Customer growth key to ING meeting 2027 targets

ING Groep NV may undershoot medium-term targets for returns, S&P Global Market Intelligence data suggests, but the Dutch bank is well placed for an uptick in customer growth that will generate additional income, according to analysts.

Amsterdam-headquartered ING unveiled new profitability and efficiency targets in mid-June. It aims to grow the number of its mobile primary customers by 1 million a year from 2024 to 2027, achieve annual income growth of 4% to 5% over the same period, and generate return on equity (ROE) of 14% in 2027.

Mean analyst estimates compiled by S&P Capital IQ as of June 25 suggest ROE will reach only 13.4% in 2027, albeit on an upward trajectory from 12.31% in 2024. Fee income will total €4.73 billion in 2027, the estimates suggest, against €5 billion targeted by the bank.

Customer growth

ING's target for primary customers should be attainable given that the COVID-19 pandemic pushed customers on to mobile-only channels, Arnaud Journois, senior vice president for global financial institutions at Morningstar DBRS told Market Intelligence.

"Customer growth should support the expected revenue growth," in particular fee income, Journois said. ING's target is in line with Journois' observations in 2023 and the first quarter of 2024, as well as growth in that segment for several years. The bank's net interest margin should also be maintained, given that lower interest rates should bolster loan growth and loan repricing, and should help ING reach its expected revenue growth, Journois said.

The bank's fee target will depend on alpha opportunities — internal ING actions — and beta factors such as the overall market situation, JPMorgan analysts wrote in a note after ING unveiled its new strategy.

"The greatest alpha opportunities are around growth in primary customers," the analysts said.

ING's fee income increase target is based on annualized first-quarter 2024 figures, according to an investor presentation. The bank booked fee income of €998 million in the first three months of the year. In 2023, it totaled €3.6 billion. This is projected to continue rising over the next four years to about €4.73 billion, according to the mean analyst estimates.

The bank has been keen on using fees to play a bigger role in driving its earnings as the benefits from high interest rates slowly diminish. The increase in fee income in the first quarter showed that this focus "is clearly paying off," CEO Steven van Rijswijk said when discussing earnings.

ING is well placed to benefit from a recovery in credit demand over the coming years, UBS Global Research said in a June 18 note. "The bank has an attractive digitally led operating model and significant growth opportunities in its current footprint," it said.

ING did not immediately respond to a request for comment.

'Step-up in ambition'

With the fee ambitions expected to underpin income, ING is also aiming for a return on equity (ROE) of 14%. Other factors expected to drive this goal include re-leveraging, shifting capital allocation and improving operational leverage.

"The plan suggests continuity but includes welcomed tweaks and a step-up in ambition," Citi Research said in a note.

Meeting the targets will require "a supportive external environment," UBS analysts said.

ING CFO Tanate Phutrakul said execution risks are low as they depend on levers that the bank has set before.

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