Analyst Note| Johann Scholtz |
ING's results for the first quarter of 2023 followed the same script we saw at most of its European peers this quarter. Strong earnings growth was driven mainly by expanding net interest margins—benefiting from higher interest rates, sound credit quality with credit costs remaining below midcycle levels, some inflationary pressure on costs, and no signs of any spillover from the stress in U.S. regional banks. As with its peers, ING's valuation does not reflect the structural step-change in its profitability due to the return of positive interest rates. The market still seems to discount some undefined risk to the banking system. The announcement of a fresh share buyback of EUR 1.5 billion (4% of current market value) is a welcome development. The buyback is on top of ING's regular dividend payment of 50% of earnings. Currently, ING trades at a 7% forward dividend yield. If ING announces another buyback in November, as we now expect, investors are looking at a total distribution of 15% of ING's current market value this year.