Financial highlights (continued)
Banking operations
Despite the unprecedented impact of the financial crisis and challenging commercial environment, ING's banking businesses reported commercial growth across all three business lines. Client balances went up EUR 61 billion to EUR 1,073 billion in total. Total result before tax from Banking operations declined 96.7% to EUR 148 million, driven by impairments and fair value changes due to the extreme market volatility and sharp decline in asset prices combined with higher risk costs. Underlying result before tax (excluding the impact of divestments and special items) declined by 91.0% to EUR 449 million. Retail Banking and Wholesale Banking remained profitable, while ING Direct reported a loss of EUR 1,125 million due to impairments on pressurised assets. Risk costs increased significantly due to worsening economic conditions.
Underlying income decreased 19.7% to EUR 11,731 million. The interest result, however, rose 22.3%, driven by higher margins at ING Direct and Wholesale Banking, the inclusion of ING Bank Turkey (formerly Oyak Bank) and an increase in volumes. Loans and advances to customers increased by EUR 72.0 billion, or 13.7%, to EUR 598.3 billion. Customer deposits and other funds on deposits increased by EUR 9.5 billion, or 1.8%, to EUR 537.7 billion. The total interest margin rose to 1.07% from 0.94% in 2007. Commission income decreased 1.1% driven by lower asset management fees and lower income from the securities business. Investment income fell from EUR 891 million in 2007 to EUR -2,459 million in 2008, mainly due to impairments on bonds and equities, and negative revaluations on real estate. Other income dropped 88% as a result of negative trading income and losses from associates.
Underlying operating expenses increased 5.0% to EUR 10,002 million mainly at Retail Banking due to the inclusion of ING Bank Turkey, and at ING Direct. The underlying cost/income ratio increased to 85.3% from 65.2% in 2007 driven by the sharp decline in income. The underlying net addition to the provision for loan losses increased to EUR 1,280 million from EUR 125 million in 2007. Risk costs in 2008 were 48 basis points of average credit-risk weighted assets, as gross additions to loan loss provisions of 62 basis points were offset by 14 basis points in releases.
The underlying risk-adjusted return on capital (RAROC) after tax fell to 2.6% from 22.3% in 2007, reflecting the impact of the market turmoil and a 31.6% increase in average Economic Capital due to methodology changes.
Back to top