Highlights
Retail Banking operates in the mature markets of the Benelux and in the fast developing countries of Central and Eastern Europe and Asia. A number of trends are evident, the first of which is how technology is transforming the distribution of retail financial services in all markets. The internet, for example, is becoming, or already has become, the primary distribution channel for simple, commoditised products. Secondly, ageing populations, especially in mature markets, are creating a need for products suited to people in the later stages of their lives. Thirdly, the middle classes are growing rapidly in emerging economies which is stimulating demand for financial services.
ING is responding to these trends. In mature markets ING is consolidating businesses to improve cost efficiency and is optimising its distribution channels. In high-growth markets ING is leveraging the strengths of its products, services and distribution expertise. All these efforts contributed to an expansion of our business franchise as we have been able to broaden our customer base, number of branches and profit. This is especially the case in high-growth markets like Romania, Poland and India.
Efficiency key in mature markets
In the Benelux, ING is concentrating on becoming more efficient and moving towards an ‘internet first, advice when needed’ model. Improved customer service by delivering simple and fair-priced products, creating better prospects for further growth and enhanced efficiency are the key objectives of the new Dutch and Belgian retail strategies. By doing this, ING is better equipped to respond to the challenges of the competitive and economic environment.
Major growth initiative in the Netherlands
In May 2007, ING announced that Postbank and ING Bank will join forces to create a leading Dutch retail bank with more than 8 million retail and 600,000 business customers. By combining the activities of both banks, ING will improve services and maintain a strong focus on cost-effective execution. It will operate under the ING brand from 2009 and will be based on the successful direct banking model of Postbank with enhanced access to the professional advice capabilities of ING Bank.
It is expected that the integration will have a positive impact on earnings from 2009 onwards. The number of full-time employees (FTEs) will be reduced by 2,500 over a five-year period. The intention is to help people from work to work as much as possible.
Internet banking is growing fast in the Netherlands. Three million internet clients use Postbank’s web facilities regularly. In 2007, 440,000 new internet clients were registered. Research indicates that on average, clients use the online banking services three times a week. ING Bank’s internet site, Mijn ING Bank.nl, also attracted more customers in 2007: 150,000 new clients were added, bringing the total to 350,000.
Access to Mijn Postbank.nl suffered occasional disruption in 2007 but substantial investments are made to improve access and functionality in 2008 and 2009.
To strengthen its position in the mortgage market, Postbank launched mass media campaigns promoting ways for customers to reduce their monthly mortgage payments. The campaigns were successful and resulted in a substantial 16% increase in leads through Postbank’s direct channels. ING Bank started positioning campaigns to underline its advice capabilities.
After the introduction of Postbank shops in Nijmegen and Rotterdam, a third was opened in The Hague. The easy accessibility and the advanced self-service equipment that enables all kinds of transactions are the key characteristics. People can obtain face-to-face advice or do their banking online in these shops, and research shows that customer satisfaction is high. The shops, which attract an average of 300 customers a day, are intended to meet the growing demand for advice on complex products and sensitive financial issues. The shops won a prestigious international retail design prize.
Optimising retail distribution in Belgium
In line with the new Dutch retail strategy, ING Belgium is to implement a new branch service concept that focuses more on internet banking and automated cash services. The network of 794 branches will be transformed into 242 full-service branches and 552 smaller outlets with automated self-service cash functions and online banking access. It is expected that this will improve operational efficiency, enhance customer advice and increase profit by more than EUR 100 million in 2012. The number of FTEs will be reduced by 850 through natural attrition over a five-year period. An example of how ING Belgium is capitalising on the popularity of direct banking was the launch of the ING Lion Account, an internet-only current account and the first free-of-charge offer from a large bank in Belgium. By the end of 2007, 18% of all new accounts opened were Lion Accounts.
Another example is the introduction of the car insurance website www.ingauto.be. Clients can calculate their premium and take out their car insurance online within a few minutes. The number of people using the online Home’Bank increased substantially (up by about 20% in 2007 compared with 2006). About 50% of Belgian customers now bank online.
Record Bank, ING’s second bank in Belgium, offers savings and investment products via banking agents, and loans through various channels. In 2007, Record Bank fully benefited from its successful integration of various smaller business entities it has acquired over the past years.
Focus on fast-developing markets
ING is well positioned in the key Central European markets of Romania and Poland and the important Asian markets of China and India. The strategy is to expand in Central and Eastern Europe and Asia and to enter selected high-growth countries by acquiring a partial or full stake in a bank or by starting up a greenfield. ING focuses on entering countries with a large population and strong GDP growth, like Turkey and Thailand, because these are the drivers for expansion of the financial services market.
The intention over the next three years is to increase the contribution that high-growth markets make to total retail banking profit. This will entail substantial investment. Initiatives are taken to prepare the business for the increasing demand for direct and simple products.
In Poland, ING Bank Slaski is developing a network of partner outlets to boost distribution. These outlets are based on ING’s Romanian Self’Bank model, a branch concept that focuses on internet banking and automated cash functions. At the end of 2007, ING Bank Slaski’s network consisted of just over 400 branches, including 75 franchise outlets, 29 of which were opened that year. ING Bank Slaski managed to strengthen its position in retail deposits, achieving a 9.4% market share by the end of the year. ING Bank Slaski is key distributor of ING investments funds in Poland. At the end of 2007, its market share of mutual funds was 5.8%. ING Bank Slaski also intends to increase its market share of local currency mortgages. It began piloting an online mortgage via brokers, Kredyt Hipoteczny Express, characterised by automated processes and fast decision-making.
In Romania, the concept of self-service banking has proved successful. The number of Self’Bank outlets now stands at 148 since the concept was launched in September 2004. 230,000 new customers were added in 2007, breaking the target of 500,000 total customers by the end of the year.
In India, ING has a 44% stake in ING Vysya Bank. The strategic focus in 2007 was to increase branch productivity and accelerate the acquisition of new customers by rolling out new branches and cash machines. The number of internet customers increased from 90,000 to 145,000. ING Vysya Bank obtained approval from the Reserve Bank of India to open 56 new branches and to install 100 off-site cash machines. The bank is growing faster than the retail banking market as a whole; for example, the overall deposits market grew by 12.8% while ING Vysya Bank’s deposits grew by 14.1%.
In China, ING had a stake of 19.9% in Bank of Beijing until September when Bank of Beijing made a spectacular debut on the Shanghai stock exchange. ING did not participate in this listing. Nonetheless, with a diluted stake of 16.07%, ING still remains the largest single shareholder. As a result of the listing the market value of ING’s investment increased ten-fold to approximately EUR 2 billion. Bank of Beijing will use the capital to fund nationwide expansion. In 2007, branches were established in Tianjin and Shanghai. Other achievements were the launch of a credit card in close cooperation with ING Card and enhanced distribution of ING Insurance products.
New growth initiatives
In 2007, ING took some important growth initiatives. One was the acquisition of Oyak Bank in Turkey, which will be re-branded under the ING brand. ING acquired 100% of the shares for an amount of EUR 1.9 billion and a price-to-book ratio of 2.75 on shareholders’ equity as at year-end 2007. Turkey is the 17th largest economy in the world by GDP and economic growth is expected to continue. Oyak Bank has a market share of approximately 3%. It offers a full range of banking services with a focus on retail banking. The bank has 1.3 million retail customers, serves 13,500 small-to-medium sized businesses and has 365 branches throughout Turkey. Oyak Bank will provide ING with a platform to distribute insurance, asset management and retirement products. ING plans to expand the network to 450 branches and to invest in other distribution channels.
Ukraine is also an attractive country for retail banking. Its economy has been growing rapidly and a substantial increase in GDP per capita is expected. ING has started preparations to implement the Self’Bank concept copying the Romanian model. The aim is to have around 20 branches operational by mid-2008.
One of the big growth markets in Asia is Thailand. In December 2007, ING finalised the acquisition of a 30% stake in TMB for approximately EUR 460 million. This transaction enables ING to extend its footprint in the fast growing Asian market. TMB is one of the leading banks in Thailand with approximately EUR 14 billion in total assets, over 5 million customers and 472 branches. It offers a wide range of products and services with a large retail deposit base and a lending focus on the small-to-medium enterprise and corporate sectors.
