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ING: Q1 2020 Result Down on Increased Provisioning Levels; Fundamentals Remain Sound

ING Groep N.V. (ING or the Group) reported net profit of EUR 670 million in Q1 2020, or 40% lower than in Q1 2019. The decline was primarily driven by increased loan loss provisions and negative valuation adjustments, as a result of market volatility and the deterioration in the economic conditions due to the COVID-19 pandemic. The Group's ROE (using average IFRS-EU shareholders' equity and on a 4-quarter rolling average) was 8.4% in Q1 2020, compared to 9.5% in Q1 2019.

Total revenues were down 1.4% year-on-year to EUR 4,511 million. Resilient net interest income and strong growth in net fee income were more than offset by lower investment and other income (due to negative marked-to market fair value adjustments, negative model valuations adjustments and the absence of a significant one-off gain of EUR 119 million recorded in Q1 2019). Furthermore, operating expenses were up 1.7% yoy to EUR 2,833 million, mainly due to higher staff cost and higher Know Your Customer (KYC) expenses.

Nonetheless, the results were primarily impacted by a substantial increase in loan loss provisions, which totalled EUR 661 million in Q1 2020, compared to EUR 207 million in Q1 2019. The higher levels in cost of risk were primarily driven by an increase of EUR 247 million in collective Stage 2 provisions, reflecting both the worsening macroeconomic conditions due to COVID-19 (for an amount of EUR 206 million) and the potential impact of the lower oil prices. As a result, the cost of risk increased to 42 bps of average customer lending compared to the through-the-cycle average of approx. 25bps, and this is not out of line with European peers. Whilst we acknowledge that ING has strong business line and geographic diversification, with a presence in countries that are likely to better withstand the impact of the COVID-19 pandemic, we will continue to monitor the macroeconomic environment and the oil price, given the Group's sizeable exposure to the oil & gas sector. We also note that ING has disclosed that exposure of EUR 4.6 billion is directly exposed to oil-price risk.