ING, once known for its insurance and online banking in the US, is aiming to become a leading commercial lender in the country’s energy, infrastructure and agriculture sectors. It has opened an office in Chicago, adding to its locations in Los Angeles, Atlanta, New York, Houston and Dallas.
Bill Connelly, chief executive of ING Commercial Banking, says: “We see huge opportunities in the US and are growing our business. [Not only have] we opened offices in Chicago, but we are starting with Commodity Trade Finance in New York – a business we are very familiar with and have been doing for a long period.
“Given the huge opportunities that we see, I would not be surprised if in five year’s time we are double the size that we are today.”
ING is riding the wave of energy lending now that the US has switched from being a predominant importer of gas to an exporter. “There are lot of opportunities for pipelines and terminals and export systems to Mexico where there is a huge demand for natural gas right now,” says Richard Ennis, the bank’s head of natural resources America.
In March this year Mexico imported almost 80 billion cubic feet of natural gas from the US, up from 58 billion the year before. In June Mexico’s Federal Electricity Commission said it would tender a $3 billion underwater pipeline to transport natural gas from Texas to Veracruz.
|Bill Connelly, chief executive|
of ING Commercial Banking
Indeed, the US infrastructure and pipeline finance market has tended to be dominated by Japanese and European banks – particularly in LNG. Japanese banks provided 43% of the total $12 billion loaned for LNG projects worldwide last year – the largest of those projects being in the US. European banks came a close second. Connelly says that while the US banks are formidable competitors, being European has advantages.
“In infrastructure the market is being privatized and Spanish companies are running large infrastructure projects in the US,” he says. “We know these companies, as we have worked them in Europe, they are our clients and we know the sector.”
Some 90% percent of the bank’s business is repeat business, says Connelly, as it has long-term relations with its clients. “Does this mean we are the only bank with this expertise? No, but we do have experience and in depth sector knowledge to be able to make the appropriate risk assessment.”
In Houston, four bankers have been added this year, taking the energy finance group up to 28.
Ennis says ING has benefited from being a first mover. “We were a fairly early entrant into Mexico providing long-term financing both on the mining side and energy side.”
Another area of focus for ING is agri-lending. Commercial and agri-lending is increasing among all banks in the US. According to the FDIC, loans to farms rose 10.2% over the first quarter of this year. The increase is attributed to strong balance sheets and low interest rates.
“Agri-business lending is an aggressive sector to be in right now,” says Dan Lamprecht, head of food, beverage & branded products at ING.
According to the Kansas City Federal Reserve Bank, profitability at both agricultural and other small banks remains relatively strong. “At the end of the fourth quarter, the return on assets at banks with an above-average share of loans made to the agricultural sector rose from 1.09% in 2013 to 1.13%,” say the Kansas Fed’s Nathan Kauffman and Cortney Cowley.
ING has been cautious about its growth, says Lamprecht. “The consequences of negative interest rates has been that people are throwing risk sensibilities to the wind. Some banks are increasing their loan volumes and moving into areas they are unfamiliar with.
“Competition is increasing but we are staying focused on steady organic growth. We are adding people slowly in areas we have expertise. That’s illustrated with our low loan loss experience in spite of a 10% growth target.”
ING finances the large grain companies, but also middle-market firms, lending to producers of pigs, chicken and cattle in the US, Mexico and Brazil. Within those areas, the Dutch bank has been focusing on emerging food trends, and rehabilitating fallen angels.
“We have lent to Nyman Ranch, for example, that takes feed-efficient pigs and rears them outside rather than in confinement,” says Lamprecht. “We also work with dairy farmers to finance facilities that use cattle waste to produce energy for refrigeration of milk.”
In the fallen angels sector, ING has been lending to ethanol businesses, which are restructuring and transforming post the ethanol meltdown.
With US interest rates set to rise, there could be questions about the timing of expanding into the financing market. But Connelly is bullish on the US. “Even if US rates increase, because they have been so low and as a result of continued economic recovery, the economy is likely to be healthy,” he says.
“And although the Chinese market may not grow at the same pace, underlying US domestic growth should be robust. In the long term, the US will continue to position itself as a major energy exporter and will continue to invest in infrastructure. Clearly, some of the more aggressive financial structures may be at risk due to short-term volatility, but I'm confident in the underlying trend.”