. With that, over to you, Jaap.

Jaap Kes (Group Treasurer)

Thank you, Sjoerd. So now let's turn to slide 25, where we look at the quarterly risk-weighted asset development. As you can see on this slide, overall risk-weighted assets increased by EUR 4.5 billion in the fourth quarter. An important driver for this is business growth, in particular in our mortgage portfolio, but we have also seen operational risk, risk-weighted assets going up due to an update of the SMA model. At the other end, we saw a partial offset as a result of our first two Wholesale Banking SRTs, which we announced in November 2025. These transactions provide us with first loss protection on diversified portfolios of corporate loans, with a total notional exposure of EUR 10.5 billion. The impact of the completed SRT transactions is around 12 basis points on our Q4 2025 CET1 ratio.

Bringing these developments together with quarterly profitability and equity distributions, we will look at capital developments on slide 26. This bar chart shows the quarterly development of our capital ratios. The CET1 decreased to 13.1%, as the additional distribution of EUR 1.6 billion, as announced last quarter, has been fully deducted this quarter. The cash component of the additional distribution was paid in January, and the ongoing share buyback is progressing well, with almost half of the program completed by now. In addition, a final cash dividend over 2025 of around 74 cents per ordinary share is proposed, subject to AGM approval in April 2026. Moving from total capital to loss-absorbing capacity, let's move to slide 29 on TLAC and MREL. Here we show both the TLAC and the MREL requirements measured against RWA.

Left, on the left, as well as the leverage ratio on the right-hand side. We plotted the year-end 2025 actuals against the TLAC and MREL requirements for 2026. As you can see, we are amply meeting these metrics, RWA and leverage, with sizable buffers. Although all metrics are relevant, it is clear the RWAs, RWA, RWA-based MREL is the binding constraint, so this is the measure for us to manage. The roughly 2.5% delta between actuals and requirements provide us with a comfortable buffer of almost EUR 12 billion against the requirements... Clearly, to maintain this buffer, we will need to come to the market in 2026. Turning to slide 30. In 2026, we plan to issue around six or, or between EUR 6 billion and EUR 8 billion of Holdco Senior, which is in line what we have issued in 2025.

For AT1 and Tier 2, we are comfortable with the current AT1 and Tier 2 ratios at 2.2% and 3.1%, respectively. So any issuance is driven by replacement needs and, or to accommodate RWA growth. For AT1, the first upcoming call date for an AT1 instrument is November 2026. For Tier 2, we have a euro 1.5 billion instrument with a three-month par call window from February until May 2026. So now I will finish the 2026 issuance guidance first, but I will come back to how we think about par call, par call options in a little bit. First, on Opco senior. We currently don't expect much other than potentially some local issuance in Australia, in line with we've done last year.

As we mainly use this instrument for internal ratio management and general funding purposes, this can obviously change in case of unforeseen balance sheet developments. Lastly, for secured issuance, we expect to issue between EUR 6 billion and EUR 8 billion from our various issuance entities and also including RMBS. Now, on par call options, let me spend a few test sentences on this topic to clarify how we look at this. Over the past year, we observed a market practice evolving, whereby peers are exercising par call options at the beginning of the call period, of the call window, rather than at the first reset date, which diverges from our initial expectations. ING's capital planning and economic call policy are both based on the first reset date. Instruments with par call features have been priced, booked, and hedged with this date in mind.

Our first Tier 2 instrument with the three-month par call option will enter its par call window this February. While we do not comment on the likelihood of exercising the call now, we emphasize that ING retains the right to call the instrument on any day during the three-month window. Not calling on the first day of the window should not be interpreted as a non-call event. Finally, and perhaps zooming out a bit further to the liability side of our balance sheet, let's turn to slide 37. ING has a very stable liquidity profile, where over two-thirds of the balance sheet is funded by customer deposits, of which retail deposits are the main component.

We are seeing continued growth of our deposit book with a customer deposit growth of 4.5% in 2025, driven by continued customer acquisition and successful promotional campaigns, for instance, in Germany. Due to the success of the Growing the Difference strategy, ING managed to achieve very strong commercial growth and balance sheet growth, outstripping market growth. Next to our LCR of 140%, which is supported by a conservative bond portfolio and sizable cash position, we maintain large pools of ECB-eligible assets, consisting of retained cover bonds, retained securitizations, and also credit claims. We continue to focus on the increase of these pools of assets that can be transformed to liquidity rapidly, if needed. With that, I've provided my key points and suggest we open the floor for some questions. Operator, please?

Operator (participant)

Sure, thank you. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. In the interest of time, we kindly ask each analyst to limit yourself to two questions only. We'll pause for just a moment while waiting for them to queue for questions. Thank you. We will now take our first question from Arne Petimezas of AFS Group. Your line is open. Please go ahead.

Arne Petimezas (Analyst)

Good morning.

Operator (participant)

Arne, can you please go ahead? Unmute your audio, please. Arne, please go ahead. Your line is open.

Arne Petimezas (Analyst)

Sorry, I had a problem with my phone. Yeah, can you hear me now? So, I'm going to repeat my question. So, do you, do you have any plans for tapping the ECB, MROs, and LTROs at some point as excess liquidity continues to decline? Thank you.

Jaap Kes (Group Treasurer)

Thanks for the question. Now, we so as a rule, we don't want to rely on central bank operations, so we want to be self-sufficient. But there can obviously be reasons to draw on MROs or LTROs, or in the past, even TLTRO, TLTROs, which is multiple reasons. In the end, there can be, yeah, too little cash to support the financial system. For now, there is a lot of excess cash, so that is not the case yet. But it can also be very economical to draw on these operations, yeah, so it can also be very beneficial from a pricing perspective, or there can be specific programs that support the economy, like we've seen with the TLTROs.

So we don't believe there is a stigma anymore on the usage of MROs or TLTROs, and we will look at it, but mostly from these reasons, and not to sustain or on a structural basis to support our balance sheet. Thanks.

Arne Petimezas (Analyst)

Yeah, thank you. That, that clears everything up.

Jaap Kes (Group Treasurer)

Okay, thank you.

Operator (participant)

Thank you. Once again, as a reminder, if you would like to ask a question, please press star one on your telephone keypad, and we'll wait for a further moment. Thank you. There are no further questions in queue. I will now hand it back to Jaap for closing remarks.

Jaap Kes (Group Treasurer)

Okay, then I think we have been very clear and also this morning, obviously, with Steven's call. So thank you, operator, and thank you all for joining this call today. The investor relations team is available for potential follow-up questions, or else we are looking forward to see you during our investor calls and roadshows in 2026. Have a great day. Thanks a lot. Bye-bye.

Operator (participant)

Thank you. This concludes today's call. Thank you for your participation. You may now disconnect.