REFILE-UPDATE 2-ING eyes higher shareholder payout as loan growth surges
(Refiles to add link to Reuters Insider interview)
* New lending of 7.4 bln euros in second quarter
* Bank will repay state aid sooner if passes ECB tests
* Shareholders could get 40 pct payout in 2015
* Q2 loan losses down 38 percent as economy recovers
By Laura Noonan
LONDON, Aug 6 (Reuters) - ING shareholders will get double the dividend expected in 2015 if the European Central Bank's landmark bank tests do not produce upsets for the Dutch banking giant, its chief financial officer said on Wednesday.
ING abandoned dividends after its 10 billion euro ($13 billion) state bailout in 2008. It has promised to resume payments next year after a major restructuring that saw it shed its investment bank, spin off its insurance arm NN Group and cut thousands of jobs.
Having achieved significant loan growth for the first time in six years and improved its capital position with the NN Group listing, ING said the only thing preventing it from repaying its last 1.025 billion euros of state aid ahead of a May 2015 deadline was the ECB's review of euro zone lenders.
"We would love to end this as quickly as we can," said chief financial officer Patrick Flynn.
"We said at our strategy day that in 2015 the bank will be paying a 40 percent plus dividend payout ratio. If we are able to pay the state fully, 40 percent will go to shareholders."
"The base case, if we are repaying in 2015, is half (of the dividend) goes to the state," Flynn said.
The ECB is due to publish the findings of its review of about 130 of the euro zone's biggest lenders in October, at which point banks could be forced to set aside more cash to deal with potential losses, or to raise more capital.
Flynn told Reuters Insider TV that ING was not worried.
The bank's common equity tier one capital - a key measure of banks' strength - improved to 10.5 percent at the end of June from 10.1 percent at the end of March. The ECB requires a ratio of 8 percent throughout a downturn.
ING's banking arm, the mainstay of the group after the July listing of its insurance division, posted pretax profits of 1.28 billion euros for the second quarter, ahead of the 1.14 billion expected by 11 analysts surveyed for Reuters.
The profits were 11.4 percent higher than the same period in 2013 as an improving Dutch economy led to a 38 percent fall in loan losses. Net lending grew by 7.4 billion euros, well ahead of the 5.1 billion increase in the first quarter.
"We are seeing lending certainly taking off," chief executive Ralph Hamers told reporters on a teleconference. He added that while Dutch lending remained flat, international markets and structured finance had been buoyant.
"These are solid numbers," said Omar Fall, a London-based analyst at Jefferies. "They have returned to proper loan growth for the first time in about 6 years which is the big story."
Shares in the group, whose second-quarter return on equity of 11.1 percent was comfortably within its medium term "10 to 13 percent" ambition, were up 1.5 percent at 0816 GMT.
Hamers told analysts the ECB's new initiative offering ultra cheap money to banks for three years from September, dubbed the "TLTRO", was very attractive and ING was considering using it to grow lending across Europe.
Bad loans, still a focus in the Netherlands where economic recovery is lagging the broader euro zone, cost the bank 13.4 percent less in the second quarter than in the first.
"I don't think you should extrapolate the drop we saw," said chief risk officer Wilfred Nagel, stressing that while 2013's loan losses would be below 2014's, levels would remain elevated.
ING has almost 9 billion euros of exposure to Russia whose banks and corporates were subjected to further sanctions by the EU last week as a result of the crisis in the Ukraine.
The 9 billion includes about 8 billion of outstanding credit - less than 2 percent of ING's total loan book - and 1 billion of commitments.
Nagel said a lot of it was "trade related" and about a third would naturally run off in the next year. About 5.5 billion euros of the exposure is to corporate clients.
"We don't see any immediate credit concerns there," said Nagel. "Russian clients have been hoarding cash and are therefore very liquid ... we're watching any further sanction activity very closely."
Nagel said the main immediate issue from ING's perspective was to make sure it did not violate any of the sanctions, adding that the sanctions could have wider implications for Europe's economic recovery if escalated.