Ing Groep Nv

Hi, good morning. Shall we start?

Okay, sir. Just a sec now. Good morning. This is Patricia Cross of Noctum welcoming you to IMG's first quarter 2022 conference call. Before handing this conference call over to Steven Van Rijswijk, Chief Executive Officer of IMG 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 historical facts. 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 filing. including our most recent annual report on Form 20F 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 very much, operator. Good morning and welcome to our first quarter 2022 results call. I hope you're all well. I'm joined by our CFO, Tanay Putrakul, and our CRO, Liliana Chortan. And I'm pleased to take you through today's presentation. After that, we will take your questions. For the first time in two years, I started this presentation by saying that from a COVID perspective, circumstances seem to be normalizing, which is positive. However, challenges remain with the invasion of Ukraine, which is adversely affecting people, including our colleagues, as well as already high energy prices and disruptive supply chains. Under these circumstances, we help colleagues to safely relocate and manage the risk of our risk-related exposure. At the same time, we focus on our strategic priorities by financing the green transition and improving our digital channels. And we continue to deliver value. This was reflected in a higher pre-provision profit, driven by resilient NII, higher fees and lower costs, as well as a healthy return for our shareholders, with a final cash dividend of 41 cents and a 1.25 billion additional distribution announced today. On NII, after years of counter-reliability pressure, with the current yield curve we have reached the point that this pressure is turning into a tailwind. Mortgage loans continued to grow, while in wholesale banking we saw repayments of short-term TLTRO facilities. On fees, we recorded a strong 9% year-on-year growth, mainly visible in daily banking and lending. Investment products remained at a high level. Costs were lower both year-on-year and quarter-on-quarter, despite inflation. Risk costs were elevated at €987 million. mainly in stage 2, driven by actions we took on our Russian portfolio, comprising 84% of risk costs. We have reduced that exposure over the past two months by almost 1 billion. The stage 3 ratio was lower at 1.4%, and we remain confident on the quality of our loan book. The C to 1 ratio declined to 14.9%, mainly driven by RWA growth, primarily for Russia-related exposure, and Dutch mortgages. And before we go to the quarter's figures, I will spend some time on our pre-provision profit and highlight our efforts to finance a green transition and to improve our mobile channel. Our pre-provision profit was up 14% year-on-year and 9% quarter-on-quarter. A strong start to 2022 and I'm particularly happy that all key P&L lines contributed. NII excluding TLTRO, was up on both comparable quarters, which is a meaningful signal in the context of the liability pressure of the past years. With the yield curve normalizing, we can reinvest our replicating portfolio in more positive yields. And as we always said, the effect will come in over time. However, over 2021, we had approximately 600 million drag from negative rates. That drag has now disappeared. excluding TLTRO, we expect NII to be up in 2022. At the same time, ECB has not yet increased rates, so for now negative interest rate charging remains in place, with the current contribution of 300 million for the full year. With inflation higher for longer, the ECB looks set to start normalizing monetary policy in the summer. The timing is difficult to predict, but we expect the ECB to have ended net asset purchases and negative deposit rates before year-end. In non-Eurozone countries, central bank rates have already gone up, most notably in Poland, and we again see the benefit of geographical diversification. The fast increase of rates impacted lending margins this quarter, as client rates generally track higher funding rates with some delay. Also, with low rates, NII was supported by a high level of prepayment penalty income, which tend to return to more normal levels when interest rates go up. Going forward, the yield curve development will be supportive of NII growth. On fees, we had a strong 9% growth year on year, and also on the current higher fee level, we maintain our ambition of 5% to 10% annual growth. Operating costs were 2% lower year on year, and 4% lower quarter-on-quarter, despite inflationary pressure, which was mainly visible in salaries in some other countries. Although higher inflation seems to continue, we maintain our commitment to keep costs at least flat. One of our strategic priorities is to finance the transition to a low-carbon society, and additional steps taken are shown on slide four. This transition is a necessity, and for us it is also a business opportunity. In power generation, we have been focusing on a transition since 2015, where we shifted away from fossil fuels and towards renewable energy. Our efforts are visible in the growth of the portfolio, doubling over the past five years, while fossil fuels almost halved. Going forward, we aim for faster growth of new renewable energy loans to a 50% higher level by 2025, At the same time, we will not finance new dedicated oil and gas fields. Also in retail, we have taken steps to help customers become greener with the launch of a green mortgage in the Netherlands. I'm proud that our expertise is recognized also by our clients, such as Vodafone Ziggo, whom we supported in their sustainability-linked bond as a debut one, and also by external organizations with two green transactions receiving awards in their respective categories. On slide 5, we focus on another strategic priority, which is our digital journey. The importance of the mobile channel continues to increase, and it is positive as expanding our mobile offering both improves customer experience and reduces cost to serve. And this slide demonstrates that approach to digitalization with a focus on more incremental projects with higher execution certainty rather than large multi-year projects. The examples show expanded digital capabilities for our customers, which help the top line as our customers take up more services. And at the same time, we invest in digitalizing processes to both improve efficiency and customer experience by a higher first-time ride and shorter time to yes. As a proven example, two quarters ago I mentioned digitalizing the Dutch mortgage process, where we reduced our time to yes, and as the process became more efficient, it also allows us to handle higher volumes when needed. A similar story we have on our investment offering in Germany, starting some years ago when we launched a fully digital process to open investment accounts. This resulted in continued high growth, with the number of new investment accounts opened in the first quarter at 121,000, of which one-third customers are new to ING. And I'm happy we also received recognition from our customers, with good MPS scores and this quarter being named Best of Preferred Bank in Germany and Poland. As part of our digitalization strategy, we selected 60 main processes for which we will maximize the end-to-end digitalization. And we will elaborate on this during our investor day on June 13, which I hope you will join in person here in Amsterdam or otherwise virtually. And let me now take you through our first quarter results starting on slide seven. Year-on-year NII excluding TLTRO benefit was up 1.6%, benefiting from higher results in Treasury and financial markets and higher lending volumes. We saw some pressure on lending margins, reflecting a delay in tracking higher funding rates. NII went up 1.3% quarter-on-quarter, again supported by Treasury and financial markets, while we saw the pressure on liabilities starting to turn into a tailwind, partly offset by a lower level of prepayment penalty income on mortgages. Our net interest margin was stable at 130 basis points as the higher NLI was offset by a higher average balance sheet. Slide 8 shows net core lending growth. In retail, mortgages were again the primary driver of growth, but also some growth in business lending. Mortgage demand was strong in Germany, but also Australia and Spain. In wholesale banking, loan growth was affected by repayments on TLTRO, eligible deals, mainly on short-term facilities in financial markets. When we look at the pipeline, we see size demand is there, so we're positive on loan growth in wholesale banking. However, given a higher level of microeconomic uncertainty for 2022, we expect this to be below our 3% to 4% growth ambition. Net customer deposits growth was minus 700 million. In retail, it came down by 7 billion, mainly due to an outflow in Germany following the introduction of negative rates per November 21. Holster Banking recorded a seasonal inflow of $6.3 billion. Then turning to fees on page 9. Year-on-year fee income grew by 9%, with growth in both retail and wholesale. Retail fees were up 6%, with an impressive 26% increase in daily banking fees. And this reflected growth in primary customers, the increase in payment package fees, and a recovery of the level of domestic payment transactions back to pre-COVID levels, while international payment transactions still have room to grow. In investment products, fees were lower, although still at a consistent high level, as the year-ago quarter was a record quarter in terms of brokerage trades. In wholesale banking, fees were 17% higher, with lending as the main driver, reflecting a higher number of syndication deals. Sequentially, retail fees were 1% higher driven by investment products. In wholesale banking, fees also up 1%, mainly reflecting higher fees in lending, offset by a lower level in financial markets and corporate finance, following a peak in the previous quarter. Slide 10 shows expenses. Excluding regulatory costs and incidental items, operating expenses came down. Year-on-year, these costs were 2.1% lower, mainly reflecting lower FTE and lower IT costs, which more than absorbed higher salary costs driven by CLA increases and indexation. Quarter-on-quarter costs were 4.2% lower, that's lower marketing and performance-related expenses, while costs in the fourth quarter tend to be seasonally higher. Regular regulatory costs were up, Year on year, this mainly reflected a higher contribution to the European Single Resolution Fund. Quarter on quarter, the increase is explained by the full payment of the annual contributions to the SRF and Belgian DES in the first quarter of each year. This also applies to the annual Belgian bank tax, while the fourth quarter included the annual Dutch bank tax. There were no incidental cost items this quarter, and I'm pleased with the development of operating costs, also as we see some effects of measures taken so far. At the same time, we also need to look forward, and we will invest in areas where we can get the best return. Then on to risk costs, which were 987 million, or 62 basis points of average customer lending. This level is mainly driven by 834 million or 52 basis points of provisioning in wholesale banking related to Russia. It was predominantly in stage two for rating migration following the sovereign grant grades for stage migration as we have transferred clients to Watchlist and for a management overlay. In stage three, the Russia-related inflow was limited to 71 million as the book generally remained performing. Furthermore, We booked 178 million, reflecting updated macroeconomic indicators, and released 124 million in sector overlays, which were taken in previous quarter for vulnerable sectors during the pandemic. Aside from these movements, risk costs were limited. In Rita Benelux, risk costs included a release following the expiration of payment holidays, while in challenging and growth countries, risk costs reflected collective provisioning, mainly in Germany, Poland, and Spain. In wholesale banking, stage 3 risk costs included limited additions to both new and existing files. Finally, stage 2 ratio was up, reflecting the aforementioned additions, while the stage 3 ratio went down to 1.4%. And regarding potential spillovers of the situation in Ukraine, we see eurozone economic growth impacted and expect inflationary effects to stay longer. While we don't expect a recession, a stagflation scenario is a possibility. We're closely monitoring our loan book and engaged with our clients. However, so far, we have not observed a meaningful impact on credit risk. Slide 12 provides some details on our Russian-related exposure as of 30 April. Since the end of February, we have reduced our Russian exposure by 900 million and continue to bring this down. Of this amount, 1.3 billion is onshore, with 200 million covered by European parent guarantees, and part of the remaining exposure is central bank deposits. Our local capital is 100 million, and we have no internal guarantees outstanding. 4.5 billion was offshore, with 1.2 billion covered by ECA and CPRI, which is the outstanding amount. Undrawn committed facilities are 700 million, and notional hedge exposure is 600 million, which is related to client business. Our financial markets colleagues did a good job over the past two months reducing the amount, and we work to reduce this further. As mentioned, we've taken 800 million loan loss provisions, which reflect capital impact from expected losses, while RWA impact reflects unexpected losses. RWA on our Russian exposure has tripled in the first quarter, reaching 13.3 billion. So at 12.5%, this is equivalent to a 1.7 billion capital impact. So combined with the risk cost, this amounts to 2.5 billion of potential impact already included in CET1 capital. And our focus remains on reducing Russian exposure. We don't do new business with Russian companies, and a material part of our Russian exposure is short-term. Regarding sanctioned entities, please note repayments for ING are allowed and are being received. The next slide shows that our CT1 ratio came in lower at 14.9%. The decline was driven by higher RWA, which were up by 21.8 billion, including 1 billion FX. This was primarily due to 19 billion of higher credit RWA, excluding FX, which included 7.3 billion for the risk weight-for on Dutch mortgages introduced by the central bank, and 9 billion added for Russian exposure. Furthermore, market risk-weighted assets were up, driven by market volatility, while lower operational RWA reflected the update of our AMA model. CT1 capital was 100 million higher, mainly due to the inclusion of 50% of net profit for the quarter. With net profit being equal to resilient net profit, the other 50% was reserved for future distribution in line with our policy. On our distribution plans, the final 21 dividend was approved at our AGM22, and will be paid out on the 9th of May. And in line to converge our CET1 ratio ambition, we will distribute an additional 1.25 billion, and this amount has been rise-sized to reflect increased macroeconomic uncertainties. This additional distribution consists of a cash component and a share buyback, with the split derived from Dutch withholding tax requirements. Based on this, 23.2 cents per share will be paid out on May 18th, and the share buyback for the remaining amount will start on the 12th of May. The additional distribution will bring our CT1 ratio pro forma to 14.5%, and I'm pleased we take this additional step in returning capital to our shareholders and to optimize our capital. As you can see on slide 14, CT1 ratio remains well ahead of our ambition. On ROE, we saw some impact this quarter from the elevated risk costs. However, with the continued growth of customers, loans, and fees, as well as focus on cost and capital optimization, we maintain our ambition to provide an attractive total return. Cost income remains an important input for ROE, and we continue to work on our ambition of 50 to 52%. Then to wrap it up with the highlights of the quarter. This quarter presents a new challenge with the invasion of Ukraine and I'm actually very proud of how we deal with this. We're focused on our people and we manage the risk of Russia exposure while we keep the focus on our strategic priorities including financing the green transition and improving the digital channel. And last but not least, we continue to deliver strong performance financially. This was reflected in a higher pre-provision profit driven by resilient NII, higher fees and lower costs, as well as a healthy return for our shareholders. Risk costs were elevated at 987 million, mainly in stage two. The stage three ratio was lower at 1.4% and we remain confident of the quality of our loan book. The C to 1 ratio declined to 14.9%, with 50% of the first quarter resilient net profit reserved for future distribution. The main driver was RWA growth, primarily for the Russia exposure and Dutch mortgages. And finally, on capital distribution, we will pay a 41 cents final cash dividend and a 1.25 billion euro additional distribution as announced today. With that, we will go to questions.