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Citi Lifts Price Targets for ABN AMRO, ING on Higher ECB Rate Forecast
Summary
Citi analysts have raised their earnings estimates and price targets for Dutch banks ABN AMRO and ING, citing an increased forecast for the European Central Bank's terminal interest rate to 3%.
Citi has upgraded its forecasts for leading Dutch banks, increasing earnings estimates and price targets for ABN AMRO and ING. The revisions are based on the firm's expectation that the European Central Bank's (ECB) terminal rate will reach 3%, a notable increase from its previous projection of 2.5%.
Higher Rate Outlook Boosts NII
The anticipated rise in interest rates is expected to directly benefit the net interest income (NII) of major Dutch lenders. In a note to clients, Citi analysts described the Dutch banking market as one of the most attractive in Europe, citing the sector's digitalization, volume growth, and resilience to deposit competition from digital challengers.
The firm views Dutch banks as one of the most effective ways for investors to gain exposure to the theme of higher short-term rates in the European market.
ABN AMRO Named a Top Pick
Citi designated ABN AMRO as one of its top European bank picks, raising its price target on the stock to €54 from €50. The bank's earnings per share (EPS) estimates for 2026-2029 were upgraded by approximately 2-6%, placing Citi's forecasts 4-14% above the market consensus for 2026-2028.
AdKey factors driving the upgrade include:
- Net Interest Income: Forecasts for 2026-29 were increased by 1-2%.
- Return on Equity (RoE): Citi projects ABN AMRO's 2028 RoE will be approximately 15%, exceeding the company's own target of greater than 12%.
- Deposit Beta: Analysts assume Dutch household deposit betas—the degree to which banks pass on rate hikes to savers—will remain below 40% until the ECB rate surpasses 3%.
ING Also Upgraded
ING also received a more optimistic outlook from Citi, with its price target increased to €36 from €33. The bank's EPS forecasts for 2026-2029 were lifted by 2-5%. The analysts noted that higher short-term rates should provide a gross 6-7% tailwind to ING's NII.
However, Citi's view on ING is tempered by certain factors that limit its upside potential relative to ABN AMRO. These include ING's group loan-to-deposit ratio of nearly 100% and significant competitive pressures in Germany, which constitutes a quarter of its retail operations.
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