Analysis Of Financial Statements Of ING Bank
Discussion and Analysis
The ING group is a Dutch multinational banking financial services offering company based out of Amsterdam. It is one of the pioneer companies in banking industry and has its stretch over a number of countries all around the word. The core business activities of the company includes direct and retail banking, commercial banking and investment banking as well. It also deals in asset management activities and insurance services as well (Belton, 2017). The company has served more than 37.4 million customers in over 40 nations over the world and is a part of Euro Stoxx 50 stock market index. The primary purpose of the company is empower people to be step ahead in both lives as well as business. The company has been operating in some of the major economies like those of United States, India, China, United Kingdom, Spain, Brazil, Hungary, Malaysia, Luxembourg, Monaco, Netherlands, Columbia, etc. The company has the largest market share in the retail banking which scales up to 40%, followed by direct banking and commercial banking (Trieu, 2017).
The company has been focusing on the international expansion and capital injection for the last couple of years through mergers and acquisition. As per the message of the Chairman of the company and the managing director, the group’s net profits have increased by more than 5% over the past year, the group’s return on equity was 10.2% which is much higher than the normal industry trend. The Fully loaded CET 1 ratio ING Group was 14.7% which is one of the major achievements in the history of the company as it shows minimal risk for the company (Mubako & O’Donnell, 2018). Amongst the major financial changes, the company came up with innovation techniques to compete with giants like Google and Amazon. The company also announced venturing and investing in the start-ups as well. For the same, 300 Million Euro was being planned to invest in the financial technology based start-ups. In the Global Bank Awards 2017, it was awarded the best bank in the world. The company also started with the online wealth management services in Germany where the customer would not have to be concerned regarding the asset allocation and the product selection (Sithole, Chandler, Abeysekera, & Paas, 2017). Amongst the non-financial measures, the company started with the Think Forward Leadership Experience to train 5000+ managers. All these measures have fuelled up growth for the company and has increased the performance of the company over the past years. Many such measures are still there in the pipeline (Choy, 2018).
The ratio analysis of the company for the years 2016 and 2017 has been done and shown below:
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1. Liquidity Ratios |
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Current Ratio = Total current assets/ Total current liabilities |
2017 |
2016 |
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Total current assets |
818,878 |
814,973 |
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Total current liabilities |
665,594 |
648,801 |
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Result |
1.23 |
1.26 |
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Liquid ratio /Quick Ratio = (Total current assets – Inventory – Prepaid expenses)/ Total current liabilities |
2017 |
2016 |
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Total current assets – Inventory – Prepaid expenses |
818,878 |
814,973 |
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Total current liabilities |
665,594 |
648,801 |
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Result |
1.23 |
1.26 |
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2. Debt Management Ratios |
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Debt ratio = (Total Debts / Total Assets) or ((Total assets- total owners’ equity)/total assets) |
2017 |
2016 |
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Total Debts |
135,595 |
150,053 |
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Total Assets |
846,318 |
843,919 |
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Result |
16% |
18% |
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3. Profitability ratios |
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Profit Margin / Net Profit ratio = Net income / Total income |
2017 |
2016 |
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Net result |
5,101 |
4,302 |
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Total Income |
17,876 |
17,514 |
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Result |
28.54% |
24.56% |
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Operating Margin ratio = Operating Profit/Total income |
2017 |
2016 |
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Operating Profit |
7,404 |
5,937 |
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Total Income |
17,876 |
17,514 |
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Result |
41.42% |
33.90% |
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Return on Assets = Net income/total assets |
2017 |
2016 |
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Net income |
5,101 |
4,302 |
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Total Assets |
846,318 |
843,919 |
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Result |
0.60% |
0.51% |
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Net Interest Margin = (Investment Income – Interest Expenses) / Average Earning Assets |
2017 |
2016 |
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Investment Income – Interest Expenses |
16,496 |
15,750 |
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Average earning assets |
846,318 |
843,919 |
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Result |
1.95% |
1.87% |
From the above key financial ratios, we can see that in terms of liquidity, the current ratio of the company is 1.23 in 2017 and it has declined from 1.26 in 2016. It indicates that the liquidity pressure is there and the company needs to increase the proportion of current assets in order to increase the pay off the short term liabilities (Jefferson, 2017). The quick ratio as well indicates the same facts. In terms of debt management ratios, the debt ratio has declined from 18% in 2016 to 16% in 2017 and it is a positive measure which is indicative of the fact that the company is not relying on debt and the ownership of the shareholders is not diluted. Furthermore in terms of profitability of the company, it can be seen that the net margin as well as the operating margin of the bank has grown by nearly 4% and 8% respectively as compared to the last year and it indicates that the company is growing profitably and meeting the expectations of the shareholders. The return on assets which is the measure of how well the assets are being utilised by the bank in generating the revenue has also increased from 0.51% to 0.60% but still the same needs to improve further (Linden & Freeman, 2017). The net interest margin which is one of the most important ratios from the perspective of the banks has also increased by 0.08% from 1.87% in 2016 to 1.95% in 2017 and is indicative of the fact that the interest income is more than the interest expenses.
Conclusion
The financial performance through bird’s eye view has been shown below:
Besides the above trends, the balance sheet as well as the profit and loss account of the company for the last 2 years has been shown below (Johnson, 2017):
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ING Bank |
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Consolidated statement of financial position |
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Particulars |
2017 |
2016 |
|
EUR m |
EUR m |
|
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Assets |
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Cash and balances with central banks 2 |
21,989 |
18,144 |
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Loans and advances to banks 3 |
28,746 |
28,872 |
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Financial assets at fair value through profit or loss 4 |
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− trading assets |
116,763 |
114,512 |
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− non-trading derivatives |
2,185 |
2,309 |
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− designated as at fair value through profit or loss |
4,242 |
5,099 |
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Investments 5 |
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− available-for-sale |
69,730 |
82,912 |
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− held-to-maturity |
9,343 |
8,751 |
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Loans and advances to customers 6 |
574,899 |
562,873 |
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Investments in associates and joint ventures 7 |
947 |
1,003 |
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Property and equipment 8 |
1,801 |
2,002 |
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Intangible assets 9 |
1,469 |
1,484 |
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Current tax assets |
324 |
252 |
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Deferred tax assets 33 |
818 |
1,000 |
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Other assets 10 |
13,062 |
14,706 |
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Total assets |
846,318 |
843,919 |
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Liabilities |
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Deposits from banks 11 |
36,821 |
31,964 |
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Customer deposits 12 |
552,690 |
531,096 |
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Financial liabilities at fair value through profit or loss 13 |
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− trading liabilities |
73,596 |
83,167 |
|
− non-trading derivatives |
2,346 |
3,585 |
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− designated as at fair value through profit or loss |
11,215 |
12,266 |
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Current tax liabilities |
774 |
546 |
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Deferred tax liabilities 33 |
752 |
919 |
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Provisions 14 |
1,713 |
2,028 |
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Other liabilities 15 |
15,972 |
16,793 |
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Debt securities in issue 16 |
90,231 |
101,305 |
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Subordinated loans 17 |
15,831 |
16,104 |
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Total liabilities |
801,941 |
799,773 |
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Equity 18 |
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Share capital and share premium |
17,067 |
17,067 |
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Other reserves |
4,304 |
5,835 |
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Retained earnings |
22,291 |
20,638 |
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Shareholders’ equity (parent) |
43,662 |
43,540 |
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Non-controlling interests |
715 |
606 |
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Total equity |
44,377 |
44,146 |
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Total liabilities and equity |
846,318 |
843,919 |
|
ING Bank |
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Consolidated statement of profit or loss |
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Particulars |
2017 |
2016 |
|
EUR m |
EUR m |
|
|
Interest income |
43,988 |
44,221 |
|
Interest expense |
–30,206 |
–30,904 |
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Net interest income 19 |
13,782 |
13,317 |
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Commission income |
3,864 |
3,581 |
|
Commission expense |
–1,150 |
–1,148 |
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Net commission income 20 |
2,714 |
2,433 |
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Valuation results and net trading income 21 |
672 |
1,093 |
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Investment income 22 |
192 |
421 |
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Share of result from associates and joint ventures 7 |
166 |
77 |
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Result on disposal of group companies 23 |
1 |
1 |
|
Other income 24 |
349 |
172 |
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Total income |
17,876 |
17,514 |
|
Addition to loan loss provisions 6 |
676 |
974 |
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Staff expenses 25 |
5,198 |
5,036 |
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Other operating expenses 26 |
4,598 |
5,567 |
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Total expenses |
10,472 |
11,577 |
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Result before tax |
7,404 |
5,937 |
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Taxation 33 |
2,303 |
1,635 |
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Net result (before non-controlling interests) |
5,101 |
4,302 |
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Net result attributable to Non-controlling interests |
82 |
75 |
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Net result attributable to shareholder of the parent |
5,019 |
4,227 |
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Dividend per ordinary share (in euros) |
6.83 |
2.89 |
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Total amount of dividend paid (in millions of euros) |
3,176 |
1,345 |
From the above discussion and analysis, it can be mentioned that the company has been a growing one and has also been earning profit over the period of time (Dichev, 2017). As far as the future prospects of the company is concerned, it plans to expand further and venture into new markets and start several online asset management services (Meroño-Cerdán, Lopez-Nicolas, & Molina-Castillo, 2017). Furthermore, as has been mentioned above, the company also has planned investment in the technology based start-ups which is aimed at increasing both the top line as well as bottom-line of the company and improve the customer experience and services. Besides this, the company has met all the sustainability reporting measures and is continuously working in the area of corporate governance and hence all in all, the company has good future prospects (Marques, 2018).
References
Belton, P. (2017). Competitive Strategy: Creating and Sustaining Superior Performance (Vol. 2). London: Macat International ltd.
Choy, Y. K. (2018). Cost-benefit Analysis, Values, Wellbeing and Ethics: An Indigenous Worldview Analysis. Ecological Economics, 145. Retrieved from https://doi.org/10.1016/j.ecolecon.2017.08.005
Dichev, I. (2017). On the conceptual foundations of financial reporting. Accounting and Business Research, 47(6), 617-632. doi:https://doi.org/10.1080/00014788.2017.1299620
Jefferson, M. (2017). Energy, Complexity and Wealth Maximization, R. Ayres. Springer, Switzerland . Technological Forecasting and Social Change, 353-354.
Johnson, R. (2017). The Best Strategies for Investing. In the News, 21-31.
Linden, B., & Freeman, R. (2017). Profit and Other Values: Thick Evaluation in Decision Making. Business Ethics Quarterly, 27(3), 353-379. Retrieved from https://doi.org/10.1017/beq.2017.1
Marques, R. P. (2018). Continuous Assurance and the Use of Technology for Business Compliance. Encyclopedia of Information Science and Technology, 820-830.
Meroño-Cerdán, A., Lopez-Nicolas, C., & Molina-Castillo, F. (2017). Risk aversion, innovation and performance in family firms. Economics of Innovation and new technology, 1-15.
Mubako, G., & O’Donnell, E. (2018). Effect of fraud risk assessments on auditor skepticism: Unintended consequences on evidence evaluation. International Journal of Auditing, 22(1), 55-64.
Sithole, S., Chandler, P., Abeysekera, I., & Paas, F. (2017). Benefits of guided self-management of attention on learning accounting. Journal of Educational Psychology, 109(2), 220. Retrieved from https://psycnet.apa.org/buy/2016-21263-001
Trieu, V. (2017). Getting value from Business Intelligence systems: A review and research agenda. Decision Support Systems, 93(1), 111-124.