Fitch Ratings has affirmed ING Belgium NV/SA's (ING Belgium) Long-Term Issuer Default Rating (IDR) at 'AA-' and Support Rating at '1'.

The Outlook on the Long-Term IDR is Negative. A full list of rating actions is below.

KEY RATING DRIVERS

IDRs and SUPPORT RATING

ING Belgium's IDRs and Support Rating are driven by institutional support available from the bank's parent, ING Bank N.V. (ING Bank, AA-/Negative/F1+). ING Belgium's Long-Term IDR is equalised with ING Bank's since we see an extremely high probability that ING Belgium will be supported by its parent, if needed.

Fitch views ING Belgium as core to ING Bank's retail strategy and franchise in the Benelux region and highly integrated within its parent in management and operations. In addition, we see considerable reputational risk for ING Bank if ING Belgium defaults. In our view, ING Bank has sufficient capital resources and flexibility, including access to capital at the holding company, ING Groep N.V. (A+/Negative/F1), to provide support to its subsidiary in case of need. The Negative Outlook on the bank's ratings reflects that on ING Bank.

VIABILITY RATING (VR)

The VR of ING Belgium reflects its well-established retail and corporate banking franchise in Belgium, its stable business model focused on lending activities as well as adequate asset quality and profitability. It also captures the bank's sound capitalisation and robust funding and liquidity profile.

ING Belgium has an established commercial banking franchise in Belgium as one of the four largest domestic banks, which together concentrate a large portion of the country's local savings and loans. Its focus on traditional commercial banking explains the bank's high reliance on net interest income accounting for about 75% of revenue. Geographical diversification is limited to Luxembourg.

ING Belgium's asset quality is showing some signs of deterioration with a Fitch-calculated impaired loan ratio of 3.9% at end-2020, up from 2.9% at end-2019. The increase is concentrated in the bank's higher-risk residential mortgage loan book distributed under its Record Credits brand. We expect the Record Credits portfolio to underperform the bank's core residential mortgage loans portfolio, which intrinsically is of better quality and has stronger resilience through economic cycles. We expect moderate asset quality deterioration in the bank's SME/corporate loan book (about 50% of gross loans) in the next 12-18 months.

ING Belgium's profitability is adequate and has been weaker than that of domestic peers, such as KBC Group NV and BNP Paribas Fortis SA/NV, because of its narrow international footprint and lower diversification into non-lending activities. The bank's operating profit/risk-weighted assets (RWAs) declined to 0.4% in 2020 from 1.5% in 2019, on higher loan impairment charges (LICs) and lower revenue. We expect earnings to improve somewhat in 2021 and 2022; however, the bank's operating profitability/RWAs should remain below 1.5% as we believe LICs will remain above their long-term average and as margin pressure on liabilities from low interest rates will continue.

ING Belgium's sound common equity Tier 1 (CET1) capital ratio of 15.2% at end-2020 is a rating strength and we expect the bank to maintain good buffers over its regulatory requirements. Capital is supported by additional Tier 1 and Tier 2 issuance at ING Bank's level, which are down-streamed to the Belgian entity. ING Belgium's leverage ratio of 7% at end-2020 is in line with Belgian peers'.

ING Belgium benefits from a large volume of customer deposits, which now fully fund its loan book. Wholesale funding is limited to covered bonds, and the bank follows ING Bank's liquidity risk policy in managing its buffer of liquid assets.

DERIVATIVE COUNTERPARTY RATING (DCR)

ING Belgium's DCR has been affirmed at the same level as the bank's Long-Term IDR because under and Belgian legislation, derivative counterparties have no definitive preferential status over other senior obligations in a resolution scenario.

RATING SENSITIVITIES

IDRs, SUPPORT RATING and DCR

Factors that could, individually or collectively, lead to positive rating action/upgrade:

ING Belgium's IDRs and DCR could be upgraded on an upgrade of the parent's IDRs.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

ING Belgium's IDRs, Support Rating and DCR could be downgraded if ING Bank's IDRs are downgraded, or if Fitch perceives a decrease in the bank's strategic importance for the group. The Long-Term IDR could also be downgraded to the same level as the ultimate holding company's, ING Groep, if Fitch no longer believes that the Belgian subsidiary's senior creditors continue to benefit from resolution funds raised at group level. This would be the case, for example, if ING Belgium is no longer part of the group's resolution scope.

VR

Factors that could, individually or collectively, lead to positive rating action/upgrade:

Upside for ING Belgium's VR is limited by the bank's limited geographic and business diversification. An upgrade would require a sufficient record of significant and structural improvement in the bank's asset quality and profitability metrics.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

ING Belgium's VR has sufficient headroom to emerge from the current economic pressures intact, given the strength of the bank's capitalisation, company profile, and funding and liquidity profile, all of which are scored either in line or higher than the VR. However, its VR could be downgraded on a downward revision of the Belgian operating environment score, which is currently at the same level as the Belgian sovereign rating, to the 'a' range. A downgrade of the operating environment would not on its own trigger a downgrade of ING Belgium's VR but the VR could be downgraded if at the same time the bank experiences sustained pressure on its asset quality and profitability and, ultimately, on capital.

BEST/WORST CASE RATING SCENARIO

International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS

ING Belgium's IDRs and Support Rating are driven by support available from ING Bank.

ESG CONSIDERATIONS

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg

RATING ACTIONSENTITY/DEBT	RATING		PRIOR
ING Belgium NV/SA	LT IDR	AA- 	Affirmed		AA-
	ST IDR	F1+ 	Affirmed		F1+
	Viability	a- 	Affirmed		a-
	Support	1 	Affirmed		1
	DCR	AA-(dcr) 	Affirmed		AA-(dcr)

VIEW ADDITIONAL RATING DETAILS

Additional information is available on www.fitchratings.com

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