ING Direct 2004 Annual Report Download - page 28

Retail Banking reported solid income growth and slightly
lower risk costs. The results were bolstered by higher profit in
the Netherlands and Poland. The strategic focus is on customer
satisfaction, profitable growth and cost leadership. Retail
Banking aims to grow selectively in the home markets and to
expand its market share in emerging markets such as India,
Poland and Romania. Private Banking is positioned to continue
on its path of strong growth in both the home markets and
the emerging markets.
FINANCIAL DEVELOPMENTS
Operating profit before tax from Retail Banking increased
10.6% to EUR 1,170 million, driven by continued income
growth and slightly lower risk costs. The gross result increased
by 8.6% to EUR 1,354 million.
Total operating income rose 5.5% to EUR 5.035 million in
2004. Interest income increased 8.2% due to higher mortgage
lending and increased savings. Commission income rose 7.7%,
while other income declined.
Operating expenses from Retail Banking increased 4.4% to
EUR 3,681 million, mainly due to the impact of the collective
labour agreement in the Netherlands which came into effect
in May 2003, higher business volumes, the acceleration of IT
projects and provisions for some litigation issues. However,
income growth exceeded expense growth in 2004 and the
cost/income ratio improved slightly to 73.1% from 73.9% in
2003, including the negative impact of some non-recurring
expenses in the fourth quarter.
The addition to the provision for loan losses declined 2.6% to
EUR 184 million from EUR 189 million in 2003. Lower risk costs
in the Netherlands and Poland were largely offset by higher
risk costs in Belgium. The addition was equal to 25 basis points
of average credit-risk-weighted assets compared with 27 basis
points in 2003.
The after-tax risk-adjusted return on capital (RAROC) for Retail
Banking was 29.1%, almost equal to 2003 (29.3%) and far
above the ING hurdle rate of 12.0%.
Country developments
Operating profit before tax from Retail Banking in the
Netherlands rose 16.2% to EUR 1,066 million. Total income
increased 3.1%, driven by higher interest results as a result
of increased mortgage loans and savings volumes, which
were partly offset by lower interest margins. The residential
mortgage portfolio in the Netherlands rose by EUR 8.3 billion, or
11.2%, to EUR 82.2 billion at the end of 2004. The higher
interest result more than offset the EUR 48 million loss taken by
Postbank for a unit-linked mortgage product. Risk costs declined
from 26 basis points of average credit-risk-weighted assets to
21 basis points.
PROFIT AND LOSS ACCOUNT
in millions of euros 2004 2003 change comparable*
Operating income 5,035 4,773 5.5% 5.8%
Operating expenses 3,681 3,526 4.4% 4.7%
Additions to loan loss
provisions 184 189 -2.6% -2.1%
Operating profit before tax 1,170 1,058 10,6% 15.4%
* Comparable change = excluding foreign exchange differences, acquisitions and
divestments, and one-offs.
KEY FIGURES
2004 2003
After-tax RAROC 29.1% 29.3%
Economic capital (in billions of euros) 2.7 2.5
OPERATING PROFIT BEFORE TAX
in millions of euros
Retail Banking 15% 1,170
Rest of ING 85% 6,249
RETAIL BANKING1.2
OUR PERFORMANCE
GROW SELECTIVELY IN HOME MARKETS, EXPAND
MARKET SHARE IN EMERGING MARKETS
26 ING Group Annual Report 2004
Netherlands 1,066
Belgium 72
Poland 19
Other countries 13
Total 1,170
GEOGRAPHICAL BREAKDOWN
OF OPERATING PROFIT BEFORE TAX
in millions of euros