Ing Groep Nv

Good morning, this is Laura welcoming you to ING's 4Q 2024 conference call. Before handing this conference call over to Steven Van Rysberg, 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 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 a solicitation of an offer to buy any securities. Good morning, Stephen. Over to you.

Thank you very much. Good morning and welcome to our results call for the fourth quarter of 2024. I hope that you're all well. As usual, I'm joined by our CRO Liliana Chortan and our CFO, Tinead Putrakul. And today I'm proud to show you how the steady execution of our strategy has resulted in another successful year with outstanding commercial growth and strong financial results. And thereafter, Tinead will walk you through the financials of the quarter and provide some insights in our expectations for 2025. At the end of the call, as always, we will be happy to take your questions. Now let's move to slide two. In this slide, shows the outstanding commercial growth that we achieved across all of our business lines in 2024. The number of mobile primary business customers increased by almost 1.1 million, exceeding our annual growth target, and we ended the year on a high by adding more than 430,000 mobile primary customers in the fourth quarter. We've also shown significant growth in our loan book. net core lending and retail banking grew by a record of 26 billion which was primarily driven by mortgages while we also performed very well in business lending and consumer lending and wholesale banking the lending growth was partly offset by continued efforts to optimal optimize capital usage at the end of 2024 52 percent of our risk-weighted assets were allocated to retail banking in line with our strategy to increase the capital allocation to retail banking to 55% in 2027, as communicated during the Capital Markets Day. The record net deposit growth last year was driven by both retail banking and wholesale banking. Retail banking benefited from continued customer growth and successful promotional campaigns, while the effects of our focus to increase deposits in wholesale banking also became visible. Total customers' balance sheet growth, so lending and deposits combined, amounted to 6% in 2024, exceeding the expectation of 4% that we set during the capital markets day. Now on slide three, we show how we are increasing impact on our stakeholders. Firstly, we have made progress in the diversification and enhancement of our product offering to both existing and new customer segments. We have, for example, successfully introduced new products for business banking clients in Germany. We have focused on expanding our service offering for private banking and affluent clients, and we have enhanced the product foundations in wholesale banking. With the number one net promoter score in five out of our retail markets, and a high net promoter score of 74 in wholesale banking, we continue to be the most loved bank in many countries in which we operate. We have a highly engaged workforce, as evidenced by our highest ever organizational health index score and our record participation. In order to support more diverse representation, We set a target a few years ago to increase the number of women in senior management positions and 2024, the percentage of women in these positions increased further to 32% getting closer to our target of 35% by 2028. And we've done very well on sustainability. That's the second pillar of our strategy. The number of sustainable deals increased further with 130 billion euro of volume mobilized in 2024, which is 13% higher than 2023 and already surpasses our previous target of 125 billion, which we aimed to achieve in 2025. On the next slide, I will show how we are continuously making investments in our growing the difference strategy. And that's slide four. And as mentioned, we continue developing products and services for new and existing customer segments. In Germany, for example, where we introduced products for business banking clients and where we have already attracted close to one billion euro in deposits from these clients. And we've recently also launched a business account there marking the next important milestone in our product offering. Our investments in client acquisition are clearly paying off. The total number of customers grew by around 1 million in 2024, and we have further momentum in converting these customers to mobile primary customers. We also hired additional front office staff in wholesale banking to better serve our wholesale clients and grow the franchise. To enhance the scalable infrastructure, we have further digitalized our core systems and enhanced our product foundations. We have, for example, invested in our payments platform, which will benefit both wholesale banking and retail banking. And we are continuously investing in AI to further strengthen our position as one of the leaders in the AI and analytics space. We have, for example, launched personalized marketing for specific retail segments, which has already shown promising results. The cost of these investments are partly mitigated by operational efficiencies through our increasingly scalable model. And let me give you some examples. There was a further rationalization of the branch network, which now stands at just over 600 globally, so 600 branches globally, compared to almost 800 at the end of 2023. We have improved customer experience through the use of our GenAI chatbot. which also led to higher chat deflection. And we made measurable progress in operational efficiency with a 3% improvement in the FTE over customer balances ratio, which is in line with our messages during our capital markets day. On slide five, we show that these investments are also leading to business growth and strong revenue generation and volume growth in both lending and liabilities. has supported the increase in net interest income over the last couple of years and has helped to offset the margin pressure from decreasing rates in 2024. And what's clearly visible on the slide is that total net interest income is at a structurally higher level in a positive rate environment. Fee income grew by over 11% year on year, driven by the strong increase in the number of clients and our initiatives to further diversify the income base. And this led to a record total income in 2024. And we expect income in 2025 to be at roughly the same level. And tonight we'll come back later with more details on our outlook for the next year. On the next slide, slide six, I want to show the impact of these strong results in our shareholder distribution. Because this slide six illustrates that our capital generation was again strong, exemplified by the return on equity of 13%. and this has allowed us to sustain our attractive shareholder remuneration. The yield in 2024 was above 15% for the second consecutive year, and note that we have been able to achieve this while the average share price was almost 21% higher. Going forward, we believe we have ample capacity to continue providing an attractive return. The 2 billion euro share buyback we announced in November is still ongoing, and we made an additional cash payment of 500 million in January, Today we also announced the final cash dividend over 2024 of 71 cents per share, which will be paid in May, subject to shareholder approval at the AGM in April. The impact of the implementation of Basel IV and other model updates in the first quarter is expected to be negligible, which is better than the 20 basis points that we had anticipated last year. As usual, we will update the market on next steps in converging our CET1 ratio towards our target level with our first quarter results. And that brings me to slide seven. I would like to zoom in on an individual country again and demonstrate how we are executing our growing the difference strategy. And with an income of around 5 billion Euro and profit before tax generation of close to 3 billion ING, the Netherlands is the largest contributor to the overall retail P&L. A high level of digitalization and our continued focus on offering superior value for customers is reflected in their strong appreciation of our products and services. And this in turn also resulted in sustainable growth in the last few years. The number of mobile primary customers continues to increase. Customer balances have grown by 4% since 2020, and we have significantly increased market shares. In mortgages, for example, we have grown the market share in new production to around 17% in 2024, mostly driven by the appreciation of our flexible operations and the fact that we are able to process digital applications faster than most competitors. Going forward, we firmly believe we can grow further and make more impact for our customers. We have launched a digital tool supporting clients in their retrofitting journey by helping identifying which energy upgrades are possible to their homes, estimating the energy bill savings, and getting quotes from trusted and accredited installers all in one place. For our private banking clients, we have extended the private markets investment offering, which will support further growth in assets under management. And the focus on business banking is clearly paying off with a significant growth in lending while the market was not growing in 2024. So as you can see from his performance, ING in the Netherlands is a clear example of how we are growing the difference. Then I move to slide eight, and this slide talks about the intended sale of our onshore business in Russia. As we announced last week, since February 2022, we have been clear that we don't see a future for ourselves in Russia. We have taken on no new business with Russian companies, have scaled down operations and have taken actions to separate the business from our networks and systems. And with the agreement, our activities in the Russian market will effectively end. The transaction will have an estimated negative impact of around €700 million on our P&L and around 5 basis points on our CT1 ratio. The impact from the currency translation adjustment of that €700 million of around €300 million will have no impact on our resilient net profit and hence on the dividend. We will continue to further reduce our offshore exposure to our Russian clients. At the end of December, we still had around €1 billion of offshore exposure, of which half a billion is under ECA, so Export Credit Agency, or CPRI cover, that is insurance. And that brings me to slide nine. I would like to emphasize again that executing on a strategy has resulted in strong results in 2024 with outstanding commercial growth and strong financial performance. And this progress on a strategy execution also allows us to confidently reiterate the targets for 2027, which we set during our Capital Markets Day. And we once again confirm our ambition to be the best European bank. And now with that, I will hand over to Teneit, who will take you through the results in the fourth quarter and the outlook for 2025 in more detail, starting on slide 11. Teneit, over to you.

Thank you very much, Steven. I'd like to start on slide 11, where we show our sustainable commercial momentum with strong net core lending growth of 7.2 billion in the fourth quarter. Besides the continued strong performance in mortgages across almost all of our markets, we also grew in business lending and consumer lending volumes. On the liability side, we saw core deposit growth increase by over 16 billion euros. Of that $16 billion, retail contributed over $12 billion, driven by successful campaigns, evidencing our ability to attract customer deposits. In wholesale banking, our focus on increasing deposits also paid off, with strong flows in payment and cash management business, as well as money markets in particular. On slide 12, the impact from the lower replication income on our liability, NII, is clearly visible as the saving rates cuts we have announced over the past few weeks will only become effective as of the first quarter of this year. Lending NII increased by 16 million, driven by higher volumes at stable margins. Other NII, which is mostly treasury related, came in at the upper end of our usual 200 to 300 million euro range that I mentioned last quarter. The one-off includes the payment of incentives in Germany following a Black Friday campaign in which we attracted a significant number of customers and around 2 billion euros of deposits so far. And lastly, the impact of accounting asymmetry on NII decreased compared to the third quarter, but was still 30 million higher year on year. Turning to slide 13, you can see that the lending margin was stable at 128 basis points this quarter. The average lending margin for the full year 2024 was 130 basis points, in line with our guidance at the start of the year. The liability margin decreased to 100 basis points in the fourth quarter, mainly driven by lower replicating income following the decrease in rates since the middle of 2024. The additional lower margin volumes we attracted in wholesale banking also had an impact on the liability margin as well. Overall, net interest margin, which takes into account the development in total balance sheet into account, decreased by one basis point, as the lower liability NII was compensated by higher treasury NII and a shorter balance sheet at the end of the year. Slide 14 illustrates our ability to maintain a strong liability NII, also in a lower rate environment. The graph on the left shows the forward curve as per the end of December compared to the end of September last year, with rates marginally higher at the end of the year. You can see the impact of this development on our gross replicating income in the graph in the middle of the slide. Based on the current interest rate curve, we remain confident that we'll be able to manage our liability margin at a level of between 100 to 110 basis points over the longer term. For 2025, we expect the margin to end up around 100 basis points. I will come back later on the overall outlook in more detail. Turning to slide 15, the fee growth year-on-year was again double-digit at 14%, driven by structural revenue drivers. Growth in retail banking was partly driven by investment products, reflecting growth in active investment product accounts and an increase in both asset under management and customer trading activities. Daily banking fees rose on the back of strong customer growth and an updated pricing for payment packages. In addition, retail banking grew its fee income from lending and insurance products. The increase in fee income in wholesale bank was mainly attributed to higher fees from lending. Now turning to slide 16, total expenses in 2024 increased by 4.8% compared to 2023, and we ended up at just over $12 billion in costs for the full year. Expense excluding regulatory costs and incidental items was 7.6% higher. This increase was mainly driven by the impact of inflation on staff expenses, reflecting salary indexation and collective labor increases across most of our markets. Certain FX development, in particular the weakening of the euro, also contributed. As Steven already alluded to, we also continue to invest in our business. We had to pay higher VAT following the implementation of the Danske Bank ruling in the Netherlands. Operational efficiency compensated for a large part of these increases, and we continue to digitize our services to further increase operational leverage. Now on to risk cost, the next slide. Total risk cost was 299 million euros this quarter or 18 basis points of average customer lending, which is below or through the cycle average. Stage two credit outstanding for retail increase in the fourth quarter, which was due to regular movements in the portfolio and to the implementation of an enhanced early warning system in various retail other countries. In wholesale banking lending, higher Stage 2 ratio reflected the methodological change to reclassify portfolios for which provision overlay have been taken, as well as some movements in the watch list portfolio. Net addition to Stage 3 provision amounted to $311 million, which were largely due to addition to a number of new and existing files in the wholesale bank. Although we see more macroeconomic uncertainty, we remain confident on the quality of our loan book. Now to slide 18, which shows the development of our quarter one ratio, which decreased from the reported level at the end of third quarter, but rose from a pro forma quarter one ratio, including the announced cash distributions. From this pro forma level, core tier one capital increased due to the inclusion of the quarterly net profit after reserving for dividend. Risk-weighted assets also come in somewhat higher, driven by an increasing in exposure and FX impact. Note that the FX impact are fully offset by an appreciation of core tier one capital. These increases were partly offset by positive changes in the Profile Now loan book and the impact of model changes, which included a $2.5 billion reversal of a model update in the second quarter of 2024. Market risk-weighted assets decreased, while operational risk-weighted assets were stable. The final cash dividend over 2024 will be paid on the 2nd of May, subject to our shareholders' approval. Now, as I mentioned earlier, I will share our perspective on the outlook for 2025, starting on slide 20. Note that we explicitly mentioned commercial NII on this slide, which will be the basis for both our outlook and consensus for the first quarter 2025 onwards. This commercial NII consists of lending and liability NII. Before going into details, it's good to highlight again that the world around us continue to be volatile, which limits the visibility on important operating drivers such as interest rates. In the scenario illustrated on this slide, we assume continued growth in customer balances of around 4% per annum, as per our guidance during Capital Markets Day. If this scenario were to materialize, the positive impact on liability NII would be roughly 300 million in 2025. This, however, will be more than offset by a lower average liability margin, which we assume to be around 100 basis point in 2025. Volume growth would also have positive impact of around 300 million on the lending NII, where we expect lending margin to be stable at around 130 basis points. Furthermore, we expect fees to increase by a further 5% to 10%, while other income is expected to be slightly lower due to the positive one-off we had last year. As a whole, total income is forecasted to be around the same level as in 2024, Note that this guidance excludes the potential impact of the sale of our business in Russia. On the next page, I will explain the driver of the expected fee growth. Following the strong growth in fees in 2024, we feel confident we can grow fees income further in 2025. This confidence is underpinned by the investment we have made over the last few years, as well as by the continued focus on diversifying our P&L. Retail daily banking is expected to be one of the big drivers for this fee growth, supported by continued customer growth, increased conversion to mobile primary customer, update pricing packages, and further development of the business banking segment. We also see growth in fees coming from investment products as we continue to cross-sell our products to more clients. We also see further increases of our focus on growing the assets under management from affluent segment and increasing leads from business banking. Other retail products are also expected to grow, driven by a further normalization of mortgage demand, particularly in Germany and in continued focus on insurance product distribution. In wholesale banking, we will further optimize capital efficiencies and increase capital velocity. In addition, we have hired additional front office staff, especially in capital market advisory and transaction services, which is expected to generate additional business. Then to our outlook on costs on slide 22. We expect our annual cost growth of around 4.5%, excluding potential incidental expenses. The main driving the main driver for this increase continues to be inflationary pressure, which will again be mostly be impacting staff expenses. We will also continue to make selective investment to facilitate business growth and further increase efficiency. For example, we will continue to develop product and services for new and existing customer segments. We will further increase client acquisition by investing in marketing and front office staff. We will make further investment in our product foundations and infrastructure, facilitating further commercial growth. We will, for example, be strengthening the payment infrastructure and enhancing the financial market business. Next to that, we will also be strengthening our core banking operations to further improve our delivery of a seamless digital experience for our customers. The cost for these investments will be largely offset by operational efficiencies. We will further optimize our contact center, make KYC processes more efficient, and reduce our branch network. This will result in approximately 1,000 less operational staff and front office jobs, which will further improve FTEs over customer balance ratio. To summarize, We're confident in our outlook for 2025 as laid out on this slide 23. 2024 was another good year with outstanding commercial growth and strong financial results. For 2025, we expect total income to remain strong as we continue to benefit from volume growth in both lending and liability and from a further 5% to 10% growth in fee income. We maintain focus on cost control and operational efficiency, whereby we'll make selective investment to facilitate further business growth. Our core tier one ratio will continue to converge towards our target of around 12.5% by the end of 2025, and we have capacity to continue to provide an attractive shareholder return. We will update the market again on our capital distribution plan with our next quarterly results. Taking all that into account, we aim to have a return on equity of more than 12% for 2025. Now to Q&A.