ING Groep: There Are Better Income Alternatives In The European Banking Sector

Core Viewpoint - ING Groep N.V. is facing headwinds in business growth due to changing interest rates, which has impacted its premium valuation and overall investment attractiveness in the European banking sector [2][4][7] Financial Performance - In Q2 2024, ING's net interest income (NII) was €3.8 billion, a decline of 5.7% year-over-year, contributing to an overall revenue decrease of 0.7% to €5.7 billion [5][6] - The bank's net interest margin (NIM) has been declining, dropping to 148 basis points in Q2 2024 from its peak in Q3 2023, reflecting the pressure from a downward interest rate environment [4][5] - Operating expenses increased by 8.5% year-over-year to €2.8 billion, driven by higher staff and marketing costs, leading to a higher cost-to-income ratio of 49.8% in Q2 2024 [5][6] Outlook and Guidance - For the full year 2024, ING has slightly raised its revenue guidance to over €22 billion, indicating confidence in maintaining stable NII while expecting fees and other income to drive growth [5][6] - The bank's return on equity (ROE) declined to 14.5% in Q2 2024, with expectations of further decline to around 10-11% in the coming quarters due to lower revenues and increasing costs [6][7] Capital and Dividend Policy - At the end of Q2 2024, ING's CET1 capital ratio was 14%, allowing for continued capital returns to shareholders through dividends and share buybacks, although the interim dividend remained unchanged at €0.35 per share [6][7] - The total dividend related to 2024 earnings is expected to be around €1.10 per share, maintaining a forward dividend yield of close to 7%, appealing to income-oriented investors [6][7] Valuation - ING is currently trading at 1.02x book value, which is a premium compared to its historical valuation of about 0.75x and higher than peers like ABN AMRO and Lloyds Banking Group, suggesting it may be slightly overvalued [6][7]