EUR 850.00 For Business Accounts Only

Morningstar | We Are Adjusting ING's ADR FVE to Accommodate Changes in USD/EUR Foreign Exchange

We like ING’s lean structure following the company's exit of the insurance business, its current business mix, and the diversification of its wholesale business and geographies where it operates in retail banking, which in our view should support the generation of significant stable income over the years.As was the case for peers in Europe, net interest income generation has been a tough job for ING, but a decline in loan-loss provisions, a tighter grip on costs, increased lending growth, and efforts to increase fee income generation have made the bank's revenue generation more resilient over the past three to four years. We believe ING has manoeuvred well during the low-interest-rate environment, as its diversification from a geographical and product perspective provides a strong foundation. We like ING management’s commitment to its digital transformation, with the firm aiming to achieve a cost/income ratio of 50%-52% by 2020, which is in line with our 50% estimate by 2021-22. We also agree with management that current efforts on the technological revamp will be more beneficial over the long run, with the cost base remaining flattish over the next three to five years. Thereafter, however, we expect cost investment to kick in, with the cost base decreasing gradually.On the cost side, we believe benefits from the digitalisation transformation programs will be back-end-loaded. ING is planning to spend EUR 800 million on digitalisation in order to save EUR 900 million per year by 2021.While we think ING has a strong presence in mobile banking and is in an advanced position when it comes to its digital transformation, we believe its cost/income ratio and overall efforts are in line with what peers are trying to do in Europe. The Netherlands has among the most willing customers when it comes to use of technology, and we see more and more banks, including ING, increasing their collaboration with fintech firms (for example, acquisition and partnership via their fintech funds) to stay ahead of technological trends and attain long-term positive results on cost reduction.