ING Direct 2009 Annual Report Download - page 36

Commercial Banking
Key points
> High income boosted by Financial
Markets as well as Structured Finance
and General Lending
> Result before tax impacted by negative
impairments and revaluations in Real Estate
> Strong market penetration, lead bank
position and landmark deal participation
in home markets
> Significant cost reduction achieved in 2009,
but an increase in risk costs
Commercial Banking achieved a very strong commercial performance
in what was again an extremely challenging year for the industry.
The business was boosted by strong income growth in Financial
Markets, Structured Finance and General Lending. However, overall
results were significantly affected by negative revaluations and
impairments on real estate. ING succeeded in reducing costs in
2009 but loan loss provisions increased. Commercial Banking
remained dedicated to its Fitter, Focused, Further strategy in
2009, with the aim of becoming a leader in several key markets
and products by the end of 2010. The success of this strategy
was underscored by solid market penetration, lead bank standing
and landmark deal participation in its home markets.
FINANCIAL DEVELOPMENTS
Underlying result before tax rose 14.0% to EUR 694 million. ING
Real Estate recorded a loss of EUR 1,389 million compared with
a loss of EUR 297 million in 2008. Excluding ING Real Estate, the
underlying profit of Commercial Banking more than doubled to
EUR 2,083 million. Underlying profit before tax from Financial
Markets more than tripled to EUR 1,289 million thanks to a strong
commercial performance coupled with lower negative market
impacts. The results of General Lending & Payments and Cash
Management (PCM) increased by 40.6%, as higher margins in
General Lending coupled with lower expenses more than
compensated for increased risk costs. Structured Finance’s result
declined by 11.1% due to higher risk costs; excluding risk costs,
result before tax was up 38.7% driven by higher margins. Profit
before tax in Leasing & Commercial Finance declined 43.7% to
EUR 67 million.
In 2009, net production in client balances was EUR –23.7 billion,
mainly driven by a lower demand for lending, bringing the total
to EUR 256.5 billion at year-end. In the fourth quarter of 2009,
net production in client balances was positive again.
Total underlying income increased 14.1% to EUR 4,687 million
driven mainly by Financial Markets, General Lending & PCM and
Structured Finance. This more than offset the decline at ING Real
Estate. Underlying operating expenses remained under control,
dropping 4.1% to EUR 2,783 million despite EUR 451 million of
impairments on real estate development projects. The underlying
cost/income ratio improved to 59.4% from 70.7% in 2008.
Excluding ING Real Estate, the cost/income ratio was 38.2%
compared with 61.4% in 2008.
Risk costs increased significantly to EUR 1,210 million compared
with EUR 596 million in 2008. The risk costs included provisions
that were driven by large files, amongst others in Structured
Finance, reflecting the economic recession. In the second half of
2009, risk costs came down partly due to releases from prior
provisions. The underlying risk-adjusted return on capital (RAROC)
after tax rose to 9.5% from 4.9% in 2008. Average economic
capital increased 2.0% to EUR 9.5 billion mainly caused by the
fact that increased credit risk migration was not fully offset by the
lower volumes. In 2009, total risk-weighted assets declined 9.5%
to EUR 160.3 billion at year-end, driven by the reduction of the
balance sheet combined with lower risks in the trading books.
ING Real Estate reported an underlying loss before tax of
EUR 1,389 million compared with a loss of EUR 297 million in 2008.
Banking
Financial overview
in EUR million 2009 2008
Total underlying* income 4,687 4,107
Underlying* operating expenses 2,783 2,902
Underlying* additions to loan loss provisions 1,210 596
Underlying* result before tax 694 609
Total result before tax 422 609
Underlying* cost/income ratio 59.4% 70.7%
Client balances (EUR billion) 256.5 286.9
Net production client balances (EUR billion) –23.7 31.8
Risk-weighted assets (EUR billion) 160.3 177.2
Underlying* after-tax RAROC 9.5% 4.9%
Underlying* economic capital (EUR billion) 9.5 9.3
* Underlying numbers are derived from IFRS-EU numbers, excluding the impact
of divestments and special items.
Breakdown of underlying income
in EUR million 2009
General Lending & PCM 26% 1,235
Structured Finance 24% 1,122
Leasing & Commercial Finance 9% 403
Financial Markets 41% 1,923
Other 5% 257
ING Real Estate –5% –253
Total 100% 4,687
Strong performance except in Real Estate
1.2 Report of the Executive Board
ING Group Annual Report 2009
34