ING Groep NV

AEX:INGA

Earnings Call Analysis

Strong Growth, New Strategy, and Enhanced Sustainability Targets

The company introduced their 'Growing the Difference' strategy this quarter, aiming to be the best European bank by accelerating growth and increasing impact. They saw strong commercial and financial momentum driven by growth in lending and deposits, as well as an increase of 250,000 mobile primary customers. Retail banking experienced significant growth in both deposits and mortgage lending, while Wholesale Banking remained stable with higher margins and continued investments in digitalization. The company enhanced sustainability targets, increasing their annual goal for sustainable finance mobilization to $150 billion by 2027.

Strong Net Interest Income Growth

In the second quarter, the company's net interest income (NII) displayed resilience, showing a €5 million increase quarter-on-quarter, despite the negative effects of higher accounting asymmetry. Excluding these asymmetries and one-offs, NII surged by a robust €65 million. This strengthened performance was powered by higher lending volumes and a slight margin increase. Additionally, the company's ability to maintain stable liability NII amidst normalization pressures showcases its financial fortitude.

Remarkable Fee Income

Fee income hit an impressive nearly €1 billion this quarter, marking a double-digit year-on-year increase. The retail banking sector was a major contributor, driven by the growth of mobile primary customers and increased engagement in investment products and insurance. This growth was further bolstered by favorable market conditions, leading to higher fees from mortgage brokerage and investment product trades. The company's confidence in reaching its €4 billion fee income outlook for the year remains high.

Commercial Momentum and Deposit Growth

The company continued its strong commercial momentum from the first quarter, achieving a net core lending growth of nearly €8 billion. There was substantial growth in the mortgage book across all retail countries, along with increased market share in certain regions like the Netherlands, where it captured over 16% of new production. Furthermore, core deposit growth soared by €14.7 billion due to solid performances in both retail and wholesale banking.

Positive Outlook and Raised Guidance

Despite challenges in forecasting accounting asymmetry, the company's solid structural NII drivers and robust fee income have led to an optimistic outlook. The company has adjusted its total income guidance for the year from around €22 billion to over €22 billion. This reflects its confidence in achieving higher interest income and meeting its fee income targets.

Efficiency and Cost Management

Total expenses saw a 3% increase in the first half of the year compared to the same period in 2023, aligning with the company's outlook for 2024. Excluding regulatory costs and incidental items, expenses rose by 6%, primarily due to inflation-related staff expense increases and higher VAT costs. However, the company expects its proactive cost management and investment strategies to regulate this upward trend.

Sustained Profitability and Shareholder Value

The company continues to deliver value to its shareholders through sustained profitability, announcing an interim dividend of €0.35 per share. This brings the year-to-date dividend yield to over 13%. The company maintains a healthy return on equity (ROE) of 14%, with plans to end the year with an ROE of over 12%. Its CET1 ratio also remains strong, despite the ongoing share buyback.

Expanding Digital Presence in Retail Banking

In Romania, the company's focus on digital products and services since 2016 has led to significant growth in total customers, with over half using the company as their primary bank. Recent innovations, such as a fully digital mortgage process and dedicated value propositions for Gen Z, have enhanced customer experience. This strategy aligns with its long-term goal of increasing customer engagement and boosting fee income.

Future Growth and Market Shares

The company anticipates continued growth in lending volumes and market share, particularly in mortgages across the Netherlands, Belgium, and Germany. Despite certain market-specific challenges, the company's strategic focus on enhancing customer experience through digital channels and efficient processes positions it for sustained expansion in these regions.

Earnings Call Transcript 2024-Q2

[Amy Gabay, executive]

Hi, Steven.

[Steven van Rijswijk, executive]

Hey, Amy.

[Amy Gabay, executive]

Summer is finally here. And on top of that, it's Pride week in Amsterdam. So there's no time to lose. How many minutes do you think we need?

[Steven van Rijswijk, executive]

Two minutes.

[Amy Gabay, executive]

Okay. Let's dive right into it then. What were some key highlights of this quarter?

[Steven van Rijswijk, executive]

Well, we launched the Growing the Difference strategy, which is the next phase of our strategy. We aim to be the best European bank by accelerating growth, increasing impact and by delivering value to all of our stakeholders, and I'm very excited about it.

[Amy Gabay, executive]

What about our results?

[Steven van Rijswijk, executive]

Well, we had strong commercial and financial momentum, and that led to a good set of results in the second quarter.

[Amy Gabay, executive]

And what drove this momentum?

[Steven van Rijswijk, executive]

Well, we had strong growth both in lending and in deposits. And we also welcomed an additional 250,000 mobile primary customers. So we're well on our way to reach our target to grow our mobile primary customers with 1 million per annum.

[Amy Gabay, executive]

Anything else?

[Steven van Rijswijk, executive]

Well, fee income and fee growth is important. We do well on the back of the growth of the number of customers, but also doing more with these customers.

[Amy Gabay, executive]

Good point. Let's talk a bit about Retail.

[Steven van Rijswijk, executive]

Yes, in Retail we, on the one hand, had good deposit growth in the markets in which we're active. And on the other hand, we also had good lending growth, in particular, in mortgages in all of the Retail markets.

[Amy Gabay, executive]

And what about Wholesale Banking?

[Steven van Rijswijk, executive]

In Wholesale Banking, our performance was stable with a growing interest income on the back of higher margins. At the same time, we continue to invest in our Wholesale Banking franchise. In growth, we continue to invest in digitalization, end-to-end. And we continue to invest in our product foundations while at the same time, of course, we help our customers in their sustainable transition.

[Amy Gabay, executive]

Now you got me talking. Sustainability, anything new under the sun?

[Steven van Rijswijk, executive]

Well, also under the next phase of our strategy, Growing the Difference, sustainability remains very important. And we have enhanced and increased the targets for sustainable finance mobilized to 150 billion per annum by 2027, coming from a target per annum of 125 billion.

[Amy Gabay, executive]

How are we doing so far?

[Steven van Rijswijk, executive]

Well, in the first half of the year, we mobilized 57 billion in sustainable finance through 367 transactions. That's on the Wholesale Banking side, but also in Retail, we're doing well. So we're helping our customers to retrofit their homes. And for sustainable homes, we offer mortgages with lower rates.

[Amy Gabay, executive]

Steven...

[Steven van Rijswijk, executive]

We're out of time.

[Amy Gabay, executive]

Anything else you'd like to say?

[Steven van Rijswijk, executive]

I'm very proud of the fact that we realized and reached the level of Advocate in the Workplace Pride Global Benchmark this year. And it also shows that we aim to create a culture where people feel they belong. So fantastic achievement, but as always, there's a lot more to learn and lots more to do.

[Amy Gabay, executive]

Thanks. Great to hear. And maybe one final question, what is it that you're mostly looking forward to for the rest of the year?

[Steven van Rijswijk, executive]

You mean next to the holidays?