Rating Action Commentary
ֳ Affirms ING Bank A.S. at 'BB-'; Outlook Stable
Fri 21 Mar, 2025 - 1:09 PM ET
ֳ - London - 21 Mar 2025: ֳ has affirmed ING Bank A.S.'s (INGBT) Long-Term (LT) Foreign- and Local-Currency Issuer Default Ratings (IDR) at 'BB-' with Stable Outlooks and Viability Rating (VR) at 'b+'.
Key Rating Drivers
Support-Driven, Country Risks: INGBT's IDRs are driven by potential shareholder support, as reflected in its Shareholder Support Rating (SSR). However, its LT Foreign-Currency (FC) IDR is constrained by Turkiye's Country Ceiling of 'BB-', while its LT Local-Currency IDR also considers Turkish country risks.
INGBT's VR considers its concentrated operations in the challenging, albeit improved, Turkish operating environment, a business profile that benefits from being part of the ING group despite its limited market position, conservative risk profile that reflects its good asset quality and above sector average capitalisation and funding that benefits from ordinary support. The VR also reflects INGBT's improving but below sector average profitability.
'bb-' SSR: The SSR reflects INGBT's strategic importance to its 100% parent, ING Bank N.V. (ING; AA-/Stable), its small size relative to ING's ability to provide support, and its role within the wider group.
Improving but Challenging Operating Environment: INGBT's operations are concentrated in the improving but challenging Turkish operating environment. The normalisation of monetary policy has reduced near-term macro-financial stability risks and external financing pressures. Recent political developments have led to increased financial markets' volatility, which if sustained could increase the challenges for the disinflation and economic rebalancing processes by negatively impacting exchange rate and inflation expectations. Banks remain exposed to high inflation, potential further lira depreciation, slowing economic growth, and multiple macroprudential regulations, despite simplification efforts.
Limited Market Share: INGBT has a reasonable business profile that benefits from its linkages to ING. The bank serves corporate, commercial, SME and retail customers, although its market share is limited at below 1% of sector assets at end-2024 (unconsolidated basis), resulting in limited competitive advantages.
Cautious Loan Growth: INGBT has a pursed a cautious growth strategy, reflecting its conservative risk appetite amidst the challenging operating environment. The bank recorded an 18% nominal increase in loans (10% in FX-adjusted terms) in 2024 alongside improved operating conditions, although still below the sector average (38%; 30% FX adjusted) and inflation.
Below Sector Average NPL Ratio: INGBT's impaired (Stage 3) loans ratio has been almost flat (end-2024: 1.0%; end-2023: 1.1%; sector:1.8%), largely reflecting still strong collections despite increased non-performing loans (NPL) inflows. Credit risks remain, despite the bank's generally fairly cautious risk-management approach and below sector-average loan growth, due to slowing economic growth, high lira interest rates, still high inflation, Stage 2 loans (7.2%; 3.6% average reserves coverage) and high FC lending (45%; sector: 37%). We expect the impaired loans ratio to increase slightly, reaching about 2% at end-2025, given the expected slowdown in the economy.
Improved Profitability: INGBT's operating profit/risk-weighted assets ratio increased to 2.5% in 2024 (2023: 0.6%; sector: 4.2%), largely driven by net interest margin (NIM) improvement. We expect profitability to remain reasonable in 2025 as the NIM remains supported by lira interest rate cuts, but also possible higher loan impairment charges. We expect operating profit/average total assets ratio to be around 2% by end-2025. Profitability remains sensitive to asset-quality risks and macroeconomic and regulatory developments.
Capitalisation Better Than Sector: INGBT's increased common equity Tier 1 (CET1) ratio of 16.3% at end-2024 (13.8% net of forbearance; sector:15.6%) reflected improved internal capital generation and fixed asset revaluations. Its equity/assets ratio of 10.1% remained above the sector average (8.9%). The higher total capital ratio of 21.9% (18.6% net of forbearance), is supported by FC subordinated Tier 2 debt, which provides a partial hedge against lira depreciation.
Capitalisation is supported by moderate pre-impairment operating profit (2024: 3.4% of average gross loans), full reserves coverage of impaired loans, and potential ordinary support, but is sensitive to the macroeconomic outlook, lira depreciation, and asset-quality risks. We expect CET1 to be around 14% (including forbearance) at end-2025.
Deposit Funded; Ordinary Support: INGBT is largely funded by customer deposits (end-2024: 74% of non-equity funding), 28% of which were in FC and a limited 5% in FX-protected deposits. FC wholesale funding (end-2024: 21% of non-equity funding) creates refinancing risks. However, it includes fairly high group funding (11% of total funding), and risks are mitigated by adequate FC liquidity and potential liquidity support from its parent.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
A sovereign downgrade or an increase in our view of government intervention risk would likely lead to a downgrade of the SSR, leading to a downgrade of the LT IDRs. The SSR is also sensitive to ֳ's view of the shareholder's ability and propensity to provide support.
The VR is primarily sensitive to a weakening in the operating environment and a sovereign downgrade. The VR could also be downgraded in case of a material deterioration in its capital buffers, potentially due to a weakening in earnings performance and asset quality, if not offset by shareholder support.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
An upgrade of Turkiye's LT IDRs would likely lead to upgrades of the SSR and LT IDRs. An upward revision of Turkiye's Country Ceiling could also lead to an upgrade of the SSR and LT IDRs.
A VR upgrade would require an upward revision of the operating environment score, while maintaining capital and FC liquidity buffers combined with a strengthening of the business profile.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
The subordinated notes are rated one notch below INGBT's LTFC IDR anchor rating of 'BB-'. The anchor rating for the notes is INGBT's LTFC IDR, which reflects our view that potential extraordinary shareholder support from parent ING is likely to flow through to INGBT's subordinated noteholders. The notching for the subordinated notes' rating includes one notch for loss severity and zero notches for non-performance risk relative to the LT FC IDR anchor rating.
The one notch for loss severity, rather than the baseline two notches, reflects ֳ's view that shareholder support (as reflected in the bank's LTFC IDR) from ING could help mitigate losses. We have not applied any notches for incremental non-performance risk, as we believe that write-down of the notes will only occur once the point of non-viability is reached and there is no coupon flexibility prior to non-viability, as the notes do not incorporate going-concern loss-absorption features.
The Short-Term IDRs of 'B' are the only possible option mapping to the Long-Term IDRs in the 'BB' category.
INGBT's National Rating is underpinned by shareholder support and is in line with foreign-owned peers.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
The subordinated debt rating is sensitive to a change in INGBT's LTFC IDR anchor rating. The rating of the subordinated notes is also sensitive to reassessment of potential loss severity and incremental non-performance risk.
The Short-Term IDRs are sensitive to changes in its LT IDRs.
The National Ratings are sensitive to changes in INGBT's LTLC IDR and its creditworthiness relative to that of other Turkish issuers.
VR ADJUSTMENTS
The 'b+' operating environment score for Turkish banks is lower than the category implied score of 'bb' due to the following adjustment reason: macro-economic stability (negative). The adjustment reflects market volatility, high dollarisation and high risk of FX movements in Turkiye.
The funding and liquidity score is above the 'b' category implied score, due to the following adjustment reason: liquidity access and ordinary support (positive).
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
INGBT's ratings are linked to its parent bank, ING.
ESG Considerations
The ESG Relevance Score for Management Strategy of '4' reflects an increased regulatory burden on all Turkish banks. The management's ability across the sector to determine their own strategy and price risk is constrained by regulatory burden and also by the operational challenges of implementing regulations at the bank level. This has a moderately negative impact on the banks' credit profiles, and is relevant to the banks' ratings in combination with other factors.
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. ֳ's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on ֳ's ESG Relevance Scores, visit/topics/esg/products#esg-relevance-scores.
Additional information is available on
PARTICIPATION STATUS
The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer’s available public disclosure.
APPLICABLE CRITERIA
ADDITIONAL DISCLOSURES
ENDORSEMENT STATUS
| ING Bank A.S. | UK Issued, EU Endorsed |