By Diana Mandia and Matteo Allievi
(Reuters) -ING Groep announced on Thursday a 2.5 billion euro share buyback following what the Dutch bank said was strong first-quarter performance helped by high interest rates, sending its shares up over 5% in morning trade.
The banking sector has been one of the main beneficiaries of rising interest rates in recent years, but expectations that the European Central Bank will soon start reducing borrowing rates raised concerns about bank profits.
"Whether we operate at a 4% rate from the ECB or 2.5% rate from the ECB, we expect that our ING will do well in either interest rate environment," CEO Steven van Rijswijk said in a call with journalists.
The largest Dutch lender by assets reported net interest income that measures earnings on loans minus deposit costs, of 3.83 billion euros ($4.11 billion) for the first three months of the year, down 4.7% from last year but in line with a company-compiled consensus of 3.84 billion euros.
The bank cited higher funding costs in market activities as the reason for the year-on-year decline.
ING reported a net profit of 1.58 billion euros over the period, slightly below the 1.59 billion euros posted one year ago.
The new share buy-back, which is expected to end no later than 29 October, follows those announced in November and May 2023.
Its CET1 ratio, a key measure of financial strength, is expected to converge towards its target of around 12.5% by 2025 from 14.8% at the end of the first quarter, the bank said.
The bank's net additions to loan loss provisions - money set aside for failing loans - totalled 258 million euros in the quarter, above the 152 million euros recorded one year ago.
According to its results presentation, the group expects 2024 net interest income at the upper end of its 15-15.5 billion euro guidance, down from 16 billion euros in 2023 given anticipated lower rate environment.
ING reiterated that it expected this year's total income, which includes net interest income, fees and commissions, to be somewhat lower than the 22.58 billion euros reported of 2023.
($1 = 0.9329 euros)
(Reporting Diana Mandiá and Matteo Allievi; Editing by Jamie Freed, Sherry Jacob-Phillips and Tomasz Janowski)