of its prospects for growth, in particular in the emerging markets
of Asia and Latin America. It plans to make strategic acquisitions
and believes it is well placed to tap into the growing global
demand for savings, insurance, pensions and other investments,
writes Douglas Blakey.
Dutch financial services giant ING says it remains in a strong
operating position, having avoided the worst of the current global
credit crisis, and is well positioned to look for opportunities to
invest its excess capital in the high-growth developing markets of
Asia and Latin America – in particular in Brazil and Mexico.
Go deeper with GlobalData
At an investor conference on 2 April, the group re-emphasised its
global strategy remains focused on attracting client balances and
using its bancassurance background to sell everything from savings
accounts to pensions, life insurance and mutual funds. ING says it
currently has €1.44 trillion ($2.3 trillion) in client balances –
including €82 billion in current accounts, €344 billion in savings
and deposits, €229 billion in mortgages and €206 billion in
annuities and retirement services – and 75 million customers
worldwide.
“It’s all about savings. Our strategy is about accumulating client
balances on which we earn a spread or a fee,” said ING Group CEO
Michel Tilmant. “That is the mission and we have four strengths –
our brand, distribution, our presence and our products – as well as
three priorities: a focus on mass-affluent customers; increasing
our retail banking distribution; and increased profit contributions
from the developing markets.”
The group estimates that in the period to 2016, the total global
savings pool – including current accounts, savings, investments,
mutual funds, mortgages, pensions and life insurance – will grow at
a CAGR of 7.3 percent, with accelerated growth in parts of Asia,
Central and Eastern Europe and Latin America of 13 percent, 16
percent and 11 percent, respectively (see bar
charts).
“Our forecasts show the pace of growth will be bigger in those
three regions and that is what we want to follow,” said
Tilmant.
In particular, ING is committed to become the leader by market
share in pensions and life insurance in Latin America and a top
five player in terms of investments. It is currently second by
assets under management in pensions behind Spain’s BBVA and ranks
third in life insurance, with MetLife number one.
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By GlobalDataAccording to Carlos Muriel, ING’s head of Latin America, the
group’s takeover strategy in the region will be focused on Mexico
and Brazil, where 71 percent of the region’s wealth management
assets are located. “We have to become a leading player in these
two countries in order to meet our aspirations for the long term.
M&A will play a meaningful role. We are looking at acquisitions
very actively and advancing conversations with potential targets in
the categories of pensions, asset management, life insurance and
distribution. The current credit crisis may present opportunities
for us.”
Specifically ruled out, however, was the possibility of ING
becoming a dominant player in retail banking in these
markets.
“The obvious reason is that we are a little too late. Consolidation
has already happened in the region. In Mexico the top five banks
have a 77 percent market share of banking assets and in Brazil the
largest five banks have a 65 percent share,” said Muriel. “Making a
[retail] acquisition in those countries would be cost prohibitive.
In Brazil, if you want scale in retail banking we estimate you
would need to spend around €30 billion and in Mexico it would cost
around €9 billion to €10 billion. There are better ways to
penetrate these markets that are not as expensive.”
ING’s Latin American operations contributed €237 million pre-tax
profit to the group in 2007, about 12 percent of ING’s Americas
business, and Muriel has targeted a doubling of that contribution
to 25 percent in the next three to five years.
As banks dominate the distribution of wealth management products in
Mexico and Brazil, ING will seek out alliances and partnerships to
distribute its products and in other parts of the region will
explore alternate distribution channels. “We are seeing a trend of
banks looking for strategic partners, which is very interesting for
us. Product and distribution alliances are already in discussion
and we are not going to focus on traditional distribution
channels,” said Muriel.
In terms of retail banking, investment in ING’s multi-channel
distribution platforms will remain central to the wider expansion
plans. “We have a track record for innovation in distribution and
have mastered most of the distribution channels,” said
Tilmant.
Modern, lean, design-focused retail banking branches with clean
open-plan formats will be rolled out in other key markets (290 are
planned in the Netherlands – see RBI 588). “Development of
these shops is what we have to do. We want to have them in Belgium,
Poland and Turkey and later on in India,” said Tilmant. He was also
upbeat about ING’s SelfBank branches, a low-cost franchise branch
model it has pioneered in Romania – capturing a retail market share
of 4 percent in three years – and will roll out these in
Ukraine.
As for ING Direct, the pioneer of the direct banking model, which
had a difficult time in 2007 having suffered a sharp fall in
overall profit (see RBI 587), Tilmant said he was “still
as excited as before. Profits are still pretty strong; we know and
have said before that we made a mistake in the UK market but we
will continue to invest in Direct”. The division, which contributed
6 percent to group profits in 2007, now has €300 billion in
balances and 20.3 million customers.
A leading position in Asia-Pacific
In Asia-Pacific, ING already has a leading position with around
€150 billion in client balances. It is the number two international
life insurer and regional asset manager by market share, with top
five positions in a number of several key markets. In China, for
instance, ING is looking to increase its insurance branch network
as part of an ambitious expansion plan for the country. ING
currently holds a 16 percent stake in Bank of Beijing, as well as
stakes in two life assurance ventures.
“In China, a great deal of our insurance sales come via Bank of
Beijing, but we want more distribution there. We have placed the
emphasis on mass affluent customers and want to be in the core of
the middle class that is fast-growing in China and India,” he
added. According to Tilmant, ING’s plans to grow in emerging
markets will be boosted by the bank’s recent marketing blitz and
investment in the ING brand.
“Trust is back in fashion and we have to capitalise on that. We are
one of the few banks to have the chance to build a strong global
brand. We feel we have to develop our brand by investing in it and
have done that with the Formula 1 sponsorship, for example – the
response to that has been fantastic.”
Tilmant argued that there are four levels in building trust with
ING’s retail customers. “You need to produce good, reliable
products and good service to clients; second, you need to have a
high level of compliance; third, you need to make sure the consumer
feels you are a company with good corporate social responsibility;
and fourth, branding is the ability to claim all of these three
things.”
As for the question of making a major acquisition, Tilmant said:
“We are in a strong position to invest for growth but growing by
ourselves and building our business is what we are good at. The
idea of a transformational deal comes up repeatedly – I have
investment bankers camped outside my door.”
ING had recently turned down three opportunities to make
acquisitions and “we are not going to jump on the first thing
offered to us, [but] as the year unfolds there might be an
opportunity. Compared to others we are in good shape. We have
chosen to focus on the areas with the fastest growth potential”, he
added.
As of February, ING said it had excess capital of around €9.5
billion, and key to future mergers and acquisitions strategy, said
Tilmant, is discipline. “The crisis may last longer and prices may
not have fallen low enough. It was proven last year that we can
resist pressure and keep our discipline.”
