Ing Groep Nv

Good morning, this is Marion welcoming you to ING's first quarter 2023 conference call. Today's conference is being recorded. Before handing this conference call over to Stephen Van Rijsvijk, 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 including a 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 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 any offer to buy any securities. Good morning, Stephen. Over to you.

Good morning and welcome to our first quarter 2023 results call. I hope that you're all well. And as usual, I'm joined by our CFO tonight, Putrakul, and our CRO, Liliana Chortan. I'm pleased to take you through today's presentation. After that, we will take your questions. We started 2023 with a very strong quarter in both our retail and wholesale business by keeping focus on our customers and delivering value and demonstrating stability in a rather turbulent time for the banking sector. We continued to record organic growth and added another 106,000 primary customers who choose ING for our superior customer experience. And this is supported by our digital only mobile first strategy as evidenced in the large share of mobile only customers. Another achievement was a growing volume mobilized to help our wholesale banking clients transition to a more sustainable business model. At $22 billion, the volume mobilized was up by more than 25% compared to the first quarter of 2022. In our P&L, we continue to see the benefits of the current rate environment, both on our retail customer deposits and our wholesale payments and cash management business. This comes on top of the structurally higher fee base, a strong performance on total income with year-on-year growth of 23%. For the quarter, we realized a strong 13% ROE, increasing our four-quarter rolling average ROE to 9.7%. And all of this has enabled us to announce an additional distribution in the form of a 1.5 billion euro share buyback, which will kick off tomorrow. We accomplished all this in another exceptional quarter, although honestly, There has not been a dull moment since I became CEO almost three years ago, and I'm proud that our performance has been strong throughout these years, and I'm confident we will continue to deliver value. This confidence is underpinned in my belief that we have the right strategic focus and a fortress-like balance sheet with a strong funding and liquidity profile, which provides a robust foundation to build on. Before we go on to the financial results, I want to spend some time on these topics. Slide three shows our strategic priorities and focus for 2023. And one priority is to deliver a superior customer experience, a key differentiator for customer growth. Our other priority is sustainability, where an important aim is to support our clients in their transition to a more sustainable business model. A superior customer experience means easy, relevant, personal, and instant. And a key enabler for this is the seamless digital delivery with minimal human intervention. And this requires straight-through processing of customer journeys. Getting a mortgage is an important customer journey where being quick and predictable can be more important than price. Increasing the level of STP, straight-through processing, helps us with that. For example, in Germany, we have reduced the time to ES for brokers from four to two days. In Italy, We improved all aspects of the mortgage process with a faster time to yes and time to cash and a higher first-time rate. Streamlining how we interact with our customers is another important element of our customer experience as an increasing part of that interaction is through chatbots we use. We also use AI to make the interaction more effective and a more personalized experience. For KYC, the foundation is in place. Now the focus is on how we can be more effective and efficient. And aside from combining efforts with other banking supervisors, the focus is on working smarter internally. For example, grouping the assessment and documentation of multiple individual transaction alerts for one single client, which broadens the view of a client's behavior and increases the number of alerts that can be handled by one specialist. On female representation last year, we set a target of at least 30% by 2025 for our top 400 leaders, and we have extended that target to at least 35% by 2028. To reach that, we've also set a target to increase the share of women in the group of around 5,000 employees just below top management, from 27% at 22 to at least 30% by 2025. In sustainability, the financing of renewable energy is an important focus area, As the shift to renewable energy needs to go faster, we set a target on new loan growth for renewable energy. And in 2022, this group grew 10%, and we aim to continue this growing trend. We combine this with further restricting the financing of new oil and gas fields by extending the existing restriction for upstream to the infrastructure activities that unlock new fields. Finally, we work to broaden the scope of TERRA, And like we've done for steel, we are part of a working group to develop a framework for aluminum. On oil and gas, we are developing metrics and targets for mid and downstream, and we will cover an additional part of the value chain by including trade and commodity finance in our reduction targets in 2024. Then to our strong funding and liquidity profile on slide four. On the funding side, 60% of our balance sheet consists of customer deposits. The vast majority comes from our retail customers who keep 549 billion in deposits with ING. And this is a highly granular deposit book as it represents a large retail customer base spread over 10 countries. 70% of these deposits are insured forming a stable basis, which has been steadily growing over the years. More details can be found in the appendix of this slide deck. As you can see from the recent NRI development in a positive rate environment, our deposit base has a material embedded value that will support our revenues in the coming years. On the liquidity side, our group LCR stood at 134% on a four-quarter rolling basis and at 137% at the end of the first quarter of 2023. And these ratios exclude any local liquidity surpluses that are not transferable cross-border and are based on a sizable high-quality liquid asset book, HQLA, of $187 billion. And in addition to HQLA, we have large amounts of readily available ECB-eligible retained assets and other non-HQLA liquid assets, bringing the total level of available liquidity resources to $286 billion. In combination with our strong and stable deposit book, we feel very comfortable with this level of liquidity. And I move to slide 5. Over the past years, we have built a solid track record of delivering an attractive return for our shareholders. ING continues to be a strong investment case as the best European universal bank with consistent strategy execution. income growth, discipline on expenses, and strong asset quality. And combined with a strong capital position, we are in a position to return capital to our shareholders, including the share buyback we announced today. Our shareholder return for 2023 already stands at an attractive 8%. Slide 6 shows our financial target for 2025. and our first quarter 23 performance. On fee growth, in daily banking we see further room to increase or introduce fees. In investment products, the continued growth of accounts is a strong base for fee growth when market confidence improves, and this confidence will also support growth of lending fees. Higher fees will support total income growth, though for 23 the main driver will continue to be liability NII. And while there are some uncertainties, such as further central bank rates, deposit tracking and customer behavior, the tailwind from liabilities will continue. We expect total income growth of more than 10% for 2023, with lower growths in 2024 and 2025, reflecting the flattening of the curve. And this income growth will support an improvement of our cost-to-income ratio. On the cost side, we see the pressure from high inflation, and we continue to invest in our business and to execute our strategies. which should bring benefits in the longer term. On our CT1 ratio, we intend to move our targeted CT1 ratio of around 12.5% through our 50% payout of resilient net profit, combined with additional distributions in roughly equal steps. And on return on equity, with the targeted development of the cost-to-income ratio, our low through-the-cycle risk costs and a CT1 ratio target of around that 12.5%, we have confidence we will reach our targeted 12% ROE by 2025. Now we're going to move on to the first quarter results on slide 8. The first quarter of this year showed a strong performance of our pre-provision profit. When excluding volatile items and regulatory costs, pre-provision profit was up 31% year-on-year and 11% higher quarter-on-quarter. and I will address the underlying P&L lines in the following slides. Slide 9 shows the continued strong development of NII. This was driven by liability NII reflecting rate increases, limited deposit tracking, and a continued deposit inflow. Deposit impact was also clearly visible in wholesale banking, with our payments and cash management business better inflating from higher interest rates. In lending NII, we saw year-on-year pressure on mortgage margins due to rising interest rates as client rates generally track higher funding costs with a delay, as well as declining income from prepayment penalties. Quarter-on-quarter, this effect stabilized and lending margins slightly increased. Furthermore, on both comparable quarters, we saw the impact of a temporary shift of NII to other income in treasury and financial markets. In Treasury, this reflected activities to benefit from prevailing favorable FX swap interest rate differentials, while in financial markets, this was due to the impact of rising rates on hedge positions. And as mentioned on the previous slide, the boost in other income was further driven by financial markets benefiting from good client flow and market volatility. Excluding the net TLTRO impact and the Polish mortgage moratorium, our net interest margin for the quarter increased by 11 basis points to 159 basis points, mainly reflecting the higher NII on liabilities. Slide 10 shows net core lending growth, and we are pleased to continue to support economic growth and our clients in meeting the demand across our businesses and regions. In retail, Mortgages continued to grow, although at a lower pace, reflecting an overall slowdown of demand driven by uncertainty in higher interest rates. Higher net core lending and business lending was mainly visible in Belgium. In wholesale banking, loan growth was visible in lending. This was more than offset by lower utilization in working capital solutions and lower lending volume in trading commodity finance, reflecting lower commodity prices. Going forward with still heightened macroeconomic uncertainty, we expect loan demand to remain subdued. Net deposit growth was 1.3 billion, partly due to retail and mainly reflecting inflows in Poland, Spain, Belgium and Germany, partly offset by an outflow in the Netherlands, mainly due to operational payments made by our business clients and an internal shift from savings to asset management from our private banking customers. Asset management further increased driven by external floods. And wholesale banking records a small outflow visible in financial markets. Turn to fees on page 11, which showed resilience despite uncertainty continuing to affect the appetite for both investment and lending. Compared to a very high fee level in the first quarter of 22, fee income was down year on year. Daily banking fees continued to grow, this quarter by 13%, and this reflected growth in primary customers, the increase in payment package fees, and new service fees. Lending fees were lower year on year, mainly due to lower demand for mortgages. For investment product fees, we continued to see the effect of lower stock markets and less trading activity, although the opening of new investment accounts continued and AUM increased. Sequentially, fees were up, reflecting growth in financial markets and higher fees in investment products and daily banking and retail. Lending fees in wholesale banking were lower after a strong fourth quarter. Then slide 12. Excluding regulatory costs and incidental items, operating expenses were up, mainly visible in staff costs due to the full-year effect of high inflation coming in via salary indexation and C&A increases. This included a 10.5% automatic indexation in Belgium and an accrual for the CLA increase in the Netherlands. And furthermore, there was a one-off energy payment in Germany and a more front-loaded accrual of variable remuneration and wholesale banking. Next to this, legal provisions and energy costs were at elevated levels in the first quarter. We also continue to invest in our business. This includes marketing campaigns, as well as digitalizing customer journeys. And we do this to ensure we keep increasing the number of primary customers, thereby expanding the base for future growth. At the same time, as mentioned at the start of the presentation, investing to be more digital, to increase SDP, and to make processes smarter helps us to be more efficient and to reduce our costs to serve. And taking all this into account, and with inflation rates declining, we expect cost growth for 2023 to be more subdued than the year-on-year development suggests. Regulatory costs were down year-on-year, mainly due to a lower SRF contribution, and a quarter-on-quarter increase reflects the full payment of several annual contributions due in the first quarter of the year. Then we move on to risk costs on the next slide, which were 152 million this quarter on nine basis points of average customer lending, and this included a $67 million increase of management overlays, bringing the total of management overlays built up at the end of Q1 to $521 million. Risk costs in wholesale banking included a further release of $118 million of Stage 2 for the Russian book, reflecting a further reduction of our Russia-related exposure, which we will continue to bring down. We saw some collective provisioning and retail banking. which included additions related to model adjustments and consumer lending, while we also booked an additional provision related to Swiss franc indexed mortgages in Poland. The lower Stage 2 ratio mainly reflected the decreasing Russia-related exposure, and the Stage 3 ratio remained low at 1.4%. All in all, a very benign quarter in risk costs, and we remain comfortable with the quality of our loan book. Slide 14 shows our CT1 ratio, which increased to a very strong 14.8%. CT1 capital was 600 million higher, mainly due to the inclusion of 50% of resilient net profit for the quarter. Furthermore, RWA were 4.1 billion lower, including minus 1.4 billion of their X-impacts. Credit risk-related assets were down when excluding eviction impacts, reflecting an improvement of the overall profile of our loan book and, of course, the lower risk-related exposure. Operational risk-related assets were flat, while market risk-related assets were slightly higher. On our distribution plans, the final 2022 dividend was approved at our AGM and has been paid out on the 5th of May 2021. And in line with our ambition to converge our CET1 ratio ambition, we will distribute an additional 1.5 billion in the form of a share buyback, which will start on the 12th of May, which means tomorrow. And this additional distribution will bring our CET1 ratio to 14.4% on a pro forma basis, and I'm pleased that we take this additional step in returning capital to our shareholders and optimize our capital structure. We expect to further update the market on our distribution plans at the third quarter 2023 results presentation. To wrap up with the highlights. Overall, in a turbulent quarter, we have delivered a very strong start of 2023. Our people make a big effort every day to build a superior experience for our customers and to support the transition to a more sustainable society. We see these efforts positively reflected in primary customer numbers and volumes mobilized in transition finance. and our financial results show that accelerating NIR momentum is a clear tailwind, while free income has proven to be resilient. Expenses have reflected the inflationary pressure, especially on staff costs, but also on our continued investments to realize our strategy. Our capital position remained very strong, and we have announced an additional 1.5 billion distribution. Going forward, I'm confident that we will continue to deliver robust financial results and successfully execute our strategy. And with that, I would like to go and move on to Q&A. Operator?