ING Groep NV (ING) 2021 Q4 法說會逐字稿

(technical difficulty) 2021 conference call. Before handing this conference call over to Mark Milders, Head, Investor Relations; and Geert Wijnhoven, Group Treasurer, let me first say that today's comments may include forward-looking statements such as statements regarding future developments in our business, expectations 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 statements. 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 solicitation for an offer to buy any securities.

Good afternoon, Mark and Geert, over to you.

Thank you, madam operator, and welcome all on the call. Thanks for joining us today on this semiannual credit update call. My name is Geert Wijnhoven, and I'm here with Mark Milders, who you well know.

As you know, the ECB press conference starts in 30 minutes. So we will try to keep this brief and make sure that you can also follow that important press conference on time. Right now, we will take you through the highlights of the Q4 results, our capital position and issuance plan for the running year, and then we have time for Q&A. You can clearly see our credit update slides that are available via download from our website.

And with that, I hand over now to Mark. Mark?

Thanks, Geert. Hi, everyone. I'll keep it very brief. For those of you who haven't followed our results presentation this morning, just to highlight, quite pleased that we kept -- through our income diversification, we kept NII stable and strong, absorbing actually the negative rate drag that we have experienced for quite some years now.

Fees were very good. We're nearing EUR 1 billion in fees per quarter. We had EUR 925 million for the fourth quarter with several things still in the pipeline, such as packages in the Netherlands, but also, if you look at some of the fees that are still a bit depressed because of the coronavirus situation, namely international travels or international payment, transaction fees as well as wholesale banking syndicated loan transactions are still at subdued levels. So we expect that to recover.

Good outlook growth for '22. We already saw some growth in -- strong growth in '21, which, of course, did include some TLTRO induced, perhaps some loan growth was pulled forward on that as you could see also from the ECB data published in Eurozone in Q1 and Q4, you see clear spikes.

As I said, fees, very strong. On expenses, flat for the year. In the fourth quarter, there was some increase driven by, amongst others, catch-up accrual for performance-related pay. And we also saw that if you look on the quarter-on-quarter, so 4Q '20 to 4Q '21, there was a sizable VAT return in the fourth quarter of '20.

Then if we go to risk costs for the full year, low at 8 basis points of average customer lending. Strong quality of the book, 1.5% Stage 3 ratio and the Stage 2 ratio actually improved. We did take risk cost in the third quarter of EUR 346 million, which is predominantly adjustments to existing Stage 3 files, 2 components there.

One predominantly in the wholesale bank, where we have taken a different view on recovery and recovery valuations. So that basically means that in certain asset classes, we have adjusted the expectation of recovery of the collateral in that Stage 3 situation, and we took EUR 124 million overlay for mortgages in Holland, Belgium, Germany and Australia. In those countries, LTVs have dropped fast, or to put it differently, house prices have increased the quickest.

And with the current inflationary and interest rate movements, we do expect that for only the Stage 3, so the weaker part of the portfolio, we could expect an increase in the able to pay category, and that's why we took EUR 124 million overlay, which on a EUR 370 billion portfolio is modest. But there was also a EUR 124 million release related to payment holidays and some sectors that were deemed to be a little bit more critical because of COVID, but there, we actually see that the performance does not warrant to have an overlay. So that was a release.

So there were quite a bit of movements there. But overall, over the full year, again, 8 basis points is probably one of the lowest in Europe.

Capital, strong at 15.9%, actually grew from 15.8%. We announced a EUR 0.41 per share dividend to be proposed to the AGM for approval, which brings the total dividend over 2021 to EUR 0.62 per share.

As you know, we have a buyback underway, which is nearing completion. We will announce latest at the first quarter of '21 any follow-up steps and are in constructive discussions with the ECB on that.

I'll leave it at that. Over to you, Geert.

Thank you, Mark. I'd like you to turn to Slide #22. There, you see the development of our CET1 ratio that has again improved to close to 16%, well above our 12.5% ambition level.

And in Slide 23, you can clearly see that we have a buffer of 5% -- of more than 5% over our various MDA levels and there with more than adequately capitalized. And we also have absorbed all expected RWA inflation from a regulatory point of perspective.

If you look at the composition of the buffer, you can clearly see that the vast majority of that buffer consists of CET1 capital and not from AT1 or Tier 2. The AT1 ratio was 2.2% and the Tier 2 ratio was 2.9% and with that, we fully benefit from the capital relief that was provided 2 years ago by the activation of Article 104a.

Then I ask you to turn to Slide 24. Well, Mark already said the final dividend. The share buyback is running, and it will be finalized before May 5 or any time earlier. We hold more than EUR 10 billion of capital in excess -- of CET1 capital in excess over our 12.5% ambition level. And apart from regulatory requirements or profitable alternative uses of capital, we will return this capital to our shareholders in the coming years on top of our current payout ratio of 50% in order to get to that 12.5% ambition level.

Then I ask you to turn to Slide 27, where you can see that TLAC, which starts on the left. ING clearly meets the end state of TLAC with 30.6% of RWA and then more than 10% of TLAC leverage. But you also can see that the most constraining requirement in terms of loss absorption is the MREL target as a percentage of RWA that we show on the right of this slide. And you can see that we have met our intermediate MREL requirement as per the 1st of January this year, but we also already meet the final requirement of 28.07% that we have to by Jan 2024. Obviously, this requirement is subject to MDA regulatory changes of which most likely the countercyclical buffer requirements that will change over time will also have an impact on the MREL requirement.

On the debt issuance side, we were very pleased to have -- to still execute some pre-funding late last year at the end of November that allowed us to stay sidelined at the early weeks of January, which proved to be a very crowded week. And this year, we plan to issue between EUR 8 billion and EUR 10 billion of group holdco debt to better -- subject to the balance sheet evolution. And this is higher than what you have seen in the prior year.

We do note that we have EUR 4.5 billion of bullet senior holdco redemptions. We expect RWA growth on the back of our volume growth targets and also the RWA impact of our Dutch mortgages. Our aim is to optimize our MREL stack by replacing the CET1 surplus with senior holdco over time. In other words, in case we would announce an additional capital return for that amount, we need to then issue clearly a holdco debt instead.

For AT1 and Tier 2, we strive towards the optimization of our capital structure. Currently, we feel comfortable with the levels of 2.2% and 2.9%.

Covered bond activity, obviously, linking into TLTRO repayments. As you know, the very favorable rate on the TLTRO for banks that have met the 0 lending asset growth target at the end of this year, that favorable rate will end in June. And then from 2023 to 2024, TLTRO, it needs to be repaid, but it continues at the deposit rate facility. And obviously, depending on further announcements, we will be very prudently planning to prepay the TLTRO before it comes to final maturity and replacement of part of these funds with covered bonds are to be expected. We see limited need to issue senior from our bank operating company. But if so, it will be for tactical reasons and at a relatively short credit duration.

Let me stop talking now and open the floor for any questions for Mark or myself. Back to you, operator.

(Operator Instructions) And the first question is coming from Robert Smalley, UBS.

Just wanted to circle back on the provisioning in the fourth quarter. On the wholesale side, addressing Stage 3, were these loans that were basically on life support that had gotten subsidies through -- due to COVID and now you no longer see them as viable or is it a mix of other things? And then on the mortgages, we're really not seeing that from your competitors. Is there any characteristic of your borrower that is different than your competitors in this area that would prompt you to do -- that would prompt you act differently?

Yes, I'll take that. Thank you very much for your questions. So to your first part on the wholesale, no, that's not the case. It has more to do about the recovery expectation on certain asset classes. So these are customers that are already in Stage 3 or in the restructuring department where given -- also given the COVID situation, but also given markets that we believe that we had to take a different approach to recovery and have a more critical view at the expected recovery valuation. So that's more an LGD kind of thing.

Then towards mortgages, I can't speak for others. What I tried to explain is that in certain markets, we have seen a very sharp increase of house prices. And for that proportion of our book that is already in Stage 3, we expect the spending power of individuals to be affected by inflation.

And on the other hand, the purchasing power perhaps to reduce over time for the mortgages, which would have an impact on property valuations. So maybe we are known as a prudent and conservative bank in this area. Maybe we are, maybe others will follow, but you would need to ask them. This is what we see and what we have a view on that could have an impact.

(Operator Instructions) And the next question is coming from Mr. Lee Street, Citigroup.

Just one quick one on the issuance of holdcos. So you're very clear about how much you intend to issue this year. But as I look through time, as you bring your CET1 ratio down from, I think, 15.9% to 12.5%. Should I be thinking about that as sort of an incremental differential all being funded with the sort of net new holdco issuance as we look ahead as you sort of seek to maintain your MREL ratio? That's my question.

Yes, Lee, indeed, that's the way you should look at it. Now I can't give you the pace, but if that would take 3 years and CET1 would drop to the ambition level of 12.5%, then effectively, we lose roughly EUR 11 billion with today's metrics of MREL stack consisting of the most expensive part, which we will then very limitedly replace by additional Tier 1 and Tier 2 simply in order to manage the ratios, but the bulk will clearly be refilled by holdco group senior, yes.

There are no further questions. Please continue. There was a question, an incoming question from Mr. Luis Garrido, Bank of America.

Yes. Can you hear me?

Yes.

Yes, we can hear you.

Perfect. I just want to clarify on the 12.5% target, you seem to have underlying to equity investors that this is unlikely to be revisited. Is it that you're comfortable with having, say, a 1.8 percentage point buffer to MDA in a couple of years or that you really expect some of today's buffer requirements to go, for instance, you pushed back against the idea of this SIFI, SIFI buffer, which of the two is more likely, do you think?

Look, we, on a very frequent basis, calibrate our management buffer over MDA. And in that calibration, we take into consideration the return of pro-cyclical regulatory measures like, for instance, the reintroduction of countercyclical, but now also for the first time in Germany, making use under CRD V, the introduction of a sectoral systemic risk buffer. And all of that is part of the calibration of the management buffer. And hence, we talk about a management buffer of up to 200 basis points. But there is room to absorb additional regulatory pressure in that buffer.

Now if the regulatory pressure exceeds the room that we have calculated in the management buffer, then obviously, things will have to change. But as it looks now, with what we know from the past, including the countercyclical buffers, we believe that the current management buffer is sufficient to target a 12.5% ambition level of CET1.

There are no further questions. Please continue.

Okay. So thank you, operator. Thanks, everyone. We are in time to listen to Madame Lagarde. And of course, the Investor Relations team is available for any follow-up questions, just reach out to them. And I wish you a very nice day. Thanks for listening in. Bye-bye.

Ladies and gentlemen, this concludes this ING event call. You may now disconnect your lines. Thank you.