DBRS Confirms ING Bank N.V. at AA (low), Trend Stable

DBRS Ratings Limited (DBRS) confirmed the Long-Term Issuer Ratings of ING Bank N.V. (ING Bank or the Bank) at AA (low) as well as the A (high) Long Term Issuer Rating of its Holding Company, ING Group N.V. (ING or the Group). Concurrently, the Short-Term Issuer ratings for ING Bank and ING Group were confirmed at R-1 (middle). ING Bank’s Long and Short Term Critical Obligation ratings were confirmed at AA (high) and R-1 (high). The trend on all ratings remains Stable. A full list of rating actions is included at the end of this press release. The Bank’s intrinsic assessment (IA) was maintained at AA (low), and the Support Assessment was maintained at SA3. As a result, the Bank’s final ratings are positioned in line with its IA.

KEY RATING CONSIDERATIONS
The confirmation of the ratings and Stable trend reflects the leading retail and commercial franchise in the Benelux, consistent performance achieved by the Group in recent years, illustrated by its strong resilient earnings generation and capital position, good asset quality, and strengthened funding profile. With the sale of non-core subsidiaries such as the insurer NN Group, ING completed its restructuring phase in 2016 displaying a simplified franchise and solid financial metrics. The ratings continue to take into account the ongoing low interest rate environment and the impact related to the Basel IV framework.

RATING DRIVERS
Given the very high rating level, any further upward rating pressure is unlikely. However, any upside would require (i) The Group to improve earnings diversification and efficiency levels while (ii) maintaining a low risk profile.

Negative pressure on the ratings would likely be driven by (i) a significant deterioration in the Group’s profitability or risk profile, and (ii) a material weakening in capitalisation levels.

RATING RATIONALE
ING’s ratings are underpinned by a leading retail and wholesale banking franchise in the Benelux region. These operations are supported by its strong banking capabilities in other international markets, with solid market positions in Germany, where it operates through ING-DiBa, as well as in Australia, Spain, Italy and France through its former ING Direct business. The Group also has a solid wholesale banking franchise across Asia, the USA, and Central & Eastern Europe (CEE), and retail branch-banking operations in select countries, most notably Poland and Turkey.

ING has demonstrated strong earnings generation capacity in recent years, with the Group generating average underlying annual net profit from Banking activities of EUR 3.9 billion over the last five years. The Group’s good profitability has been driven principally by strong revenue generation across the franchise in spite of low interest rates, as well as a cyclically low cost of risk in ING’s core franchises (Netherlands, Belgium, and increasingly Germany, representing 74% of Retail Banking revenues together. At the same time, expense control remains a key target for the Group, while innovation in digital and rationalization through common IT platforms are under way. DBRS views positively ING’s continuous efforts to achieve a cost-to-income ratio target of 50-52% by 2020, which compares to a cost-to-income ratio of 55% in 2017. Higher operating costs highlight ongoing investments in digital but also ING Belgium restructuring that is leading to the creation of an integrated platform with the Netherlands in the context of a “digital-first model”.

DBRS views ING’s risk profile as relatively low, consistent with its retail and business banking focus. This is reflected in the Group’s DBRS-calculated non-performing loan (NPL) ratio of 2.1% at end-2017, down from 2.3% at end-2016, as improvements in the domestic operating environment continues. At the same time, while the Dutch housing market shows a strong upswing recovering since 2013, there are also some signs of overheating locally. However, DBRS views this as manageable given stricter regulatory requirements on mortgage lending since 2013, as well as the fact that ING’s portfolio to Dutch residential mortgages is limited to about 18% of ING’s total loan book and has an average LTV of 70% which mitigates the risks from a potential fall in house prices. Separately, DBRS notes that the Group’s lending to sectors such as Oil & Gas, Metals & Mining and Shipping & Ports, remains manageable given the improved performance with NPLs down year-on-year .

The Group’s funding and liquidity position strengthened in recent years. Good customer deposit growth drove the reduction in the loan-to-deposit ratio to 105% at end-1Q18, from 120% at end-2011. Separately ING’s 12-month moving average Liquidity Coverage (LCR) was 115% at end-1Q18, while ING maintains high-quality liquid assets (HQLA) totaling EUR 126.2 billion at end-1Q18.

DBRS views ING’s capital position as strong. DBRS also considers the Group to be well placed to manage the impact of ongoing developments in regulatory capital and higher risk-weighted assets (RWA), given expected capital buffers over regulatory minimums, the Group’s track record for strong internal capital generation, and flexibility to access markets. Illustrating this is the Group’s fully-loaded common equity tier 1 (CET1) ratio of 14.3% at end-1Q18, comfortably above the 2017 minimum SREP requirement of 10.4% (390 basis points, bps, buffer), and a fully-loaded leverage ratio of 4.4% at end-1Q18, above ING’s internal target of 4%. ING’s pro-forma TLAC ratio is above 21.5% at end-1Q18 ahead of its 2019 requirement of 21.5%. Separately, Basel IV is expected to increase ING’s end-2017 RWA by 15-18%, which could push the CET1 ratio down by c. 200bps according to ING estimates, which implies a CET1 ratio of approximately 12.3% pro-forma. With an internal Basel IV CET1 target of now 13.5%, ING is planning to replenish 120bps until 2022 all else equal through retained earnings while maintaining dividends, which DBRS views as manageable given the strong track record.

Notes:
All figures are in EUR unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (May 2017). This can be found at: http://www.dbrs.com/about/methodologies

The sources of information used for this rating include SNL Financial, DNB Financial Stability Report and company documents. DBRS considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

This is an unsolicited rating. This credit rating was not initiated at the request of the issuer.

This rating included participation by the rated entity or any related third party. DBRS had no access to relevant
internal documents for the rated entity or a related third party.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

Generally, the conditions that lead to the assignment of a Negative or Positive Trend are resolved within a twelve month period. DBRS’s outlooks and ratings are under regular surveillance

For further information on DBRS historical default rates published by the European Securities and Markets Authority (“ESMA”) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU and US regulations only.

Lead Analyst: Vitaline Yeterian, Vice President, Global FIG
Rating Committee Chair: Elisabeth Rudman, MD – Head of EU FIG, Global FIG
Initial Rating Date: August 18, 2010
Last Rating Date: June 21, 2017

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