Previously chief executive of the Co-operative Bank – a UK challenger bank that spent most of the 2010s lurching from crisis to crisis – Andrew Bester is no stranger to restructuring. But his latest role as head of wholesale banking at ING might not just be a story of cuts and retrenchment.
Thanks largely to the focus on sustainable finance, wholesale banking has regained prominence in ING’s new group strategy, which CEO Steven van Rijswijk set out in June in his first investor day since taking from Ralph Hamers over two years ago.
So far, van Rijswijk’s most noteworthy move has been to cut some of Hamers’ most ambitious retail-banking projects, including various European digital banks cherished by the former CEO. Societe Generale bought ING France in April, while in June ING announced the closure of a digital bank in the Philippines, launched under Hamers four years ago, as a platform for broader Asian expansion.
ING’s retail-banking revenue shrank slightly last year, as growth in fees failed to outweigh pressure on interest margins. In wholesale banking, on the other hand, its revenues rose by almost 10%.
Good results have added to the confidence in Bester’s division.
“I’m particularly encouraged by having some growth in the franchise again across the lending platform, the transaction services business and indeed our markets business,” Bester tells Euromoney, his South African accent only slightly detectible after 30 years away from the country of his birth.
Today, wholesale banking constitutes about a third of ING’s group revenues. Its profit before tax came to €2.9 billion in 2021.
It is primarily a European franchise, although Bester says its network of wholesale-banking offices in 40 countries around the world is an essential part of the value proposition to clients.
ING sees itself as a top-five player in the European syndicated loans market, a claim supported by Dealogic data for the year to the end of June.
That position in Europe has helped it attain a degree of global leadership in sustainable finance, too. It is the sixth top global bookrunner of environmental, social and governance loans, according to the Dealogic data, behind the big four French banks and UniCredit, and ahead of Banco Santander.
Commodity trade finance is another area in which European banks tend to be big, especially the French and Dutch. ING is widely considered to sit in the top tier globally in the sector, ranking higher than French peers such as BNP Paribas, which have cut back.
This is also a business that offers ING a degree of growth now, thanks to the past year’s supply-chain disruptions and the effect of the war in Ukraine on commodity prices and financing volumes.
The third area in which ING claims a top position worldwide is in transaction services – at least in global cash pooling – through its Bank Mendes Gans subsidiary. This is something Bester says helps it gets mandates for bonds and event-based financings.
How much desire does ING have to take its wholesale bank beyond this, in the post-Hamers era?
Geographic honing
On its investor day, ING highlighted a new target to help arrange €125 billion in sustainable financing, annually, by 2025. The bank also pledged earlier this year to grow new financing of renewable energy by 50% by 2025. Both are jobs for the wholesale bank.
When van Rijswijk’s became chief executive in 2020, one of his first actions was to axe parts of the wholesale bank: cutting jobs and closing offices in South America, as well as in parts of Asia.
Can ING sustain its lead in sustainable finance?
If there’s one area of wholesale banking in which ING is determined to grow, it is sustainable finance. Last year, the bank worked on €88 billion of sustainable deals, and in a new strategic plan unveiled in June, the firm wants to increase that figure to €125 billion annually by 2025.
“One of the reasons I joined ING was because of its credibility in sustainability,” says Andrew Bester, ING’s head of wholesale banking since April last year.
He cites an example of the bank being instrumental in developing the sustainability-linked loan market in which interest rates vary according to progress on environmental, social and governance factors. He points to a €1 billion revolving facility ING led for Royal Philips in 2017, with the interest rate indexed to improvements in its ranking by ESG data provider Sustainalytics.
“At ING, sustainability is a way of life; it’s what we’re good at; it’s what we do,” Bester says.
ING’s own Sustainalytics score, however, is only average: better than BNP Paribas (continental Europe’s biggest bank by assets) but worse than Dutch peer ABN Amro. ING is, for example, one of the world’s biggest banks in commodity trade finance, the biggest part of which is oil.
Nevertheless, the Dutch bank’s new sustainable finance targets tie in with its Terra strategy for greening its loan book, which includes working to develop climate transition strategies for its corporate clients.
Sustainable finance mandates, whether in the bond or loan market, naturally come out of that sort of that work.
Robert Spruijt, who oversees sustainable finance in EMEA at ING, says sustainability linked deals are now mushrooming. Sustainable debt volumes reached $1.6 trillion last year, according to Bloomberg, more than doubling in just a year.
Given such growth in the market, shouldn’t ING’s sustainable finance target be bigger than €125 billion?
“The challenge is that the competitive landscape is increasingly rapidly,” answers Spruijt. ING, in other words, is far from the only player in the market nowadays, even if it was an early pioneer. Today, much bigger banks, with much bigger capital markets businesses, want a bigger part of it.
But Spruijt also points to estimates by the International Energy Agency showing annual investment in energy should surge to $5 trillion annually by 2030 under plans to reach net-zero carbon emissions.
The bank’s sustainable finance team has grown to about 40 bankers, after starting with three in 2012, Spruijt remembers.
He says the new targets constitutes a “strong internal message” about ING’s growth ambitions in sustainable finance.
Those moves have boosted the division’s returns, according to his presentation at the investor day. Yet that “geographic honing”, as Bester calls it, might not signal the new ING boss is less committed to wholesale banking than Hamers.
Bear in mind that van Rijswijk’s late-2020 job losses also fell on retail, including rowing back on Maggie, previously Model Bank, which had been a centrepiece of Hamers’ retail strategy, involving the operational and IT integration of four of ING’s European digital banks. Moreover, van Rijswijk did not to follow fellow Dutch bank ABN Amro’s move in mid 2020 to run down all corporate banking outside Europe and exit commodity trade finance entirely.
Financial markets – and later, and more enduringly, commodities – rebounded rapidly after the initial Covid lockdowns. Since then, ING’s wholesale bank has not had it all easy.
While banks are yet to see the impact of higher inflation and rising interest rates, ING’s results in the first quarter of 2022 were pulled down by €834 million of risk costs against the bank’s €6.7 billion of wholesale exposures to Russia. Those Russia losses have once again highlighted the risks of international wholesale banking.
Despite Russia, there remains a sense of a new era of growth inside ING’s wholesale bank, now that the 2020 cuts are behind it.
One source of optimism among wholesale bankers at ING is that van Rijswijk is, by background, more of a wholesale banker than Hamers. Although both men started off in wholesale at ING, Hamers then spent most of his career in various ING retail banks, before becoming group chief executive.
By contrast, van Rijswijk spent most of his career doing equity and M&A at ING, before running its wholesale client coverage, and then becoming group chief risk officer in 2017.
“The big positive from Steven’s background is he has a strong intuitive understanding of the wholesale-banking franchise, and where it is,” says Bester, who became head of wholesale after predecessor Isabel Fernandez followed Hamers’ exit in late 2020. “It means I’m always talking to someone who really knows the business.”
Meanwhile, Bester’s arrival has rather helpfully coincided with a somewhat brighter financial performance in ING wholesale. The wholesale bank reached a return on equity in double digits in 2021.
That was a year with relatively low credit provisions, and no rise in costs. Yet this level of profitability will be maintained, according to the new strategic plan – potentially putting behind years of single-digit return on equity, partly linked to regulatory capital build-up.
“We turned the corner in 2021 – getting costs in a good shape and also driving some good top line growth,” Bester says.
Logic of commitment
Rising interest rates around the world had a positive effect on ING’s wholesale bank last year. Generous European Central Bank funding, under the Targeted long-term refinancing operations (TLTRO) III programme, was a contributor.
Nevertheless, with higher inflation apparently more entrenched now, Bester thinks the turn in the cycle shows the logic of its commitment to wholesale lending, even in the down-years of low rates, just as it still needs to focus on fee growth today as interest margins recover.
Commodities boom underpins payments growth at ING
Before Covid-19, Commodity trade finance was an unloved business. As anti-money-laundering scandals proliferated in Europe, businesses involving fragile states – which commodity trade finance tends to – came under even closer scrutiny by compliance departments. Then Covid hit.
Commodity prices plummeted and traders struggled to give away oil cargoes. The collapse of Singapore oil trader Hin Leong in early 2020, amid a spate of alleged commodity trade finance frauds in Asia, underlined the risks.
In 2020, these events sparked a new retrenchment by the European banks that have long dominated commodity trade finance.
Even ING, which was reputedly the biggest player, retreated from parts of Asian commodity trade finance in 2020, while amalgamating global operations in Geneva, a commodity trading hub.
The shuttering of ING’s corporate banking offices in South America meant abandoning local commodity trade finance clients. Japanese banks stepped in to replace exiting Europeans, to an extent.
Nevertheless, two years ago, ING decided not to follow close Dutch peer ABN Amro, which announced an outright exit from commodity trade finance in August 2020. Not only was ING’s exposure to Hin Leong much smaller, but it also has greater size overall as a wholesale bank than ABN Amro, making it easier to swallow such losses.
“Directionally, we remained committed,” says Andrew Bester, ING’s head of wholesale banking. Bester now describes commodity trade finance as a “a good solid growth franchise” and says the bank will take a selective approach to adding new capabilities in this area.
“We see that we have an important role in financing the commodity supply chain,” he says. “It’s an important part of our business. We like the sector. We know the sector well.”
Growth
From a business perspective, hanging tough in commodity trade finance has proven good for ING so far. The need for financing has rebounded along with the supply-chain shock and price rises, particularly after the invasion of Ukraine, and the earlier retreat of some banks has boosted margins.
All this helped commodity trade finance underpin double-digit growth in the wholesale bank’s daily banking and trade finance reporting line in 2021. Revenue growth so far has mainly come from higher volumes needed by existing clients because of prices and longer shipping times. Western European buyers have needed to source materials from sources further away than Russia and Ukraine. But some of it is thanks to onboarding new clients, particularly in the US.
Aside from increasing revenue from higher prices, the bank has already stepped up hiring over the past 12 months, albeit mostly junior staff, to focus on areas such as the US energy and soft commodity markets, from out of Houston.
Nevertheless, as in the wider wholesale strategy, the hope is that growth in commodity trade finance can come without big increases on the asset side. In other words, it is looking to distribute more financing to asset management and insurance companies, and to banks which lack proprietary commodity trade finance capabilities.
This approach is particularly important in commodity trade finance, which already constitutes a relatively large chunk of ING’s balance sheet.
“Being the world’s number one commodity trade finance bank is not an objective,” says Maarten Koning, ING’s global head of trade and commodity finance. “We want to be the most value-added bank; but the fact is that we are still growing these businesses.”
“Negative rates in the eurozone were uniquely challenging because of the way the margin was behaving between deposits and loans,” says Bester. “It’s been an unusual dynamic.”
For the head of a wholesale bank, Bester is unusually familiar to retail banking. Before running the Co-op, Bester was head of commercial banking at Lloyds Banking Group, the UK’s biggest retail bank, where he worked alongside Juan Colombás, then Lloyds’ chief operating officer, and now on ING’s supervisory board.
Before that, for many years, Bester was a wholesale and then retail banker at Standard Chartered, working under its then head of wholesale Mike Rees – now ING’s deputy chairman.
Yet he now strongly argues how much wholesale offers ING diversification from retail, as well as scope – through areas such as cash management – to grow fees. ING’s relatively low proportion of fee income had been a big problem under negative rates, due to the divestment of its insurance and asset management, a state-aid condition of its 2008 bailout.
Wholesale banking has also long been vital to ING’s ability to redeploy excess liquidity generated in retail. The firm’s online-only banks in Europe and elsewhere – the legacy of ING Direct – have often been strongest as deposit takers, after all.
“We run an integrated wholesale and retail bank,” Bester says. “As a wholesale banking business, you absolutely do want a bank that has a low cost of funds.”
Bester stresses that ING’s retail exits from France, the Philippines and elsewhere are not because of a dearth of wholesale opportunities in those countries.
“The retail banking decision hasn’t changed our thinking about what we want to do in wholesale banking in France," he says. "I continue to be keen to build out our capability in the French market.”
Nevertheless, under the new plan, low credit costs and efficiency – both in capital and costs – remain priorities. The wholesale bank’s credit costs have averaged 39 basis points of customer lending over the past 10 years, compared with 58bp among peers. It wants to maintain that.
Bester is further targeting a cost-to-income ratio below 50% by 2025, compared with a wholesale-banking industry average of more than 70% over the past five years.
The wholesale bank counts some 6,000 corporate and financial institution clients globally, a number Bester thinks is rightly quite tight for a group of its size.
Rationing capital usage is key in Bester’s view. The wholesale bank is to work harder to improve its ratio of income over risk-weighted assets by distributing more of the financings it originates and concentrating more on using its specialist knowledge in certain sectors, including as an adviser on deals.
“Creating value in wholesale banking is not just a blind chase for league tables,” says Bester. “Do we want to earn more in fees? Yes. We want to keep growing our fee-based activity. But it’s not a drive for credentials without a keen eye on the returns you can earn from those clients, where there is a good fit in terms of capability.”
The ancillary services ING provides to its lending activates, such as cash management and hedging, will therefore remain vital, despite rising rates.
“Wholesale banks need to focus on deploying capital for relationships, but then making sure you get the right amount of cross-buy from those relationships, so you’re able to leverage the balance-sheet commitment,” Bester says.
Value add
Bigger global investment banks may not notice ING’s rather subtle build out much.
“We don’t aspire to be an investment bank; we are a wholesale-banking business,” says Bester, echoing a line that Hamers often took, in his case based on his views about how ING’s strengths lay in retail not investment banking.
“I’m focused on whether we can add value to the relationships we have,” Bester says. “We’re not trying to be a broad-based bank for all clients.”
ING has its biggest market shares in retail and commercial banking in Belgium, the Netherlands and Luxembourg. And even in this core Benelux region, in debt capital markets – a product in which local banks usually do well – ING is not in the top 10, ranking 13th by volume for the 12 months to end-June, according Dealogic.
Yet ING does have an established Benelux franchise on which it can build, both in DCM, and in equities and M&A. It ranked sixth in Benelux equity capital markets over the past 12 months, according to Dealogic, although it was barely in the top 20 Benelux M&A advisers.
Many Dutch bankers blame what they often see as their national champions’ investment-banking timidity on an unusually hostile political attitude to the financial sector in the Netherlands, persisting since the 2008 bail outs and reflected in a lack of political drive to take more investment-banking business from London, post-Brexit.
Earlier this year, the Dutch government further tightened rules on bankers’ bonuses, which were already relatively strict.
Many will remember how Hamers’ move to UBS came not long after Dutch politicians vocally forced ING to climb down on an attempt to ratchet up his pay.
Outside Benelux, however, Bester says it will sometimes offer services in M&A and equities, where it can add value in its target sectors (real estate and infrastructure; telecoms, media and technology; commodities; food and agriculture; transportation and logistics; healthcare; energy; and financial institutions)
“I would see us building some adjacent capability in M&A and equities,” he says. “But I’m not looking to hire hundreds of people in those businesses. I’m looking to build on the strengths we have, and then selectively augment capabilities in the Netherlands, but also in our hubs in London, Belgium, Frankfurt. We will keep extending capability. But it’s going to be far more of an organic build around areas where we have strength.”
