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Interview with Ralph Hamers, CEO of ING, from the World Economic Forum 2017

Following are excerpts from a CNBC interview with Ralph Hamers, CEO of ING, from the World Economic Forum 2017 with Steve Sedgwick and Geoff Cutmore.

SS: Look, Karen, there was a dream world where banks used to just knock off ROEs of 15% and it was very easy. Now it's a very different environment, as well. We'll talk about ING in this respect, as well, because ING has outperformed many of its European peers, the stock has risen over 20% in the last 12 months amid its largest restructuring since the financial crisis. I'm delighted to welcome to the show Ralph Hamers, who is the CEO of ING. Ralph, really nice to see you. Just for Karen's sake, what was your latest ROE?

RH: It's around 10%, just over 10%.

SS: Yes, and are you happy with that or are you going to try to get to that 15% level?

RH: Well, I think we all have to be realistic, that things have really changed in the world, and that, you know, the levels we had before the crisis, touching the 15%, that, I don't think that's reasonable to expect at this moment in time, and we're happy to be at 10%, because basically with the 10%, specifically in the Eurozone, we're outperforming most of our competitors.

SS: Look, Ralph, I don't want to say lots of nice things to you, because it's not my style, but I think ING has done a really good job of turning itself around, and I think a lot of people do, as well, and that's why the shares have done so well, as well. But are you disappointed when you look at other parts of Europe, when you look at Italy, when perhaps you look to Germany, and you think; 'why don't you guys just sort out your capital levels, sort yourselves out, amalgamate, do whatever you have to do, get the bad loans off the books, because you're light-years behind what everybody else has already done'?

RH: Well, to a certain extent I agree with you. On the other side, you know, it does give us a competitive advantage, right? And we were already in the game in terms of restructuring, and we did more than 50 transactions, generating 40 billion of capital, and that's actually why we are at high capital levels, and at the same time, developing the digital strategy gets us back the good returns, as well.

GC: But these things are all connected, aren't they? I mean, the trouble we have in Europe is it's hard, with these growth levels, to see real topline movement, and that's a challenge, I think, because that return on capital needle is not going to move, unless you cut costs. And that's the problem, isn't it, unless we get some topline movement, it's a cost reduction story, and in your digital strategy, you're taking out jobs, so that's part of that cost cutting.

RH: It is. Regretfully it is, and it comes along with job cuts in those markets in which we are a branch bank. Within the markets in which we are a digital bank only, we're growing very fast, and with that, you can actually grow your topline by gaining market share. I've said it before, you know, in Germany we take 1,000 to 1,500 new clients a day. We're beyond 8 million customers now, in Germany alone, where we started this franchise 12, 15 years ago. It can be done. So if you have the right strategy, you can actually grow in markets that don't grow too fast, but for your own topline you can grow. So then basically the recipe is a combination of a bit of topline growth, as well as keeping your costs stable, while investing in digital.

GC: Look, I listen to all these American bankers who are salivating over their net interest margin improvement, with the Fed now hiking rates. In Europe, though, we're still a long way away, aren't we, from seeing anything like that?

RH: Yes, we're still a long way away from that. We don't expect interest margins, per se, to further improve. Actually, I think we-, all of the banks still have some time to go with finding compensation-, compensating measures in order to offset some of the pressure on margins, given the QEs, the QE policy of the ECB.

SS: Ralph, I've got about 30 seconds left. Digitization, a couple of years ago everyone thought that tech companies would eat the banks' lunch, as well. Things have moved on a little bit, do you think the banks are going to survive?

RH: Banks will survive, but banks will have to consolidate in order to find room to invest in digital, that's one thing.

They should open up to work together with fintechs. I think it's a win-win-win strategy here. Banks can learn from the fintechs, fintechs need the clients of the banks, and the capital from the banks, and the regulatory knowledge of the banks, and in the end it's the customer that wins, and that's the really important thing there.

GC: We've got to wrap it up, unfortunately, Ralph, it's been a real pleasure, thanks very much for joining us.