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We spoke recently with Vaughn Richtor, the chief executive of ING Bank in Asia, about his strategy for the business in the wake of its post-crisis restructuring.
Last week, the bank’s parent, ING Group, surprised analysts with a €1.5 billion net profit for the second quarter, up 19.7% from a year earlier and 4.4% from the previous quarter. Most of that performance came from the insurance side of the business (see our interview with ING Insurance’s Asia head), while the banking unit posted a €1.3 billion pre-tax profit that was €200 million below expectations due to impairments on Greek government bonds.
The group does not break down its Asia banking profits, but two of its listed retail affiliates in the region have recently posted strong results. ING Vysya, in which it owns a 44% stake, reported a 36% rise in profits for the April-to-June quarter compared to the same period last year, and TMB in Thailand, in which it owns 30%, booked a 40% jump in profits. It also has a stake in Bank of Beijing and its 10-year-old ING Direct business in Australia is now the country’s fifth-biggest retail bank.
How happy were you with the performance in Asia during the second quarter?
Well I must say Asia has delivered a set of solid financial results this quarter but we will need to continue to be vigilant as the market is still volatile. I believe if we remain focused on implementing our strategy, we will be able to leverage on the growth in the region.
The important thing is that we have a good platform in Asia, have been performing well and really see that the opportunity is here — it’s certainly an interesting market, but not a homogenous one. Each market is different and we therefore have to adapt our strategy according to the local requirements and our skill sets.
How has the bank changed since financial crisis and the Dutch government’s bail-out?
Post financial crisis we executed a Back-to-Basics strategy and as a result of that we’ve seen good performance. Here in Asia, we haven’t seen any real dramatic change in our core product focus. We’ve had a few divestments on the insurance side, but not on the banking side. For example, ING Vysya had a capital raising in June where we subscribed our share to maintain our stake at 44%.
How has the post-crisis restructuring affected your appetite to expand into new markets?
ING has historically gone into emerging markets at an early stage, particularly in Eastern Europe. For example, we were the first foreign bank to establish a representative office in Mongolia, in 2008. And we actually just got our licence for Vietnam in May, so we’ll be setting up a representative office there.
What’s interesting is that one would have said most of Asia was a new market a few years ago, but that’s changed now. The region is developing very quickly. If you look at our platform, I’d say we’re quite well covered. We’re in 13 markets across the region, from Japan in the east to India in the west, and from Australia in the south to Mongolia in the north.
And the focus is to concentrate on building those businesses?
We have a lot of opportunities with what we’ve got. What we’re really focused on is our key specialisations across the region. If you look at our skills in structured finance on the commercial banking side, we’re pretty strong in natural resources, mining, telecoms and media, and we’ve always been strong in commodity finance. If you look at what’s happening in Asia, those are all areas where there is an increasing demand.
One of the things we have to be careful about is not trying to do too many things at the same time. We have a good portfolio mix and I think we’ve got enough to keep us occupied with that. It’s very easy to think about geographical expansion but it’s not just about expanding everywhere, it’s also about making sure that when you go somewhere it actually fits your core skill sets.
Between the bulge-bracket banks and the regional banks, how competitive is it for a bank like ING in Asia?
Very. That’s why you have to be clear about where you’re going to pick your focus. Take an example like India, where we have a 500-branch bank that allows us to do things that we can’t do in other countries, such as cash management and payments and collection services through the branch network. We wouldn’t be doing domestic business in some other countries because we can’t compete on that basis, but what we can bring is our specialist expertise.
Is it fair to say that ING Vysya is the jewel in the crown of your Asia businesses?
I’d like to think we have more than one jewel. It’s a very interesting opportunity for us. The thing with Vysya is that we have management control over an old private-sector bank, which means that it gives us access to multiple branches. We’ve expanded our branch distribution up from around 380 branches five years ago, to just over 500 today, and that’s very important because in India collecting retail deposits is key and you need a branch network to do that.
Separately, we recently launched an International Business Clients Desk in Greater China covering Hong Kong and Shanghai. The globally coordinated approach combines the resources and strengths of individual desks across 23 countries to serve the booming business needs from our European clients as they grow their business in Asia, as well as Asian corporates looking to develop a more international footprint.
Given your big deposit base, how is Basel III going to affect your competitiveness?
I think if we look at Basel III, being a liability driven bank is clearly a big advantage going forward. Here in the region we have some good local funding points. I think the challenge going forward is to make sure we maintain that and focus on developing our liabilities in line with our assets. Basel III doesn’t just focus on capital adequacy, but liquidity and stable funding as well. In that respect, Asia clearly represents a terrific growth opportunity for the group and that’s what we have to capture.
