ING reports solid second quarter

AT A GLANCE

Underlying profit before tax

Bank down 13.1% to EUR 995 million
Insurance down 51.5% to EUR 229 million

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ING Group announced on 8 August a solid underlying net profit for the second quarter of 2012, although lower than a year ago as the Eurozone sovereign debt crisis intensified and continued financial market volatility impacted economic activity. Underlying net profit fell 17.8% to EUR 1,045 million compared to the same quarter in 2011. For the first half of 2012, underlying net profit was down 36.4% to EUR 1,588 million compared to 2011.

The Bank result was affected by higher loan loss provisions and de-risking costs, as a result of weaker economic conditions. Insurance results rose compared to the first quarter, despite ongoing market volatility, but were lower than the second quarter last year due to large positive one-off items in that quarter.

ING maintained strong capital ratios in the second quarter with the core Tier 1 ratio rising to 11.1% from 10.9% in the first quarter. The Insurance IGD solvency ratio rose to 240%.
Given the uncertain financial environment, increasing regulatory requirements and ING’s priority to repay the Dutch State, no interim dividend will be paid over the first six months of 2012.

Financial strength highest priority

Commenting on the second quarter results, ING Group CEO Jan Hommen said: “ING posted solid second quarter results. In these uncertain times the financial strength of the company is our highest
priority: capital, liquidity and funding have all improved. “As the eurozone crisis deteriorated, we accelerated our efforts to de-risk the investment portfolio at the Bank, and brought down our Spanish exposure to reduce the funding mismatch in that country. At Insurance, we continued to hedge to protect regulatory capital, leading to volatility in IFRS earnings.”

“Provisions for loan losses at ING Bank increased as the macroeconomic environment weakened, and the net interest margin contracted, despite easing competition for savings. We increased our vigilance on costs, and expenses declined for the second consecutive quarter. Progress on balance sheet optimisation** is gaining traction, with integration initiatives reaching EUR 7.2 billion in the seven months ended in July. Commercially, the Bank generated strong retail deposit growth of EUR 4.3 billion during the second quarter, further strengthening the funding profile. Demand for lending remains weak, but total lending rose modestly as ING continued to support clients with their financial needs.”

“We continue to work tirelessly to deliver on our performance improvement plans and to prepare our banking and insurance businesses for their independent futures. The sales process for our Insurance and Investment Management businesses in Asia is on track, and ING US made an important step with its inaugural benchmark debt issuance as it works to separate its funding and liquidity from the Group ahead of its planned IPO. For Insurance Europe, we are stepping up our efforts as we prepare for the base case of an IPO.”

Bank

ING Bank posted solid second-quarter results despite losses from proactive de-risking, pressure on the underlying interest margin, and higher risk costs as a result of deteriorating economic conditions.

The Bank’s underlying result before tax was EUR 995 million, down 13.1% year-on-year and 11.6% lower than in the first quarter of 2012. However, the gross result, (income less expenses before risk costs) rose 5.9% from the second quarter last year and was down only 2% on the first quarter.

Expenses declined for the second consecutive quarter compared to the second quarter last year and the previous quarter, due to strong cost control.

ING’s strong retail franchise continued to draw solid retail deposit volumes with EUR 4.3 billion of retail net funds inflows recorded in the quarter. In addition to strong deposits, the Bank continued to optimise its balance sheet, growing lending while simultaneously curtailing balance sheet growth.

Given the weakening economic climate in Europe, ING took pro-active measures in the second quarter to reduce exposure to Southern European debt, particularly related to Spain.

During the quarter, ING Bank made progress on its strategy of combining and building on its banking businesses, the core of its One Bank strategy, as launched in January 2012. ING Real Estate Finance (REF), ING Direct Italy and ING Direct Spain successfully completed the transfer of EUR 1.3 billion of commercial real estate loans from ING Commercial Banking to ING Direct. These transfers support the One Bank strategy of using local funding to finance local assets and to optimise the balance sheets of ING’s domestic banks in Italy and Spain by diversifying risk, building-up own-originated assets (loans), and diversifying income streams.

ING Bank continued to focus on maintaining a strong relationship with customers by providing an easy to access service, innovative distribution, and offering fair and transparent pricing. During the quarter, it won several accolades for its customer-centric focus. In Poland, ING Bank Slaski was named ‘Best Bank 2012’ by influential Polish newspaper Gazeta Bankowa and in Germany, €URO magazine voted ING-DiBa (ING’s direct bank) the most popular bank in the country.

Insurance*

During the second quarter, ING Insurance continued to focus on protecting regulatory capital. Despite the ongoing financial market volatility, the operating result was 17.8% higher at EUR 304 million than the first quarter and underlying profit before tax was EUR 229 million after a loss in the first quarter due to hedge losses. The increase in operating profit in the second quarter was due to seasonally higher dividend income and general account asset growth, which lifted the investment margin.

Compared with the second quarter of 2011 operating results were down 46.2%, due to positive one-off items in that quarter, coupled with a lower technical margin and lower non-life results in the current quarter.

Given the tougher economic conditions, new sales fell 5% compared to a year ago, excluding currency impacts. They were down 17.7% compared to the previous quarter, mainly due to seasonally higher sales in the Benelux and the US in the first quarter.

However, sales rose by 8.8% in Central and Rest of Europe compared to the same period last year, excluding currency effects. This was due to strong sales in the Czech Republic and Turkey, driven by multi-distribution channel initiatives. However, when compared to the previous period they were lower because the first quarter included strong sales in Hungary, Greece and Spain.

In the quarter, Insurance received several rewards in recognition of its customer focus, which is a core component of its business strategy. In April 2012, Dutch retail investors selected ING IM as the best investment management company in the Netherlands both in terms of investment products and services in Dutch financial magazine CASH’s People’s Choice Award for 2012. In May, ING Insurance Bulgaria was awarded as the most dynamic pension insurance company in the 2012 ‘Insurer of the Year’ awards. It was among the best-performing pension funds according to a jury of associations representing Bulgarian pension and insurance companies and other financial institutions.
Among the customer-centric initiatives for the quarter, Nationale-Nederlanden launched a pension app to give its customers easy access to information about the size of their pension payouts when they retire as well as to provide a simple guide to better understanding their annual pension fund statements.
Insurance Central & Rest of Europe introduced new insurance products in Spain and Hungary, and launched investment-related insurance products in Poland and the Czech Republic for sale through ING’s bancassurance channels in those countries.

*Results have been restated to reflect that the Asia/Pacific Insurance and Investment Management businesses (and the Corporate Line results attributable to them) are now included under net result from discontinued operations. The sales process for these businesses has progressed to a stage that requires such classification under IFRS accounting.

**Adjusting the balance sheet to maximise returns and to offset higher capital requirements while keeping balance sheet growth flat.