ING Direct 2008 Annual Report Download - page 39

ING Group Annual Report 2008
37
Retail Banking
Keeping the customer at the heart of our strategy
Profit and loss account (underlying)
in EUR million 2008 2007 change
Total income 7,399 7,456 –0.8%
Operating expenses 5,307 4,855 9.3%
Additions to loan loss provisions 401 198 102.5%
Underlying result before tax 1,691 2,402 –29.6%
Total result before tax* 1,420 2,078 –31.7%
* Total result before tax is defined as underlying result before tax including
divestments and special items
Key figures (underlying)
2008 2007
After-tax RAROC 21.7% 37.0%
Economic Capital (EUR billion) 5.9 4.8
Breakdown of underlying income
in EUR million 2008
Netherlands 4,346
Belgium 1,842
Central Europe* 878
Asia* 333
Total 7, 399
* Mainly the retail banking operations in Romania, Ukraine, India (ING Vysya
Bank), Private Banking Asia, the ING participations in Bank of Beijing, TMB
and Kookmin Bank.
Key points
> Steady performer in difficult environment
> Postbank and ING Bank merged into
new retail bank in the Netherlands
> Transformation branch network in Belgium
> Rebranding Oyak Bank into ING Bank
Turkey successfully completed
> Economic slowdown affected assets under
management in Private Banking
The retail banking market became increasingly challenging
in 2008. Against this backdrop, Retail Banking remained
a steady performer with a high return on capital. Further
progress was made in improving the customer experience
and efficiency, reducing costs in the Benelux and preparing
new service models. In Central Europe and Asia, ING
continued to grow its activities.
FINANCIAL DEVELOPMENTS
Retail Banking’s result was severely affected by increased margin
pressure from intense competition for savings and the negative
effects of the worldwide recession on commission income and risk
costs. Underlying result before tax declined 29.6% to EUR 1,691
million in 2008, mainly due to an increase in underlying expenses
and risk costs, while income declined slightly. Total result before
tax declined 31.7% to EUR 1,420 million, as 2008 included
EUR 271 million of charges recognised as special items related
to the implementation of the Retail Netherlands strategy.
Total underlying income declined slightly, by 0.8%, to EUR 7,399
million. Income for Central Europe grew in 2008 by 77.4% due
to the inclusion of ING Bank Turkey and as a result of marketing
initiatives. The Netherlands, Belgium and Asia recorded negative
growth as underlying income was affected by intensified
competition for savings which had a severe impact on margins,
while volumes continued to increase. Income was also affected
by a decline in asset management fees due to deteriorating
equity markets.
Underlying operating expenses increased 9.3% to EUR 5,307
million, predominantly in Central Europe due to the inclusion of
ING Bank Turkey and investments in distribution channels and
advertising campaigns. In the Netherlands, underlying operating
expenses were up 0.2%. In Belgium, expenses increased by 3.3%
because of the inflationary effect on salaries and investments in
the branch network. In Asia, expenses decreased by 0.9% resulting
from lower costs in Private Banking. The underlying cost/income
ratio increased to 71.7% in 2008 from 65.1% in 2007.
The addition to the loan loss provisions doubled versus 2007 levels
to EUR 401 million, mainly because of higher risk costs in the
mid-corporate segment and Private Banking (as underlying
collateral for loans decreased significantly), and from the inclusion
of ING Bank Turkey.
The underlying risk-adjusted return on capital (RAROC) after tax
from Retail Banking decreased to 21.7% in 2008 from 37.0%
in 2007. Average Economic Capital increased EUR 1.2 billion to
EUR 5.9 billion in 2008, of which EUR 0.7 billion is explained by
the inclusion of ING Bank Turkey.
COUNTRY DEVELOPMENTS
In the Netherlands, underlying result before tax declined 25.4%,
driven by a 7.6% fall in income combined with higher risk costs.
In Belgium, result before tax fell 24.8% due to 3.6% lower income
and 3.3% higher expenses. In Central Europe, result before tax
decreased to EUR 17 million from EUR 124 million in 2007, mainly
because of a EUR 65 million net addition to the loan loss provisions
compared with a net release of EUR 24 million in the previous year.