ING Signals Bumper Payouts as Profit Surpasses Expectations

(Bloomberg) -- ING Groep NV beat expectations for second-quarter profit after releasing money set aside for doubtful loans, and said it will boost payouts for investors.

The Dutch lender’s net income soared to 1.46 billion euros ($1.73 billion) in the three months through June from 299 million euros a year earlier. That compared to the 1.15-billion-euro average estimate of analysts surveyed by Bloomberg. The bank plans to return 3.62 billion euros to shareholders after September, ING said on Friday.

Banks are taking a rosier view of the creditworthiness of borrowers as mass vaccinations have so far led governments to reopen their economies and unleash pent-up savings. European bank investors are also in store for higher payouts in the fourth quarter when the region’s top regulator will lift a cap on dividends and share buybacks.

ING rose 0.5% before erasing gains, trading at 11.15 euros as of 9:06 a.m. in Amsterdam trading. It has gained 46% this year, more than the 24% advance for the 33-member Bloomberg Europe 500 Banks And Financial Services Index.

The Dutch lender built up high levels of financial reserves in recent years and is now dangling some of the fattest dividends among European banks.

“Given the strength of the banking sector, the resilience of our customer base it’s a good time to return to business as usual and normal capital returns,” Chief Financial Officer Tanate Phutrakul said in an interview with Bloomberg Television after the results Friday. “The macro picture looks a lot better than it did 12 months ago.”

More Clarity

After September, subject to approval by the European Central Bank, ING plans to return 3.62 billion euros of the 4.03 billion euros it has set aside for return to shareholders. The bank said it wants to pay 1.87 billion euros in dividends in October while the remaining 1.74 billion euros will be returned in cash or via share buybacks.

The bank exceeds its minimum capital requirements, meaning it has additional funds that it could pay out to shareholders. ING said it plans to gradually lower its common equity Tier 1 ratio --which stood at 15.7% at the end of June-- toward about 12.5% over coming years.

Still, ING said it will keep the capital ratio “well above” that level “until there is more clarity on how the economy will emerge from the Covid-19 pandemic.”

While economies are reopening, the Delta variant of the coronavirus is causing a resurgence in infections.

“After Delta, there may be Epsilon and after that maybe a Gamma variant, you never know. We need to remain prudent,” ING Chief Executive Officer Steven van Rijswijk told reporters on Friday. “We’re still in an environment where government measures are ongoing, where some of the payment holidays have not lapsed.”

The Dutch lender still has 425 million euros of the “overlay” it built on top of bad loan provisions to account for the uncertainty in the pandemic, the CEO said.

ING lacks the kind of large trading operations that have buoyed the earnings of many rivals, meaning it is more exposed to Europe’s negative interest rates that have eroded profitability in the savings and loan business.

Lending Income

Banks have had to pay to deposit funds at the ECB since mid-2014, as part of an effort to incentivize spending after the financial and sovereign debt crises.

The response by ING and other lenders was to lend more and charge an increasing number of clients for deposits, yet the pandemic set their efforts back last year when consumers stayed home rather than spending cash in restaurants and shops.

Lending income fell 5% to 3.34 billion euros from a year earlier. That compares with the 3.37 billion euros analysts surveyed by Bloomberg had expected on average. The bank released 91 million euros of credit provisions in contrast to a year earlier when it stashed 1.34 billion euros, ING said on Friday.

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