German online banking unit boosts ING profits

ING has shown its rivals that it is possible to make healthy profits from retail banking in Germany, which has become the Dutch lender's second-biggest market despite it having no physical branches in the country.

In the first three months of the year, ING made €250m of pre-tax profits from its German retail banking operation, which is entirely based on its ING Direct online banking operation.

ING's German retail operation, built on its acquisition of online lender DiBa in 2002, increased its profits by 55 per cent from the same period a year ago. That helped it to overtake Belgium as ING's second most profitable retail market after the Netherlands.

It generated a return on equity of 28 per cent from its German retail operation and lowered its costs to 44 per cent of its revenues. That compares with Deutsche Bank's 8.5 per cent return on equity from its much bigger retail banking operation.

Most retail banks find it hard to make decent profit margins in Germany because of the powerful influence of the state-owned savings banks. Deutsche last month announced plans to spin off its Postbank network and close about 200 of the 700 other branches it operates in Germany in an attempt to boost profits.

Overall, the Dutch bank reported a 43 per cent jump in first-quarter net profits to €1.19bn, helped by the benefit of recent disposals and a surge in activity at its investment banking operation. Shares in ING, one of the best performers in the European banking sector in the past year, rose 1.5 per cent in morning trading.

However, analysts said the results were boosted by one-off gains and expressed concern about a contraction in the group's net interest margin - the difference between the money it earns on loans and what it pays out to savers.

But ING said it had cut the interest it offered on savings accounts by 20 basis points at the end of March in several countries, including Germany and the Netherlands.

Ralph Hamers, chief executive, said: "This strong performance was achieved despite the challenging operating environment, characterised by unprecedented low interest rates and the uneven economic recovery.

"In adapting to these circumstances, we have been obliged to reduce savings rates as we continue to offer affordable and competitive borrowing."

ING recently trimmed its stake in insurer NN, which it was forced to sell as a condition of its bailout by the Dutch government during the financial crisis, as well as selling Voya, a US insurance business.

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