ING Groep NV (INGA), the Dutch financial-services company planning to sell shares in its European insurance unit, intends to resume dividend payments as soon as next year after a five-year pause.
Dividends will restart after ING finishes repaying a government bailout by May 2015 at the latest, the Amsterdam-based company said today. Payouts should grow to at least 40 percent of net income by 2017, it said. The stock rose as much as 3.1 percent in Amsterdam trading.
ING, the recipient of a 10 billion-euro ($13.8 billion) capital injection from the Netherlands in 2008, has sold assets, including its U.S. online bank and insurance operations from Uruguay to Malaysia, to meet European Union conditions for its rescue. Ralph Hamers, who took over as chief executive officer in October, is presenting goals for the remaining operations, which consist mostly of a European bank.
“We are on track to become a pure bank,” Hamers, 47, said today. “We have strong financials and a strong track record to deliver what we promise.”
ING rose 3 percent to 10.30 euros by 1:15 p.m. in Amsterdam, giving the firm a market value of 39.5 billion euros.
Cost cuts, a drop in bad-loan provisions and business growth should help boost the bank’s return on equity, a measure of profitability, to between 10 percent and 13 percent by 2017, ING said. That target is similar to what the bank sought to achieve by 2015 in goals outlined in January 2012. ING Bank reported a return on equity of 9 percent in 2013.
The bank, which also has operations in Australia and Turkey, will seek to increase lending by 4 percent a year by 2017 and its balance sheet by about 3 percent, mainly by boosting customer deposits, it said.
ING plans to widen the net interest margin, the difference between what it earns on assets and pays for funding, to 150 to 155 basis points by 2017 by shifting to products such as online loans to small and medium-sized companies in Spain and Germany. That goal compares with a previous target of 140 basis points to 145 basis points by 2015. A basis point is equivalent to a hundredth of a percentage point.
“These targets seem realistic -- you couldn’t expect much more given the developments in the banking industry and related uncertainties,” said Corne Aben, who helps manage about 1.5 billion euros, including ING shares, at Amsterdam-based Optimix Vermogensbeheer. “They are on a track to improve returns, with a slightly more aggressive target for net interest margins. That’s promising.”
European banks are defining new goals amid signs the region’s economy is improving. BNP Paribas SA, France’s biggest bank, on March 24 said it’s targeting at least 10 percent ROE by 2016 from 7.7 percent last year, while paying dividends of about 45 percent of profit.
ING, which competes with BNP in consumer lending in Belgium and elsewhere, expects 2013 was the peak for loan-loss provisions, Chief Financial Officer Patrick Flynn told investors and analysts. The lender set aside 2.29 billion euros for bad loans in 2013, according to its annual report, compared with 2.12 billion euros in 2012.
ING reported net income of 3 billion euros in 2013, and an average annual profit of 2.8 billion euros over the last eight years, according to a presentation today.
ING kept its target for costs as a percentage of income at 50 percent to 53 percent, compared with 56.8 percent in 2013. A program to reduce expenses by 880 million euros by 2015 and 955 million euros by 2017 is “on track,” Hamers said in a presentation published on the company’s website.
ING has paid more than 12.5 billion euros in aid, interest and premiums to the Netherlands, including 1.23 billion euros today. It still owes 1.03 billion euros, to be returned no later than May 2015, according to an agreement with the EU. As the company vowed to pay off its debt to taxpayers before resuming dividends, its shareholders haven’t received any payouts since getting 74 cents a share in August 2008.
The firm plans to resume pay-outs over the financial year 2015 and then “grow as rapidly as possible to a 40 percent plus dividend ratio as soon as possible,” Flynn said.
The bank first wants to ensure it has sufficient capital to withstand regulatory changes and to ensure consistent dividend payments, it said. ING Bank targets a core Tier 1 ratio, a key measure of financial strength, of more than 10 percent by 2017. The ratio, taking into account Basel III rules, was 10 percent at the end of December, meeting regulatory demands.
The extra buffer on top of the requirements is discretionary, Flynn said, adding it’s likely to be closer to 11 percent by the end of 2017.
ING was ordered to dispose of its entire global insurance operations to get approval for its bailout. After selling insurance assets in Asia and the U.S., the remaining European and Japanese businesses are on course for an initial public offering in 2014.
Following the share sale and the European Central Bank’s review of the region’s banks, ING could possibly accelerate repayment of the aid, Hamers said.
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