ING records a 15.1% rise in underlying net profit in 2011

ING Group announced on February 9 that annual underlying net profit in 2011 rose 15.1% to EUR 3,675 million, despite volatile markets and a sharply weaker macroeconomic environment. For the fourth quarter of 2011, ING Group posted an underlying net loss of EUR 516 million, reflecting lower results at the Bank and a loss at Insurance mainly due to the charge for the previously announced US Closed Block VA assumption changes, as well as hedge losses.

Given the uncertain financial environment, increasing regulatory requirements and ING’s priority to repay the Dutch State, ING will not propose to pay a dividend over 2011 at the annual General Meeting in May 2012.

ING Group earnings remain resilient

Commenting on the fourth quarter results ING Group CEO Jan Hommen said: “The economic environment became more challenging in the fourth quarter of 2011. The financial crisis spread further into the real economy, and uncertainty around the European sovereign debt crisis continued to erode confidence and amplify market volatility. Despite this challenging backdrop and its inevitable impact on results, ING posted 15.1% higher full-year earnings in 2011 compared with 2010”.

“During the fourth quarter, income at the Bank was affected by losses related to further de-risking of the investment portfolio, as well as re-impairments on Greek government bonds and other market impacts. However, commercial performance remained robust. Funds entrusted grew by EUR 8.1 billion, underscoring the strong deposit-gathering ability of our franchise amid continued competition for savings in our home markets. Our strong funding profile
enabled ING Bank to continue to support customers’ financing needs. The capital position of the Bank remained strong, with the core Tier 1 ratio stable at 9.6% after absorbing the impact of higher capital requirements under CRD III which came into effect at year-end.
As the economic recovery is expected to remain weak in 2012, we will continue to
take a prudent approach to risk, capital and funding while working towards our Ambition 2015 targets.

“Our Insurance results were severely impacted by the update to policyholder behaviour assumptions on the US Closed Block VA, as announced in December, as well as losses on hedges in place to protect regulatory capital given the ongoing market turmoil. These factors led to a fourth-quarter loss on an underlying basis. However, operating results were up 20.4% from a year ago, demonstrating cost discipline and strong progress on performance improvement programmes. Significant milestones in the restructuring process were achieved in 2011, including the sale of Insurance Latin America and the completion of the legal and operational separation of Insurance US, Europe and Asia. In 2012, we will continue to focus on improving returns while preparing these businesses for stand-alone futures.

Bank result down on Greek impairments

Underlying profit before tax for the Bank fell 17.4% in 2011 to EUR 4,740 million from EUR 5,738 million in 2010, largely because of impairments on Greek sovereign bonds during the year, financial market volatility and negative sentiment for the short-term economic outlook. In the fourth quarter, ING Bank recorded an underlying profit before tax of EUR 793 million compared with EUR 1,428 million a year ago and EUR 1,031 million in the third quarter of 2011.

Results were down substantially from both prior periods, reflecting impairments on debt and equity securities, particularly on Greek government bonds, realised losses from selective de-risking at ING Direct, and higher risk costs.

The net interest margin was 1.42%, up five basis points from the previous quarter—primarily due to a recovery in Financial Markets—but down five basis points relative to a year ago. Expenses declined from the fourth quarter of 2010, but rose from third-quarter levels.

The full-year 2011 underlying return on IFRS-EU equity was 10.0% compared with 12.9% in 2010. Impairments on Greek government bonds recorded in 2011 accounted for 1.2 percentage points of the year-on-year decline. The Ambition 2015 target for return on IFRS-EU equity is 10-13%. ING Bank’s full-year 2011 underlying return on equity,
based on a 10% core Tier 1 ratio, was 10.9%.

Risk costs rise¹ in fourth quarter

Total risk costs in the fourth quarter rose to 65 basis points of average risk-weighted assets versus 55 basis points in the third quarter of 2011 and 51 basis points in the fourth quarter of 2010. For the full year, underlying risk costs were 52 basis points of average risk-weighted assets, one basis point below the level observed in 2010. For 2012, which will exclude ING Direct USA, ING expects risk costs as a percentage of risk-weighted assets to be in the range of 60-65 basis points.

Although competition for savings increased in the fourth quarter, ING Bank continued to show strong deposit growth with funds entrusted rising by EUR 8.1 billion (excluding
currency impacts). The net inflow of funds entrusted at Retail Banking was EUR 5.6 billion, including EUR 3.2 billion at ING Direct and EUR 2.5 billion at Retail Netherlands,
supported by year-end campaigns. Commercial Banking reported a EUR 2.6 billion net increase in funds entrusted.

In general, ING Bank’s current strategy is to combine and build on the strength of its banking businesses, to manage its balance sheet more efficiently and to manage its loan book so as to optimise return on equity under the constraints of Basel III.

Insurance/Investment Management (IM) continues along improvement path

Insurance/IM recorded a solid year in 2011. Operating profit rose 41% to EUR 2,205 million from EUR 1,558 million in 2010 and underlying profit before tax was EUR 314 million compared to a loss of EUR 1,072 million in 2010.

For the fourth quarter, despite a 20.4 % jump in operating profit to EUR 478 million, underlying result before tax was a loss of EUR 1,348 million, mainly due to the EUR 1,099 million charge for the US Closed Block VA assumption changes announced in December 2011, as well as EUR 348 million of losses on hedges focussed on protecting regulatory capital in the Benelux and the US.

Compared with the third quarter of 2011, the fourth quarter operating result declined 9.3%, mainly due to lower fees and premium-based revenues and slightly higher administrative expenses.

Insurance sales (APE) rose 3.0% year-on-year, or 4.6% on a constant currency basis. Sales in Asia/Pacific were up 10.9%, driven by growth in Japan, Malaysia, Hong Kong and China. In Central and Rest of Europe, APE grew 14.8%, partly due to higher life sales in Hungary. In the Benelux, APE rose 14.1% on higher corporate pension sales. At Insurance US, APE declined, reflecting lower Stable Value and Fixed Annuity sales, while both Full Service Retirement Plans and Individual Life product sales increased.

In April 2009, ING Group set down its strategy to improve performance. This entailed improving investment margins², containing costs and pursuing growth to achieve a double digit return on equity by 2013. Under the Ambition 2013 programme, ING Insurance/IM plans to lift investment performance and thereby income by widening the investment margin to 105 basis points; to lower costs to achieve an administrative expenses/operating income (Life & ING IM) ratio of 35%, to grow sales by 10% a year and to lift return on equity to 10%.

In 2011, the investment margin widened to 106 basis points (bps) from 90 bps in 2010. The ratio of administrative expenses to operating income fell to 39.8% from 43.7% in 2010.

Investment margin climbs

The investment margin climbed 15.5% from the fourth quarter of 2010 to EUR 440 million, attributable to higher results from real estate investments and lower profit sharing. The fourth quarter of 2010 also contained negative non-recurring items which lowered the investment margin in that quarter. These factors, in combination with the beneficial impact of reinvestments in the first half of 2011 and higher dividend income received compared to 2010, helped lift the four-quarter rolling average investment spread to 106 basis points.

In 2012, the investment spread is expected to decline gradually, reflecting lower yields on bonds resulting from de-risking actions mainly effected in the second half of 2011.

Non-financial performance

In the non-financial space in the fourth quarter, ING launched several initiatives and received several accolades and awards. In the Netherlands, ING launched low cost, simpler products such as a new PPI workplace pension product and bank-savings products and annuities for people who are saving for retirement. Also in the Netherlands, ING launched a payment app which recorded 700,000 downloads.

In the Czech Republic, ING’s Smart life insurance product was named the ‘Best Insurance Product’ in 2011 in Bank of the Year awards held by a major financial advice company. In Poland, ING’s insurance operations won the ‘Friendly Insurance Company’ award in 2011, for the quality of its customer service. It was the second consecutive year that ING has won this award.

In the sustainability field, the ING Duurzaam Aandelen Fonds (Sustainable Equity Fund) was the best performing Dutch sustainable equity fund in 2011, beating its benchmark, the MSCI Developed Markets World index.

For further information

For further information, please go to the Investor Relations section of www.ing.com and then click on the Results & Interim Accounts tab to access the Press Release and all other financial results publications including the Quarterly Report, Statistical Supplement, presentations and audiocasts.

1. Risk costs mainly refer to what are called “loan loss provisions,” or the funds a bank needs to set aside to cover for loans that may default. Those costs increase in times of economic uncertainty.
2. Spread between investment income earned and interest credited to policyholder reserves (excluding market impacts, including dividends & coupons).

KEY POINTS

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ING in 2011

Underlying net profit

ING Group up 15.1% to EUR 3.675 million

Underlying profit before tax

Bank down 17.4% to EUR 4.740 million
Insurance EUR 314 million vs a EUR 1,072 million loss

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