Executive Summary / Key Takeaways

• Self-Reinforcing Digital Moat: ING's mobile-first strategy has added 1.1 million primary customers in the last 12 months, driving fee income up 15% year-over-year while simultaneously lowering cost per customer through AI automation, creating operational leverage that traditional banks cannot replicate with legacy infrastructure.

• Capital Allocation Excellence: Management has returned €28 billion to shareholders since 2021 while proactively raising CET1 targets to ~13% (180 bps above regulatory minimums), demonstrating disciplined capital management that funds both growth investments and substantial distributions without compromising resilience.

• Wholesale Banking Pivot to Quality: The segment delivered a record €383 million in fee income in Q3 2025 as delayed pipeline transactions finally converted, signaling a successful shift from capital-intensive lending to higher-return advisory and transaction services that de-risks the overall model.

• Margin Resilience Through Volume Power: Despite a €70-90 million quarterly headwind from ECB's unremunerated reserves and rate volatility, ING maintained net interest income guidance of €15.2-15.3 billion through volume growth, deposit repricing (blended cost down to 143 bps), and market share gains in mortgages (17% in Netherlands, up from 10%).

• Critical Execution Variables: The investment thesis hinges on sustaining mobile customer acquisition momentum and successfully converting AI investments (impacting ~950 positions) into measurable cost savings, while navigating regulatory capital pressures and geopolitical uncertainty that could pressure wholesale lending demand.

Setting the Scene: The Digital-First Oligopolist

ING Groep N.V., founded in 1762 and headquartered in Amsterdam, has evolved from its origins as a savings and deposits institution into Europe's most digitally integrated universal bank. The company's "Growing the Difference" strategy, unveiled in 2024, represents a fundamental repositioning: accelerate growth through mobile customer acquisition, diversify income streams via fee-based services, and allocate capital ruthlessly toward the highest-return opportunities. It addresses the core challenge facing European banks—how to generate profitable growth in a low-rate, highly regulated environment while fending off both fintech disruptors and legacy competitors burdened by outdated technology.

ING operates in oligopolistic retail markets, particularly in the Netherlands where it commands 17% of new mortgage production, up from 10% just a few years ago. This market structure provides pricing power, but the real differentiator is ING's digital execution. While competitors like ABN AMRO (ABN.AS) and KBC Group (KBC.BR) maintain strong regional positions, they lack ING's unified mobile platform and AI integration. Deutsche Bank (DB) and Commerzbank (CBK.DE), meanwhile, remain weighed down by legacy systems and complex organizational structures that ING has systematically dismantled through its cloud-native architecture. The bank's ability to onboard customers digitally in minutes rather than days creates a structural cost advantage that compounds with scale.

The macro environment remains challenging. ECB policy has created a €70-90 million quarterly drag from unremunerated reserves, while geopolitical tensions and tariff uncertainties have delayed corporate investment decisions. Yet ING's diversified geographic footprint—spanning the Netherlands, Belgium, Germany, Poland, Spain, and Italy—provides natural hedges, and its funding model, with 70% of liabilities coming from granular retail deposits, insulates it from wholesale funding volatility that has plagued peers.

Technology, Products, and Strategic Differentiation

ING's digital moat rests on three pillars: mobile primacy, AI integration, and cloud infrastructure. The bank has 13.7 million mobile primary customers, with 1.1 million added in the last 12 months, putting it on track to exceed its 1 million annual target. Mobile customers generate 3-4x higher fee income than branch-only customers through cross-selling of investment products, insurance, and daily banking services. The active investment customer base grew 9% to 4.6 million, with assets under management up 19% since Q3 2023, demonstrating successful monetization of the digital relationship.

The GenAI rollout is accelerating operational leverage. The bank has deployed GenAI chatbots in six markets and is using AI for consumer loan application processing, projecting impact on approximately 950 positions by end-2026. This isn't mere cost-cutting; it's reconfiguring the cost curve. By automating KYC processes and contact center operations, ING can handle customer growth without proportional staff increases, directly improving the cost-to-income ratio. Management's approach is surgical—taking restructuring provisions only for clear business cases with 12-18 month payback periods, targeting €30 million in annualized savings from Q3 2025 actions.

The selection of VMware Cloud Foundation 9.0 as the strategic private cloud platform, announced in December 2025, reinforces this advantage. This multi-region deployment ensures data sovereignty compliance while enabling workload mobility and faster product launches. For investors, this means ING can roll out new features across markets in weeks rather than months, a speed advantage that traditional banks cannot match without massive legacy system overhauls. The platform's AI-ready architecture also positions ING to integrate emerging capabilities more rapidly than competitors still wrestling with mainframe systems.

Financial Performance & Segment Dynamics

ING's Q3 2025 results validate the digital strategy's financial impact. Net interest income guidance of €15.2-15.3 billion for 2025 remains intact despite treasury volatility, with commercial NII rising due to strong wholesale lending performance and the conclusion of promotional deposit campaigns in Germany. The blended cost of eurozone deposits fell to 143 basis points, down from 168 bps in Q2 2024, demonstrating pricing discipline and customer loyalty. Every 10 basis point reduction in deposit costs adds €400 million to annualized NII, providing a powerful earnings lever that management is pulling systematically.

Fee income grew 15% year-over-year to a record €383 million in Wholesale Banking, driven by larger underwritings, syndicated loans, and trade finance services. It diversifies revenue away from spread-based income, reducing sensitivity to interest rate cycles. Retail banking fees also grew double-digits, supported by higher daily banking fees and investment product penetration. The structural nature of this growth—75% attributed to "alpha" factors rather than market beta—suggests durability.

Risk costs remain well-controlled at 19 basis points of average customer lending, below the through-the-cycle average. Stage 3 ratios are stable, and the bank maintains €415 million in overlays for macroeconomic uncertainty. Asset quality is particularly strong in the mortgage book, with average loan-to-value at 56% and Stage 3 ratios below 1%. This conservatism is crucial; it means ING can sustain lending growth without provisioning surprises that have plagued peers like Deutsche Bank.

Capital generation is robust. The bank delivered €6 billion in net profit over the last four quarters, contributing 200 basis points to CET1. The ratio stands at 13.6% after absorbing Basel IV implementation and the Van Lanschot Kempen (VLK.AS) acquisition, well above the revised ~13% target that provides 180 bps of buffer above the MDA threshold. This excess capital funded €4.5 billion in additional distributions over the last 12 months, including a €1.1 billion share buyback announced in Q3 2025.

Segment Deep Dive: Retail Banking's Volume Engine

Retail Banking is ING's growth engine, contributing €8.6 billion in net core lending growth in Q3 2025, primarily from residential mortgages and consumer lending in Germany, Poland, and the Netherlands. The mortgage market share gain in the Netherlands—from 10% to 17% in a few years—demonstrates the power of digital origination. Management notes that most lending growth comes from residential mortgages, which are less sensitive to economic outlook changes than corporate loans, providing stability.

Deposit gathering is equally strategic. The Q3 2025 outflow of €7 billion in retail deposits was offset by €7 billion in wholesale inflows, leaving total deposits flat. This seasonal pattern reflects the conclusion of successful promotional campaigns in Germany, which typically retain two-thirds of acquired deposits and convert many customers to primary status. The blended deposit cost of 143 bps gives ING a funding advantage over banks reliant on wholesale markets, while the granular nature of the deposit base (70% retail-funded) provides stability during market stress.

Fee income growth in retail is driven by cross-selling. With 40 million private customers, ING has significant upside in investment product penetration—currently only 11-12% of customers trade through ING, leaving 88% as expansion opportunity. The 9% growth in active investment customers and 19% increase in assets under management show this strategy is working. Insurance distribution fees, once negligible, are becoming "quite sizable" as ING rolls out business banking propositions.

Wholesale Banking: From Capital User to Fee Generator

Wholesale Banking has undergone a quiet transformation. After quarters of strong pipelines but slow conversion—due to corporate caution amid geopolitical uncertainty—Q3 2025 saw significant catch-up. The €383 million fee income record reflects larger underwritings and syndicated loans finally closing, plus strong trade finance activity. It validates management's strategy of optimizing capital usage through loan sales while building a fee-based annuity stream.

Risk costs in wholesale are idiosyncratic rather than systemic. Newly defaulted cases reflect client-specific events, not sector-wide deterioration. The Stage 3 ratio remains stable, and the bank has increased its exposure to investment-grade clients, reducing cyclicality. This selectivity is crucial in an environment where commercial real estate remains under pressure and the automotive industry faces structural challenges. ING's diversified sector approach—focusing on infrastructure, TMT, and defense—positions it to capture investment spending that more specialized lenders might miss.

The segment's capital efficiency is improving. Loan sales continue to optimize balance sheet usage, while the shift toward fee income reduces risk-weighted asset intensity. This supports the overall capital allocation strategy, freeing up capacity for retail growth and shareholder distributions.

Outlook, Guidance, and Execution Risk

Management's guidance reflects confidence tempered by macro uncertainty. The bank expects to add 1 million mobile primary customers in 2025, with fee income growing more than 10%—raised from previous 5-10% guidance. Total income is projected at around €22.8 billion, with costs guided to the lower end of €12.5-12.7 billion, implying a cost-to-income ratio below 54%. This would drive ROE above 12.5%, with management explicitly stating they are "more confident" about 2025 targets than at Capital Markets Day.

The key execution variable is wholesale lending conversion. Management notes that while Q3 saw strong catch-up, it's "too early to call a trend." The pipeline remains robust, but corporate investment decisions remain sensitive to geopolitical developments. If conversion slows, fee income growth could disappoint, though the retail engine provides a stable offset.

Deposit pricing remains a lever. With blended costs at 143 bps, ING has room for further repricing if needed, but management is balancing profitability with volume growth. The success of promotional campaigns—retaining two-thirds of deposits and converting customers to primary status—demonstrates pricing power that challenger banks lack.

AI implementation carries execution risk. The projected impact on 950 positions in the Netherlands by 2026 reflects genuine operational change, but realizing the €30 million in annualized savings requires flawless implementation. Management's track record of disciplined restructuring (12-18 month payback criteria) provides confidence, but any delays would pressure cost targets.

Risks: What Could Break the Thesis

Regulatory capital pressure is the most material risk. The fully loaded CET1 MDA has risen from 10.5% in 2020 to ~11.2% in Q3 2025, driven by countercyclical buffers and Basel IV implementation. While management proactively raised targets to ~13%, any further regulatory gold-plating could force a choice between growth and distributions. The ECB's SREP decision increasing P2R by 5 bps to 170 bps in 2026 is manageable, but discussions about a potential mortgage risk weight floor in 2032 loom large.

Geopolitical uncertainty directly impacts wholesale pipelines. Tariffs and trade tensions have delayed corporate investment decisions, and while ING's direct exposure is limited (exports to U.S. are small, 84% of wholesale clients are investment-grade), prolonged uncertainty could slow the fee income momentum that underpins the 2025 outlook. The automotive sector's challenges—combining technology disruption with subdued demand—require careful portfolio management.

Deposit competition could intensify. While current conditions are "benign," fintechs and neobanks are aggressively targeting retail deposits. ING's digital moat provides defense, but any erosion of the 143 bps cost advantage would pressure NII. The bank's ability to run targeted, data-driven campaigns with 6-12 month paybacks is a competitive advantage, but it's not invincible.

AI execution risk is real. While GenAI deployment is progressing across six markets, the projected impact on 950 positions represents significant organizational change. Any missteps in implementation could disrupt operations and delay cost savings, while competitors like KBC and ABN AMRO pursue similar initiatives.

Competitive Context and Positioning

ING's competitive advantages are quantifiable. Against ABN AMRO, ING's international diversification and digital scale drive superior growth—Q3 2025 net profit of €1.8 billion versus ABN's €617 million, with ROE guidance above 12.5% versus ABN's 9.5%. Against KBC, ING's larger scale (€22.8 billion income guidance versus KBC's €5.95 billion NII target) and wholesale capabilities provide more balanced growth, though KBC's regional efficiency is impressive.

Versus Deutsche Bank, ING's retail deposit franchise and lower risk profile are clear differentiators. Deutsche's profit before tax of €2.4 billion in Q3 is comparable, but its reliance on capital markets and higher litigation risk create volatility. ING's 70% retail-funded balance sheet provides stability that Deutsche's wholesale-dependent model lacks. Against Commerzbank, ING's digital capabilities and geographic reach are superior, though Commerzbank's German Mittelstand focus provides niche strength.

The key moat is ING's deposit franchise combined with digital execution. While competitors talk about digital transformation, ING is already there—65% of customers only use mobile, and the bank runs targeted deposit campaigns with two-thirds retention rates. This creates a lower cost of funding and higher customer lifetime value that compounds over time.

Valuation Context

Trading at $26.30 per share, ING's valuation reflects a bank in transition. The P/E ratio of 11.3x is below the 12.4x for Deutsche Bank and well below KBC's implied multiple, suggesting skepticism about growth sustainability. However, the price-to-book ratio of 1.34x is reasonable for a bank generating ROE above 12.5% with a 4.45% dividend yield that is well-covered by a 51% payout ratio.

The enterprise value of €187 billion (7.1x revenue) appears elevated, but this reflects the bank's substantial debt issuance for funding purposes—a normal characteristic of banking models. More relevant is the price-to-tangible-book ratio, which is likely lower given ING's substantial intangible assets from digital investments.

Comparing to peers, ING trades at a discount to its earnings power. ABN AMRO trades at similar P/B but lower ROE, while Deutsche Bank's lower P/B (0.77x) reflects its riskier profile. The key valuation driver is whether ING can sustain its digital customer growth and fee income expansion. If it delivers on its 2025 targets, the current multiple appears conservative; any shortfall would expose downside given the macro headwinds.

Conclusion: A Compounding Machine in the Making

ING is executing a rare combination of digital transformation and capital discipline that creates a self-reinforcing compounding machine. The digital moat—1.1 million new mobile primary customers annually, AI-driven cost leverage, and cloud-native infrastructure—drives fee income growth and operational efficiency that peers cannot match. This enables aggressive capital returns (€28 billion since 2021) while maintaining a robust 13% CET1 buffer, a balance that demonstrates management's strategic sophistication.

The wholesale banking pivot from capital-intensive lending to fee-generating advisory services de-risks the model without sacrificing growth, as evidenced by the €383 million fee record. Meanwhile, the retail franchise continues gaining market share in mortgages and cross-selling investment products to a growing customer base, creating multiple earnings drivers.

The investment thesis hinges on two variables: sustaining mobile customer acquisition momentum and successfully converting AI investments into measurable cost savings. Execution risks exist—regulatory capital pressure, geopolitical uncertainty, and deposit competition could all pressure margins. However, ING's diversified funding model, strong asset quality, and proactive management provide resilience.

If ING delivers on its 2025 targets—1 million mobile customers, >10% fee growth, and ROE above 12.5%—the current valuation will prove conservative. The bank is no longer a cyclical lender but a technology-enabled financial services platform with oligopolistic market positions and superior capital allocation. For investors willing to look past near-term macro noise, ING offers a compelling combination of income (4.45% yield) and growth that is increasingly rare in European banking.