Credit risk is one of the biggest risk ING Bank Slaski SA (WSE:ING) faces as a small cap company operating in a heavily regulated financial services sector. The ability for borrowers to repay their loans depends on the stability of their salary and interest rate levels which is impacted by macroeconomic events and in turn impacts the profitability of small banks. This is because bad debt is written off as an expense and impacts ING Bank Slaski’s bottom line and shareholders’ value. Today we will analyse ING Bank Slaski’s level of bad debt and liabilities in order to understand the risk involved with investing in ING Bank Slaski
Does ING Bank Slaski Understand Its Own Risks?
ING Bank Slaski’s understanding of its risk level can be estimated by its ability to forecast and provision for its bad loans. If it writes off more than 100% of the bad debt it provisioned for, then it has poorly anticipated the factors that may have contributed to a higher bad loan level which begs the question – does ING Bank Slaski understand its own risk?. ING Bank Slaski’s low bad loan to bad debt ratio of 77.83% means the bank has under-provisioned by -22.17%, indicating either an unexpected one-off occurence with defaults or poor bad debt provisioning.
What Is An Appropriate Level Of Risk?
ING Bank Slaski’s operations expose it to risky assets by lending to borrowers who may not be able to repay their loans. Loans that cannot be recovered by the bank are known as bad loans and typically should make up less than 3% of its total loans. When these loans are not repaid, they are written off as expenses which comes out directly from ING Bank Slaski’s profit. With a ratio of 2.96%, the bank faces an appropriate level of bad loan, indicating prudent management and an industry-average risk of default.
How Big Is ING Bank Slaski’s Safety Net?
ING Bank Slaski profits from lending out its various forms of borrowings and charging interest rates. Deposits from customers tend to carry the lowest risk due to the relatively stable interest rate and amount available. As a rule, a bank is considered less risky if it holds a higher level of deposits. ING Bank Slaski’s total deposit level of 92.9% of its total liabilities is very high and is well-above the sensible level of 50% for financial institutions. This may mean the bank is too cautious with its level of its safer form of borrowing and has plenty of headroom to take on risker forms of liability.
We’ve only touched on operational risks for ING in this article. But as a stock investment, there are other fundamentals you need to understand. There are three important factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for ING’s future growth? Take a look at our free research report of analyst consensus for ING’s outlook.
- Valuation: What is ING worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether ING is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
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