Feb 2, 2023
ING’s Profit Beats Estimates as Rising Rates Boost Margins
(Bloomberg) -- ING Groep NV posted a 15% jump in fourth-quarter profit that beat estimates as rising interest rates helped to boost margins.
Net income rose to €1.09 billion ($1.2 billion) in the three months through December, compared with analyst expectations for a profit of €975.8 million, according to a statement by the Dutch lender on Thursday.
Net interest income — the difference between the interest banks earn on deposits and how much they pay for deposits and other funding — jumped 17% to €3.55 billion, in line with expectations.
Expectations for continued tightening by the European Central Bank means “our deposit margin is expected to continue to rise in the coming period,” Chief Financial Officer Tanate Phutrakul said in an interview with Bloomberg TV.
Lenders are in a sweet spot where they can charge more for credit after the ECB abandoned years of negative interest rates to control inflation. That’s stoked confidence that they can afford to distribute excess capital even as regulators call for restraint given the economic uncertainty.
ING said took a charge of €315 million during the quarter following changes to long-term stimulus loans from the ECB. The central bank tightened conditions on those funds after rapid increases in interest rates meant the industry stood to reap windfall profits.
Shares in ING were trading 4% lower at open in Amsterdam after dropping as much as 8.2%.
What Bloomberg Intelligence says:
ING’s 21% pretax-profit beat vs. analyst estimates was entirely driven by low-quality trading and one-time gains, with setbacks evident in net interest income (weak lending) fee income (down 4%) and expenses (3% miss, on inflation impact). Combined, those leave the lender’s 2025 targets of 12% ROE (7.2% in 2022), 50-52% cost-to-income ratio (60%) and 5-10% annual fee growth (up 2%) looking unachievable. New 2023 guidance is uninspiring and already captured by consensus.
— Philip Richards, BI banking analyst
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The bank said operating expenses fell 2% to €2.89 billion, while regulatory costs fell 24% to €291 million after the annual Dutch bank tax, which is levied in the fourth quarter, declined from a year earlier. The bank paid staff €30 million in one-time allowances to help them shoulder higher energy prices.
ING proposed a final 2022 dividend of 38.9 eurocents per share after pledging in June to distribute about €17 billion in the coming years. Rising shareholder payouts at competitors UBS Group AG and UniCredit SpA has raised the pressure on ING to boost dividends and stock repurchases.
ING stopped passing the ECB’s negative rates on to savers in the Netherlands in October following a similar move in Belgium. It’s also raised the interest it offers to clients in several markets.
--With assistance from Tom Mackenzie.
(Updates with comments from CFO and analyst)
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