ING Bank* underlying net profit rises 8.5% to EUR 3,424 million

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Key Points

An important and successful year in 2014

Commenting on ING’s fourth quarter and full year results ING Group CEO Ralph Hamers said: “2014 was an important and successful year for ING. We launched our ‘Think Forward’ strategy, repaid the Dutch State ahead of schedule and moved closer to completing our restructuring plan. We are proud to have solidified our repositioning as a leading European bank and pleased to see that both NN Group and Voya are thriving as standalone companies. Today, I am delighted to announce the reinstatement of dividend payments on ordinary shares with a proposed cash dividend of EUR 0.12 per share.”

“In 2014, ING Bank welcomed over one million new customers and established half a million primary banking relationships. I am grateful for the loyalty of our customers and for the dedication of our employees to deliver a differentiating experience to our customers every day. Following the launch of ‘Think Forward’, our chief innovation officer and chief operations officer have been working together to deliver innovations and service improvements to our customers as quickly as possible. We have already introduced a steady stream of improvements during 2014, the most recent being biometrics technology in Belgium, and are excited about other new projects that will debut this year.”

“ING Bank posted a strong set of full-year 2014 results, despite some headwinds in the fourth quarter. Interest results were robust, risk costs approached normalised levels and our continued vigilance on costs was evident as we invested for the further digitalization of our banking services in the Netherlands and extended our ongoing transformation programme within Commercial Banking.”

“Our efforts to support our customers and the economy contributed to strong commercial growth during 2014. The Bank grew net lending by EUR 14.7 billion in 2014, driven by robust growth in our core lending businesses and despite further reductions in the run-off portfolios. Net lending assets in the core businesses grew by EUR 18.5 billion in 2014, or 3.8%, which is in line with our strategy. Total net inflow of funds entrusted amounted to EUR 16.8 billion, demonstrating the strength of our deposit-gathering capabilities.”

“ING has started 2015 with a strong financial position and a clear focus on empowering our growing customer base through outstanding products and customer service. I am optimistic about the prospects for our bank and am confident that we are well positioned to build on our strategic momentum. We remain committed to reaching our Ambition 2017 targets and are pleased that we are able to begin returning capital to our shareholders. Our intention is to pay a minimum of 40% of ING Group’s annual net profits to shareholders, through dividends, with effect from 2015. Furthermore, at the end of each financial year, the Board will recommend whether to return additional capital to shareholders dependent on financial, strategic and regulatory considerations.”

Headwinds in the fourth quarter

In the fourth quarter, ING Bank recorded robust interest results and continued to be vigilant on expenses. However, the result was dampened by redundancy provisions related mainly to measures to further expand digital banking in the Netherlands as well as the annual Dutch bank tax and negative CVA/ DVA impacts. All these factors resulted in a lower underlying result before tax of EUR 783 million. Excluding these items, the underlying result before tax was up 20.1% to EUR 1,376 million on the fourth quarter 2013.

Total underlying income was robust at EUR 3,756 million, down only 1.5% year-on-year. The decline was primarily due to EUR 80 million of negative CVA/DVA impacts in the fourth quarter. Furthermore, the fourth quarter of 2013 included a EUR 99 million positive one-off result on the unwinding of the IABF and EUR 68 million of income from ING Vysya Bank when it was still fully consolidated. Excluding these items, underlying income rose 4.6%, mainly attributable to Retail Banking.

The ongoing political and economic turmoil affected fourth quarter business growth in some specific regions and products. Total net lending decreased by EUR 1.0 billion (adjusted for currency impacts, the sale of a mortgage portfolio in Australia and additional transfers of WUB mortgages to NN Bank).

There was a net outflow of funds entrusted (adjusted for currency impacts) of EUR 3.1 billion in the fourth quarter of 2014, following EUR 5.3 billion of reductions in Commercial Banking, which were mainly due to lower deposits from asset managers and corporate treasuries at year-end. In Retail Banking, net funds entrusted rose by EUR 2.2 billion, as net outflows in the Benelux were more than offset by growth in Germany and Rest of World.

Operating expenses lower

Excluding the impact of redundancy provisions and the deconsolidation impact of ING Vysya Bank, operating expenses were 1.9% lower year-on-year. The decline was mainly attributable to the benefits of the ongoing cost-savings initiatives and a large one-off release from deposit guarantee scheme related provisions.

The fourth-quarter underlying cost/income ratio for ING Bank was 68.5%, up from 61.6% a year ago. The full-year 2014 underlying cost/income ratio rose to 58.7% from 56.8% in 2013. However, excluding CVA/DVA impacts and the redundancy/restructuring provisions in both years, the cost/income ratio improved to 55.1% from 56.2% in 2013.

The current cost-savings programmes at ING Bank, including the additional measures taken in the fourth quarter of 2014, are expected to reduce total annual expenses by EUR 1.2 billion by 2017 and by EUR 1.3 billion by 2018. Of these targeted amounts, EUR 662 million of savings have already been achieved. Total headcount reductions related to these initiatives are estimated at 9,540 FTEs of which 5,677 FTEs have already left ING Bank since the start of the programmes.

Total risk costs were 54 basis points of average risk-weighted assets versus 44 basis points in the previous quarter and 81 basis points in the fourth quarter of 2013. Most businesses, with the exception of Retail Netherlands, are now operating at around a normalised level of risk costs as the overall economic environment gradually improves.

Customer focus

The fourth quarter saw many initiatives introduced to make banking simpler and easier for customers.

Belgium introduces biometrics

With the aim of making mobile banking easier, quicker and safer, ING in Belgium introduced biometric verification. From 1 December 2014, customers with an iPhone 5S or iPhone 6/6 Plus can access ING Belgium’s Smart Banking app using the fingerprint function instead of a log-in code.

Germany introduces ‘Photo Transfer’ for payments

In Germany, ING-DiBa expanded its mobile banking app functionality by adding an automated invoice payments solution, ‘Photo Transfer’, which makes money transfers faster and easier. With this new technology, customers can take a picture of an invoice using their mobile phone, and the relevant data to process the payment will be filled out automatically. Customers can use ‘Photo Transfer’ on any Android or iOS smartphone. This feature will be regularly updated and further developed with the latest technology.

ING recognised in the Netherlands, Belgium and Poland

ING’s efforts to innovate and improve customer service received accolades in the fourth quarter. In November 2014, the global financial magazine The Banker named ING Bank Netherlands and ING Bank Belgium ‘Bank of the Year 2014’ in their respective countries. This is the fourth time in a row that ING in the Netherlands has received this accolade, and the second consecutive time for ING in Belgium.
The jury noted ING’s commitment to innovation in digital banking in both countries while continuing to invest in a better branch network. Furthermore, ING was praised for being “at the forefront of the sweeping change” in meeting the new economic and regulatory realities. In Poland, ING was named the ‘Most Innovative Bank’ by International Finance Magazine, a publication targeted at the global finance community. A judging panel said ING Bank Slaski takes the initiative in identifying distribution channels and implementing new, innovative banking products to streamline the customer service process from the client’s perspective.

Sustainability

In the field of sustainability, ING Group was awarded Industry Leader and received a ‘Gold Class’ distinction in the Diversified Financials category of RobecoSAM Corporate Sustainability honours for its sustainability performance in 2014. Each year, over 3,000 of the world’s largest companies are invited to participate in the RobecoSAM Corporate Sustainability Assessment. The top performing company within each of the 59 industries is named the RobecoSAM ‘Industry Leader’ and is considered to be best prepared to seize the opportunities and manage the risks deriving from economic, environmental and social developments.

* In light of ING Group’s intention to divest its remaining stake in NN Group over time, NN Group is classified as held for sale and as discontinued operations, according to IFRS-EU accounting regulations from the third quarter 2014 onwards. This means ING Group’s financial reporting structure has changed. As NN Group was the last of ING’s major insurance businesses to be divested, there will be no longer be an ING Group underlying result figure reflecting the underlying core banking and insurance businesses of ING Group.

ING Group now consists primarily of its banking operations, so therefore the underlying results of ING Bank are effectively also those of ING Group.

**CVA/DVA are adjustments to certain asset and liability items in the balance sheet that are measured at market value. CVA (on the asset side) refers to changes in counterparty credit risk, which are related to changes in the market value of derivative assets. DVA refers to changes in the market value of derivative liabilities and ING’s funding liabilities that are measured at fair value, resulting from changes in ING’s own credit spreads.