ING records strong second-quarter performance

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Key Points

ING Group recorded an underlying net profit of EUR 1,181 million in the second quarter of 2014, up 31.1% on the second quarter of 2013 and up 19.5% on the first quarter of 2014.

A successful IPO

Commenting on the second quarter results ING Group CEO Ralph Hamers said: “The successful IPO of NN Group in early July was a pivotal moment for ING Group. This step represents the final major transaction in our restructuring and in the repositioning of ING as a leading European bank. It has unlocked significant financial flexibility for the Group, with the EUR 8.1 billion combined market values of our remaining stakes in NN Group and Voya Financial, Inc. comfortably exceeding the pro-forma Group core debt of EUR 2.4 billion.

“The 2 July listing of NN Group marked the official beginning of the company’s standalone future. We congratulate NN Group on this milestone and wish CEO Lard Friese and his team every success. For the second quarter of 2014, ING continued to consolidate 100% of NN Group in our results. As a result of the IPO, ING Group’s stake in NN Group was reduced to 68.1%; this change will be reflected in our third-quarter shareholders’ equity.

“Our unwavering commitment to our customers contributed to robust business growth during the quarter, with ING Bank extending EUR 7.4 billion of net lending and attracting EUR 7.4
billion of net funds entrusted. During the first six months of 2014, ING Bank gained over half a million new individual customers, demonstrating the strength of our franchise and the attractiveness of our customer proposition.

“We are grateful that our customers choose to do business with us and we remain committed to supporting their financial needs anytime, anywhere, and making the experience of banking with us truly differentiating. I am convinced that our Chief Innovation Officer will drive our strategic innovation agenda and think beyond traditional banking to serve our customers’ changing needs.

“We are very proud of the progress that we have made with the restructuring over the past several years, which has brought ING Group well into the end stage of our transformation. We are moving forward as a stronger, simpler and more sustainable company. I am confident that we are well placed to achieve the strategic priorities of ING Bank while continuing to serve our customers and the communities in which we operate to the best of our ability.”

Bank

ING Bank recorded a strong second-quarter underlying result before tax of EUR 1,278 million, up 11.4% compared to the second quarter in 2013 and 8.7% on the previous quarter. The improvement compared with both prior quarters mainly reflected solid income generation, despite the impact of negative CVA/DVA* adjustments and the deconsolidation of ING Vysya Bank** and a further decline in risk costs as economic activity improved.

ING Bank generated strong business growth in the second quarter, including a substantial increase in customer lending, which is consistent with its ambition to support its customers’ financial needs.
Total net lending (adjusted for currency impacts and the additional transfer of WUB mortgages to NN Bank) increased by EUR 7.4 billion and the Bank attracted EUR 7.4 billion of net funds entrusted.

The interest margin increased compared to the second quarter 2013, driven by higher margins on both lending and funds entrusted.

Underlying operating expenses rose 0.4% compared to the second quarter of 2013. However, excluding the deconsolidation impact of ING Vysya Bank in the current quarter and the Belgian bank taxes that were reported in the second quarter of 2013, operating expenses rose 3.3%. This was mainly due to higher pension costs, increased IT spending, and business growth in Retail International and Industry Lending. These increases were partly offset by the benefits from ongoing cost-saving initiatives and the transfer of WUB staff to NN Group as of mid-2013.

Cost-saving efforts on track

The current cost-saving initiatives in place at ING Bank are on track and expected to reduce expenses by EUR 880 million by 2015 and by EUR 955 million by 2017. Of these targeted amounts, EUR 521 million has already been achieved. Total headcount reductions related to these initiatives are estimated at 6,515 FTEs by the end of 2015, of which 4,707 FTEs have already left ING Bank.

Total risk costs fell to 55 basis points of average risk-weighted assets from 65 basis points in the previous quarter and 89 basis points in the second quarter of 2013.

The Bank’s underlying return on equity rose to 10.7% for the first half of 2014, which is within the range of ING’s 2017 target. ING Bank remains well capitalised and its fully-loaded common equity Tier 1 ratio increased to 10.5% at the end of June 2014.

Customer Focus

ING Bank continued to win awards for its customer focus and service excellence. Commercial Banking was voted the best broker in the Benelux for the fifth consecutive time by more than 7,500 professional investors in 62 countries in this year’s Extel awards. The award was in recognition of ING’s efforts to bring its corporate clients in the Benelux in direct contact with institutional investors through regular roadshows and investor conferences.

In other awards, ING Bank Slaski in Poland was very successful, winning an award for its Aleo trading platform for companies. Aleo was named as the most innovative digital platform in this year’s Innovation Award Media competition. Business magazine €uro named ING-DiBa as the "Most Popular Bank" in Germany for the eighth year in a row, following its annual survey of bank customers. €uro also awarded ING-DiBa the title of ‘Best Bank’ in recognition of its extensive product range.

ING Bank Romania’s Customer Care and Services team was awarded the “Best Medium-sized Call Centre” prize for the third time. The team also won its second “Best Online Customer Care” award.
Other notable highlights in the quarter were ING Direct celebrating its 15th year in Spain with now more than three million customers and ING-DiBa Austria introducing its first customer service point (Servicepoint) in Vienna.

Digital wallet

ING in Poland, Turkey and Spain have all introduced digital wallet services to make shopping easier for customers both online and with their smartphone. Digital wallets enable customers to securely store in one place all the information in their physical wallet, such as information on their debit and credit cards. The main advantage of a digital wallet is that it makes purchases made online or with a smartphone safer and easier because card details are provided only once and then saved on the wallet.

ING’s focus on sustainable lending continued in the second quarter. ING Bank was the mandated lead arranger and hedging bank in a consortium of international lenders for the construction of the world’s largest single-contract geothermal project in Indonesia. Once operational, the Sarulla Geothermal Power Project will deliver 320MW of clean, sustainable and reliable electricity to the Indonesian market and reduce annual carbon dioxide emissions by about 1.3 million tonnes.

NN Group

The operating result of the ongoing business of NN Group was EUR 249 million, down 7.1% from the second quarter of 2013. This mainly reflected lower operating income at Netherlands Life, partly offset by a reduction of the holding expenses and funding costs. Compared with the previous quarter, the operating result of the ongoing business declined 9.1%, largely reflecting the seasonally higher result of Japan Life in the first quarter of the year.

The result before tax improved significantly on both comparable quarters to EUR 310 million, largely driven by a higher result for Japan Closed Block VA and higher revaluations.

Total second-quarter administrative expenses of the ongoing business were EUR 439 million, down 1.8% from the second quarter in 2013 and essentially flat compared with the previous quarter. Expenses declined compared with the second quarter of 2013 despite higher NN Bank expenses, which occurred as a result of the partial transfer of WUB to NN Bank on 1 July 2013 which added EUR 15 million of expenses in the current quarter. Excluding currency effects and the partial transfer of WUB to NN Bank, administrative expenses of the ongoing business fell 4.1%, mainly demonstrating the impact of the transformation programme in the Netherlands.

New sales (APE) increased 22.1% (excluding currency effects) compared with the second quarter of 2013, with strong sales in all regions.

Customer focus

NN Group’s continued focus on customer satisfaction was recognised recently, when it received the ‘Keurmerk Klantgericht Verzekeren’, a quality mark for customer-centric insurance, across all its operations in the Netherlands.

Nationale-Nederlanden recently introduced its new home-based claims manager service in the Netherlands, an example of efforts to sharpen its customer focus. Policyholders who make a claim for significant damage to their home, that has a serious impact on their personal lives (such as a fire or burglary) are eligible for this service. Specially-trained claims officers come to the customer and offer to handle the entire claims-handling process for them. This new service is unique in the Netherlands, and since its introduction in February this year, has been used approximately 2,300 times.

In Spain, the introduction of an integrated app for insurance agents means they are able to assist customers anywhere and at any time. By using the app on a tablet, agents can give customers an overview of their current financial situation, highlight any shortfall in their future pension arrangements, provide advice on covering any future gaps and enable customers to make paperless purchases of pension or insurance products.

*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.

** Income and expenses were affected by the deconsolidation of ING Vysya Bank in ING Group’s accounts (effective as of the second quarter of 2014). This means that ING’s share in the net profit of ING Vysya Bank is fully recorded under other income (share of profit from associates), whereas in previous quarters ING Vysya Bank was fully consolidated into ING Group’s results.

***As of the second quarter of 2014, NN Group publishes its own standalone quarterly earnings release. For more information, please visit www.nn-group.com