Ing Groep Nv

Good morning, this is Laura welcoming you to ING's 3Q2024 conference call. Before handing this conference call over to Steven Van Ryswijk, 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 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 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 to offer to sell or a solicitation of an offer to buy any securities. Good morning, Steven. Over to you.

Hi, good morning and welcome to our results call for the third quarter of 2024. I hope you're all well. And as usual, I'm joined by our CEO Liliana Chortan and our CFO, Tenet Putrakul. In today's presentation, I will inform you on the progress we have made on the strategic priorities we have set during the Capital Markets Day earlier this year. And this progress has resulted in another strong quarter and enables us to improve the outlook for the remainder of this year. Tenet will walk you through the financials of the quarter and provide some insights in our expectations for the margin developments going forward. At the end of the call, we will be happy to take your questions. And now let's move to slide number two. This slide shows how we have continued accelerating growth. We again had a very strong commercial performance this quarter with a further increase in the number of customers and client balances. And in addition, our total income has reached the highest level ever in the third quarter. Our continued focus on providing superior value for our customers has again proven to be a key differentiator. This quarter, the number of mobile primary customers increased by 189,000, with more customers choosing us as their primary bank in almost all of our countries. In the last 12 months, we have grown the number of mobile primary customers by around 900,000, and we feel comfortable that we will sustain and even accelerate this strong growth trajectory. Our lending book grew by $9 billion, with particularly strong performance in mortgages. In the Netherlands, we have been able to significantly increase our market share in new production, mainly as a result of our focus on digitalization and our flexible operations. And this is a clear example of how we increase impact and deliver value for our customers. In wholesale banking, growth in lending and financial markets was partly offset by ongoing efforts to optimize capital usage. And then on the liability side, a successful campaign in Belgium, which brought in 5.5 billion of deposits, and growth outside the Eurozone were partly offset by seasonal outflows at the end of a campaign in Germany. The strategic focus on gathering deposits in wholesale banking resulted in a net inflow this quarter as well. Annualized customer balance of growth, so lending and deposit combined, amounted to 5.3% in the first nine months, exceeding expectations of 4% that we set during capital markets day. And finally, and as mentioned, total income was at a record level this quarter with fee income more than 1 billion Euro for the first time. Slide three elaborates on how we are increasing impact. And as highlighted in the previous slide, we have again seen growth in the number of customers which shows their appreciation for our products and services. We are the most loved bank in many countries we operate in, with a number one net promoter score in five of our retail markets. We continue investing in further digitalizing our product offering, and this quarter we rolled out our one app to business banking clients in Germany. As employees are our most important assets, we work hard on further improving the employee experience and we're proud that we've been recognized as a top employer in five European countries. And in September, we published our climate progress update in which we highlight the progress that we made in putting sustainability at the heart of what we do. We have 28 billion euro of sustainable volume mobilized in the third quarter and 85 billion in the first nine months. which is 15% more than last year. The number of sustainable deals has also increased further. We have, for example, provided €250 million of financing to the National Heat Fund in the Netherlands, which provides loans with the aim to make homes and other buildings more sustainable. On the next slide, I'll show how we are delivering value for our shareholders. So let's move to slide four. And here we highlight that our capital generation was again very strong, with a four-quarter rolling return on equity of 13.8%, while still operating at a CET1 ratio of 14.3%. This has allowed us to consistently distribute cash and deliver value to shareholders. And today we announced another additional distribution of 2.5 billion euro, thereby providing an attractive return of 17% this year. €2 billion will be returned in the form of share buyback starting today, which will have a further structural positive impact on both earnings and dividends per share going forward. And in addition, we will pay a cash dividend of €500 million in January 2025 to meet the cash hurdle in 2025. Note that this hurdle will increase to approximately €3.5 billion next year, which is a significant step up versus the hurdle in 2024. And as we continue to generate capital, we're confident that we can also continue providing attractive shareholder returns going forward, and we will update the market on next steps with our first quarter results next year, as per our normal rhythm, i.e. every six months. And then we move to slide five. As we did last quarter, I would like to zoom in on an individual country and show how we are executing on our retail strategy. With an income of around Two billion euro, ING Poland is one of our largest franchises and with a strong presence in all segments of the market, i.e. private individuals, business banking, private banking, wholesale banking, and given that we are an integral part of society. The bank is highly successful with a large and growing number of customers, a favorable development in market shares in various products, and strong profitability. And our high level of digitalization and our focus on offering superior value for customers is visible in their appreciation of our products and services. In that, we are consistently amongst the most loved banks in the country, have been awarded being the best private bank in the market, and we have a leading position in the business banking sector. Our customer balances have grown with a CAGR of 9% since 2019, and Poland is a significant contributor to ING's fee income and profitability. We firmly believe we can grow further and make more impact for our customers to increase presence in new segments. We have, for example, introduced new value propositions and enhanced existing product offering for Gen Z and business banking clients. Our product franchise is a true example of how we're growing the difference. And then moving to the next slide, I would like to highlight the progress that we have made in our aim to be a leader in accelerating the low carbon transition. Society is in a race against time when it comes to climate change. We believe that we can make a difference with how we steer our lending in alignment with science-based and sector-agreed decarbonization pathways, which we call our Terra approach. In the past year, we have expanded our approach to include the aluminum and dairy sectors, And for the aluminum industry, we have co-developed standards in which are designed to enable banks to measure and disclose their financial aluminum-related emissions and help them align financing decisions with our own decarbonization targets. Earlier, we also co-developed these standards for the steel and shipping industries. We've also made great strides with our client engagement approach. We have put a data-driven assessment and decision-making process in place It has led us to step up in how we advise and support wholesale banking clients with sustainable business transformation. And we've also expanded our oil and gas policy, and in that we will stop all new financing to pure play upstream oil and gas companies that continue to develop new fields. In addition, we have decided to stop providing new financing for new export energy terminals after 2025, and are very proud of the progress we've made and are making And at the same time, there's much more to do for us, and we want to work with all stakeholders and everyone who is driving progress, bringing impactful change to the areas where it most needs to happen. Then we move to slide seven. I would like to highlight again that executing on our strategy has resulted in a very successful first nine months of this year with good commercial and financial performance. This progress on our strategy execution also allows us to improve the outlook for the remainder of this year. And we now expect total income to end up above €22.5 billion, up from more than €22 billion previously. We keep our outlook for total costs unchanged at around €12 billion, which means that we expect a cost-income ratio to come out lower at around 53%. And finally, the return on equity is forecast to be more than 13% for the full year. And now with that, I will hand over to Nate, who will take you through the results in the third quarter in more detail, starting on slide nine.

Thank you, Steven. I'd like to start on slide nine, where we show the development of total income, which reached our highest level ever in this quarter. Total net interest income was impacted by Treasury results. but the core net interest income lines consisting of lending and liability NII are resilient. I'll share more insights on the specific driver in the next slides. Fee income has increased for the third consecutive quarter and is now more than €1 billion. Financial markets continue to show good performance as well. The biggest growth this quarter came from other income, which benefited from the receipt of our annual dividend from our stake in the Bank of Beijing and a one-off profit from an associate company that we have invested in. On the next slide, slide 10, we highlight our sustained commercial momentum with strong net core lending growth of around 8.5 billion euros. We have been able to grow our mortgage book, Growth was achieved in all of our retail countries, partly driven by supportive market developments, but also by ability to gain market share. On the liability side, we saw core deposit increase by almost 3 billion euros in the second quarter, due to strong performance in both retail and wholesale banking. In retail, growth was particularly coming from Belgium, mainly driven by a successful marketing campaign which brought in 5.5 billion euros. This inflow exceeded the 2.6 billion outflow we saw last year when the customer bought bonds issued by the Belgium government. In the wholesale banking sector, growth reflected our continued momentum in strategic initiatives in PCM and money markets. The key point on slide 11 is that the decrease in net interest income was driven by volatile inflation. items in treasury-related income, while the core driver of net interest income were resilient in this quarter. Liability NII actually increased by €15 million, driven by higher volumes at stable margins. Lending NII was slightly lower as volume growth did not fully compensate for the decrease in margin, especially in the wholesale banking segment. We did not have any one of this quarter, and the impact of accounting asymmetry decreased somewhat compared to last quarter. On the next slide, we'll show the development of the margins. On slide 12, you can see that the liability margin was stable this quarter, supported by lower average deposit costs and the tailwind from the longer duration in our replicating portfolio, which offset the decrease in short-term rates. The movement in lending margin this quarter is explained by wholesale banking due to growth in a low-risk segment and some one-off in the previous quarter. The overall net interest margin, which takes the development of the total balance sheet into account, decreased by seven basis points, mostly driven by lower Treasury-related interest income. Overall, the net interest income in the third quarter supports our outlook. for the upper end of the 16.1 to 16.6 billion range for the full year 2024. Slide 13 illustrates our ability to maintain a strong liability NII also in the lower rate environment. The graph on the left shows a forward curve as per the end of September 2024 compared to the end of June with rates coming down quite significantly. Forward curves are volatile and today again look somewhat higher than at the end of September. However, for the sake of simulation, we have used this quarter-end forward curve. You can see the impact of this development on our gross replicating income in the graph in the middle of the slide. Despite this pressure on replicating income, we remain confident that we're able to manage our liability margin at a level between 100% to 110 basis points, whereby we expect the margin in 2025 to end up at the lower end of this range. Turning to slide 14, fee income growth year on year was again double-digit, mostly driven by structural revenue drivers, or as we term it, the alpha factors. Growth in retail banking was driven by higher daily banking fees, and a growing number of customers with an active investment product account. Together with the growth in customers, we also see asset under management increasing by 19% since last year, which is a key driver for fee income growth going forward as well. The increase in fee income in wholesale banking was mainly attributable to a higher deal flow in global capital markets and in corporate finance. Given the strong performance across the bank, we remain confident that we can reach our 4 billion fee income outlook this year and our 5 billion target in 2027. Next slide, slide 15. Total expenses in the first nine months of the year increased by just over 3% compared to the same period last year, and we expect total cost to end up at around 12 billion euros for the full year 2024. Expense excluding regulatory costs and incidental items were approximately 7% higher. This increase was mainly driven by impact of inflation on staff expenses, reflecting salary indexation and CLA increases across most of our markets. We also continue investing in our business and had to pay higher VAT following the implementation of the Danske Bank ruling in the Netherlands. Operational efficiencies compensated a large part of these increases, and we continue to digitize our service and build our infrastructure to further increase operational leverage. On to the next slide on risk costs on slide 16. Total risk costs were €336 million this quarter, or 20 basis points on average customer lending, equal to our through-the-cycle average. Net additions to Stage 3 provisions amounted to $453 million, which was partly offset by a net release in Stage 1 and Stage 2 risk costs, reflecting a partial release of management overlays and some model updates in retail banking. The Stage 3 risk costs were largely due to additions for a few new or existing files in wholesale banking. Although we see more macroeconomic uncertainty, we remain confident in the quality of our loan book. This is also reflected in a decrease in Stage 2 outstanding, following repayments and lower levels of new inflows. Slide 17 shows the development of our Q1 ratio, which increased to a strong 14.3% at the end of the third quarter, CET1 capital increased due to inclusion of quarterly net profit after reserving for dividend. In the previous quarter, we saw an increase in credit risk-weight assets. We also indicated that part of this increase was temporary and would largely be reversed before year-end. In the third quarter, part of the impact was indeed reversed, together with positive changes in the profile of our loan book. is more than offset the higher risk-weight asset driven by increase in exposure. Market risk-weight assets also declined by around half a billion euros, while operational risk-weight assets were stable. The announced 2.5 billion additional distribution will have a pro forma impact of 76 basis points on core tier 1 ratio, which is well above our target of around 12.5%.