Ing Groep Nv

Good morning, this is Laura welcoming you to ING's Q1 2024 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 statements 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 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... Good morning, Steven. Over to you.

Thank you very much. Good morning and welcome to our results call for the first quarter of 2024. I hope you're all well. And as usual, I'm joined by our CRO Liliana Chortan and our CFO, Taneet Putrakul. In today's presentation, I will inform you about the fundamental drivers of ING's excellent start of the year, both in terms of our commercial performance and our financials. Taneet will walk you through the financials of the quarter and the resilience of our net interest income, also in a lower rate environment. And at the end of the call, we will be happy to take your questions. Now, let's move to slides. As you can see on this slide, we achieved a very strong commercial performance in the first quarter, with growth across the board in customers, lending, and deposits. We added 99,000 primary customers, comprising both new and existing customers who have chosen us as their primary bank, and our primary customer base now amounts to over 15.4 million primary customers, and we are well on track to reach our target of 17 million by the end of 2025. We've also been able to grow our lending book following a strong fourth quarter. Our mortgage book grew by €2.4 billion this quarter. Most of this growth was visible in the Netherlands, where we further increased our market share, and in Germany. In wholesale banking, we were also able to capture loan demand while we continued focusing on capital efficiency. On the deposit side, we had successful campaigns to raise new funds in Germany and Poland. And also in Italy, we were able to further grow our business as evidenced by the deposit inflow this quarter. Now, this strong commercial growth contributed to an excellent start of the year, which we highlight on slide three and can summarize in four main points. Number one, NII was strong. We have been able to keep our lending and liability margins relatively stable and benefit from the growth in volumes. When excluding the increased impact from accounting asymmetry, our NII rose compared to last quarter. Two, our focus on fees is clearly paying off. Income from fees has grown by double digits versus both comparable quarters. As mentioned during our fourth quarter 23 earnings call, we are benefiting from more customers choosing ING for their banking products and from increased package fees. Also, The new commission structure for independent brokers in Belgium is resulting in lower fees paid. So market dynamics have also become more favorable, leading to positive impacts on fees from investment products and lending. As such, we remain confident in our ability to grow fees by 5 to 10% this year. Number three, operating costs. They were on track. Operating costs increased by 5%, which was mostly attributable to the impact of inflation on staff expenses and the implementation of the Danske Bank ruling on VAT. However, when taking the lower regulatory costs into account, total operating expenses were 1.4% lower than last year. And then we have number four. In 2023, the high quality of our loan book continues to be reflected in low risk costs, which came in at only 16 basis points this quarter. And this has all resulted in another quarter with very attractive returns. Our four quarter rolling return on equity was 14.8%. And we have achieved this while operating on a high CT1 ratio of also 14.8%. Then we turn to slide four. As you can see on the top graph, we are in a very predictable rhythm of announcing distributions to our shareholders. And I'm pleased that we have announced another 2.5 billion euro share buyback today, which is the next step in converging our CT1 ratio towards our target of around 12.5%. Including this buyback, we have returned almost 26 billion euro to shareholders since 2018, and over 5 billion in 2024 alone, also including the final cash dividend over 2023, which will be paid tomorrow. With a pro forma CT1 ratio of around 14.1% and continued capital generation, we have ample capacity to continue providing an attractive return. And we will update the market at the time of announcing our third quarter 2024 results. Before tonight takes you through the financial results in more detail, I will spend some time on the progress we're making on the execution On slide five, our purpose and strategic priorities are shown. The first priority is to deliver a superior customer experience that is personal, easy, relevant, and instant. And this is highly valued by our customers, as evidenced by our net promoter scores, where we are ranked number one in four of our ten retail banking markets. One example of how we offer this excellent experience is the launch of a feature in our banking app that allows customers to immediately check whether a caller who contacts them is actually an ING employee. This will protect both the customer and ING from fraud. In Romania, we expanded our instant lending proposition by introducing an instant overdraft product in addition to term loans. And in wholesale banking, the ING Insight Business Portal now includes a portfolio insights tool that saves clients time by giving them real-time insights into their lending portfolio. Our second strategic pillar is putting sustainability at the heart of what we do. And we continue to support our clients in their transition to a low-carbon economy. In the first quarter, we achieved a volume of sustainable finance mobilized of 24.7 billion euro, an increase of 13% from the same period last year. and we closed 156 sustainability transactions, 59% more than in the first quarter last year. In retail banking, we provide sustainable mortgages in several countries, and we're also working to help connect customers with services to undertake their sustainable home renovations. For example, in Germany, where we started a pilot in the first quarter where customers can give advice can receive advice and connect to partners specialized in sustainable solutions, such as heat pumps, solar panels, installation services, and subsidy advice. And looking at sustainability and ESG more broadly across the bank, we release publications on human rights and nature. On the next slide, I'll give you some insight in the key themes of our Capital Markets Day. As you know, we'll host a Capital Markets Day on the 17th of June, And obviously I will not reveal too much now, but can give you a broad outline of what we intend to discuss. First, we will update you on the next phase of our strategy. In addition, we will highlight how capital will be allocated going forward and how that results in further growth and diversification of our business. We will discuss how we leverage our operational excellence. And lastly, we will update you on the targets for the next few years. Now I will hand over to Teneit, who will take you through the results in the first quarter in more detail, starting on slide 8.

Thank you. As Steven mentioned in his introduction, net interest income was strong again this quarter. Lending NII increased for the fourth consecutive quarter, driven by increased volumes at a higher interest margin. Liability NII continued to be resilient. with a margin above our historical average. We did not increase our call rate this quarter. We reinvested part of our replicating portfolio at higher rates and benefited from the positive impact of these actions. The overall net interest margin, which was taken in development in the total balance sheet into account, decreased by three basis points. This is fully driven by lower net interest income for financial markets following an increase in accounting asymmetry. I'll give you more details on the next page. On this slide, there are two messages I want to get across. First, note that when excluding the increased impact of accounting asymmetry, our net interest income increased compared to the previous quarter. However, our which lowers net interest income in group treasury and financial markets with, of course, an offset in other income. This quarter, this accounting symmetry increased, particularly in financial markets. The second point that I want to make is that we have clearly benefited from improvement in the curve since our Q4 results presentation, and this will also positively impact the development of our NII in 2024. The normalisation of our liability margin is likely to happen more gradually compared to the scenario we gave in February, while there's no reason to change the assumptions from lending growth and other NII. As a result, we now expect to end up at the high end of the range given in February. On the next slide, we see the resilience of our net interest income also in a decreasing rates environment. Slide 10 illustrates our ability to maintain a strong liability NII also in a lower rate environment. The graph on the left shows the improved forward curve as per the end of March compared to the end of December with the long-term rates moderating around 220 basis points. These continued positive rates benefit our gross replicating income as you can see in the graph in the middle of the slide. Then when you assume a scenario in which the pass-through gradually increases over time to 50%, the liability NIIFR retail Eurozone deposits net of deposit costs remain at a strong level. The pass-through on total retail Eurozone deposit was around 30% in Q1 2024. Under this scenario, the liability margin is expected to stabilize at a level of around 100 to 110 basis points. Moving to slide 11, this shows the development of our core lending and deposits. In retail banking, mortgages continue to increase with growth mainly visible in the Netherlands and in Germany. In wholesale banking, we were also able to capture growth opportunities while we continue to focus on capital efficiency. On the liabilities, we saw core deposit increase by 13.5 billion euros in the first quarter. It was mainly due to another successful promotional campaign in Germany, but we also see growth in Poland as well as in Italy. Wholesale banking also recorded a small inflow, mostly driven by financial markets and bank menace scans, where we offer cash pooling for our clients. Now turning our page to page 12, you can see that our focus on fees is clearly paying off as income has grown by double digit versus both comparable quarters. Roughly half of this growth was driven by growth in the number of customers, our own pricing actions, the new commission structure in Belgium is also resulting in lower fees paid to independent agents. On top of this, we saw the market dynamics has also improved leading to positive impact on fees from investment products as our customers start to trade more and asset under management increase. At the same time, in the wholesale bank, our global capital markets team has all had a very successful start for the year. With that in mind, we remain confident in our ability to grow fees by 5% to 10% this year. On page 13, we continue to be disciplined on costs, Excluding regulatory costs, incidental items, operating expenses were up 5% year on year, which is in line with what we said during our fourth quarter earnings call. The increase in indexation and CLA increases across most of our markets. We also had to pay higher value-added tax following the implementation of the Danske Bank ruling in the Netherlands. Regulatory costs are also seasonally high in the first quarter but was significantly lower than last year because no contribution is required to the Eurozone Single Resolution Fund this year. The additional bank taxes in the Netherlands will be paid in the fourth quarter as per normal. As Stephen said at the beginning of the presentation, the total expenses, including regulatory costs and incidental items, decrease versus both comparable quarters. Now on to risk costs on the next slide, slide 14. Total risk costs were $258 million this quarter, or 16 basis points of average customer lending, well below our through-the-cycle average and demonstrating the quality of our loan book. In wholesale banking, risk costs including additions for a number of individual files in unrelated industries that were newly provisioned in Stage 3. This was, however, offset by releases in Stage 1 and 2. In retail banking, risk costs were predominantly driven by business banking and consumer loans, while mortgages, our largest book, continued to perform well. Looking at the different stages, addition to Stage 3 provisions were $368 million, but in Stage 3 ratio remained stable at 1.5%. Risk costs for Stage 1 and 2 were a negative €110 million, reflecting an update of better macroeconomic forecasts and releases of management overlay. We still have a stock of overlays amounting to €533 million. All in all, another benign quarter in risk costs, and we remain confident in the quality of our loan book. Now, slide 15 shows the development of our capital ratios, which increased further to a very strong 14.8% growth, driven by inclusion of the net profit for the quarter after reserving for dividend. Risk-weighted assets increased by $3.9 billion, including $1 billion of FX impact. Credit risk-weighted assets increased by $3 billion, mostly driven by an increase in exposure and some model changes. These factors were partly offset by a change in the overall profile of the loan book. Both operational and market risk weight were stable. Share buyback announced today will have an impact of approximately 77 basis points on the Core Tier 1, which will be visible in the Q2 numbers. we will again update the market on our capital plans with the disclosure at our Q3 results in early November. Then on slide 16, as Stephen and I explained today, ING had an excellent start to the year with good commercial and financial performance as we have executed on our strategy. Total income grew with strong NII double-digit fee growth. The development of operating costs were in line with our outlook we gave, while regulatory costs decreased significantly compared to last year. Our four-quarter rolling ROE remains very attractive at almost 15%, while our core Tier 1 ratio further strengthened to 14.8%. This has allowed us to announce another sizable share buyback program, which has started today. we will update the market again at the time of announcing our third quarter results. The strong first quarter performance gives us further confidence that we will reach above 12% return on equity target. In general, looking ahead, we are confident that we will continue to deliver robust financial results while successfully executing our strategy. We will take a long-term view at our Capital Markets Day taking place in June. We look forward to discussing this with you then. Now on to the Q&A. Operator.