ING Direct 2008 Annual Report Download - page 43

ING Group Annual Report 2008
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COUNTRY DEVELOPMENTS
Excluding impairments, ING Direct’s underlying result before
tax rose 37.0% to EUR 766 million. In the US, result before tax
increased to EUR 343 million from EUR 78 million in 2007, while
Canada rose to EUR 59 million from EUR 30 million. The UK made
good progress by reducing its loss to EUR 72 million from a
EUR 120 million loss in 2007. All other countries reported lower
results due to the intensified competition for retail funds and an
increase in risk costs.
BUSINESS DEVELOPMENTS
ING Direct is the world’s leading direct bank. It sells a limited
number of simple banking products at very low cost to retail
customers in nine major developed countries. ING Direct’s vision
is to become the world’s most preferred consumer bank by being
our customers’ primary bank. ING Direct will therefore continue
to put customers first and gradually expand its product offering
while maintaining outstanding customer satisfaction levels.
In 2008, ING Direct continued to invest in building the business
and expanding its product offering, with investment costs
amounting to EUR 331 million. Given the current priorities of
preserving ING’s capital position and the worsening economic
outlook, ING Direct is strictly managing its risks, capital and
expense base.
In line with these priorities, it was decided early 2009 not to
launch ING Direct operations in Japan. ING Direct will reduce
expenses in 2009 by about EUR 150 million through lower
operating and marketing expenses, and a headcount reduction
of around 600 FTEs.
Sources of growth
ING Direct is focusing on different sources of future growth. First,
it aims at continued growth in customer numbers and savings
deposits in countries where it is already present. Our current
market share in existing markets is around 2% in savings and less
than 2% in mortgages, leaving ample room to grow.
Another source of growth is via an expansion of the product range.
ING Direct aims to address the five major consumer needs: savings,
mortgages, payment accounts, investment products and consumer
lending. These products will only be introduced in a country if it is
economically viable. Expanding the multi-product range will result
in more diversified profit and also supports client retention and
cross-selling opportunities.
Developing the major product categories
Savings – strong competition in 2008
The savings market has become increasingly competitive, with
strong competition for retail deposits in all ING Direct countries,
especially as banks worldwide seek to lock in liquidity. In light of
this development, one of ING Direct’s key focus points is to
increase the repricing speed of assets in order to be able to track
central bank rates more closely.
ING Direct used to offer only a single, simple savings product, but
it refined its savings products in all countries to win new customers
and new funds from existing customers in a more competitive
market. An example are fixed-term savings products, which
performed well in 2008; the total number of these accounts
increased by 0.5 to 3.1 million (+21%). The new product offering
also allows us to better meet customers’ needs.
As the financial crisis deepened during late September/early
October, consumers worldwide actively re-allocated their account
balances among multiple financial institutions to maximise
protection from government guarantees. This led to outflows, but
also to an inflow of new customers coming over from other banks.
Active rebalancing slowed after governments increased guarantee
limits. From the end of October, customer behaviour returned to
normal and ING Direct returned to growth.
Overall, production of funds entrusted was EUR 6.7 billion, mainly
driven by strong growth in the United States. Including the impact
of negative currency effects, total funds entrusted balances
declined by EUR 0.5 billion to EUR 191.0 billion at year-end.
In the United Kingdom, ING Direct repositioned itself away from
more price-sensitive customers and it also tracked the Bank of
England rates more closely. It took several management, pricing
and marketing actions in 2008, which resulted in ING Direct UK
reaching break-even in the fourth quarter. In October, ING Direct
UK acquired retail deposits from two British subsidiaries of
Icelandic banks Kaupthing Edge and Heritable Bank.
Mortgages – portfolio growth under strict criteria
The own-originated mortgages portfolio grew by EUR 17.2 billion
(up 18.6% from 2007), bringing the total residential mortgages
portfolio to EUR 113.7 billion at year-end. ING Direct’s own-
originated residential mortgages reached 57% of funds entrusted.
A focal point in 2008 was to better balance the growth in savings
and in mortgages and this will remain a priority for 2009. ING
Direct also sharply monitors the quality of the new mortgage
portfolio and has tightened its underwriting criteria accordingly.
The deterioration in the US housing market led to an increase
in the provision for loan losses, reflecting a higher rate of
delinquencies in the mortgage market and lower recovery. Within
the US mortgage portfolio, the non-performing loans (90+ Days
Past Due) rose to 2.7% at the end of December. However, the
mortgage portfolio continues to perform better than the US
industry average for prime adjustable-rate mortgages (ARMs),
which showed a rate of non-performing loans of 8.3% as at the
end of November 2008.
The overall US portfolio consists of quality customers with an
average loan-to-value ratio of 75% (indexed for changes in property
values), and 97% of the mortgages are to owner-occupiers.
In 2008, ING Direct acquired a 99.15% stake in Interhyp, Germany’s
largest independent distributor of residential mortgages. Interhyp
offers residential mortgages from over 70 banks, building societies
and insurance companies, using a state-of-the-art internet platform.
In 2008, it distributed EUR 5.9 billion of mortgages that represent
a market share of 3.3%.