In spring, when the banking sector was still in crisis and Credit Suisse almost slid into insolvency, the markets were abuzz with speculation about which institution might be hit next. Among the banks that were above suspicion was ING Groep. And quite rightly so. The bank with the orange lion in its logo has a strong capital base, high profitability and an extremely solid business model with a focus on retail banking. Many analysts therefore rank the Dutch financial group among the top picks among European banks. This assessment was confirmed by the strong business figures for the second quarter of 2023. With a net profit of EUR 2.16 billion, the financial institution not only exceeded the previous year's result by far (EUR 1.18 billion), but also easily topped the market's expectations of EUR 1.64 billion.
Net interest income in particular proved to be a profit turbo, increasing by almost one fifth to EUR 4.1 billion. The interest margin increased from 1.36% to 1.56%. Like other financial groups, ING also benefited from the significant rise in interest rates. However, this effect is more pronounced for institutions which, like ING, are mainly active in the retail and corporate customer segment than for institutions which focus on investment banking and asset management. Another highlight of the quarter was the sharp decline in risk provisioning for impending loan defaults. At just 98 million euros, this expense item was well below the market estimate in the past quarter.
The Dutch top dog gained 227,000 new customers in the second quarter. This brought their total number to 14.9 million. Customer deposits rose by a good EUR 17 billion to a total of EUR 678 billion in the same period. These are remarkable results. On the one hand, because banking is a saturated market. On the other hand, because traditional institutions are facing strong competition from FinTechs. So customer and deposit growth are anything but a matter of course for big banks like ING.
One reason for the high customer popularity is probably that the Dutch have a smart, modern image and are among the pioneers in digital banking. For example, 60% of ING's active customers now conduct their banking transactions exclusively via the mobile app. On the other hand, the bank is highly recommended by its customers. This is evidenced by the top positions in the so-called NPS in numerous core markets. The Net Promoter Score is an indicator that provides information about the level of customer satisfaction. ING's goal is to achieve an NPS in all retail markets that is at least 10 points higher than that of its main competitors. This is already the case in five markets.
Despite the good business figures, the question arises as to what potential the share still has. Following the quarterly results, the Euro Stoxx 50 share gained ground, but failed to make a sustained upward break towards a 5-year high. Somehow, the fantasy seems to be gone after the rally in the previous months. On the one hand, this could be due to the fact that the interest margin seems to have peaked. On the other hand, commission income is not developing as ING would like. They increased by only 2% in the second quarter; the 2025 growth program envisages a higher rate of between 5% and 10%.
With two new softcallable barrier reverse convertibles on the shares of the "Oranjes", attractive returns can be achieved even if the price of the underlying is flat. These products not only offer a guaranteed coupon, but also provide a certain degree of protection against falling prices in the form of a barrier. In detail: the Softcallable BRC denominated in CHF has a maturity of 18 months and comes with a guaranteed quarterly coupon payment of 8.00% p.a.. The trading currency of the second product is EUR. Here, with the same maturity, the coupon payment even amounts to 10.00% p.a. So much for the earnings opportunities. As far as the barrier is concerned, it is fixed at 59% of the starting value for both products. The safety buffer amounts thus in each case to comfortable 41%. After all, the barrier is an important aspect for the redemption. This takes place at the end of the term at 100% of the nominal value, provided that the ING Groep share never quotes at or below the barrier during the term. If it does, redemption is made by delivery of shares in the underlying. It should be noted that the soft call feature may shorten the term.
We look forward to answering all of your questions about our products and how they are traded. Please don't hesitate to get in touch! Phone: 058 800 11 11, email info@leonteq.com or contact us here.