Executive Summary / Key Takeaways

• ING Groep demonstrates a compelling investment thesis rooted in its digitally-led retail banking expansion and strategic focus on sustainable finance, evidenced by strong commercial growth and resilient financial performance in Q1 2025.
• The bank's differentiated digital platform and customer-centric approach are driving significant market share gains in key retail segments, notably mortgages in the Netherlands, and enabling efficient customer acquisition and cross-selling across Europe.
• Robust capital generation supports attractive shareholder returns, with a new €2 billion share buyback announced in Q1 2025, alongside a prudent, internally-driven CET1 target of 12.8% to 13% for year-end 2025 amidst macroeconomic uncertainties.
• Fee income is a key growth driver, projected to increase by 5% to 10% in 2025 and reach €5 billion by 2027, powered by expanding investment products, daily banking, and wholesale banking activities.
• Despite geopolitical and macroeconomic headwinds, ING's diversified portfolio, prudent risk management, and operational efficiencies, including the strategic use of generative AI, position it for continued profitability and long-term value creation.

A Legacy Forged in Digital Innovation and Sustainable Ambition

ING Groep N.V., founded in 1762, has evolved from a venerable Dutch institution into a leading pan-European diversified bank, strategically leveraging its deep history to embrace a future defined by digital innovation and sustainability. The company's core business revolves around providing a comprehensive suite of banking products and services to individual customers, corporate clients, and financial institutions across the Netherlands, Belgium, Germany, and other international markets. This expansive reach is underpinned by a clear overarching strategy: "Growing the Difference," which prioritizes a superior customer experience, digital transformation, and embedding sustainability at the heart of its operations.

ING's foundational strength lies in its pioneering digital banking platform, a technological differentiator that has reshaped its market presence. The success story in Germany, where a digital-only offering for private individuals, initially met with skepticism, now serves 9 million clients, exemplifies this digital prowess. This core technology provides tangible benefits, enabling rapid customer acquisition and fostering high customer satisfaction, as evidenced by ING's top Net Promoter Scores in several retail markets. The platform's efficiency is further enhanced by innovations such as a banking app feature for fraud protection and instant lending propositions in markets like Romania.

Beyond retail, ING has extended its digital advantage to Business Banking for self-employed and small and medium-sized enterprises (SMEs) in Germany, aiming to tap into a largely underserved digital segment. The company's commitment to technological advancement is also visible in its operational efficiencies, with the strategic deployment of generative AI to improve customer propositions in contact centers and streamline Know Your Customer (KYC) processes. These technological investments contribute directly to ING's competitive moat, driving operational leverage and supporting its long-term growth strategy by enhancing customer experience and reducing costs.

Strategic Pillars and Market Leadership

ING's strategic initiatives are designed to accelerate growth, increase impact, and deliver value to stakeholders. In Retail Banking, the focus on digitalization and flexible operations has significantly boosted its mortgage business. In the Netherlands, for instance, ING's market share in new mortgage production has surged to 17% in Q1 2025, up from 10% just a few years prior, reflecting the tangible benefits of its digital-first approach. This strong performance in residential mortgages, a segment less sensitive to economic shifts, underpins a significant portion of the bank's lending growth.

The Wholesale Banking segment, while experiencing a modest lending decline in Q1 2025 due to seasonal volatility and capital optimization, is strategically positioned to capitalize on Europe's investment push. ING boasts strong expertise in key sectors like infrastructure and TMT, and has adopted a proactive stance on defense-related funding, aligning with European security needs. The bank's diversified presence across Europe, with leading lending positions in numerous markets, allows it to capture opportunities arising from these investment initiatives. This strategic focus is complemented by ongoing efforts to optimize capital usage within Wholesale Banking, including plans for a Significant Risk Transfer (SRT) trade in the second half of 2025, expected to provide approximately 10 basis points of Core Tier 1 relief.

Sustainability is a cornerstone of ING's strategy, with the bank becoming the first global systematically important bank to have its climate targets validated by the Science-based Targets Initiative in Q1 2025. This commitment translates into concrete actions, such as the "Terra approach" to steer lending in alignment with decarbonization pathways, expanded to include the aluminum and dairy sectors. Furthermore, ING has strengthened its oil and gas policy, ceasing new financing for pure-play upstream oil and gas companies developing new fields and for new export LNG terminals after 2025. These initiatives not only align with global environmental goals but also position ING favorably in the growing sustainable finance market, with volumes mobilized rising 23% to €30 billion in Q1 2025.

Financial Strength and Outlook

ING delivered a strong financial performance in Q1 2025, reflecting the effectiveness of its strategic execution. Total income increased significantly quarter-on-quarter, driven by resilient commercial Net Interest Income (NII) and robust fee growth. Commercial NII was supported by exceptional deposit growth and the continued expansion of the mortgage portfolio. Net core lending in retail banking grew by €8.6 billion, primarily from mortgages, while core deposits increased by almost €23 billion, notably from a successful promotional campaign in Retail Germany.

Fee income surged by 10% year-on-year in Q1 2025, a testament to structural drivers such as increased active investment product customers, higher assets under management (approximately €220 billion in Q1 2024), and updated pricing for daily banking packages. Management is confident in achieving 5% to 10% fee income growth in 2025, targeting €5 billion by 2027.

Operating expenses, excluding regulatory costs and incidental items, increased by just over 6% in Q1 2025 due to inflation and strategic investments, but operational efficiencies, partly from generative AI, helped mitigate these increases. For the full year 2025, these expenses are projected to be between €12.5 billion and €12.7 billion.

Asset quality remains strong, with total risk costs at €313 million (18 basis points of average customer lending) in Q1 2025, below the through-the-cycle average. This is supported by a large, growing residential mortgage book with historically low risk costs and a significant portion of the overall portfolio (65%) being fully or partially secured. The CET1 ratio stood at a robust 13.6% at the end of Q1 2025. While the long-term CET1 target remains 12.5%, ING has prudently set a slightly higher target of 12.8% to 13% for year-end 2025, an internal decision reflecting current macroeconomic and geopolitical uncertainties. This strong capital position enables consistent shareholder returns, with over €28 billion distributed since 2021, including the recently announced €2 billion share buyback.

Looking ahead, ING expects its net interest margin on liability to remain stable in Q2 2025, with the liability margin for 2025-2027 anticipated to be in the 100 to 110 basis points range, likely at the lower end in 2025. The lending margin is expected to hover around 130 basis points, with potential upside from quantitative tightening and increased lending growth. The company's diversified business model, capital-light revenue approach, and strong risk management provide confidence in achieving its targets and delivering attractive returns.

Competitive Landscape and Strategic Positioning

ING operates in a highly competitive European banking landscape, contending with established multinational players like BNP Paribas (BNPQY), Deutsche Bank (DB), HSBC (HSBC), and Santander (SAN), as well as agile fintech disruptors. ING's primary competitive advantage lies in its advanced digital banking platform, which offers a streamlined, customer-centric experience. This digital edge allows ING to achieve greater efficiency in online services and personalized offerings, particularly in retail banking, where it can be more agile than some larger, more complex rivals. For instance, ING's ability to achieve a 17% market share in new Dutch mortgage production, significantly higher than its overall market share, underscores the effectiveness of its digital-first strategy.

Compared to BNP Paribas, ING's retail and digital banking offerings appear more focused, potentially yielding greater efficiency in everyday services. While BNP Paribas may have a broader corporate finance portfolio, ING's digital accessibility provides a unique value proposition. Against Deutsche Bank, ING differentiates with a more integrated retail banking approach, aiming for superior customer service and product bundling, exploiting Deutsche Bank's historical operational inefficiencies. HSBC, with its global reach, offers greater international diversification, but ING's European-centric strategy allows for more tailored services and potentially greater efficiency in its core regions. Santander, strong in retail and corporate banking in Europe and Latin America, faces ING's comprehensive digital ecosystem, which offers notably greater efficiency in online banking.

ING's strategic focus on customer acquisition campaigns, particularly in markets like Germany, Poland, and Italy, demonstrates its proactive approach to market share gains. These data-driven campaigns are designed not just to attract deposits but to convert new customers into primary relationships, thereby increasing cross-selling opportunities and long-term profitability. This contrasts with some competitors who may rely more on traditional branch networks. The bank's expansion into digital SME banking in Germany further highlights its ability to identify and penetrate underserved digital segments, leveraging its proven success in digital retail.

However, ING faces vulnerabilities, including regulatory exposure in Europe and a relative concentration in retail banking compared to some globally diversified peers. While its strong digital platform acts as a significant barrier to entry for new players, it also faces pressure from fintechs offering highly accessible and often cheaper digital payment and lending solutions. ING's strategic response involves continuous investment in its tech platform, expanding product capabilities, and pursuing M&A opportunities that align with its digital and fee-related diversification goals, subject to strict ROE criteria. The recent financing of Project Alamo City, a battery energy storage system in Texas, also highlights ING Capital LLC's role in supporting energy transition infrastructure, a growing industry trend that could provide future lending opportunities.

Conclusion

ING Groep stands as a compelling investment opportunity, demonstrating a robust and resilient business model underpinned by its digital leadership and unwavering commitment to sustainable growth. The company's strategic focus on delivering a superior customer experience through its advanced digital platform has translated into tangible market share gains in key retail segments, particularly mortgages, and strong customer acquisition across Europe. This digital prowess, coupled with operational efficiencies enhanced by generative AI, forms a critical competitive moat.

The financial performance in Q1 2025, marked by strong NII, double-digit fee income growth, and healthy capital generation, underscores the effectiveness of ING's strategy even amidst a volatile macroeconomic backdrop. With a clear outlook for continued fee growth, stable margins, and a prudent capital management approach that balances shareholder returns with resilience, ING is well-positioned for sustained profitability. While macroeconomic uncertainties and competitive pressures remain, ING's diversified portfolio, disciplined risk management, and continuous innovation in technology and sustainable finance provide a strong foundation for long-term value creation, making it an attractive proposition for discerning investors.