ING said that it increased provision on the anticipation that higher inflation might hurt customers’ ability to pay mortgages in the coming year of 2022.
On Thursday, Feb 3, the largest Dutch bank ING reported its quarterly earnings for Q4 2021. The company reported a 27% surge in the fourth-quarter pre-tax profit of $1.33 billion Euros. However, this was less than the estimated 1.47 billion euros, as per Refinitiv. As a result, ING stock (NYSE: ING) is trading over 5% down in the pre-market session on NYSE. Similarly, it is also trading 5% down in the European market from its yesterday’s closing price. However, the ING stock has nearly doubled over the last year.
The ING stock comes under pressure as the company reported higher-than-expected provisions during its fourth-quarter earnings. This is because the bank has been bracing for the impact of higher inflation on customers.
In a note on earnings, analysts from Jefferies wrote that “the slight miss is driven by higher costs and provisions, partly offset by higher revenues”. The provisions for bad loans during Q4 2021 increased to 356 million euros from 208 million euros. Most of the increase comes due to the expectation that higher inflation will hurt customers’ ability to pay mortgages.
The property rates are currently on the rise in ING’s core markets such as Germany and Netherlands. ING CEO Stephen van Rijswijk said that the defaults remain limited as of now. However, the banking giant prefers to stay prudent in taking the provisions. CEO Rijswijk added:
“Inflation we have now seen moving up quite steeply – then there is a potential risk that the collateral value goes down, so in case then of a default at a client it also means that our recovery rate would go down”.
The Breakout of ING Performance
On the positive side, the banking giant reported higher lending volume and strong fee growth. However, ING’s net interest margins have been slightly on a decline to 1.37% from 1.41%. The bank remains under pressure from low-interest rates. However, it managed to soften the impact by charging negative rates on larger customer deposits.
Fee and commission income for ING surged by 20% to 925 million euros. The banking giant charged retail customers for payments, investment products, and banking packages. Simultaneously, the customer loans jumped 5% to 632 billion euros. There was good growth in wholesale banking customers as well as more mortgage loans offered to German customers. Explaining their plans for 2022, ING CEO Rijswijk said:
“Looking ahead to 2022, ING is well prepared to navigate the current operating environment, with solid capital buffers, a strong risk profile and a focus on execution, supported by our talented and motivated colleagues across the globe. We will continue to strengthen our ESG profile and deliver on our sustainability commitments”.
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