ING Groep aims for growing revenues

ING Groep is targeting total revenue growth of between 4% and 5% per year by 2027, on the back of an expected advance in earnings from net interest and fee income, while reduced loan losses should offset costs higher, the largest banking group in the Netherlands announced yesterday, according to Reuters.

An expected drop in interest rates this year could erode profits in the banking sector, analysts say. ING reported a slight decline in profit in the first quarter of 2024, compared to the same period in 2023, notes Agerpres.

But RBC analysts say that the new forecasts until 2027 indicate results above expectations. Yesterday, ING shares were rising on the Amsterdam Stock Exchange.

ING aims to achieve tax revenues of five billion euros ($5.35 billion) and a return on equity (ROE) of 14% by 2027.

Cost inflation would exceed global inflation due to the delayed impact of collective labor agreements, ING estimates.

Regulatory costs in 2025 would be similar to those in 2024 and in 2026 increase to be in line with the level of deposits.

After an increase in income from its retail banking subsidiary in the first quarter of 2024, on the back of higher interest and fee income, ING plans to continue to focus on expanding its retail business. In this sector, the risk-weighted assets (RWA) should be at 50% - 55% by 2027.

In February, analysts polled by Bloomberg said European banks generated record profits last year thanks to repeated interest rate hikes, but many banks will struggle to repeat their performances in 2023. According to them, the combined net profits of the 11 largest European banks to decrease by 6.3% this year, from the record level of 56.5 billion euros recorded in 2023. But even after such a decrease, it would be the second largest result recorded by European banks in the last two decades.

Banks benefited from the European Central Bank's rapid interest rate hikes, which allowed them to charge higher interest rates on loans while simultaneously paying relatively low interest rates on deposits. Given that inflation is slowing down and interest rates in the euro zone are stabilizing, and even falling, this combination would affect especially the banks that rely on lending on their domestic markets.

"Almost 80% of our income is related to interest, which is a lot even by European standards. We need to diversify," ING Groep CEO Steven van Rijswijk said at the beginning of the year.

Even if other European banks, such as Deutsche Bank AG and Banco Bilbao Vizcaya Argentaria SA, are facing similar problems, they have started to diversify their activities geographically or find other sources of income.