ING Groep - Q2 2024 (Media)
August 1, 2024
Transcript
Operator (participant)
Good day, and welcome to the ING Media Call 2Q 2024. Please note, this call is being recorded. I will now hand over to ING's CEO, Steven van Rijswijk. Please go ahead. Thank you.
Steven van Rijswijk (CEO)
Thank you very much. Welcome, and thank you for joining us again on the call. With me are Tanate Phutrakul, our CFO, and Ljiljana Čortan, our CRO, and we'll give you a short update of the developments during the second quarter of 2024, and then, of course, we'll open the call for questions. We can look back on a strong quarter for ING. We continued to perform well financially and maintained commercial momentum. We attracted more customers, achieved higher fee income and resilient interest income, and continued to support our clients in their sustainable transitions. Our customer base grew significantly.
We saw the number of mobile primary customers rise by 248,000 to 13.7 million in our 10 retail markets, and this means that 88% of our 15.6 million primary customers bank with us through their mobile device in the quarter. Then our net profit, that was almost EUR 1.8 billion, bringing our return on equity over the past four quarters to 14%. Interest income held up well, supported by increased volumes of customer lending and deposits. Fee income was 10% higher, reaching almost EUR 1 billion, which shows the progress we made in our strategy to diversify income in both retail and wholesale banking. Increase reflected structural improvements in retail banking with our growing customer base and favorable market conditions, driving income from investment products, daily banking, mortgage brokerage, and insurance.
Fees in wholesale banking showed a limited decline from the exceptional first quarter for global capital markets. Then in retail banking on lending, our lending book grew almost by EUR 9 billion, including significant growth in mortgages across all markets. Retail deposits also grew by EUR 9 billion due to successful marketing efforts and the seasonal inflow of holiday allowances of our customers. Then in wholesale, we recorded another strong quarter with a 5% revenue increase over the previous quarter, and here we continued to invest to enable top-line growth, improve the digital experience, and accelerate the execution of our strategy. Core deposits in wholesale banking grew by EUR 6 billion, mainly as a result of successful initiatives in payments and cash management and in money markets, and our overall operating expenses increased as expected due to inflationary pressure on staff costs and marketing.
Risk costs, they were a bit higher than in the previous quarters, but remained well below the through-the-cycle average, which is evidence of the quality of our loan book and our strong risk management. As you know, our strategic focus is also to put sustainability at the heart of what we do. We reinforce that by updating our annual target for sustainable volume mobilized from EUR 125 billion to EUR 150 billion by 2027. In the first six months of this year, we saw the volume already increasing by 21% to EUR 57 billion, and in the same period, the number of sustainable deals we were involved in rose from 234 to 367. We're also making progress in our sustainable mortgage proposition by supporting homeowners to retrofit their homes to make them more sustainable.
Overall, our strong quarter confirmed our ability to continue to accelerate growth, increase impact, and deliver value for all of our stakeholders. We delivered good financial and commercial results. We added almost 250,000 mobile primary customers and grew both our lending and deposit base. Fee income grew by 10%, while interest income held up well, and all in all, our net profit came out at almost EUR 1.8 billion, bringing our return on equity to 14%. And with that, we are happy to take your questions.
Operator (participant)
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. Thank you. We will now take our first question from Rutger Betlem of Financieele Dagblad. Your line is open. Please go ahead.
Rutger Betlem (Editor of Financial Innovation and Banking)
Good morning, all, and thank you for taking my question. A quick question about the provision of EUR 300 million. Is it mainly focused on your exposure in Russia?
Steven van Rijswijk (CEO)
Hi, Rutger. I'll give this question to Ljiljana.
Ljiljana Čortan (Group Chief Risk Officer)
Hello. Thank you for your question. The EUR 300 million is, well split in between the wholesale banking and retail. Higher part is on the wholesale banking side for a number of already existing clients in that area, and there is a continuing strong asset quality trend, also helped actually by better macroeconomic outlooks as well.
Rutger Betlem (Editor of Financial Innovation and Banking)
Is it possible to give a percentage of what part of the provision is focused on Russia?
Ljiljana Čortan (Group Chief Risk Officer)
So net impact of second quarter due to Russia is EUR 39 million. So increase of EUR 39 million is attributable to the Russian clients.
Rutger Betlem (Editor of Financial Innovation and Banking)
Question about the fee income. It steps up higher. What are the main drivers of that? So what are your main focus points on fee income.
Steven van Rijswijk (CEO)
Right. It starts with growth of customers, and you may have seen that we now use also the term mobile primary customers, because increasingly, they are mobile, and that's the driver of the growth. So the first one, if you grow the number of customers that are then primary, they do more with you, so that was 250,000 people. If you look at our investment accounts, we have approximately 4.5 million investment accounts, and we grew that in the past year with 8%. And you think, "Oh, 4.5 million is good," but we have approximately 40 million customers.
So you also see we have still many, many customers who do not yet have investment accounts, so we have been able to grow the number of investment accounts. As you may know, we still have quite some way to go in insurance, so we had new contracts with new service providers in private individuals, but also business banking. So we also started to offer in business banking, insurance services, which we did not do in the past. So that, those are a number of elements, and also what also support our fee growth this quarter is the mortgage rebound. So you see the number of houses being sold increasing again, especially in the Netherlands and also in Poland, and to some extent also in Germany and Belgium.
A bit lower recovery, but it also means that if the volumes increase, that's also to the benefit of the fees of the bank as well.
Rutger Betlem (Editor of Financial Innovation and Banking)
Thank you. Final question. You get some guidance on the further growth for this, for this year, in revenues. Is it mainly NII or fee income, or maybe a combination of the two?
Steven van Rijswijk (CEO)
Yeah, it's a combination. We have said that we do see a healthy NII. The deposit margins are stabilizing a little bit, but especially on the... But because we get more deposits in and because we do more lending, we see that income stabilizing, but at a good level. And we are seeing gradual increase in commission growth. As you may know, our bank is very much dependent still on NII. We want to balance that, to have more also next to interest income on lending and on liabilities and on financial markets, also to have more commission income, and that's what you now see growing. So I would say, yeah, the net interest income is holding up well compared to last year, also on the back of more deposit inflow and more lending.
So the lending is coming back because the interest rates in the market are getting a bit lower. And the mortgage market is getting better, huh? More people are buying and selling, and on the fee growth, we're doing more services with more customers, so it's a balance.
Rutger Betlem (Editor of Financial Innovation and Banking)
Thank you.
Operator (participant)
Thank you. And we'll now move on to our next question from Eva Smal of NRC. The line is open. Please go ahead.
Eva Smal (Financial Institutions Editor)
Yes, thank you very much, and good morning. My question is, have you noticed anything in your results from the outcry about the silent cartel and about the media actions by Milieudefensie targeting ING?
Steven van Rijswijk (CEO)
Hey, Eva. So,
Eva Smal (Financial Institutions Editor)
Hello.
Steven van Rijswijk (CEO)
Hello. No, actually, we haven't. So, on Milieudefensie, we haven't heard anything anymore since, I think we sent a letter, or our response letter.
Eva Smal (Financial Institutions Editor)
Mm-hmm.
Steven van Rijswijk (CEO)
Yes, since then, there has not been... At least we have not seen anything anymore. But we have seen also in this country an increase in the number of mobile primary and active customers, but also an increase in our primary customers. So we have not seen any impact of these two movements, if you will.
Eva Smal (Financial Institutions Editor)
Okay. In the press release, you talk a lot about the growth in sustainable banking.
Steven van Rijswijk (CEO)
Yeah.
Eva Smal (Financial Institutions Editor)
Could you maybe elaborate a little bit on that? And could you maybe also say more about the phase out of oil and gas, by 2040?
Steven van Rijswijk (CEO)
Yeah.
Eva Smal (Financial Institutions Editor)
How is that going?
Steven van Rijswijk (CEO)
I mean, what we do is in terms of... because there are a few things we do. So on the one hand, we say we want to decrease our emission levels in line with Paris, which for most of the sectors is what we call emission intensity, huh? And on some sectors, like oil and gas, it's absolute emission reduction. That's just how it works for a bank.
And there's a second thing where we say we also, to be able to get the world to decrease their emissions, and by the way, also for us to decrease our emissions, the world needs to transition. So they need to have other types of processes and fuels and energy sources to be able to for the world to change, because if the world doesn't change, we don't change either. So we look at how do we help customers to transition their operations. And so there we measure in what we call sustainable finance mobilized. By the way, that's not only on environment, but that also is about social elements, including financial health. And there we can either finance ourselves, or we can support them by bonds or obligations, for example.
That has grown quite a bit. That grew in the first half of this year with EUR 10 billion to EUR 57 billion in the first half of this year. So last year, EUR 47 billion, this year 57 billion and the number of transactions last year was about 230, and now it's about 360. So that's growth with about 50%. I'm rounding numbers here. So that's going well. You see there is quite a push, and also you see industries really moving in that direction, including, by the way, mortgages. So 40% of the mortgages that we sold in were A label homes. So that percentage is also increasing, because it's not only companies, but also in the house we need to do a lot more. Sorry?
In and out, sorry, in and out. So that's, that's what we've done on that front. And the other question was on the?
Eva Smal (Financial Institutions Editor)
On the, 2040.
Steven van Rijswijk (CEO)
Oh, 2040 oil and gas. Yeah.
So there we have made a commitment to say we want to decrease our exposure to upstream oil and gas, so that's oil and gas fields. We want to bring that down to zero exposure, and by 2030, we want to bring that exposure down by 35%. And I think by the end of the year, we will report on that, but you increasingly see that our exposure in upstream oil and gas, for example, is smaller than what we do on renewable energy, as an example.
In that sense, it's already small, but we continue to track and trade it per annum, and by the end of the year, we'll give you an update of where that stands to make sure we are in line with 35% by 2030.
Eva Smal (Financial Institutions Editor)
Okay. Talking about financial health.
Steven van Rijswijk (CEO)
Yeah.
Eva Smal (Financial Institutions Editor)
Its goal for fee income is EUR 5 billion per year. I think you're now planning to get the EUR 4 billion mark-
Steven van Rijswijk (CEO)
Yeah
Eva Smal (Financial Institutions Editor)
- this year.
Steven van Rijswijk (CEO)
Yeah.
Eva Smal (Financial Institutions Editor)
Can customers expect more rises in the cost of their basic bank accounts, or do you think the fee income will rise in other,
Steven van Rijswijk (CEO)
Yeah, other areas? Yeah.
Eva Smal (Financial Institutions Editor)
Other areas, yeah.
Steven van Rijswijk (CEO)
Yeah. So, I think the biggest growth needs to come in what people or at least investors call alpha. And alpha is about are you able to do more with your customers and grow your customers more? So I think what I also tried to say to Rutger is that the biggest growth has come from just doing more with our customers.
In a sense, we are still. Yeah, you may not see that every day, but quite a simple bank. So we have many customers, but we also have quite a simple offering. It's digital, it's very simple, it's easy, but there is also not a lot of segmentation. So we can segment much better, focus on Gen Z specifically, or mass affluent specifically, or pensioners specifically, or expats specifically. Currently, if they open the app in many countries, all these groups of people see exactly the same. And you can also be a bit more targeted in your communication offer and what you offer them for their particular needs.
So that's one thing that we try to do, and the other thing that we try to do with it, in a number of markets, we are not yet present in certain market segments. So, for example, we have quite a big business bank in this country and in Belgium and in Poland, but in Germany, we don't have a business bank yet. We just started with it. We have a few hundred million EUR in loans outstanding. Here in this country, we have about EUR 45 billion in loans outstanding to business banking, so self-employed, mid-corporates, SME, MKB, they're almost nothing. So we will become more specific in what we offer to certain customer groups, and we will add customer groups in the countries where we don't yet have them.
As a result, you do see that we now do more on insurance, and we open more investment accounts, and we get more clients in. It's much more about doing more with customers than about pricing.
Eva Smal (Financial Institutions Editor)
Okay, thank you. Last question.
Steven van Rijswijk (CEO)
Yep.
Eva Smal (Financial Institutions Editor)
The risk costs are up, but I think only in Stage 3.
Steven van Rijswijk (CEO)
Yeah.
Eva Smal (Financial Institutions Editor)
But we also see in a lot of countries that the bankruptcies are up. What do you see happening in the European economy you are active in?
Tanate Phutrakul (CFO)
No, she says that the risk costs go up, but we do... She says, "We do see that in a number of economies, the bankruptcies go up." And Eva asks, "What do we see in that regard?
Eva Smal (Financial Institutions Editor)
Yeah.
Tanate Phutrakul (CFO)
I'll give it to Ljiljana.
Ljiljana Čortan (Group Chief Risk Officer)
Thank you for the question. Apologies, I haven't understood it in the first place. Yes, what we see actually is, as I said, on the wholesale banking side, individual unrelated cases in different geographies, so nothing specific to specific geography or industry. On the retail side or, let's say, business banking, we as well see, I would say, under average activity when it comes to insolvencies. Specifically, if I look at Netherlands, there is no stronger inflow in the restructuring units. So I would say, we remain very much vigilant and looking into the environment, but we do not see upticks specifically in some geographies or specifically in some products, if this answers your questions.
Eva Smal (Financial Institutions Editor)
Yep. Thank you very much.
Operator (participant)
Thank you. Once again, as a reminder, ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. We will now move on to our next question from Yteke de Jong of De Telegraaf. Your line is open. Please go ahead.
Yteke de Jong (Aviation and Construction Reporter)
Good morning. [foreign language]?
Steven van Rijswijk (CEO)
Yeah. No, well, we prefer, prefer English, since we have my colleagues around the table are-
Yteke de Jong (Aviation and Construction Reporter)
Okay
Steven van Rijswijk (CEO)
... are non-Dutch speakers... if possible. If not, we do it in Dutch and I'll respond. Can you understand English?
Yteke de Jong (Aviation and Construction Reporter)
I'll try, but banking is, I'm taking over from my colleague.
Steven van Rijswijk (CEO)
Oh, why don't you just-
Yteke de Jong (Aviation and Construction Reporter)
I'm not specialized in banking, so-
Steven van Rijswijk (CEO)
All right. Why don't you just say it, say it in Dutch?
Yteke de Jong (Aviation and Construction Reporter)
Well, we figure it out.
Steven van Rijswijk (CEO)
Why don't you just say it in Dutch, and I'll translate in English, no?
Yteke de Jong (Aviation and Construction Reporter)
Okay.
Steven van Rijswijk (CEO)
Yeah.
Yteke de Jong (Aviation and Construction Reporter)
My question is, are you looking to other markets because you are assuming that the economy is slowing down and interest rates will be going down through the policy of the ECB? [foreign language]
Steven van Rijswijk (CEO)
Okay, so the question is, am I preparing for income to go down because the interest rates will go down? Okay, can I respond in English? Is that okay?
Yteke de Jong (Aviation and Construction Reporter)
Okay, yeah.
Steven van Rijswijk (CEO)
Yeah. So interest rates are expected to indeed come down, because you see the ECB and the Fed, as well as the Fed of the U.S.
Yteke de Jong (Aviation and Construction Reporter)
Yeah.
Steven van Rijswijk (CEO)
They are looking at the economies, and they then look at, okay, are employment levels good? Is the economy doing well? And, if inflation is coming down as well, they can also gradually decrease the rates. Now, inflation is indeed coming down, so that, so then... And so rates are decreasing, but they also do it in a gradual way. So, because we see now for June, the figures in the Netherlands, inflation levels are now at 3.7%, I believe, what I read.
Yteke de Jong (Aviation and Construction Reporter)
Right.
Steven van Rijswijk (CEO)
So you see.. you see that they do it in a balanced and gradual way. So that is the assumption that we take, and in that environment, when things are being done in a gradual way, we are just operating as we operate in a normal environment. Because things are not moving too quickly, and moreover, it then also means that we can just act as we always act. So sometimes we move interest rates up and sometimes down, but not too speedily. And that's what we have seen over a long period of time. But that all changed when the interest rates became negative in 2014, and also changed when the interest rates went up very quickly the past couple of years.
But now we're back into a normal interest rate environment, and typically, when interest rates move a little bit up or a little bit down, doesn't really impact our interest income. That's one element to it, right? So if it goes further down in a gradual way, we don't see it will impact our interest income dramatically. The second element is, of interest rates coming down, is that it becomes cheaper for people to borrow money. And when it becomes cheaper for people to borrow money, in general, that's good for economic activity, because then people can borrow more money. And that means that more economic activity, more borrowings, more borrowings to banks, and it also means that's good for interest income.
Yteke de Jong (Aviation and Construction Reporter)
So that's why you moved to, for example, to Germany, in new markets?
Steven van Rijswijk (CEO)
No, I mean, I mean, we have been in Germany already for a long time. I think in most of the markets, we've been about 30 years or longer.
Yteke de Jong (Aviation and Construction Reporter)
Yes.
Steven van Rijswijk (CEO)
And in Germany, yeah, we are very big. We have 9.5 million customers, approximately, which is bigger than in the Netherlands, but of course, Germany-
Yteke de Jong (Aviation and Construction Reporter)
Yeah, but your business activity, you want to,
Steven van Rijswijk (CEO)
Oh!
Yteke de Jong (Aviation and Construction Reporter)
establish there.
Steven van Rijswijk (CEO)
Oh, yeah, though, that's... No, so in Germany, we do have, in the Netherlands, we have business here with private individuals, so with persons like you and me.
Yteke de Jong (Aviation and Construction Reporter)
Yeah, in banking, yeah.
Steven van Rijswijk (CEO)
We also have it for small businesses, ZZP players, and MKB.
And we have it.. for very big companies like, Ahold Corporates, Ahold, KLM, Philips, those kind. But in Germany we only have it for very big corporates, Volkswagen, Lidl, God knows what, and for private individuals, but we have nothing in between.
And so if you want to make a bigger impact on society, you want to really lend to the heart of the society, and the heart of the society typically is ZZP players, MKB, SME. And that's why we also moved there, because then we broaden, we diversify, we diversify our business, and there are still there are still a lot to do, because in Germany, for example, there is not a good offer in digital ZZP banking, and we have it, so we can also use it in Germany.
Yteke de Jong (Aviation and Construction Reporter)
Okay. The market is in that part of the market, not yet,
Steven van Rijswijk (CEO)
Now, [foreign language], so we are not there. But more but moreover, there is not a good digital offer. [foreign language]
Yteke de Jong (Aviation and Construction Reporter)
Okay.
Steven van Rijswijk (CEO)
[foreign language]
Yteke de Jong (Aviation and Construction Reporter)
Ah, okay. So that's your offer then?
Steven van Rijswijk (CEO)
Yeah.
Yteke de Jong (Aviation and Construction Reporter)
Okay, because I was wondering how would you break in such a very tight market, I would say. So, but that's the smooth aligned digital banking tool.. tools that you have.
Steven van Rijswijk (CEO)
Yeah, and-
Yteke de Jong (Aviation and Construction Reporter)
Okay, another question?
Steven van Rijswijk (CEO)
Yeah. Well, that's how we have also done that. I mean, we started in Germany about 30 years ago with zero clients, and now we have 9.5 million, so it's just step by step, by step, by step, improving, improving... that builds that franchise.
Yteke de Jong (Aviation and Construction Reporter)
Okay. But what would be your margin in such a new market? What is your target?
Steven van Rijswijk (CEO)
Sorry, that I don't know, but it typically in banking, it starts very small. So you try something, and then you see what works and doesn't work, and then you improve it, and then you see what works and doesn't work.
So typically, you build up a bank in quite a slow pace. It goes step by step by step.
Yteke de Jong (Aviation and Construction Reporter)
Okay. Okay, another question.
Steven van Rijswijk (CEO)
Yeah.
Yteke de Jong (Aviation and Construction Reporter)
Is there a chance that the interest rates for normal savers will go up in the coming time? Because there is this criticism from the consumer authority on the banks that the normal customers don't get enough interest rate on their savings.
Steven van Rijswijk (CEO)
Mm-hmm. Yeah, look, typically, I do not comment on future interest rate movements, huh? That is, that I'm not allowed to say anything about the future interest rate, so I stay away from that. But we... So I don't know what you're referring to, but if you refer to the ACM and the Antitrust Authority report, the ACM then we have a different opinion. We feel that the Dutch savings market is fair competitive, and we have ample choice for customers. To give you an example, Ipsos came out with a research that in the fourth quarter of 2023, 64% of the new accounts opened was with other banks than the three big banks. Based on our own estimates, 4 million people in this country have multiple banks with who they bank with, so they can transfer easily between banks. So we don't-
...we don't agree with their conclusions. But they make a point that it's important to be competitive and to increase transparency, and that we agree with. We agree that the market needs to be competitive, and also, we cannot be against being transparent. So if there are things that everybody can do to become more transparent, we're all for it, and we also endorse competition. That's what we do everywhere. There's, by the way, one element, but this becomes quite technical, which could really help competition, which is a European deposit guarantee system.
Because now these Deposit Guarantee Systems are local, and that also means that the insurance is local. But if you make it easier for people to open bank accounts across borders, then you get even more competition, and that would be very good. So European DGS system is good for everybody, good for society, good for the people, good for the banks.
Yteke de Jong (Aviation and Construction Reporter)
Okay, but you could do, from the perspective of financial health, you could say, "Okay, we raise the interest, the rate for our savers a little bit more, more, towards the Spanish bank is offering 6.59," I understood. So, from our societal responsibility, we want to move up.
Steven van Rijswijk (CEO)
Right. But we have also... I've, of course, heard what you're saying, and it sounds very good. But we also have an obligation to keep our bank and our balance sheet safe, and the existing savers safe. We all look at this in the construct of: how do we keep the main that we have safe here with the right amount of equity and the right amount of risk costs and the way that we hedge the risks? How do we invest in the future also for the experience of our employees, including better digital tools, as an example? And how do we provide an attractive offer for our clients? In that mix is how the price is being set.
Yteke de Jong (Aviation and Construction Reporter)
Okay, and back to the SME, the plan you have in Germany for other businesses, and to grow also in other countries, I understood this morning. Is it your goal, would that?
Steven van Rijswijk (CEO)
Yeah, you're suggesting we make a loss, but we don't make a loss, and actually, we projected our interest income-
Yteke de Jong (Aviation and Construction Reporter)
No, no, you don't make a loss, but [foreign language]
Steven van Rijswijk (CEO)
I should at least another say, the reason why we are diversifying is that, so not only depend on interest.. but also to just take opportunity from the fact to do much more with customers, because we have many customers, about 40 million customers, but with a number of them, we just don't do that much with them yet.
Let me give you just a simple example. In Germany, we are being seen as a neobank. We were being seen as sort of a Revolut. A very narrow, real small.
Yteke de Jong (Aviation and Construction Reporter)
[foreign language]
Steven van Rijswijk (CEO)
[foreign language]
Yteke de Jong (Aviation and Construction Reporter)
[foreign language]
Steven van Rijswijk (CEO)
[foreign language]
Yteke de Jong (Aviation and Construction Reporter)
Yeah, okay, but wouldn't it be quite easy for your night rest to stay a simple bank?
Steven van Rijswijk (CEO)
Yeah, if I only live my life to be easy, I wouldn't be in this position, I think. So it's good to have a challenge in your life, but I think it's good for the bank to be more diverse and I think we should benefit from the fact that we're a very good bank and we can do much more and much more in societies. And that will also benefit the people, because we believe we have offers that are better than the German banks and by the way, also in Spain and Italy. So we don't do it only in Germany, but also in other markets, and therefore we can do much more with these companies, with these clients, which is good for society, but that's also good for ING.
Yteke de Jong (Aviation and Construction Reporter)
Thank you.
Steven van Rijswijk (CEO)
Thank you.
Operator (participant)
Thank you. As a final reminder, if you would like to ask a question, please press star one on your telephone keypad. Thank you. There are no further questions in queue. I will now hand it back to Steven van Rijswijk for closing remarks. Thank you.
Steven van Rijswijk (CEO)
Thank you. To wrap up the call, we deliver good results in the second quarter of the year, both commercially and financially. We added 248,000 primary mobile customers and grew both our lending and deposit base, and our fee income grew by 10%, while interest income held up well. Our net profit came out at almost EUR 1.8 billion, bringing our return on equity to 14% over the past four quarters. And all in all, we saw a strong quarter confirming our ability to continue to accelerate growth, increase impact and deliver value for all of our stakeholders. And with that, we leave you for now. If you have any further questions, you know how to contact Raymond and the media team. And if not, we will see you again next quarter.
By the way, enjoy the holidays and the summer if you have not already done so. Thank you.
Operator (participant)
Thank you. This concludes today's call. Thank you for your participation. Stay safe. You may now disconnect.