Analyst Note| Johann Scholtz, CFA |
Narrow-moat ING Groep reported net profit of EUR 727 million for fourth-quarter 2020, 17% lower than the EUR 880 million ING reported for the same period last year and materially ahead of the EUR 467 million expected by the consensus of analysts polled by Visible Alpha. The earnings beat was solely the result of loan-loss provisions coming in lower than expected. Loan-loss provisions for fourth-quarter 2020 were, surprisingly, below that which ING booked during fourth quarter 2019--before the coronavirus pandemic. The credit-loss ratio for ING's fiscal 2020 came to 43 basis points; ING is guiding it will be close to its midcycle average of 25 basis points for 2021. Quarterly revenue declined by 6% as net interest margin pressure continued and transactional volumes, especially for international payments, remained depressed. We maintain our narrow moat rating and our EUR 13 per-share fair value estimate. At a price/fair value estimate of 0.7 times ING continues to offer meaningful upside. The material near-term and longer-term capital return potential offers especially yield-hungry investors a very attractive option.