ING Groep NV expects further growth in fee income after posting a 17% year-over-year rise in second-quarter net commission income, CEO Ralph Hamers told analysts during an earnings call.
The Dutch lender's net commission income grew to €714 million in the second quarter from €610 million a year earlier, which helped propel the group net result to €1.37 billion from €1.30 billion despite a drop in investment income over the period to €43 million from the year-ago €172 million. Net interest income rose year over year to €3.36 billion from €3.27 billion.
"Over time, in the challenger and growth markets, we're moving away from a savings and mortgage business [toward] a primary-relationship business, and you can see that that relationship will generate interest in products that we can distribute digitally," Hamers said. "On the back of that, you can expect the fees to continue to increase."
He highlighted growth opportunities in the distribution of insurance products in challenger and growth markets and in asset management with the help of "a couple of partners that are very interested in our digital distribution power." At the same time, he dismissed the notion that ING may have to increase its branch network to complement its digital focus.
"In the challenger markets, we generally have a concept that doesn't need branches, and we try to have an offering that is fully digital in every respect," Hamers said.
"If you do all of your transactional business digitally but you do some advice business [face to face], you don't need that many branches because people don't need daily advice, or weekly advice or even monthly advice on their mortgages." He added that having no or a "very limited" branch network is "the way we continue to grow."
Benefits from PSD2
Hamers said the second quarter had been one of "continuous commercial growth ... across the different sectors, across different geographies," adding: "We're not dependent on one or two geographies — we are very well diversified."
The CEO expects ING to benefit from the introduction of the second European payment services directive, or PSD2, in January 2018. The directive stipulates that banks must grant third-party service providers access to customer data and accounts, with Hamers telling analysts: "We are actually quite happy with PSD2 because it plays very well for us in our strategy as a challenger, as a disruptor. It well help us in growing our customer base."
Meanwhile, CFO Koos Timmermans said during the call that it was too early to "say anything on Basel IV implications on dividends."
He highlighted that "this is not 2007, so it's not like expectations should be that we should [meet the Basel IV capital requirements] as of tomorrow." Instead, assuming that the phase-in period is 10 years and that banks will be expected to show linear progression towards the new capital-ratio targets, ING would try to fully meet the new requirements within five to seven years "because you want to be certain to pay dividends," Timmermans said.
"So, expect that even though we might not be there on day one, we are not going to wait exactly 10 years if that is your phase-in to do it."
The bank posted a 3.6% year-over-year rise in underlying operation expenses in the second quarter to €2.31 billion — which was 4% higher than anticipated by the analyst consensus. A Rabobank note published after the earnings call said ING had posted "a good set of results ... with an income beat," as net commission income was 11% higher than consensus, while loan-loss provisions of €229 million were 8% lower than anticipated by analysts, with the group net result beating their expectations by 2%.
"Asset quality was good, with the NPL ratio for the group remaining low, coming in at 2.1%," the analyst team led by Ruben van Leeuwen wrote.