DBRS Morningstar Confirms ING Bank’s Long-Term Issuer Rating at AA (low), Stable Trend

DBRS Ratings GmbH (DBRS Morningstar) confirmed the Long- and Short-Term Issuer Ratings of ING Bank N.V. (ING Bank or the Bank) at AA (low) / R-1 (middle), and the Long- and Short-Term Issuer Ratings of the holding company, ING Group N.V. (ING or the Group), at A (high) / R-1 (middle). The trend on all ratings remains Stable. The Group’s support assessment is SA3, while the Bank’s Intrinsic Assessment (IA) is AA (low) and the Support Assessment is SA1. See the full list of ratings at the end of this press release.

KEY RATING CONSIDERATIONS

The AA (low) Intrinsic Assessment on ING Bank, which is based on the consolidated strength of the Group, reflects the Group’s leading retail and wholesale banking franchise in its core markets of the Netherlands and Belgium, combined with a growing presence in select countries, predominantly Germany, and further geographical diversification, primarily across Europe. The current level of the IA also takes into account the Bank’s historically solid profitability, good asset quality indicators, its strong funding and liquidity position along with a solid capital position, supported by a sound internal capital generation and good access to capital markets.

The IA also considers the ongoing pressure from the low interest rate environment, which the Bank is seeking to partially offset by passing on negative rates to customers and through the benefits of the TLTRO III. It also incorporates DBRS Morningstar’s view that asset quality could deteriorate when the COVID-19 government support measures are withdrawn. Furthermore, the Bank has plans to lower its capital cushion in the future, and we will continue to monitor this and any potential impact on ING’s overall credit profile.

RATING DRIVERS
Given ING’s high rating level and challenges from the low rate environment as well as the potential deterioration in asset quality, an upgrade of the ratings is unlikely. However, a significant increase in profitability, while maintaining a conservative risk profile and prudent capital ratios would lead to an upgrade.

The ratings would get downgraded in case of a sustained downward pressure on revenues, a material deterioration in asset quality, or a significant reduction in capital cushions that are not consistent with the Bank’s risk position.

RATING RATIONALE
ING Group N.V., with its main operating entity ING Bank N.V., is a financial group headquartered in the Netherlands with total assets of EUR 980.9 billion at end-Q1 2021. The Group's leading universal franchise in the Benelux area (Netherlands, Belgium, Luxembourg) is complemented by an increasingly meaningful presence in various countries, mainly in Europe, primarily in Germany. The Group also has a solid wholesale banking franchise in Asia, the Americas and Central & Eastern Europe. In recent quarters, the Group announced the streamlining of its footprint, which includes the planned exit from the Czech and Austrian retail banking businesses, and the closure of wholesale banking offices in South America and in Asia.

Supported by good business and geographic diversification, ING's earnings generation has historically been solid. More recently, profitability has come under pressure from the low interest rate environment, elevated credit costs and higher operating expenses. In 2020, total income was EUR 17,637 million, down 3.7% on 2019, mainly due to lower levels of net interest income (NII), which was affected by lower lending volumes and margin pressure on the liability side. In Q1 2021 NII was flat year-on-year (YoY) at EUR 3,513 million, but would have declined by 6.3%, without the benefit from TLTRO III. Positively, net fee income grew in 2020 and Q1 2021, with the strong performance driven by retail fees, which outweighed lower fees on the wholesale banking side as a result of lower lending activity. ING has also experienced some pressure on the expense side in recent years, partly due to various impairment and restructuring charges but also due to higher regulatory and compliance costs related to AML measures. Going forward, there should be some support for revenues from higher expected commercial loan growth, continued TLTRO benefits, an expansion of negative rates to customers and higher fees related to increased commercial activity as the economy is set to recover in the second half of 2021. We also expect expenses to stabilize.

DBRS Morningstar considers ING’s risk profile to be conservative, supported by its relatively good diversification and sound asset quality to date. In our view, ING is benefitting from economic conditions in the Group’s core operating markets, particularly the Netherlands and Germany, that are better than in other parts in Europe. Nevertheless, we anticipate that asset quality indicators will deteriorate when the government support ends. Consumer loans, which could perform worse in a more stressed environment accounted for EUR 25.2 billion at end-Q1 2021. With regards to the Group’s exposure to industries potentially more affected by COVID-19, we note that exposure relating to agriculture, non-food retail, aviation, and hospitality and leisure accounted combined for 2.4% of the total loan book, or EUR 18.9 billion at end-March 2021 (this equates to 39.3% of common equity tier 1 capital as of the same date.

ING has a solid funding profile in our opinion, supported by the Group’s broad deposit base in the Netherlands, Belgium and Germany, Customer deposits accounting for 77% of the Group’s funding at end-March 2021. Wholesale funding is diversified by liability type and maturity. In addition, ING’s liquidity position is strong. At end-March 2021, ING’s High Quality Liquid Assets (HQLA) represented 1.44 times the short-term wholesale and institutional funding outstanding (i.e. interbank funding plus certificates of deposits and commercial paper). Furthermore, the 12-month moving average Liquidity Coverage Ratio (LCR) was 140% at end-Q1 2021.

ING has a solid capital position, supported by a good internal capital generation ability and good access to capital markets. Capital buffers over minimum regulatory requirements are sound in the context of future capital requirements, including the implementation of the finalised Basel III rules ('Basel IV') as of January 1, 2023. At end-Q1 2021, the Group reported a fully-loaded Common Equity Tier 1 (CET1) ratio of 15.5%. This compares to an SREP requirement of 10.5%, following the regulatory changes implemented in light of the COVID-19 pandemic, including the temporary relaxation of certain buffer requirements, and implies a capital cushion of circa 500 bps over minimum CET1 requirements. However, in late 2020, ING lowered its CET1 ambition from the previous level of around 13.5% to around 12.5%, on a post-Basel IV implementation basis. This reflected, among other factors, a structural reduction in capital requirements and increased visibility of expected regulatory RWA inflation.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

The Grid Summary Grades for ING Bank N.V. are as follows: Franchise Strength – Very Strong/Strong; Earnings –Strong; Risk Profile – Strong; Funding & Liquidity – Strong; Capitalisation – Strong.

Notes:
All figures are in EUR unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (8 June 2020) https://www.dbrsmorningstar.com/research/362170/global-methodology-for-rating-banks-and-banking-organisations.
Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021) https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

The sources of information used for this rating include ING Groep Annual Report 2020, ING Groep Presentation Q4 2020, ING Groep Press Release Q1 2020, ING Groep Press Release Q1 2021, ING Groep Presentation Q1 2021, ING Groep Credit Update Q1 2021, ING Groep Press Release 18 February 2021, ING Groep Press Release 2 March 2021 and S&P Global Market Intelligence. DBRS Morningstar considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

With respect to FCA and ESMA regulations in the United Kingdom and European Union, respectively, this is an unsolicited credit rating. This credit rating was not initiated at the request of the issuer.

With Rated Entity or Related Third-Party Participation: YES
With Access to Internal Documents: NO
With Access to Management: NO

DBRS Morningstar 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 12-month period. DBRS Morningstar's outlooks and ratings are under regular surveillance.

For further information on DBRS Morningstar 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. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

The sensitivity analysis of the relevant key rating assumptions can be found at: https://www.dbrsmorningstar.com/research/379842

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Sonja Forster, Vice President, Global FIG
Rating Committee Chair: Elisabeth Rudman, Managing Director, Global FIG
Initial Rating Date: 08/18/2010
Last Rating Date: 06/15/2020

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