ING Groep - Q3 2024 (Media)
October 31, 2024
Transcript
Operator (participant)
Good day and welcome to the ING Media Call 3Q 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, Operator, and to everybody. Welcome, and thank you for joining us on the call. With me, Tanate Phutrakul, our CFO, and Ljiljana Čortan, our CRO, and we'll give you a short update of developments during the third quarter of 2024, and then we'll open the call for questions. Overall, we recorded strong results this quarter. We saw growth in customers and good commercial momentum with more lending and higher deposits. Our income improved with a strong performance in fees. We recorded controlled expenses and saw moderate risk costs, and all of this illustrates the success in executing our strategy to accelerate growth, increase impact, and deliver value for all stakeholders. Now, to give you a bit more detail, our customer growth continued with an additional 189,000 mobile primary customers to a total of 13.9 million.
That means that 88% of our primary customers now only bank with us through their mobile device. The strongest customer growth was in Germany, Türkiye, and Romania. Then on lending, we recorded strong lending growth of EUR 8.5 billion, which was driven by a EUR 5.7 billion higher mortgage volume across all of the markets in which we have mortgages. Especially in the Netherlands, we did well as we increased our market share in this product. Deposits were also up by almost EUR 3 billion, mainly thanks to wholesale banking and a promotional campaign in Belgium. Now, going deeper into our results, fee income surpassed the EUR 1 billion mark for the first time, and that's a clear success in our efforts to diversify income and reduce our dependency on interest income.
The growth in fees was mainly driven by retail investment products, by daily banking, and by a number of deals in our wholesale bank. We succeeded holding up interest income as well as we booked higher volumes, illustrating our ability to record resilient interest income in varying market circumstances. Costs were slightly up as well, but under control while we invest in growth, particularly in our retail business. Risk costs, that's the money we set aside for bad loans, went up, but are still in line with the average amount we see through the economic cycle. And all in all, our strong commercial momentum and good cost control delivered a net result of almost EUR 1.9 billion, slightly below the exceptional quarter last year, but up from last quarter.
Now, as you know, sustainability is a strategic pillar for us, and we aim to put sustainability at the heart of what we do, continuing our support to our customers in their transition. We work to bring down emissions in our client portfolio. We stimulate green energy, and we empower customers to make that transition. We succeeded because we also increased our sustainable financing, because the past nine months we were able to record EUR 85 billion in sustainable volume mobilized, up from EUR 74 billion last year. We supported customers with 565 sustainable deals, up from 507. Our results confirm that we're a well-capitalized bank. Our CET1 ratio, that's our capital ratio, came out at 14.3%, which is still well above the target of around 12.5%, which in turn is well above the regulatory minimum.
We continue our efforts to manage our capital towards our target. In that, we announced today that an additional distribution will be made to our shareholders of EUR 2.5 billion. As with everything, we work to balance the interest of all of our stakeholders, good products and service to our customers, attractive offer for our employees, and also a fair remuneration for shareholders. Of course, only if we remain at a healthy capital level. That's the condition sine qua non. Now, to give you a wrap-up, we recorded strong results this quarter. We saw good growth in customers, good commercial momentum with more lending and deposits, and our income improved with strong performance in fees, surpassing the EUR 1 billion mark for the first time. All in all, our net profit came out at almost EUR 1.9 billion.
All this illustrates the success in executing our strategy to accelerate growth, increase impact, and deliver value for all stakeholders. And with that, we're happy to take your questions. Thank you.
Operator (participant)
Thank you. Ladies and gentlemen, once again, as a reminder, if you would like to ask a question, please press star one on your telephone keypad. 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 Rutger Betlem of Het Financieele Dagblad. Your line is open. Please go ahead.
Rutger Betlem (Redacteur)
Good morning all. Thank you for taking my question. Questions. I have three, actually. I would like to start with NII. Is it possible that we could get some guidance on the development of NII in 2025?
Steven van Rijswijk (CEO)
Yeah. Why don't you ask your complete set of questions, and then I can direct the questions with my team members?
Rutger Betlem (Redacteur)
Sure. I will. Second question. Well, it's a question that sort of follows up on the first question, and that is, do you expect when NII is lower to compensate this fully with other income? And the third question is, do you expect economic impact from the outcome of the elections in the United States, and how will this impact ING? That's it.
Steven van Rijswijk (CEO)
All right. That's clear. Let me start with the economic outlook, and then Tanate will follow on with our views on NII in general and, let's say, the compensating vessels between NII and fees, if you will. I mean, look, I mean, first of all, we are operating in close to 40 countries, and there are always changes and different political environments, and we have been able to work in these different political environments, so we are, in that sense, politically agnostic. What for us is important is that there is ability for international trade, limitations on that we are advocating, how do you call that, restrictions on and the restrictions on trading barriers, and so open economies stimulate economic growth, stimulate trade, stimulate international and global production, and that is something that is beneficial to the economic cycle at large, but also to our bank.
Tanate Phutrakul (CFO)
Thank you. And then on your question on NII, when you look at the net interest income, you should break it down into three component parts, right? The net interest income we make on lending, the net interest income we make on deploying deposits from customer, and then net interest income from treasury operation, which can be volatile. What I can say in Q3 is that our net interest income from lending is a little bit lower than the previous quarter, but our guidance is that through the years, we should be able to maintain a net interest income margin on lending of around 130 basis points. Similarly, for liability, our current margin is 112.
We expect that in the coming period, that margin will contract a little bit to between 100 and 112 basis points over the next three years, which is information we gave at the Capital Markets Day, but broadly, we think that net interest margin over the cycle we can maintain at around 150 basis points despite the lower interest rate environment that we are seemingly heading towards. Then part of that compensation on the impact of lower rates is through fee income, and we have grown fee income this year on year by 11%. We expect to make around EUR 4 billion in fees for 2024, and that would increase to EUR 5 billion by 2027.
Rutger Betlem (Redacteur)
All right. Thank you, Tanate.
Operator (participant)
Thank you. And we will now take our next question from Rutger de Jong of De Telegraaf. Your line is open. Please go ahead.
Rutger de Jong (Analyst)
Hi, good morning. A question on the lower interest rate and the possible lower interest income. I would like to elaborate further on that. Is it wise in this perspective that you have bought back shares for EUR 2.5 billion because your income will be under pressure in the coming years?
Steven van Rijswijk (CEO)
All right, so these are different lines in the P&L and balance sheet, so.
Rutger de Jong (Analyst)
Of course, but income is income.
Steven van Rijswijk (CEO)
Yeah, income is income, indeed, and capital is capital. So income is in the P&L. And we are looking at our capital ratio, and our capital ratio is a lot above our target ratio. And when we make a profit, then we make a profit is growing further. So what we want to do is to bring that in line with our target ratio to have capital that is high enough to be safe, but not too high that we make our operations more expensive because that makes us less competitive. And that's the balance that we try to strike. And that's why already for many years we have said we have a target of capital of around 12.5%. And as long as we're not there, we want to move in gradual steps towards that level. And that's what we're doing.
And to keep the bank safe, obviously, we also stress test the capital to say, okay, what happens in different circumstances? What would then be the impact on capital? And that's how we manage the bank.
Rutger de Jong (Analyst)
Of course, but if you have lower profits in future, your capital ratio will lower automatically. So.
Steven van Rijswijk (CEO)
No.
Rutger de Jong (Analyst)
Don't take extra risk in this.
Steven van Rijswijk (CEO)
No, if we make less profits, it does not automatically mean that our capital will decrease because the profit will be added to the capital. So in principle, the capital will increase. And we are at the point that the capital is still above that 12.5%. So every level of profit, I mean, more profit is more helpful, obviously. That depends also on the risk on that profit. But in general, if you make profit, that is added to the capital. And our capital ratio is still significantly above where we want to be.
Rutger de Jong (Analyst)
Yeah, I can't understand why you want to lower your capital ratio that much. But maybe you could explain that. How harmful is 14% versus 12.5%?
Steven van Rijswijk (CEO)
Yeah, well, I mean, that is in the end what you try to do, and that's also where the ECB and the DNB come in. They give you targets to say, well, these levels are what we consider safe, and obviously, that goes for any company or any business line. You want to have a certain amount of capital that keeps you safe, and you want to avoid having too much capital because that makes you expensive, and that's the balance that all companies try to strike, and ING as a bank as well.
Rutger de Jong (Analyst)
Okay. Another question on your, how do we say that in English? Let me look. Your loan provision.
Steven van Rijswijk (CEO)
Yeah, loan provisions, yeah.
Rutger de Jong (Analyst)
Why is that so much higher? What do you expect in the future?
Steven van Rijswijk (CEO)
What we currently see is that the stroppenpot is that we are every quarter we add to that provision level is approximately at the average that we see during an economic cycle. So if you take an economic cycle of, let's say, 10 years, and we look at what the average risk costs are, you compare that over your lending book. You say, okay, we have EUR 650 billion in lending, and how much every year we need to put in the stroppenpot in the.
Rutger de Jong (Analyst)
Loan provision.
Steven van Rijswijk (CEO)
In the loan provisions. Now, that is approximately one-fifth of a percent, so 0.2% per annum on average. And if you look at the risk costs of this quarter and you multiply by four to get to a year of risk costs, that is exactly that 0.2%. And so that's in line. So we are approximately in line with what we have. Last year, we had a bit less, but then we had also some releases. Sometimes.
Rutger de Jong (Analyst)
Okay. You stick to the.
Steven van Rijswijk (CEO)
Guidance.
Rutger de Jong (Analyst)
0.2%. Okay.
Steven van Rijswijk (CEO)
Yeah.
Rutger de Jong (Analyst)
Okay. Understood that. You announced that you are pushing harder on ESG with clients. At the same moment, Germany, a market in which you want to grow, is economically collapsing due to ESG. So is ING on the right track with this harsh ESG target to clients?
Steven van Rijswijk (CEO)
Yeah, well, maybe I think that Germany clearly has a challenge on moving to a low-carbon society, as by the way, the whole world does. And it basically means, and you see that, that there is a lot of investment needed in different sectors to actually move to a lower-carbon society. Now, that is what was agreed in Paris between many countries around the world, including the Netherlands and Germany. That is.
Rutger de Jong (Analyst)
Is that.
Steven van Rijswijk (CEO)
Sorry?
Rutger de Jong (Analyst)
Yeah.
Steven van Rijswijk (CEO)
And that is the direction that we as societies want to travel into. And that's what.
Rutger de Jong (Analyst)
Of course. But now you see Germany collapse. So maybe there's a little bit of mismatch?
Steven van Rijswijk (CEO)
I don't think that Germany per se collapsed because of ESG, but because there is a lot of investment to do on various fronts, which currently is challenging for Germany in general. But the challenge that we have on climate still stands. And I think we need to find a way how to fight climate change. And for Germany, I think they need to find a way in general how to improve their economy. But that is not a contradiction in terms, I would say.
Rutger de Jong (Analyst)
Okay. But how will this affect your growth plans now Germany is collapsing?
Steven van Rijswijk (CEO)
Well, I mean, we are active in 40 countries. There is a lot of transition finance needed in all countries in which we're active, including in Germany. And we want to help customers with their journey to transition to a lower-carbon society. That's what we will continue to do, also with German clients.
Rutger de Jong (Analyst)
Okay. Another question on the share buyback. You announced this earlier this year. It was finished, and now you're distributing this to your shareholders. Do I have this correct?
Steven van Rijswijk (CEO)
This is the.
Rutger de Jong (Analyst)
Or did you announce another one?
Steven van Rijswijk (CEO)
We announced another one.
Rutger de Jong (Analyst)
Okay. So it will be EUR 5 billion total.
Steven van Rijswijk (CEO)
Yes.
Rutger de Jong (Analyst)
Okay, then now comes my question. Why did you choose to give money back to your shareholders instead of your clients who will face much more higher fees?
Steven van Rijswijk (CEO)
I mean, look, first of all, like I said, we want to operate at the right amount of capital, and you need to have the right amount of capital, which should not be too high and not be too low. And we have selected that 12.5% as our target, which was, by the way, aligned with the ECB, right? And so we all think that that is a right amount of capital to operate on. And that's why we have said already a number of years ago that we're gradually moving to that level. Now, and as with everything, we work to balance the interests of all of our stakeholders. We want to make good products for our customers. And you can see that because we are the number one NPS player in 510 retail markets. We have been chosen as the best mortgage bank in this country.
We are growing the number of customers. We are increasing the deposits. We have increased the lending. So it means that customers appreciate what we do. Two, we want to have an attractive offer for our employees. And thirdly, we also want to have a fair remuneration of shareholders. So it is not or, or. It is and, and.
Rutger de Jong (Analyst)
Okay. But is there still a balance to see then? If you give EUR 5 billion back to shareholders and clients face a more expensive fee, EUR 1 billion, I think?
Steven van Rijswijk (CEO)
The fee component is remuneration for services that we render. Like with everything that also other companies do, we want to offer a very good service or actually a superior service. For that, we ask a fair compensation. Clients can choose whether to buy or not. You can see that based on the number of growth accounts that we have in investment products, for example, last year we had 4 million customers that wanted to do investment transactions with us. Now we have 4.6 million clients who want to do investment transactions with us. Investors seem to like our offerings. The same goes for insurance products that grew with about 10%. The same goes for daily banking products that grew with about 10%.
So you see that customers want to do business with us based on the good offers that we make. So we invest in making our offer a very good experience for our customers and very digital to make it easy for our customers when appropriate. And for that, we ask customers a remuneration. And we see in the growth of the customers and the business that they do that they like our services. And that's what we find important.
Rutger de Jong (Analyst)
Okay, but so, customers. Maybe you have even more customers.
Steven van Rijswijk (CEO)
Yeah. Look, that's always a balance we try to strike. As with any business, we try to strike a balance between all the stakeholders.
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. Thank you. We'll now take a follow-up question from Rutger de Jong. Your line is open. Please go ahead.
Rutger de Jong (Analyst)
Thank you. Another follow-up on the ESG. Is ING not taking it too far with the plan to, yeah, to stop servicing clients who are not in the eyes of ING the best in class on their climate approach?
Steven van Rijswijk (CEO)
Sorry, come again. I missed the question.
Rutger de Jong (Analyst)
You announced this plan to kick out clients who are not that climate-sensitive or don't have the right approach to ESG. How are you not playing God with this instead of being a bank?
Steven van Rijswijk (CEO)
First of all, we have an approach that is the same as we agreed or as our countries agreed and governments agreed in Paris. So the plan that Europe has is an agreement in the Paris Agreement to fight climate change to Net Zero by 2050. That's exactly what we are doing. Nothing more, nothing less. And secondly, we follow science, which, by the way, is also in line with that Paris Agreement that all the countries did across the globe. And then we say we want to, so it's a scientific approach, not our approach, but we just follow what science says is the change in temperature and the change in emissions in sectors. And then thirdly, what we do is we work on an inclusive basis. So we say we will always start to work with clients rather than just exclude clients.
Only if science says that there are certain energy sources that are no longer needed, so the world doesn't need these energy or more of these energy sources, then we would take a decision. Or if clients would say we are not willing to move, we are unwilling to move gradually towards net zero, depending on the sector, only then we would consider excluding them. But our starting point is we are inclusive first. All right. Let me now wrap up the call. We recorded strong results in the quarter. We saw growth in customer and good commercial momentum with more lending and higher deposits. Our income improved with a strong performance in fees, surpassing EUR 1 billion for the first time. Our net profit came out at almost EUR 1.9 billion, slightly below the exceptional quarter last year, but up from last quarter.
All this illustrates the success in executing our strategy to accelerate growth, increase impact, and deliver value for all stakeholders. With that, we'll leave you for now. If you have any further questions, you know how to contact our media team. We are really looking forward to seeing you again next quarter. Thank you.
Operator (participant)
Thank you. This concludes today's call. Thank you for your participation. You may now disconnect.