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ING CEO warns of further margin pressure in Belgium

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ING CEO warns of further margin pressure in Belgium

ING Groep NV CEO Ralph Hamers has warned that the company's Belgian business will continue to suffer in 2017 amid pressure from intense competition and legally mandated floors on how much banks must pay out on savings products.

For such savings accounts, banks must pay savers a fidelity premium on top of a base rate, with both rates strictly regulated.

"We're not sure we've seen the worst of the margin pressure in Belgium," Hamers told analysts at the presentation of ING's fourth-quarter 2016 results. "All banks have reached more or less the legal floor on the liabilities side, so there is not a lot of room to manage the margin [there]. And there is quite some competition in the market on the lending side, with pressure on margins there."

Net interest margin for the Belgium retail business declined to 1.22% in 2016, from 1.27% in 2015 and 1.35% in 2014. For the Netherlands business, NIM remained flat in 2016 year over year, at 1.38%.

ING's core Benelux retail business reported an underlying income of €7.00 billion in 2016, only 0.9% higher than a year earlier. By contrast, underlying income in the Retail Challengers and Growth Markets business rose 10.7% over the period to €4.78 billion, while the wholesale banking business registered a 5.4% increase to €5.68 billion.

Hamers promised headcount reductions and a "further rationalization" of the Belgian branch network in order to cut costs, and said the bank was working "constructively" on these proposals with the relevant stakeholders.

"In order to drive the [Benelux] results in future we have to ensure that we become more digital, have better client services, and with that become more efficient," he said.

Overall, ING recorded a year-over-year rise in the bottom line, with 2016 showing a net result of €4.65 billion, up 16.0% from the year-ago figure of €4.01 billion.

Additions to loan loss provisions came to €974 million, down from €1.35 billion a year ago, while underlying risk costs declined to 31 basis points of average risk-weighted assets in 2016 from 44 basis points the previous year.

For the fourth quarter of 2016, the net result reached €750 million, compared to the year-ago €819 million.

Many European banks are hoping for a tightening of monetary policy over coming quarters, as the expansionary fiscal policies that the new U.S. administration looks set to pursue ups the pressure on central banks to increase rates sooner.

The ECB saw fit to trim its bond-buying program in December 2016, but has kept its deposit facility at a negative rate of 0.40%. But Hamers said that because of the nature of ING's hedging program, the market should not expect a rapid tick-up in the net interest income, a line item that usually rises and falls with interest rates.

"Increases in rates are to be welcomed," Hamers said. "It's a sign that the economy is performing better and that the stimulus needed will be lower. But I can only [say] that, certainly, for 2017, a small increase is unlikely [to be] that significant in our results."

An increase of 40 basis points in the ECB deposit facility, for example, while "directionally positive," probably would not affect the bank's net interest income, the CEO said.

ING proposed a full-year dividend of 66 cents per share. This was 1 cent more than the previous year, the minimum necessary to maintain its "progressive" dividend policy.