ING Groep NV (ING) 2022 Q3 法說會逐字稿

Hello, and welcome to the ING Media Call for the Third Quarter 2022. (Operator Instructions) And just to remind you, this conference call is being recorded.

Today, I am pleased to present Steven van Rijswijk. Please go ahead with your meeting.

Thank you very much, operator. Welcome, and thank you for joining us on the call. On the call with me are Tanate Phutrakul, our CFO; and Ljiljana Cortan, our CRO. We will give you an update of developments and results for the third quarter of 2022, where, in short, we saw a solid performance, especially in light of the challenging economic and geopolitical environments. In these circumstances, it is important for us to keep our focus on executing our strategy to provide a superior customer experience and to put sustainability at the heart of what we do.

The hard work of our people on improving the experience for our customers has yielded good results. The share of customers using only mobile went up from 53% to 57%. In 7 out of our 10 retail countries, we have a leading NPS position, up from 5 markets in the previous quarter. And another 139,000 customers trusted us to become their main bank, bringing the total number of primary customers to 14.4 million.

When it comes to sustainability, we aim to be a banking leader. Our 2022 climate report published in September shows the progress we're making in climate action, including our Terra approach. I'm pleased that we set intermediate targets for 2030 for all 9 Terra sectors, which are the most carbon-intensive sectors. This is helping us to steer our loan portfolio towards net zero by 2050.

In the past quarter, we saw that our strategy and our strong diversified balance sheet are paying off. Total income was EUR 4.4 billion as we benefited from higher interest rates. Without 2 exceptional items, which we explained in our press release, income would have been over EUR 5 billion. Fee income was resilient as higher fees from daily banking were offset by lower fees from investment products due to a decline in stock markets and subdued trading activity. Loan growth in Retail Banking was EUR 900 million driven by mortgages, while in Wholesale Banking loan growth was EUR 3.8 billion. Net core deposit growth was EUR 10.5 billion.

Our expenses were well contained despite increasing inflationary pressure. Risk costs remained in line with our through-the-cycle average and include overlays based on the macroeconomic outlook. We're confident of the quality of our loan portfolio, the strength of our diversified risk profile and our provisioning levels.

All in all, our profit before tax came in at just under EUR 1.4 billion, and net result was EUR 979 million. Our capital position remains very solid with a CET1 ratio of 14.7%, well above our own target and regulatory requirements. This allows us to distribute an additional EUR 1.5 billion to our shareholders, in line with the ambitions we presented at our earlier investor update.

And with that, we're happy to take your questions now.

(Operator Instructions) And our first question comes from the line of Rutger Betlem of Financieele Dagblad.

I have a question about interest income. It's pretty solid at the moment. In the analyst call, you spoke about mainly a contributor being in mortgages. I was wondering what your expectations are for the long term because the housing market is in decline at the moment. We have less (inaudible), as we call them. So I was wondering what you think about the long-term effects.

Yes. Thank you very much, Rutger. Yes, if you look at the number of houses sold in 2021, that was 225,000. For this year, we expect 195,000. And for the year after, we go to 175,000. So it will go down. That's in the Netherlands. But we also see similar effects of -- in other markets as well. We have a mortgage broker in Germany called Interhyp. Also there, we do see that the number of new applications are decreasing. So we do expect that also the mortgage market, in terms of new mortgages coming to the market, will be down as a result of the change in macroeconomic circumstances, and that's actually all across the board.

Yes. And that will probably have an impact on your NII in the coming years?

Yes, there are more -- of course, there are multiple effects on that. On the one hand, we see interest rates rising. That is having a positive impact on our interest income. Clearly, the new loan volumes we expect to come down, that will have a negative impact. And then we -- you already alluded on the prepayment penalties that are coming down as well and the (inaudible), as you call them. So that has also had a decreasing effect on it. So it is a balance.

Sure. Second question, if I may.

You may.

Good. The exposure in Russia. I can see that there's -- see it's declining slowly. You still have a EUR 3.2 billion outstanding, I think. What are your expectations over the coming months?

I will give that question to Ljiljana.

Thank you for the question. Yes, EUR 3.2 billion that you've mentioned, these are outstandings outside of the Russia. Our total exposure is EUR 3.8 billion. And yes, we do see it coming down. Actually, I would say it's quite significantly almost by 45% compared to the start of the crisis. Clearly, this trend will not continue with the same dynamics because we have undertaken the majority of the measures that we could have taken on the loans in order to decrease our exposure, but we will continue to do that. So the trend is continuing probably at a lower pace.

Okay. If I -- and I also had a question about Belgium. Is it mainly indexation of loans or -- because I saw the customer income ratio going up pretty steeply? Is that due to the indexation? Or are there other factors at play as well?

You're talking about cost/income ratio? Are you?

Yes.

Yes. So maybe 2 effects there. First of all, we had an accounting impact of minus EUR 288 million as an exceptional, that is an accounting impact only, not an economic impact, due to the fastly rising interest rates that has to do with hedging. But that will come back over the next years, so that's an accounting impact only. And that has impacted income negatively, and that, in turn affects cost/income ratio. When you talk about costs, these are moving up gradually. So on the one hand, you see a bimonthly indexation of loans -- of salaries. That is how it is being done in Belgium based on law. On the other hand, we are changing our service model and our relationship with the agents. So we're digitalizing our offering on the one hand, that is causing cost to remain well under control, but they have moved up of course, on the back of these indexed salaries.

Okay. Shall I give the floor to someone else or do you want me to proceed?

I'm not in charge of who asks the question. So -- but maybe you want to hand off to somebody else first and then come back later. Just that will be nice, I guess.

Our next question comes from the line of [Mattis Roseville], Financieele Dagblad.

Yes. So that's FD again. But I've got 2 short questions. You mentioned something about subdued trading activity. Could you expand on that, please? And I also got a question about the share buying program. There was an advice of the President of the Dutch Central Bank, Klaas Knot, to increase financial buffers. What do you think about that advice? And do you have different views on this?

Thank you. When I talk about subdued trading activity, then you see in our investments products, that is investments done by our customers that due to lower stock markets and lower trading activity, the commission income on that decreased because people are investing less or are investing at lower amounts. And that's what you also see in our fee income line, that within that fee income line the investment product income in that part went down, obviously, as a result of lower investment levels.

And then when I talk about the Dutch Central Bank, of course, I mean, I think those are fair remarks. I think that the President of the Dutch Central Bank has made remarks in being modest in terms of share buybacks and to maintain adequate capital buffers. That is exactly in line with what we are doing. And we have a capital buffer that is significantly beyond what our own capital structure is, but also what supervisors, including the DNB, requires to hold in terms of capital. And that's why we are able, and like we said already previously, to do a share buyback to gradually -- but gradually because we want to be prudent, gradually move the capital levels to our target capital structure. But we do it gradually on purpose to remain prudent, and that's exactly in line with the requirements and as set by the ECB and the DND.

And if I may ask another short question, what do you think about trading activity coming year?

You mean trading on the investment products, you mean?

Yes, the subdued trading activity you just mentioned. .

Yes. Well, look, I mean, clearly, that will depends on the macroeconomic environment. What you've currently seen, of course, is that the interest rates went up quite quickly in a short period of time. And if you look at the ECB rates, they went from minus 50 basis points to minus 0.5% to now 1.5% within a matter of 3 months. And if you look at previous periods in which the ECB or supervisors increased those interest rates with similar amounts that would be typically done in periods of around 1.5 years. So you see interest rates increasing quickly, inflation levels are high. The economic outlook is uncertain. And based on that outlook and based on price levels, that will be input for people where they will invest more or not. So it's too soon to call. But clearly, we're currently in an environment whereby these levels are subdued. And if the circumstances stay, then they could be subdued for a longer period of time.

(Operator Instructions) And our next question comes from the line of Rutger Betlem of Financieele Dagblad.

Here we go again. You said in the analyst call about the TLTRO arrangements from the ECB and that you're very disappointed in the stance. And I was wondering if you could elaborate a bit on that and more. Tell me what is the biggest impact for you for this new step in the, how do you call it, in the way that they deal with this arrangement?

Right. So let me make a few remarks here. I -- we fully understand that when interest rates are higher, that support measures that were put in place when the interest rates were lower or negative, that these are no longer needed. So I think that is well understood, and we fully appreciate that. What we find more difficult is that the original arrangement would run until well into 2023. And based on that understanding and philosophy and agreement with the ECB, we also hedge these incomes. And what that meant with the announcement that came out of the ECB Thursday is that the number of banks, including ourselves, had to unwind these hedges because the agreement certainly changed. And that we find unfortunate because then it would have been better if the ECB would have said already earlier that they would stop these measures at an earlier date. So this is more about predictability of having certain schemes in place and making announcements than that we do not understand the direction.

In terms of the impacts, it has for us and impacts as a result of unwinding these hedges, countered by still partially benefiting from the TLTRO income and negative impacts of minus EUR 315 million pretax and we booked that in the fourth quarter.

Okay. And -- but you also made a lot of profit, of course.

Well, taking it one step back, the measures were put in place because the ECB decided a number of years ago to decrease interest rates, first, to 0 and then to minus and eventually to minus 50 basis points. That was to stimulate the economy, but that also impacted the banks significantly. And to partially compensate for that, they put a TLTRO scheme in place. So again, it is this balance that they partially compensated for the monetary position was taken to decrease interest rates to below 0. And because that is reverting to a positive interest rate, that program will stop. Fully understood. It's more about the timing of it.

Now would you then start earlier than by with like unwinding your, like hedging. So -- because you could see this coming, right?

If you look at the way that we, as a bank, manage our position, and this becomes a bit technical, but we want to balance assets and liabilities. So in our asset and liability management strategy, it is very prudent to hedge these incomes to make sure there are no erratic moves, unless of course, a certain unexpected statement is being made, but you cannot trade on rumors. You can only act when something is really certain, and that's the prudent approach we take in our asset and liability management.

Okay. Understood. I have one final question. And...

(technical difficulty)

Please bear with us one moment. We seem to have momentarily have lost, Mattis. Let me see if I -- momentarily have lost, Rutger. Let me see if I can return him, one moment. Okay. Rutger, go ahead. You may continue with your question.

Okay. I was asking a question about Payvision and we're already -- we were like immediately cut off. So that might have said something. What surprised me a bit is that in report, there was no mention about the AML investigation at Payvision. Why was the -- why wasn't this case mentioned?

Well, I think that we say in general in our press release, that there is always investigations going on AML and other elements of our business. That is a general disclosure that we always do. And there was nothing new to report in that sense. So that's why we did not need to make a separate disclosure.

Okay. I was listening to you this morning on BNR Nieuwsradio. And your response sounded a little bit laconic maybe. If you're not worried about the financial impact, when it might come to like a new set of settlement, aren't you worried then about maybe a reputational impact of this case on ING as a like whole?

Well, I don't know whether -- I mean, that's in the eye to the beholder. Apparently, I sounded laconic. That was not the intent, I guess. But I think that when we look at this case, clearly, we want to be a good gatekeeper for our financial system. And we work very hard on that with over -- with many thousands of people to do that better. We've come a long way since 2017. There's always improvements to be made. We're much better than that we were now, and we will continue to fulfill that role. And if you then talk about reputational damage, I mean, clearly, the question is about how far we are, or how good we are, are not good for our reputation. And it's upon us to do the things well and to make sure that we fulfill our role adequately.

But you think that the impact of this case might not be as big as we might expect it to be.

Yes. I mean, look, if you look at the investigation, we have been made to understand that this investigation is not focused on ING, that it is focused on activities that started preceding the involvement of ING with Payvision, that's currently what we know. And therefore, we don't have any other information.

Yes. But if someone -- well, if you own a 100% of a company, you might expect where the public prosecutor eventually ends up, right?

I mean, I cannot speculate on where a prosecutor will end up. This is exactly all we know. And the prosecutor will do the work that the prosecutor needs to do. And when they present an outcome, then we will reflect on that outcome. But there is nothing else that we can report on that. The investigation is not directly at ING.

Our next question comes from the line of [Annis of Boston Zeitung].

I would like to add some more details on the TLTRO issue. Do I understand it right that you are planning to take the stage for the TLTRO you took? Or this is maybe you can explain it to me because I really don't get it.

Thank you. I'll give that question to Tanate.

Thank you, Ana. Based on prior to the announcement of the ECB, the financing conditions on the rates at which we borrow that money is attractive. But as of the 23rd of November, the funding becomes much more light levels than market would expect. So it becomes less attractive after the November 23. Whether we would prepay or repay in certain amounts, that is something for the future that we have not decided yet. So it's not disclosable.

Okay. The other question is if you're planning to take legal action against the decision of ECB because, clearly, such a change of condition is -- well, it's not sure if they can do it like this, I mean.

Look, we are -- we understand the generic move. We find the timing unlucky and not in line with what we saw, we had agreed with each other. And we never comment on our dealings and interaction with the ECB. So we will also not do that this time around.

Okay. And you don't know either there are other banks in a similar situation that are planning to take legal actions.

Yes, I cannot speak for other banks, but I think that's also in light of the general professional relationship that we have with ECB that we refrain from comments on those topics. If we have something to discuss, we discuss with ECB.

Our next question comes from the line of [Mark Benjamin of NRC].

I wanted to get back to my colleague's question on the comments by Dutch Central Bank President, Klaas Knot. Mr. Knot also said that he would be disappointed if capital ratios were to end up lower by the end of this year than earlier this year. Given the high-risk global environment, yet that seems to be happening at ING. Would you comment on that?

Look, first of all, the ECB of which the DNB is part approved this share buyback. So that's maybe #1. #2, our capital ratios are well higher than our target capital structure. And as a matter of fact, our capital ratio this quarter was equally as high as the previous quarter. So we have very strong adequate capital levels, well beyond what the target structure is. And in that light, we have done the share buyback to gradually move to that 12.5%, also to stay prudent and that's exactly in line with how the ECB wants us to act. And that's also why they approved this. Otherwise, we wouldn't have done it.

And there are no further questions at this time. So I'll hand back to our speakers for closing comments.

I stand corrected. We do have a last question, if I may. And our question comes from the line of [Paul Leclerc of RTLZ].

Do you want to lower the Tier 1 ratio to about 2.5% entirely by more share buybacks or extra dividends?

Look, we have not made statements on what we will do in the future. We have only said that we want to gradually move to 12.5% by 2025. We have announced what we have announced today, and we will further look at economic developments, our capital developments to assess what we will do going forward. So that's something for the future.

Operator, any further questions?

And we have no further questions at this time. Please go ahead.

Okay. Thank you. Then to wrap up this call, in our performance we see a reflection of our efforts to build superior customer experience and to support the transition to a more sustainable society. Our financial results show positive effects of the interest rate developments while fee income has proven to be resilient. Expenses were well contained this quarter despite the inflationary pressure. Our capital position remains strong, which also allows us to take another step in returning capital to our shareholders. Overall, in a challenging environment, we have delivered another good quarter, and with our positioning and strategy, I'm confident that we will continue to deliver healthy financial results as well as the successful execution of our strategy.

With that, we leave you for now. If you have any further questions, you know how to contact our media team. Thank you for your attention, and we will speak to you again after the current quarter. Have a great day. Thank you.

This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.