ING GROEP NV annual report, Q4 FY2021

ING Groep N.V. — FY2021 Form 20-F Summary

Business context and reporting period

ING Groep N.V. is a Netherlands-based global banking group serving approximately 38 million customers in more than 40 countries through Retail Banking and Wholesale Banking. This Form 20-F covers the fiscal year ended 31 December 2021 and was filed on 7 March 2022. The filing reports under IFRS as issued by the IASB for SEC purposes; management also presents IFRS-EU results, which differ primarily because of the EU IAS 39 hedge-accounting carve-out.

Key financial metrics

MetricFY2021FY2020Change/comment
Total income, IFRS-IASB€20,093 million€17,227 million+16.6%
Net interest income€14,000 million€13,552 million+3.3%; included €483 million conditional TLTRO III benefit
Net fee and commission income€3,517 million€3,011 million+16.8%
Result before tax, IFRS-IASB€8,385 million€3,399 million+146.7%
Net result attributable to shareholders, IFRS-IASB€5,951 million€2,250 million+164.5%; EPS increased to €1.53 from €0.58
Net result, IFRS-EU€4,776 million€2,485 million+92.2%; management’s primary segment reporting measure
Operating expenses€11,192 million€11,153 million+0.3%; cost/income ratio improved to 60.5% from 63.2%
Loan-loss provisions€516 million€2,675 million8 basis points of average lending versus 43 basis points
Total assets€949.3 billion€933.9 billion+1.6%
Loans and advances to customers€625.1 billion€594.0 billion+5.2%
Customer deposits€617.4 billion€609.5 billion+1.3%
Cash and central-bank balances€106.5 billion€111.1 billionDeclined year over year
Shareholders’ equity, IFRS-IASB€52.1 billion€51.6 billion+0.9%
CET1 ratio15.89%15.45%Above the 10.51% stated requirement

Net interest margin for ING Bank declined to 1.39% from 1.43%, reflecting continued pressure on savings and current-account margins. Fee income increased 17% and represented approximately 19% of full-year income, supported by daily banking and investment products.

Net cash flow from operating activities was negative €14.9 billion, compared with positive €101.2 billion in 2020, largely because of increased lending, lower bank inflows and smaller customer-deposit inflows. Investing cash flow was positive €6.2 billion, while financing cash flow was positive €5.4 billion, including higher debt issuance. Cash and cash equivalents ended at €107.7 billion.

Debt securities in issue were €91.8 billion at year-end, up from €82.1 billion. Subordinated loans were €16.7 billion. The funding mix was primarily customer deposits, comprising 51% retail deposits and 21% corporate deposits. The filing states that working capital and liquidity are sufficient for present requirements.

Material changes versus the prior comparable period

  • Profitability recovered sharply as loan-loss provisions fell by €2.2 billion and Wholesale Banking income improved.
  • Wholesale Banking IFRS-IASB net result increased to €3.318 billion from €278 million, including a positive €1.174 billion IAS 39 carve-out adjustment versus a negative €234 million in 2020.
  • Retail Belgium net result rose to €437 million from €71 million, primarily because of lower risk costs. Retail Other increased to €639 million from €39 million, partly reflecting the absence of the €230 million TTB impairment recorded in 2020.
  • Retail Netherlands net result declined to €1.437 billion from €1.556 billion, and Retail Germany declined to €529 million from €615 million, mainly because of liability-margin pressure and higher expenses.
  • Core lending increased by €30.6 billion and core deposits by €10.3 billion, adjusted for currency effects and specified exclusions. Primary customers increased by 481,000 to 14.3 million.
  • ING exited or announced exits from selected retail markets, including Austria, the Czech Republic and France. Payvision was placed into wind-down, and Yolt’s consumer app was discontinued while its business-to-business platform was retained.
  • ING launched a €1.744 billion share-buyback programme in October 2021. Approximately 92% was completed by year-end; the programme was fully completed on 28 February 2022 with 139.7 million shares repurchased for €1.742 billion.

Guidance, outlook, commentary, risks and unusual items

The filing does not provide formal quantitative earnings guidance. Management emphasized continued recovery but remained cautious about Covid-19, supply-chain disruption, energy prices, inflation, interest-rate changes and customer credit quality. The strategy focuses on a safe and compliant bank, healthy returns, digitalisation, income diversification and sustainability.

  • At 31 December 2021, approximately 137,000 customers had received payment holidays covering €15.3 billion of loans; 99.8% of granted holidays had expired. Fourth-quarter loan-loss provisions included a €346 million net addition, mainly from Stage 3 files, recovery-scenario uncertainty and inflation and interest-rate risks.
  • Management retained €632 million of loan-loss management adjustments, including €341 million of sector-based Covid-19 overlays, €124 million for mortgage portfolios and €32 million for payment-holiday risk.
  • Operating expenses included €1.265 billion of regulatory costs and €522 million of incidental items, including a €180 million provision for compensation to certain Dutch revolving-credit customers, restructuring costs and impairments.
  • ING joined the Net-Zero Banking Alliance and aims to steer its lending portfolio toward net-zero greenhouse-gas emissions by 2050 or sooner. Climate, ESG, cybercrime, data management, financial crime, model risk, litigation and regulatory compliance remain material risks.
  • After year-end, ING disclosed approximately €6.7 billion of Russia-related exposure and approximately €500 million of Ukraine exposure as of 28 February 2022. Around €700 million of Russian exposure was affected by new sanctions. ING decided in March 2022 not to conduct new business with Russian companies; the ultimate financial impact was not determinable at filing.
  • ING had a €180 million provision for Dutch consumer-credit compensation and a €132 million litigation-provision balance at year-end. The filing states that certain interest-rate-derivative, mortgage-expense, Swiss-franc mortgage and other proceedings could have a material cumulative impact.

Most important facts for investors to verify

  • Reconcile IFRS-IASB net profit of €5.951 billion with IFRS-EU net result of €4.776 billion and isolate the €1.174 billion IAS 39 carve-out effect.
  • Assess the sustainability of earnings excluding the €483 million conditional TLTRO III benefit, market-driven valuation gains and other unusual items.
  • Review loan-loss overlays, Stage 2 and Stage 3 migration, collateral values and sensitivity to inflation, rising rates, property prices and the end of government support.
  • Confirm the post-year-end Russia and Ukraine exposure, sanctions impact, recoveries and any subsequent provisioning.
  • Verify CET1, leverage, MREL, TLAC and liquidity ratios against fully phased-in regulatory requirements and the effects of future Basel III reforms.
  • Monitor legal and regulatory matters, particularly AML/KYC remediation, Dutch consumer-credit compensation, Swiss-franc mortgage claims and interest-rate-derivative litigation.
  • Evaluate the financial consequences of the French retail exit, other market exits and the Payvision wind-down.
  • Consider dilution and distribution effects from AT1 contingent-convertible securities, the completed share buyback and the proposed €0.41 per-share final dividend.