ING Group Earnings: Share Buybacks Increased, but Liability Margin Expansion Has Peaked

Narrow-moat ING INGA reported a net income of EUR 2 billion for third-quarter 2023, double what it booked a year earlier, but 10% lower quarter on quarter. ING also stepped up its share buyback program, announcing a fresh EUR 2.5 billion buyback—the previous two buyback programs were EUR 1.5 billion each. ING has returned EUR 21 billion to shareholders since 2018—something that we do not believe the market has adequately rewarded ING for. More importantly, it is evident that ING continues to generate significant organic capital, which could support an ongoing effective payout ratio above 100% of earnings. We maintain our fair value estimate of EUR 19/share for ING.

ING’s guidance indicates that liability margin expansion has peaked. However, we do not interpret this to mean that net interest margin expansion has peaked. We believe that the ongoing repricing of ING’s loan book (dominated by fixed-rate mortgages) and the rollover of its hedge book will support NIMs—even if there were moderate interest-rate cuts.

We continue to view the shares as undervalued. ING has delivered a 16% return on equity year to date—double what it generated between 2013 and 2022—yet its price/tangible book multiple of 0.9 times remains in line with its 10-year average multiple.