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 well established retail franchise and wholesale banking franchise in the Netherlands and Belgium, along with a presence in various other countries mostly in Europe, where ING benefits from its leadership in online banking. In DBRS Morningstar’s view ING’s strong online banking capabilities and customer orientation have helped ING grow and achieve solid profitability even in mature and competitive banking markets. The IA is also supported by good asset quality metrics and a sound liquidity and funding position supported by a broad retail funding base and a well-managed funding structure. Capital ratios are solid and well above regulatory requirements. While rising rates and the removal of COVID-related restrictions are likely to support revenues, the IA also takes into account that higher interest rates, inflation and a weaking economy could weaken asset quality, albeit from strong levels. The IA also factors in the reduction in capital ratios as the Bank returns capital to shareholders. However, we expect management to proceed in a prudent manner should the operating environment materially worsen.
A significant improvement in profitability metrics, while maintaining a conservative risk profile and prudent capital ratios would lead to an upgrade.
The ratings would be downgraded in the event of 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.
Franchise Combined Building Block (BB) Assessment: Very Strong/Strong
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 1,008 billion at end-Q1 2022. The Group maintains a leading universal banking franchise in the Benelux (Netherlands, Belgium, Luxembourg) together with a growing meaningful market position in several countries primarily located in Europe (including a significant presence in Germany). In addition, the Group also has a solid wholesale banking franchise in Asia, the Americas and Central & Eastern Europe. In Q1 2022, less than one third of income was generated in the Netherlands. As part of its recent strategic review, ING decided to exit the retail banking markets in Austria, Czech Republic and France, after concluding that the scale to ensure an adequate level of return in those markets could not be reached. The exit of Czech Republic and Austria was finalised in 2021, and the exit from France is expected to be concluded in 2022.
Earnings Combined Building Block (BB) Assessment: Strong/Good
ING has been able to maintain its historically strong earnings generation, supported by high diversification in terms of both business and geography. In 2021, healthy growth in fee income and the lower than average cost of risk contributed to higher profitability. DBRS Morningstar also notes the continued cost discipline, despite increasing regulatory costs. In 2021, ING reported a net attributable profit of EUR 4,776 million, almost double compared to EUR 2,485 million in 2020. This led to a return-on-equity (ROE) of 9.2% in 2021 versus 4.8% in 2020, but still below the Group’s through-the-cycle ROE ambition of 10-12%. As a result of the sanctions imposed on Russia and the subsequent downgrade of the Russian sovereign rating, loan loss provisions increased to EUR 987 million in Q1 2022 from EUR 223 million a year earlier, with EUR 834 million of loan loss provisions linked to Russia-related exposure. Going forward, we expect fee income growth to continue, albeit at a slower pace. Over the medium term rising interest rates and lower regulatory costs should also benefit the Group’s profitability metrics. However, this could be partly mitigated by the cooling of mortgage markets in various countries and the deteriorating macroeconomic outlook, which is likely to impact revenues and credit costs.
Risk Combined Building Block (BB) Assessment: Strong/Good
DBRS Morningstar considers ING’s risk profile to be conservative. The relatively high diversification and granularity of the loan book has supported the Group’s sound asset quality metrics to date. However, we anticipate a deterioration of the Group’s asset quality in the short to medium term, driven by the deterioration of the macroeconomic environment. The Group’s Russian exposure could also contribute to weakening asset quality metrics. At end-Q1 2022, ING reported a Stage 3 ratio of 1.4% compared to 1.5% at end-December 2021, driven primarily by lending growth (+4% in loan book vs. end-2021) and a decline in Stage 3 loans. However, we also note that Stage 2 loans increased by 13% in Q1 2022 vs. end-2021, largely driven by the Group’s Russia-related exposure, which amounted to EUR 5.8 billion at end-April 2022 (EUR 4.5 billion related to Russian clients outside Russia and EUR 1.3 billion exposure in Russia). In Q1 2022, ING set aside EUR 834 million to protect against potential credit losses from this exposure. We also note that ING raised its risk weights related to the Russia exposure, resulting in risk-weighted assets of EUR 13.3 billion vs. a total exposure of around EUR 6 billion.
Funding and Liquidity Combined Building Block (BB) Assessment: Strong/Good
In DBRS Morningstar view, ING has a solid and well-managed funding profile, underpinned by the Group’s large customer deposit base thanks to its strong market position in Netherlands, Belgium and Germany. At end-2022, ING reported a net loan-to-deposit (LTD) ratio of 100% compared to 102% at end-2021 and 98% at end-2020, improving from much higher historical levels. Wholesale market funding accounted for 26% of the Group’s total funding, or EUR 204.2 billion, at end-Q1 2022. ING benefits from a diversified funding mix and an extended maturity profile, without significant refinancing concentration risk and good access to capital markets. ING’s liquidity position is strong. At end-Q1 2022, ING’s High Quality Liquid Assets (HQLA) stood at EUR 171.7 billion, representing 1.54 times the short-term wholesale and institutional funding outstanding. Furthermore, the 12-month moving average Liquidity Coverage Ratio (LCR) was 138% at end-Q1 2022. The net stable funding ratio (NSFR) was 140% at end-Q1 2022.
Capitalisation Combined Building Block (BB) Assessment: Strong/Good
We consider ING to have a robust capital position, supported by the solid internal capital generation ability and good access to capital markets. The Group continued to report a significant capital cushion against the minimum regulatory requirements while current capital ratios are well above the management ambition of a 12.5% CET1 ratio. At end-Q1 2022, ING reported a fully-loaded Common Equity Tier 1 (CET1) ratio of 14.9%, excluding the amounts already reserved for future distribution. The ratio decreased from 15.9% compared to end-2020, almost exclusively due to higher risk-weighted assets (RWAs). The increase was mostly attributable to higher credit RWAs due to the introduction of a risk weight floor on Dutch residential mortgages by the Dutch Central Bank (EUR +7.3 billion) and the rating migration on Russia related exposure following the sovereign rating downgrade (EUR +9 billion). At end-Q1 2022, the Group’s SREP requirement was 10.5%, which included a countercyclical buffer (CCyB) of 0.03%. A number of countries where ING operates have announced the re-introduction of countercyclical buffers, with buffers in the Netherland and Germany expected to result in the largest impact for ING. Over the medium term, we expect the CET1 ratio to converge towards the management ambition mostly due to additional capital distribution.
Further details on the Scorecard Indicators and Building Block Assessments can be found at https://www.dbrsmorningstar.com/research/397866.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/ Social/ Governance factor(s) that had a significant or relevant effect on the credit analysis
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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.
All figures are in EUR unless otherwise noted.
The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (19 July 2021) - https://www.dbrsmorningstar.com/research/381742/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 (17 May 2022) https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings
The sources of information used for this rating include Morningstar Inc. and Company Documents, ING Group 2021 Annual Report, ING Group Q4’21 and Q1’22 Results Presentation, ING Group Q4’21 and Q1’22 Press Release, ING Group Q4’21 and Q1’22 Credit Update, ING Group Q4’21 and Q1’22 Historical Data, and ING Group 2021 Climate Report. 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.
The conditions that lead to the assignment of a Negative or Positive trend are generally 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: https://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/397861.
This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.
Lead Analyst: Sonja Förster, Vice President, Global FIG
Rating Committee Chair: Ross Abercromby, Managing Director - Global FIG
Initial Rating Date: 08/18/2010
Last Rating Date: 06/08/2021
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