Ing Groep Nv

Good morning. This is Brigina welcoming you to ING's Q1 2021 conference call. Before handing this conference call over to Steven van Rijswijk, Chief Executive Officer of ING Group, 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 an historical fact. Actual results may differ materially from those projected in any forward-looking statement. 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 a solicitation of an offer to buy any securities. Good morning, Steven. Over to you.

Thank you. Good morning, and welcome to the first quarter results. I hope you're in good health, and I'm happy to take you through today's presentation. I'm joined by our CEO, Votanet Putrukul, and our CRO, Liliana Chortan. And at the end of the presentation, we'll take your questions. Already for over a year, we have been dealing with the pandemic, and I don't think that anybody expected we would find ourselves still on lockdown restrictions. However, with vaccination programs underway, we can also look forward to circumstances normalizing again. We continue to support our customers, employees, and society, focus on steering the company through challenging times, and we keep on building a sustainable company for the longer term. Two important building blocks for that are our continued drive to digitalize and further strengthening our ESG profile. Our performance today is also held by our diversified business model, and as we see signs of economic recovery and continue to focus on optimizing our business, I believe ING is well positioned to return to delivering our 10 to 12% RE ambition. As mentioned, the pandemic continued to impact our lives, though looking at the results, you wouldn't necessarily think that we're still in a crisis. I'm proud of the hard work put in by all the colleagues realizing growth in our loan book and again a solid increase in fee income while keeping expenses under control. After our loan book decrease in 2020 driven by the pandemic, in the first quarter of 2021 and especially in March, we have been able to return to growth. This enabled us to also fully realize the benefits of the TLTRO3 program. In deposits, we see the impact from reduced spending ongoing for now, and we continue to apply negative charging and other actions to stem this inflow. Risk costs were 223 million, or 15 basis points over average customer lending. Overall for 2021, we expect to move close to our through-the-cycle average of around 25 basis points. The Stage 3 ratio was lower at 1.6%, and as mentioned last quarter, our track record underscores that we are a low NPL bank and we remain confident about the quality of our loan book. The CET1 ratio was stable at 15.5%, with 50% of first quarter resilience and profit reserved for future distribution, bringing the total amount reserved for this outsider CET1 capital to 3.3 billion. Slide 3 focuses on digitalization. It shows the continuing trend of our customers' turn to our mobile solutions. supporting the direction of our digital and mobile first strategy. With digital and technology being in the core of our business, we have appointed a chief technology officer to our management board, separating this role from the operations function. An important enabler of our digital strategy is touchpoint, which I have mentioned before, but I believe it deserves more attention. When a country wants to introduce a new proposition, there is no need to start from scratch. With touchpoint, key components such as design, Authentication and connectivity through APIs can be taken off the shelf, making the development faster and easier. Once a proposition is developed, it can also be easily reused across ING, turning a local proposition into a globally scalable solution. And of course, this also applies to propositions which are developed for global use from the start. Again, faster and easier, as our countries don't have to reinvent the wheel. An example of a local proposition being reused is OneApp, and this was built using several components of the Touchpoint technology, after which local features were built on top in line with Touchpoint guidance. OneApp is now already used by our customers in the Netherlands, Belgium and Germany, and we intend to add other countries as well. Now, in some countries, we need to make some adjustments to unlock the full potential of Touchpoint, and this is progressing, but in the end, Touchpoint will help us to shorten the time to market and the time to volume, improving customer experience and results. Slide four covers another building block for a sustainable company, and that's ESG. And last quarter, I took you through the highlights of what we've done in ENG in 2020, and today I'd like to spend some time on how this translates into results. For some ESG topics, the link is clear. For example, growing demand for sustainable finance and managing downside risk from climate change. For other topics, the link may be less tangible. Either way, I believe the link is there, and I want to take you through how we believe ESG drives value, which comes down to a strong governance, a diverse and engaged workforce, and a focused approach towards environmental and social topics. The first one is governance, and that goes beyond our organizational chart. It includes our policies, processes, and culture. that keeps to help the bank save secure compliance, for example, by strengthening our management of compliance risks, by setting values and behaviors that underpin our way of working through the Orange Code, and by addressing high-risk behaviors through our behavioral risk assessments. This also includes reporting in line with ESG disclosure standards, an area that keeps evolving and actually could do with more standardization. Then on people. We want to create a workplace where people feel included with a diverse set of perspectives and backgrounds, having a workforce that reflects our diverse customer base and is better able to address their needs. And initiatives in this area include our 70% principle for mixed teams and being an ambassador of workplace pride, which strives for an inclusive workplace. We gain insight in employee engagement by the organisational health index survey and pulse checks, and that we did more frequently in the past year. And these insights also support actions to ensure that colleagues are helped with working from home. And then last but not least, and we've talked about it quite a lot, we focus on environmental and social transitions, which are driven by a growing sense of urgency to ensure human rights are respected and to counter climate change. Both are covered in our ESR policy, directing how and with whom we do business. We further contribute to climate alignment through our Terra approach, as well as our expertise and products in the area of sustainable finance. And these topics are important to me, and I truly believe this enables ING to be a sustainable and trusted company benefiting all of our stakeholders. And of course, I don't want to claim that today we are perfect in our ways. We still have work to do, and we will continue to strengthen our ESG profile. Now then, if you look at slide five, we highlight our business in Poland. That's one of the growth countries where we see that good performance on digitalization and ESG, which I was talking about, is also driving results. If you look at digitalization over the years, we have shared digital highlights with you in our quarterly presentations, with often included initiatives from Poland. Our strength in digitalization is reflected in app ratings with top scores in the sectors and the share of mobile-only customers almost quadrupling over the past four years. And you can see that on the left-hand side of your slide. To align with this shift in customer behavior, we have reduced our branch network with almost 25% during the same period. And also going forward, we will continue to gradually adjust our distribution network. On ESG, there is a high participation of women at ING in Poland across all levels. We score better than our peers in Poland on employee engagement with a stronger Organizational Health Index score, the OHI score, translating into a lower rate of employees who voluntarily leave ING. On sustainable finance, we're also active in Poland with 11 deals in 2020. And all of this led to a number one NPS positions measured against our main peers in the markets. We have a growing share of primary customers, reaching a high level of 45% of total customers. And also supporting strong financial results with operating efficiency clearly visible when comparing both income and customer balances to our operating expenses. And overall, I'm very happy to say that efforts to future-proof our business in Poland are really paying off. Then slide six, that's about ROE. And I reiterate that we look at ROE through the cycle. In 2020, ROE was impacted by several factors, such as some sizable incidental costs and COVID-related effects on income and provisioning. Already this quarter, with lower risk costs and less incidental items, RE improved to 5.4% on a four-quarter rolling average basis and to 7.8% for this quarter. Looking forward, RE will be further supported by the return of loan growth, charging for actual account costs and continued discipline on controllable expenses while we intend to reduce capital overtime. Getting back to our RE ambition level will take some time. And how much time will also depend on factors beyond our control, such as a recovery of economic activity and prevailing ECB recommendations on distributions. But we continue to take actions on things that we can control, such as optimizing our business. And in the first quarter, we announced that we are discontinuing our retail banking activities in the Czech Republic and Austria. And in the Netherlands, we are further aligning the organization to the accelerated use of digital solutions by our customers. I do often get the question how far along we are with the review or when it will be done. And my answer is that we will always be looking where we can best deploy our capital, people, and time. And in reviewing our business, we focus on market and business attractiveness, potential for scale, potential for profitability, and whether there is a broader benefit for the group. Now, let me take you through the first quarter results starting on slide eight. In the first quarter, total income was up year-on-year, with another strong quarter on fees. NII was slightly higher, which included the 233 million TLTRO3 benefit, as we met the eligible lending target as of March 31st. Other income was up as well, with the year-ago quarter also including some negative impacts from market volatility that we saw at the end of that quarter, driven by the pandemic. Also, sequentially, total income was higher, driven by both higher fees and NII, again, including the TL2 Euro benefit I just mentioned. And also, other income was up, with improved trading results, and partly, as last quarter, included the impact from an indemnity receivable in Australia. Slide 9 shows you NII, and in previous quarters we addressed some pressure on the net interest income from the current market conditions, which affected the levers that we generally use to counter the impact from the low rate environment. In this quarter that pressure is still visible, despite the fact that we are reporting strong loan growth and that SOP rates improved. And just to clarify, the majority of our loan growth was realized in the course of February and in March, so it's not fully visible in NII for the first quarter. On swap rates, yes, they improved, but they're still well below the five-year rolling average. And we reinvest in maturities, which can range from overnight to over 10 years. And for illustrative purposes, you could say that we invest approximately 20% of our replicating portfolio every year, so an improvement will come over time. And as we said before, we benefit most from a steepening yield curve in medium durations. NII excluding financial markets was up year on year. However, when we also exclude the TLT row three benefits, NII was a bit lower. This reflected continued pressure on liability margins, while deposit inflows have been substantial. Lending margins were stable, however, at lower average lending volumes. A year-on-year impact from foreign exchange was also visible, with lower interest results on foreign currency ratio hedging and a negative impact from the devaluation of some foreign currencies. Compared to the previous quarter, NRI excluding financial markets and the TLTRO 3 benefit, was impacted by the aforementioned pressure on liability margins and lower lending volumes. And also, we saw some impact on NII from mortgages driven by a higher level of repayment and refinancing in the previous quarters. Our net interest margin increased by five basis points this quarter to 146 basis points, and this was fully driven by TLTRO. compensating for a higher average balance sheet and continued pressure on the liability margin. Slide 10 shows net core lending. An overall strong growth this quarter, mainly reflecting also the TLTRO eligible lending. In retail, mortgage demand remained strong, especially in Germany, Poland, and Spain, driving growth in net core lending of 2.7 billion euro. In wholesale banking, growth was mainly visible in lending and financial markets, primarily driven by TLTRO. And as mentioned during last quarter's call in February, the loan pipeline then looked tight with also uncertain repayment levels. And we came from a point below the threshold, but with limited repayments that we then saw and a high loan pipeline conversion in the course of February and in March, I'm happy that we grew sufficiently to meet the target. And we managed this without changing our risk appetite with lending almost fully extended to investment grade companies. Net customer deposits, they increased with 8.1 billion, driven by 4.8 billion in retail and a 3.3 billion increase in wholesale banking. We said last quarter that the negative loan growth we saw in 2020 was a non-structural shift, and that we expect loan growth to return when uncertainty subsides. And a strong loan growth in March may include some pull-forward effects. And should the loan demand return more structurally as economies open up, then we're well positioned to capture growth and support our customers. Page 11 shows the fee story, and that is a good story. The year-on-year fee income grew by 9%, driven by retail fees, which were up 18%, and in investment products, fees were even 25% higher, reflecting increases in assets under management, new accounts, and a higher number of trades. Daily banking fees grew with 14%, as the increase in daily banking package fees absorbed the impact of a lower level of payment transactions, which remained subdued. In wholesale banking, fees decreased year on year, and it was mainly driven by less activity in syndicated lending, which activity was very strong during the first two months of 2020, but this was partially compensated by higher fees in trade and commodity finance and financial markets. Sequentially, retail grew by 11%, driven by the same factors as year on year growth, and wholesale banking was up 9%, mainly due to the financial markets activity. Page 12 shows you the expenses, and I particularly would like to highlight the orange bars. Expenses this quarter included 84 million of incidental costs included in volatile items reflecting provisions related to the measures that I just mentioned and that we announced earlier for retail in the Netherlands and the discontinuation of the retail banking activities in the Czech Republic. But if you exclude these incidentals and regulatory costs, operating expenses were under control, and just slightly higher year on year, but lower quarter on quarter, as we fully absorbed the CLA increases and higher IT expenses, while both comparable quarters also included significant VAT refunds. Regulatory costs are seasonally high in the first quarter, as it includes the full payment of Belgian bank taxes, as well as the annual contributions to the single resolution funds, the SRF, and the Belgian deposit guarantee scheme. Year on year, this contribution increased due to the strong growth of covered deposits that we have seen in 2020. And we will, of course, continue to monitor these developments, critically review our activities and expenses, and act when and where needed. Then on to asset quality on page 13. Risk costs were 223 million or 15 basis points of average customer lending, well below the elevated levels we have seen in 2020 and also below our through the cycle average of around 25 basis points. And this amount includes a 593 million management overlay, primarily in stages one and two, which compensated for a 537 million release driven by updated macroeconomic models and net-net that results in an impact of 56 million euro. And this mainly reflects an increase in retail Benelux, with additional collective provisioning for vulnerable sectors and clients affected by COVID-19 in Belgium, whereas in wholesale banking, there was a release. Aside from the allocation of the management overlay, in retail Benelux, risk costs mainly reflected some additions to individual files and clients moved to watch lists in mid-corporates. In retail challenges and growth markets, risk costs reflect collective provisioning, mainly in Poland, Spain, and Romania. And in wholesale banking, Stage 3 risk costs included some additions to new Stage 3 files, primarily in the Netherlands and Germany, but these were small. The low Stage 2 ratio reflects macroeconomic mole updates. The Stage 3 ratio of the group was slightly lower, coming from 1.7 to 1.6%, and continues to reflect the strength of our loan book. Slide 14 shows how our CET1 ratio developed, which was stable at 15.5%. And the CET1 capital was 800 million euro higher, which included half a billion, or 50% of net profit for a quarter, as the other 50% was reserved for future distribution in line with our policy. And the remaining increase was driven by the foreign exchange impact. The risk-weighted assets increased, mainly driven by the forementioned foreign exchange impact, and the higher credit risk-weighted assets, primarily reflecting higher lending volumes, partly offset by a better overall credit profile of the loan book. Market risk-weighted assets was down, mainly due to the lower exposures as markets normalized, while operational risk-weighted assets increased due to the technical updates to our AMA model. As you can see on slide 15, both the CET ratio and leverage ratio are ahead of our ambitions. On the return on equity, as mentioned earlier, it is below our ambition in the current environment, but we have already seen an improvement versus the previous quarter of 27.8%. And with the supporting factor that I mentioned, we maintain our ambition and very much intend to continue to provide an attractive total return. Our cost-to-income ratio was impacted by factors such as the negative rate environment, regulatory costs, and COVID-19 impact on lending growth. In the last four quarters, some sizable incidentals also affected this metric in both income and in cost. To reiterate, cost-to-income does remain an important input for our return on equity, and we continue to work on our ambition of 50% to 52%. As for dividends, in February we paid the delayed interim dividend over 2020 of 12 euro cents per share, which was declared final at our annual general meeting. We currently have an amount of 3.3 billion euro reserved outside of CET1 capital for distribution after 30 September 2021, subject to prevailing ECB recommendations. And more details can be found about that on slide 20 in the appendix of this presentation. And to wrap it up with the highlights of the quarter. While we focus on steering the company through the challenges posed by the pandemic, we keep our eye on building a sustainable company for the longer term with two important building blocks. And these are our continued drive to digitalize and further strengthening our ESG profile, which will support a future-proof ING reflected in a continued strong financial performance. And our performance today is also helped by our diversified business model. And as we see signs of economic recovery and continue to focus on optimizing our business, I believe ING is well positioned to return to delivering on a 10% to 12% ROE ambition. Our results remain really resilient in the midst of a crisis and this quarter we managed to grow our loan book fully realizing the TLTRO 3 benefit and continue solid growth on fee income while keeping expenses under control. While negative rates give continued pressure, we see our levers that support NRI strengthening and we also expect to continue to grow our fee income by 5 to 10% for the year and you saw good evidence of that already in the first quarter. The CET1 ratio was stable at 15.5%, with 50% of the first quarter resilient net profit reserved for future distribution, bringing the total amount reserved outside of CET1 capital to 3.3 billion euro. And with that, I open up for questions.

Thank you. Ladies and gentlemen, if you would like to ask a question, please press star 1 for question star 1. In the interest of time, we kindly ask each analyst to limit yourself to two questions only. First question is from Stefan Nidalcov from Citi. Go ahead, please.