Ing Groep Nv

Good morning, this is Laura welcoming you to ING's 4Q 2025 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 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 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, operator. Good morning and welcome to our results call for the fourth quarter of 2025. I hope you're all well and I thank you for joining us today. As usual, I'm joined by our CRO Liliana Chortan and our CEO Wouternet Putrakool. And today I'm proud to walk you through another year of outstanding commercial growth and financial performance driven by the continued execution of our strategy. These results strengthen our confidence in the year ahead, as reflected in our outlook for 2026. And I will also share updated and upgraded outlook for 2027, which further underlines the strength and resilience of our business. After that, Tenate will give you more insight into our income and cost expectations for 2026 and present the quarterly financials. And as always, we will be happy to take your questions at the end of the call. And with that, let's now move to slide two. This slide highlights the continued commercial momentum we saw in the fourth quarter, with outstanding growth across all key markets. We added more than 350,000 mobile primary customers during the quarter, bringing total growth for the year to over 1 million, fully in line with the ambitious target we set at our Capital Markets Day. Loan growth was also robust, with absolute growth doubling versus the prior year and resulting in an 8.3% increase since the start of the year. In the fourth quarter alone, retail banking delivered 10.1 billion in net core lending growth, driven mainly by residential mortgages. Wholesome banking added 10.3 billion, supported by strong demand on lending and working capital solutions, as our clients' financing needs increased. We also saw healthy deposit developments. Core deposits rose by 38.1 billion for the full year, or 5.5%. In the fourth quarter, retail banking contributed 11.3 billion, benefiting from targeted campaigns and normal seasonal inflows. And wholesale banking recorded a small net outflow, mainly due to lower short-term balances in our cash pooling activities. Finincom also continued its positive trend. For the full year fees grew by 15%, supported by continued customer growth and increased cross-sell, essentially doing more business with more customers. And the fourth quarter also included a one-off benefit of 66 million. All of this translated into very solid financial results. Our return on equity for 2025 was 13.2%, well above the guidance provided at the start of the year. And finally, we remain fully committed to supporting our clients in their sustainability transitions. Our total sustainability volume mobilized reached 166 billion for the year, representing a 28% increase versus 2024. Now let's move to the next slides to look at how the commercial momentum drove our financial performance. On slide 3, you can see that commercial NLI remained very strong at 15.3 billion. This result was supported by the significant increase in customer balances, both on the lending side and in liabilities. Volume growth largely offset the expected margin normalization. Fee income was also strong, increasing 15% compared to 2024, and they now account for 20% of total income. and this reflects structural drivers such as customer growth and increased cross-sell. Investment products performed particularly well with strong increases across all metrics, the number of customers, assets under management and the number of trades. And taken together this strong NI and fee performance fueled total income growth which reached a record level for the third consecutive year. And with that let's now move to slide four. On this slide, we highlight actions taken to strengthen operational leverage, reinforcing a disciplined approach to cost management. We continue to invest in growth and diversification while increasingly leveraging new technologies. We were able to offset these investments by enhanced operational efficiency as our model becomes more scalable. In 2025, for example, we reduced customer friction by increasing the share of customer journeys handled without any manual intervention. We also introduced our chatbot in seven retail markets, providing customers with faster and more accurate answers in their questions and resulting in annual savings as a large part of the chats are resolved without any human support. These improvements have contributed to a customer experience that is highly appreciated as reflected in our strong NPS positions across all markets. In retail banking, we maintained our number one position in five out of 10 markets. And in wholesale banking, we achieved an NPS of 77, demonstrating both the quality of our client service and the value of our continued investments in expertise and sector knowledge. And our investments in scalability are also translating into higher efficiency. And this is visible in our FTE over customer balances ratio, which has improved by more than 7% since 2023. Then we move to slide five, where we show how our robust commercial growth, strong development of total income, and proactive cost measures have resulted in strong capital generation. Over the past year, we delivered more than 6.3 billion in net profit, contributing almost two percentage points to our CT1 ratio. And of this 6.3 billion, 50% is distributed as a regular cash dividend, offering shareholders an attractive and predictable cash yield. Around 15% of the capital we generated has been used to fund profitable growth across our markets, and this percentage would even have been higher without the steps we took to optimize capital efficiency in wholesale banking, such as the two SRT transactions completed in November. Finally, we announced additional distributions to a total amount of 3.6 billion, which also helped bringing our CT1 ratio closer to our target level. And on the next slide, I will show how these distributions have resulted in a higher, highly attractive shareholder return. And then we move to slide six, where we summarize the total distributions to shareholders. And I will build on what I just discussed. In line with the distribution policy, we have consistently paid cash dividends and have been executing share buybacks for several years. Together, these actions have consistently delivered a highly attractive yield. including in 2025, a year in which our share price increased by almost 60%. The share buyback program we announced in November is currently underway and is expected to be completed in April 2026. And in addition, we paid out 500 million euro in cash earlier in January, which helps us to meet the cash hurdle for this year, now finalized at 3.3 billion. Looking ahead we remain fully committed to delivering strong shareholder returns and we will provide an update on our capital planning with our first quarter 2026 results. And now starting on slide 8 I will guide you through how our strategy continues to accelerate growth, increase impact and deliver value. Now on this slide, and I'm talking about slide eight, we highlight our key strategic priorities supporting our growing the difference strategy, building on our successes over the past years. Firstly, we will continue to grow and diversify our income by adding more customers and doing more business with them. And a good example is the further expansion of our investment product offering. We have also introduced a subscription model for retail clients in Romania and we will roll out this concept in other markets as well, which will help grow income from daily banking services. Our affluent customer base continues to grow rapidly and we see further growth potential and we're targeting this with dedicated propositions designed specifically for their needs. We're also stepping up our engagement with younger generations. For example, we introduced new products for Gen Z, including an investment fund focused on improving financial awareness within this group. And in business banking, we successfully launched our propositions in Italy and Germany, where we are seeing strong and ongoing customer growth. And in wholesale banking, we are expanding our range of fee-generating capital light products to support sustainable and diversified revenue growth. Now, secondly, we will further improve our operational leverage by scaling processes, people, and technology while maintaining strict cost discipline. The further utilization and scaling of GNI will enhance efficiency and will help us to reach our FTE over customer balances target ahead of schedule. Finally, we remain firmly focused on generating strong capital going forward, and our allocation priorities are well defined in that regard. We will maintain an attractive shareholder return, supported by a 50% payout policy. Secondly, we will continue to invest in value-accredited growth, diversify income streams, expand the loan book in a capital-efficient way, and consider M&A opportunities that meet our strict criteria. And thirdly, we will return any capital structurally above our CD1 target to shareholders. We will also further increase the capital allocated to retail banking and optimize the capital usage in the wholesale bank. And note that we have already increased the capital allocated to retail banking to 54%. And with our strategy, we are confident in our ability to become the best European bank. And with this confidence, we have raised our expectations for the coming years. And then we move to slide nine, and there I'll present our outlook for 26 and 27. And for 2026, we expect total income of around 24 billion euro. And this outlook is supported by continued volume growth and an anticipated 5 to 10% increase in fee income. Total operating expenses excluding incidentals are projected to be in the range of 12.6 to 12.8 billion. we will continue to manage our CT1 capital ratio at a target of around 13%. And in addition, we will transition from a return on equity metric to return on tangible equity. And for the full year 2026, we expect an ROE of 14% and ROTE to be higher than 14%. And note that the delta between the two metrics was around 40 basis points for zero basis points in 2025 then looking ahead at 2027 we are introducing a new outlook for total income we now expect it to exceed 25 billion which is at the upper end of our previous target range This income number includes a higher free income outlook, which we now expect to exceed 5 billion in 2027. And we've moved away from the cost income ratio and instead provide a clear hard outlook for operating expenses, again excluding incidentals, of around 13 billion. And this reinforces our continued focus on cost discipline and operational efficiency. And taken together, this outlook translates into a return on equity of 15% and a return on tangible equity of more than 15%. And now I'll hand over to Nate, who will give more insight on our outlook for 2026 and who will walk you through the fourth quarter financial results in more detail, starting on slide 10.

Thank you, Stephen. As this is the last time I'll talk you through these numbers as the CFO of ING, I'm very pleased that I can close on such a strong result and provide you with an upgraded outlook. On slide 10, let's start with commercial NII, which will benefit from increasing support from the replication portfolio. We also assume continued customer balance growth of around 5% per year, about the guidance that we gave at Capital Markets Day and reflecting the commercial momentum in our franchises. The liability margin is expected to be at the lower end of the 100 and 110 basis point range, while the lending margin is assumed to remain stable compared to the fourth quarter. Fees are expected to grow by a further 5 to 10 percent, building on the strong performance we achieved in 2025. All other income is expected to be around 2.8 billion, excluding incidental items. This is driven by continued strong performance in financial market, while in Treasury we expect less income from foreign currency hedging given the current lower interest rate differential between the euro and other currencies such as the US dollar and the Turkish lira. Based on the current rates environment, taking 2024 last quarter as a run rate would be a fair starting point. Taken together, total income is expected to reach around 24 billion in 26. And then on the next page, I'll walk you through the drivers behind the expected cost development. We expect total annual cost to be in the range of 11.6 to 11.8 billion, excluding incidental and regulatory costs. The main driver of the increase remains inflationary pressure, which will again predominantly impact staff expenses. We will also continue to make selective investment to support business growth and further improve efficiency, as Steven highlighted earlier. These investment costs will be more than offset by operational efficiencies driven by increased scalability of our processes, people and technology, further utilization and scaling of Gen-AI and continue optimization of our footprint. Given the strong income outlook, this modest cost growth results in a positive draw for the year. Now let's move to the quarterly financials starting on slide 13. On slide 13, you can see that our commercial NII increased, driven by very strong volume growth and a slightly higher lending margin, while the liability margin remains stable. Fee income continues its upward trend, driven by customer growth and strong performance in investment products and insurance. This is more than offset by lower fee income in wholesale lending. As a reminder, fee income in the fourth quarter included 66 million one-offs in Germany. All other income was supported by continued strong results in financial markets, although seasonally lower compared to the previous quarters. As a whole, total income came in 7% higher than the same period last year. Now, moving to slide 14, where we will show the development of customer balances. As you can see, we delivered another quarter of strong loan growth across both retail and wholesale banking. Net core lending increased by 20 billion euros. Retail banking contributed 10.1 billion, driven by continued mortgage growth increases across both business lending and consumer lending portfolios. Wholesale banking also posted strong growth of 10.3 billion, reflecting strong performance in lending and somewhat elevated client demand in working capital solutions. On the liability side, core deposit increased by 9.5 billion. Retail banking drove the bulk of the growth, particularly in the Netherlands, Spain and Poland, which benefited from targeted campaigns and seasonal inflows. Wholesale banking saw a small net outflow as increased deposit volume in PCM were more than offset by lower short-term balances in our cash pooling business. The other category of deposits were impacted by seasonal reductions in Treasury. On slide 15, you can see that the commercial NII grew by more than 100 million quarter-on-quarter and was almost 5% higher than last year. Lending NII was up 75 million in the fourth quarter, driven by volume growth and a one basis points improvement in lending margin to 126 basis points. The liability NII also increased by €30 million, supported by sustained volume growth in retail banking and higher net interest income from our cash pooling business and PCM in wholesale banking. Turning to slide 16, fee growth remained strong, increasing 22% year-on-year. Excluding the €66 million one-off retail banking fees in Germany, fees grew by 17% compared to last year. This was driven by structural factors such as continued customer growth, significantly high insurance fees, and increase in daily banking fees. Investment products also performed really well across several metrics, for example, 9% growth in customers, 16% growth in asset under management, of which roughly half came from net inflows, and 22% more trades. Although wholesale banking fees decreased sequentially, wholesale still delivered a strong quarter, supported by solid results in financial market and corporate finance. Slide 17 shows the development of all other income. Income in financial market is mostly driven by client activity. We continue to support our clients through volatile market conditions, mostly with foreign exchange and interest rate management. Treasury was impacted by lower results from foreign currency hedging. Expenses, excluding regulatory costs and incidental items, decreased slightly year-on-year, reflecting our continued cost discipline while still investing to support growth. The decrease was mainly driven by structural savings from previous restructuring and VAT refunds recognised in the fourth quarter. These effects more than compensated for wage inflation and ongoing investments in customer acquisition and product development, including expanding our offering for new customer segments. Regulatory costs include the annual Dutch bank tax, which is always fully recognised in fourth quarter and then allocated across segments. Incidental item related mostly to restructuring provision for plan FTE reductions in corporate staff and retail banking. Once these are fully implemented, these measures are expected to generate approximately 100 million in annualized cost savings. When excluding these incidental items, we ended the year with expense below the outlook range we provided earlier. Now let's move on to risk costs on the next slide. Total risk costs were $365 million in the quarter, equivalent to 20 basis points of average customer lending. This is in line with our through-the-cycle average. Net addition to Stage 3 provision amounts to $389 million, mainly driven by individual Stage 3 provisioning for a number of new and existing files in the wholesale bank. This was partly offset by releases of existing provision due to repayments, secondary market sales and structural improvements. As a result, the Stage 3 ratio increased slightly. For Stage 1 and Stage 2, we recorded a net release of 24 million, reflecting a partial release of management overlays and updated macroeconomic forecasts. Overall, we remain confident in the strength and quality of our loan book. On slide 20, we show the development of our Core Tier 1 ratio, which declined compared to last quarter. Core Tier 1 decreased, reflecting the $1.6 billion distribution that was partly offset by the inclusion of our quarterly net profit. Risk-weighted assets increased by $4.5 billion this quarter. Credit risk-weight assets rose by $1.5 billion, excluding FX impact, driven by volume growth. This was offset by the risk-weighted asset relief from two SRT transactions executed in November. Operational risk-weight asset increased by €2.2 billion, while market risk-weight asset increased by €0.5 billion. We will pay a final cash dividend of 73.6 cents per share on 24 April 2026, subject to our Annual General Meeting's approval. Now I hand back to Steven to wrap up today's presentation.