ING Direct 2009 Annual Report Download - page 30

Banking
Retail Banking
Key points
> Continuation of strategy in line with
Back to Basics programme
> Short-term focus on cost reduction,
derisking and deleveraging
> New service models in the Benelux
well under way
> Commitment to long-term growth in Asia
> Divestment of Asian and Swiss private
banking activities
Despite the difficult business environment, Retail Banking delivered
a solid performance. Aligned with the Group’s Back to Basics
programme, Retail Banking concentrated on cost reduction,
derisking and deleveraging. In Europe, the launch of the newly
integrated Dutch retail bank ING was successfully executed and the
new service models in the Benelux progressed well. In Asia, the
commitment to long-term growth options continued successfully.
The Private Banking activities in Asia and Switzerland were sold.
FINANCIAL DEVELOPMENTS
Retail Banking’s result still suffered from the intense competition
for savings which started in 2008, although a gradual improvement
in margins was visible in the course of 2009. In 2009, demand for
lending was moderate, but risk costs increased. Net production in
client balances was EUR 10.9 billion, bringing the total to EUR 497.9
billion at year-end 2009.
Underlying result before tax declined 9.3% to EUR 1,534 million
in 2009, driven by a strong increase in risk costs, while a slight
decline in income was more than offset by lower operating
expenses. Total result before tax declined 18.0% to EUR 1,164
million, as 2009 included EUR 370 million of charges recognised
as special items related to the merger of the retail operations
(Postbank and ING Bank) in the Netherlands and the cost savings
programme announced in April 2009.
Total underlying income declined slightly by 2.2% to EUR 7,239
million. The interest result rose 3.3% mainly driven by higher
margins and volumes in Belgium. This was largely offset by the
impact of lower interest margins in the Netherlands. Outside the
Benelux, the interest results of ING Bank Turkey and ING Vysya
Bank both improved, while in Poland it declined. Commission
income decreased 13.3%, mainly as a result of lower fees on asset
management-related products. Investment and other income
dropped 44.8% among other things due to lower financial market
products-related income in the mid-corporate segment and lower
dividend income from the Asian equity investments.
Underlying operating expenses declined 11.3% to EUR 4,708
million driven by the cost containment measures, the benefits
from the transformation programmes in the Benelux and favourable
currency impacts. In the Benelux, expenses were 10.6% lower.
Outside the Benelux, the decline was 14.2%. As part of the Back
to Basics programme, internal staffing was reduced by 2,266 FTEs
in 2009. In addition, staffing was reduced by another 907 FTEs due
to the merger of the retail banking activities in the Netherlands. On
top of this, Retail Banking reduced its external FTEs by almost
3,800. The underlying cost/income ratio improved to 65.0%
from 71.7% in 2008.
The addition to the loan loss provisions more than doubled to
EUR 997 million in 2009. This was mainly caused by higher risk
costs in the mid-corporate and SME segments. At Private Banking,
risk costs were up as underlying collateral for loans decreased. Risk
costs on the mortgage portfolio remained relatively low.
The underlying risk-adjusted return on capital (RAROC) after tax
from Retail Banking improved to 22.7% in 2009 from 21.7%
in 2008.
Financial overview
in EUR million 2009 2008
Total underlying* income 7,239 7,399
Underlying* operating expenses 4,708 5,307
Underlying* additions to loan loss provisions 997 401
Underlying* result before tax 1,534 1,691
Total result before tax 1,164 1,420
Underlying* cost/income ratio 65.0% 71.7%
Client balances (EUR billion) 497.9 478.3
Net production client balances (EUR billion) 10.9 34.2
Risk-weighted assets (EUR billion) 98.8 95.0
Underlying* after-tax RAROC 22.7% 21.7%
Underlying* economic capital (EUR billion) 6.6 5.9
* Underlying numbers are derived from IFRS-EU numbers, excluding the impact
of divestments and special items.
Breakdown of underlying income
in EUR million 2009
Netherlands 3,885
Belgium 2,184
Central Europe* 864
Asia* 306
Total 7, 239
* Mainly the retail banking operations in Poland, Turkey, Romania, India
(ING Vysya Bank), Private Banking Asia, the ING participations in Bank
of Beijing, TMB and Kookmin Bank.
Solid performer with a clear and consistent customer focus strategy
1.2 Report of the Executive Board
ING Group Annual Report 2009
28