ING Groep N.V. Q4 FY2024 earnings call

• Product Offering and Customer Impact: Made progress in diversifying and enhancing product offerings for existing and new customer segments. For instance, introduced new products for Business Banking clients in Germany, expanded service offerings for Private Banking and affluent clients, and enhanced product foundations in Wholesale Banking. Achieved a #1 net promoter score in 5 out of retail markets and 74 in Wholesale Banking. Had a highly engaged workforce with the highest organizational health index score and record participation. Increased the percentage of women in senior management positions to 32% in 2024, moving closer to the 35% target by 2028. Made strides in sustainability with sustainable deals volume exceeding the target.
• Investments in Growing the Difference Strategy: Continuously developed products and services. In Germany, attracted close to EUR 1 billion in deposits from Business Banking clients and launched a business account. Invested in client acquisition, digitalizing core systems, enhancing product foundations, and AI. Rationalized the branch network to just over 600 globally, improved customer experience with GenAI chatbots, and achieved a 3% improvement in the FTE over customer balances ratio.
• Financial Performance: Total net interest income was at a structurally higher level in a positive rate environment. Fee income grew by over 11% year-on-year, driven by an increase in the number of clients and diversification of the income base. Total income in 2024 was a record, and expected to be roughly the same in 2025. Capital generation was strong with a return on equity of 13%, enabling an attractive shareholder remuneration. The EUR 2 billion share buyback was ongoing, and a final cash dividend of EUR 0.71 per share for 2024 was announced, to be paid in May subject to shareholder approval. The impact of Basel IV and other model updates in the first quarter was expected to be negligible.

In 2024, ING achieved remarkable commercial growth across all business lines. The number of mobile-primary business customers surged by nearly 1.1 million, with over 430,000 added in the fourth quarter. In Retail Banking, net core lending soared by a record EUR 26 billion, mainly driven by mortgages, while business and consumer lending also performed strongly. Wholesale Banking lending growth was partially offset by efforts to optimize capital usage. Retail Banking benefited from customer growth and successful promotional campaigns, and Wholesale Banking saw deposit growth due to a focus on increasing deposits. Overall, total customers balances growth (combining lending and deposits) reached 6% in 2024, exceeding the 4% target set during the Capital Markets Day. ING in the Netherlands was the largest contributor to the overall retail P&L, with an income of around EUR 5 billion and profit before tax close to EUR 3 billion. The number of mobile-primary customers continued to rise, market shares in mortgages grew to around 17% in 2024, and sustainable deals volume mobilized in 2024 was EUR 130 billion, 13% higher than in 2023 and surpassing the 2025 target of EUR 125 billion.

• 2025 Outlook: Anticipates total income to remain strong, benefiting from volume growth in lending and liability, and a 5% to 10% growth in fee income. Cost growth is expected to be around 4.5% excluding potential incidental expenses, driven by inflationary pressure on staff expenses but offset by operational efficiencies. The core Tier 1 ratio is set to converge towards the target of around 12.5% by the end of 2025. Aims to have a return on equity of more than 12% for 2025. Commercial NII consists of lending and liability NII, with assumptions of continued growth in customer balances around 4% per annum, a positive impact of roughly EUR 300 million on liability NII in 2025, offset by a lower average liability margin assumed to be around 100 basis points in 2025, and a volume growth positive impact of around EUR 300 million on lending NII with a lending margin stable at around 130 basis points. Fees are expected to increase by a further 5% to 10%, while other income is slightly lower due to the positive one-off in 2024.
• Share Buyback and M&A: Considering growth and broadening services, will evaluate M&A if it accelerates growth, broadens the product base, or provides a broader service offering. Still has excess capital and is moving towards a 12.5% core Tier 1 ratio. Compares share buybacks versus M&A from a long-term ROE value creation perspective.
• SRTs: Expects the first SRT in Wholesale Banking in the second half of 2025, part of moving capital from Wholesale to Retail, but the specific impact on capital will be disclosed when done.

• Russia Sale Impact: The intended sale of the onshore business in Russia will have an estimated negative impact of around EUR 700 million on the P&L and around 5 basis points on the CET1 ratio. The impact on currency translation adjustments, with around EUR 300 million having no impact on the resilient net profit and hence dividends. Still has around EUR 1 billion of offshore exposure to Russian clients at the end of December, with EUR 0.5 billion under ECA or CPRI cover.
• Macroeconomic Uncertainty: Faces more macroeconomic uncertainty, but remains confident in the quality of the loan book. Stage 2 credit outstanding for Retail increased in the fourth quarter due to regular portfolio movements and an enhanced early warning system in various retail countries. Wholesale Banking lending had a higher Stage 2 ratio due to a methodological change and watchlist portfolio movements. Net addition to Stage 3 provision in Wholesale Banking was due to new and existing files, but remains confident in the loan book quality.

Q: Are you seeing share buyback in front of M&A opportunities in '25? What are your plans for SRTs in '25 and how much capital uplift could that deliver potentially?

A: We are growing at 4% to 5% per annum towards 2027 and broadening services. If there are opportunities to accelerate growth, we will look at M&A. We still have excess capital. Expect the first SRT in Wholesale Banking in the second half of 2025, but the specific impact on capital will be disclosed when done.

Q: Could you give us an update on the announced core deposit rate reductions coming into effect this year so far? How much do you need to cut to achieve the 100 basis points guidance on the liability margin?

A: Approximately EUR 200 billion in core deposit subject to reductions will have a positive impact of EUR 600 million full year. Every 10 basis point cuts of Eurozone on savings and term deposits will have a positive impact of approximately EUR 400 million. The sensitivity is maintained, but it depends on ECB rates.

Q: The guide for 2025 comes as a surprise versus consensus. What do you think has changed versus the Capital Markets Day back in June? Was it driven by higher inflation, higher CLA or in fact, you see a better opportunity for growth now? Can you give us a comment on how you see asset quality developing?

A: On cost, collective labor agreement and inflation remain sticky in 2025, but expects savings to be more subdued in '26 and '27. On asset quality, Stage 2 credit outstanding for Retail increased due to regular portfolio movements and an enhanced early warning system. Wholesale Banking lending had a higher Stage 2 ratio due to a methodological change and watchlist portfolio movements. Risk costs were better than the third quarter, with Stage 3 risk costs going down in both Wholesale and Retail.

Q: If you can explain a bit the onshore business you had in Russia and what's the status now of all these deposit campaigns and what's your plan for '25, and how that actually fits within your guidance and expected campaign versus the guidance on NII?

A: Onshore business in Russia was largely with Russian and foreign customers, local accounts, local payments in deposit business. Deposit campaigns are done in various countries when there is an opportunity to grow the customer base or business, and will continue to look at the NPV value perspective. Stay tuned to the deposit campaign channel, but cannot make forward-looking predictions.

Q: Going back to your Investor Day, you talked about taking the share of RWAs in the Wholesale bank down to 45% of the group, and you've pretty much done that already. Is the plan to maybe move that mix shift even further? Just on the commercial NII guidance, just some color on what you've assumed happens in Belgium when a lot of the term deposits mature later this year?

A: On the RWA mix shift, we are on the trajectory to 45% Wholesale, 55% Retail by 2027, using means like syndication, insurance, hedges, securitization, SRTs to shift the mix. On Belgium term deposits, which are coming due later in the year, we are taking efforts in cross-selling with current account payment, investment accounts, and expect term deposits to move to different price points and normal savings accounts.

Q: You are guiding for liability and lending growth of 4% this year. I just wonder how that splits between loans and deposits. Is it 4% for both? And then within deposits, how much of the growth is sort of predictable growth in quarter for deposits versus specific campaigns? And then the second is just a follow up on Giulia's question earlier on cost. Should we infer from that at the margin that there are some efficiency projects you may be needing to push a bit harder on?

A: We are targeting both customer balances growth, 4% for both deposits and lending. Customer growth helps deposit growth and in turn lending growth. On cost, inflation or collective labor agreement elevation for 2025, expects savings to be more subdued in '26 and '27, and is looking for opportunities to enhance savings through scaling operations and taking out FTEs from call centers, KYC processes, and tech operations.

Q: The first is on the cost income ratio. I think at the Capital Markets Day, you talked about 54% to 55% over the years '25 and '26, and I was wondering if you think that's the achievable especially in 2025 and then I guess '26 as well, and how it would drop down into the '27 target. And then a small question on RWA growth. Are you still planning on around 4% RWA growth or could that be coming in lower considering the SRT while lending growth is at the 4%?

A: On the cost income ratio, we expect the cost income ratio to be below 56% for 2025 and to reach between 54% to 52% by 2027. On RWA growth, it depends on where the growth is coming from, with growth from Retail Banking more than Wholesale Banking due to mortgage demand, and expected RWA growth before mitigating action like SRT is lower than loan growth.

Q: Maybe one more on cost to income and the cost measures. You obviously announced more measures, but flat revenues and cost up [5] is not ideal every year. So I was wondering what needs to change to be more drastic and be more significant efficiencies? And then secondly when I look at your 3 key markets or largest markets, Netherlands, Belgium, Germany, everywhere corporate defaults are ticking up almost every quarter, but we don't see it in the numbers. Maybe you can explain why you are simply better positioned in those markets in terms of the asset quality.

A: On cost income, we compensate for lower margin by growing lending and fees, with scalability in ops and technology leading to a positive jaw of returning in 2026. On asset quality, the NPE ratio is stable, risk costs for the Retail portfolio are very much compared to '23, and there is no uptick in any of the portfolios. For Wholesale Banking, there are few individual corporate cases that are non-related, and on Business Banking, there are no specific trends in geographies or industries, with the portfolio doing well with some points and pockets looked at specifically but comfortable within the risk appetite.

Q: It was great to see the exit from Russia. So does it mean that management is looking at the footprint more closely and that we should expect more actions this year to address those markets where you have a suboptimal presence?

A: The Russia situation is specific, but other than that, we are always looking at how to optimize operations and ensure the right return for business lines. We started actions on a number of markets a couple of years ago, and we continuously evaluate businesses and will review them if they are not providing the right return long term