5 The leverage ratio of ING Group according to the Delegated Act (including grandfathered securities) takes into account the impact of grossing up the notional cash pool activities.
This chapter will address the most important themes we identified in this year’s materiality assessment: the economy, the regulatory environment, innovation and transformation, data and
During the year, the British pound’s performance against the euro was erratic, mostly driven by changing market expectations about the possibility of the UK leaving the EU with or without a withdrawal agreement.
Contents | Report of the Executive Board | Corporate governance | Risk Management | Consolidated financial statements | Parent company financial statements | Other information | Appendices > The world around us
ING welcomes steps by the Dutch and other authorities to achieve wider cooperation between banks, law enforcement and regulators on both a national and European level to strengthen the financial system’s resilience in the fight against financial economic crime.
We’ve developed a comprehensive suite of sustainability products and services for our Wholesale
To spur this collaboration, ING in 2019 opened the Cumulus Park innovation district in Amsterdam
3. Increase the pace of innovation to serve changing customer needs
Evolving customer expectations, new technologies and new competitors are transforming banking.
Broadening and diversifying our lending capabilities to continue to grow client franchises is our fourth strategic enabler. To do so, we are seeking opportunities in Retail, SME and Consumer
To offer simple and streamlined products and services, an advanced and reliable IT platform with high system availability is key.
ING Ventures invests in fintech and fintech-related venture capital funds around the world. Through such investments, we aim to build a portfolio that accelerates the pace of innovation and create an even better experience for customers. It targets disruptive technologies that have the potential to impact ING’s business to ensure customers and clients get access to best-in-class services. Based in
Examples include a multi-million investment in the fintech Cobase, which provides a multi-bank platform where international companies can manage multiple bank accounts, an investment in
PACE academies have gained in-depth capabilities in service and experiment design.
Techniques used to gain unauthorised access have become increasingly sophisticated. We have faced, and expect to continue to face, an increasing number of cyberattacks.
‘White Hat’, or ethical computer hackers who break into protected systems and networks to test and assess their security, are also invited to share their observations using ING’s Responsible
Austria, Romania, France, Australia, Luxembourg and the Czech Republic, as well as in COO Finance.
Design and implementation for the remaining countries and business units are in full swing. ING is one of the first banks to adopt the methodology.
“We need to use our industry knowledge and expertise to not only meet, but exceed the ever-increasing expectations of investors and empower them to make smart financial decisions.”
acted as financial advisor for global asset management company DWS in the merger of leading
One of the ways we’re working to enhance the customer experience is through our transformation to a customer-focused organisation. The benefits of introducing one Way of Working (WoW) across
Settlement Coin (USC) project, set up in 2015 by Swiss bank UBS to develop a blockchain-powered payment mechanism to make transactions more efficient. A digital version of existing currencies,
The Terra approach is complemented by the other ways we work to drive sustainable business. We have committed to reducing our thermal coal exposure to close to zero by 2025 and support our clients globally in the transition to a low-carbon society. We do this through various financial instruments, including green loans, sustainable improvement loans, bonds and advisory services.
▪ In the Netherlands we support the Youth Perspective Fund, which helps young people aged 18 to 27 to manage their debts. The initiative supports around 150 youngsters a year.
We call this our Orange Code, which puts integrity above all.
We introduced a new global learning model in 2019 that aims to professionalise Compliance, KYC
(Winning Performance Culture) and organisational health the next. In this way we aim to identify and address issues faster, monitor employee engagement and enhance performance.
If not managed correctly, stress at work can lead to illness, absence and potentially a loss of income. Reasons for feeling stressed at work can include pressure to deliver from colleagues or managers, a heavy workload or long hours. To mitigate this risk, ING has measures in place to promote a healthy work culture and help employees to manage stress.
Initiatives to improve diversity at ING include: ▪ appointing dedicated diversity and inclusion ambassadors in the countries and business units
Risk and capital management remain central to the entrepreneurship of the bank. Maintaining our risk profile within our risk appetite and strengthening our capital base is how we grow a sustainable business and achieve our strategic objectives. Our overall approach to capital management is to ensure we have enough capital to cover our (economic) risks at all levels and comply with local and global regulations, while delivering a return for our shareholders and investing in innovation.
New technologies like artificial intelligence (AI) rely heavily on data. Data also drives more and more of ING’s business decisions, providing the input for the models we use to calculate the value of savings, for example, or to calculate risk metrics. Our customers also use data to help them make better financial decisions. It is therefore imperative to get the right data at the right time to drive the right decisions. At the same time, models are becoming increasingly complex as regulations, customer needs and risk management techniques constantly evolve. To help mitigate the risk that our models get it wrong – leading to the risk of a loss of earnings or even a regulatory breach – we have a model risk management framework to identify, assess, control and monitor the risks caused by applying models across ING. In 2019, we initiated a programme to improve the availability and quality of our data, model governance and processes, further strengthening our risk modelling and data capabilities to give ING a competitive advantage.
Shareholders and ADR holders with stakes of 3 percent or more
Through our materiality assessment we ensure that all economic, social and environmental topics relevant to our key stakeholders are addressed in this report. The report follows an annual cycle covering the period 1 January to 31 December. Our 2019 report is published on 5 March 2020. The data and content of this report and Non-financial Appendix aim to provide a concise, accurate and balanced account of ING’s economic, social and environmental performance in 2019. Our approach and performance are explained per topic either in text, by referring to our policies or by providing data and progress on targets.
The reporting criteria used for the preparation of the Non-Financial Information and the Four Specific Topics are the Sustainability Reporting Standards of the GRI and the supplemental reporting criteria as disclosed in the section ‘About this report’.
ING Group’s strategic focus includes improving customer experience. The related performance is monitored by the KPI ‘System Availability’. As disclosed in the report of the Executive Board, ING Group strives to maintain a high level of system availability of the online payment channels. This KPI is reported for retail customers in the Netherlands and Belgium and wholesale banking customers globally. Considering the importance of this KPI and changes in the tooling used for monitoring System Availability, we identified System Availability as an important indicator for our audit.
Procedures performed to obtain a limited level of assurance are aimed to determine the plausibility of information and vary in nature and timing from, and are less in extent than, procedures performed for a reasonable assurance engagement. The level of assurance obtained in review engagements with a limited level of assurance, is therefore substantially less than the assurance obtained in audit engagements.
Valuable skills and experience also departed from the Supervisory Board when Robert Reibestein, chairman of the Risk Committee, announced he would resign as per 1 January 2020 due to health reasons. Robert was a very capable and experienced Supervisory Board member, and his presence on the board greatly benefitted ING. I want to thank him for his significant contribution to ING.
Board Banking, visited the offices of ING in Slovakia and Romania in September 2019. This allowed the Supervisory Board to get a better understanding of local business challenges, with specific focus on AML/KYC and data security, as well as on sourcing including the role of ING’s shared service centres.
In addition to financial results and accounts, the Audit Committee’s regular deliberations included financial reporting, the external auditor’s audit plan, engagement letter, independence and fees, the overall internal control environment, the internal controls over financial reporting, the internal and external auditor reports, review of the internal audit function, and matters related to the financing of the company, including the assessment of ING’s capital and liquidity position. The
Supervisory Board succession planning, the Nomination and Corporate Governance Committee continued its search for potential suitable successors so as to maintain a balanced Supervisory
Supervisory Board (see the ‘Diversity and Competence Matrix’ in this chapter).
Supervisory Board approving those items as required from a governance perspective.
‘independent’ under the NYSE listing standards. In some cases, Dutch requirements are stricter; in other cases the NYSE listing standards are stricter. All members of the Supervisory Board, other than Eric Boyer de la Giroday, are independent as determined under the Corporate Governance
Further announcements on the succession process will be made if and when appropriate.
The Remuneration Committee’s tasks include advising the Supervisory Board on the terms and conditions of employment (including remuneration) of the members of the Executive Board and on the policies and general principles on which the terms and conditions of employment of the members of the Executive Board and of senior managers of ING Group and its subsidiaries are based. On 31 December 2019 the members of the Remuneration Committee were: Mariana
ING’s remuneration approach is designed to attract, motivate and retain leaders and qualified staff who have the skills, abilities, values and behaviours needed to achieve our strategy. It aims to ensure we offer well-balanced remuneration within our risk appetite, promoting effective risk management. At the same time, we take into account our responsibility to our customers, society and other stakeholders, whose trust – quite simply – is our licence to operate.
Looking ahead, there is an additional section in this year's report outlining the Supervisory Board's proposal for remuneration policies for the Executive Board and the Supervisory Board for the coming years.
As disclosed in the Annual Report 2018, in consultation with the Supervisory Board, chief financial officer Koos Timmermans stepped down from his position as chief financial officer and as a member of the Executive Board on 7 February 2019. To facilitate an orderly transition and fulfil
▪ The implementation of a systematic integrity risk analysis in all business lines and regions was completed, contributing to consistent KYC risk assessments across the bank.
The table below contains information on the outstanding employee stock options and the movements during the financial year of employee stock options held by the members of the Executive Board on 31
▪ Bring remuneration levels in line with peers and with levels adequate to attract qualified
The Supervisory Board decided not to change the metrics for 2020.
Committee, is responsible for Risk Takers within the Management Board Banking.
In line with the Dutch Banking Code, ING aims for the total direct remuneration of members of the
The risk management function supports the Executive Board in formulating the risk appetite, strategies, policies and limits. It provides review, oversight and support functions throughout ING on risk-related items. ING’s main financial risks exposures are to credit risk (including transfer risk), market risk (including interest rate, equity, real estate, credit spread, and foreign exchange risks), funding & liquidity risk and business risk. ING Group is also exposed to non-financial risks, including operational, IT and compliance risks, as well as to model risks. The ING Group Chief Risk Officer (CRO)
This risk management section also includes additional disclosures beyond those required by IFRS-
The internal audit function forms the third line of defence. It provides an independent assessment of the effectiveness of internal controls over the risks to ING’s business processes and assets, including risk management activities performed in both the first and second lines of defence. To protect its independent nature, decisions regarding the appointment, re-appointment or dismissal from office as well as the remuneration package of the head of the internal audit function require supervisory board approval.
Commonly seen as norms and traditions of behaviour of individuals and of groups within an organisation, risk culture determines the way in which employees identify, understand, discuss, and act on the risks the organisation is confronted with and the risks it takes. This is a continuous long-term commitment and journey. In this respect, The Orange Code is a declaration of who we are. It describes what we can expect from each other when we turn up to work each day. It is a set of standards that we collectively value, strive to live up to, and invite others to measure us by.
ING’s International Conference in March and with the relevant departments. These were primarily teams involved in Know Your Customer activities in the Netherlands, US and Philippines. Based on these outcomes, a number of interventions have been implemented with the goal to change highrisk behavioural patterns.
In order to verify that it remains within the risk appetite framework, ING reports its risk positions vis-
Stress Testing Framework and the Risk Appetite Framework. The sequence in which the risks are presented below is not indicative of their likelihood of occurrence or the potential magnitude of their financial consequences.
Through the renewed sourcing policy and related control standard, ING will actively monitor the controls around sourcing (internal & external). According to 2019 EBA guidelines, all external and internal contracts have to re-assessed and properly classified and registered before end of 2021. In 2020, NFR will focus on improving business units’ risk data on Sourcing risk and related reporting.
Credit risk appetite is present across different levels within ING, at portfolio level as well as transaction level. The various credit risk appetite components at portfolio and transaction levels together result in the credit risk appetite framework.
The credit risk appetite and concentration risk framework is composed of: ▪ Country risk concentration: Country risk is the risk that arises due to events in a specific country
** Includes policies on Oil and Gas, Coal, Nuclear Energy and Power Generation.
General guidelines for cover valuation are established to ensure consistent application within ING.
Cover values including guarantees received - Business lending portfolio – 2019
To arrive at the economic capital for market risk, a simulation based model is used which includes scaling to the required confidence level and holding period. In determining this scaling factor, other factors are also taken into account like the occurrence of large market movements (events).
ING maintains a strategic portfolio with substantial equity exposure in its banking books. Local offices are responsible for the management of the equity investment positions. Financial Risk is responsible for monitoring the regulatory capital for equity investments on a monthly basis and acts independently from ING’s Local management when monitoring these positions.
The risk appetite with respect to the stress lens is set to ensure there is sufficient counterbalancing capacity under various internally defined stress scenarios. Regarding the sustainability perspective, an internally defined Stable funding to loans (SFL) ratio (supplemented by other metrics) is used to ensure a diversified funding base and to prevent overreliance on professional funding. Finally, the
As a result of frequent evaluation of the businesses from economic, strategic and risk perspective
In 2017, ING began implementation of its KYC enhancement programme across all customer segments and in all ING business units. The KYC enhancement programme consists of, among other things: ▪ Enhancing selected customer due diligence files to improve customer documentation, customer data and identity verification; ▪ Working on structural solutions to become sustainably better in the execution of our KYC policies, tooling, monitoring, governance and knowledge and behaviour; and
This started with the appointment of a global head of KYC at the end of 2018 and a global Centre of Expertise, as well as a Delivery Tribe, who together with the business lines and the second line of defence (Risk and Compliance functions) are responsible for implementing KYC across the organisation.
Model risk is the risk that the financial or reputational position of ING is negatively impacted as a consequence of the use of models. Model risk can arise from errors in the development, implementation, use or interpretation of models, or from incomplete or wrong data etc., leading to inaccurate, noncompliant or misinterpreted model outputs.
▪ the model is repeatedly used without a manual change of the design, and
Contents | Report of the Executive Board | Corporate governance | Risk Management | Consolidated financial statements | Parent company financial statements | Other information | Appendices > Business risk
Realised gains/losses on debt instruments at FVOCI reclassified to the statement of profit or loss –34 –56 n/a
Changes in individual reserve components are presented in Note 20 ‘Equity’.
Changes in: – Net change in Loans and advances to/from banks, not available/payable on demand –3,911 –211 3,194
Securities purchased under agreements to resell (reverse repos), securities borrowings and similar agreements are not recognised in the consolidated statement of financial position. The consideration paid to purchase securities is recognised as Loans and advances to customers, Loans and advances to banks, Other financial assets at FVPL or Trading assets, as appropriate. The difference between the sale and repurchase price is treated as interest and amortised over the life of the agreement using the effective interest method for instruments that are not measured at
The critical accounting estimates and assumptions are: The use of forward-looking macroeconomic scenarios in both collective and individual impairment assessments. Forward-looking macroeconomic scenarios are subjective and uncertain in nature.
The process the Group follows involves using inputs from third party provider Oxford Economics
the date ING Group obtains control) and the resulting gain or loss, if any, is recognised in the statement of profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to the statement of profit or loss, where such treatment would be appropriate if that interest were disposed of. Acquisition related costs are recognised in the statement of profit or loss as incurred and presented in the statement of profit or loss as Other operating expenses.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax basis of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets and liabilities are not discounted.
Loans to, or guaranteed by, public authorities 25,340 24,547 16,849 17,257 42,190 41,803
TMB is a financial institution providing products and services to Wholesale, Small and Medium
Gross carrying amount as at 31 December 1,479 1,346 2,408 2,305 3,886 3,651
Additional Tier 1 Contingent Convertible Capital Securities which can, in accordance with their terms and conditions, convert by operation of law into ordinary shares if the conditions to such conversion are fulfilled. As a result of this conversion, the issued share capital can increase by no more than 306 million ordinary shares. Reference is made to Note 19 ‘Subordinated loans’ and to the Parent company financial statements, Note 4 ‘Subordinated loans’.
Realised gains/losses transferred to the statement of profit or loss –138
Net trading income relates to trading assets and trading liabilities which include assets and liabilities that are classified under IFRS as Trading but are closely related to servicing the needs of the clients of ING. ING offers products that are traded on the financial markets to institutional clients, corporate clients, and governments. ING Group’s trading books are managed based on internal limits and comprise a mix of products with results which could be offset. A significant part of the derivatives in the trading portfolio are related to servicing corporate clients in their risk management to hedge for example currency or interest rate exposures. From a risk perspective, the gross amount of trading assets must be considered together with the gross amount of trading liabilities, which are presented separately on the statement of financial position. However, IFRS
In 2019 Other income of EUR 252 million (2018: EUR 136 million; 2017: EUR 350 million) includes the recognition of a EUR 79 million receivable related to the insolvency of a financial institution.
Austria). The main products offered are current and savings accounts, mortgages and other customer lending. (Challengers & Growth Markets)
Presented in the statement of financial position as: – Deferred tax liabilities –640 –695
– Assets mandatorily as at fair value through profit or loss 41,600 64,783 41,600 64,783
ING Group has categorised its financial instruments that are either measured in the statement of financial position at fair value or of which the fair value is disclosed, into a three level hierarchy based on the priority of the inputs to the valuation. The fair value hierarchy gives the highest priority to (unadjusted) quoted prices in active markets for identical assets or liabilities and the lowest priority to valuation techniques supported by unobservable inputs. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide reliable pricing information on an ongoing basis. The fair value hierarchy consists of three levels, depending upon whether fair values were determined based on
Early repayment of liabilities –30 –87 –0 –10 –20 –40 –106
Loans and advances 1,576 1,047 15 Price based Price (%) 0% 1% 104% 102%
Before fair value hedge accounting is applied by ING Group, ING Group determines whether an economic relationship between the hedged item and the hedging instrument exists based on an evaluation of the quantitative characteristics of these items and the hedged risk that is supported by quantitative analysis. ING Group considers whether the critical terms of the hedged item and hedging instrument closely align when assessing the presence of an economic relationship. ING
Hedge ineffectiveness recognised in the statement of profit or loss, gain (+) / loss (-)
2) Including EUR 5,312 million which is CRR/CRD IV-compliant (2018: EUR 2,833 million) and EUR 1,604 million to be replaced as capital recognition is subject to CRR/CRD IV grandfathering rules (2018: EUR 2,506 million).
Contents | Report of the Executive Board | Corporate governance | Risk Management | Consolidated financial statements | Parent company financial statements | Other information | Appendices in EUR million 2019 2018
equity (parent) in the consolidated financial statements. Certain components within equity are different as a result of the following presentation differences between the parent company accounts and consolidated accounts: ▪ Unrealised revaluations within consolidated Group companies, presented in Other reserves -
Contents | Report of the Executive Board | Corporate governance | Risk Management | Consolidated financial statements | Parent company financial statements | Other information | Appendices > Other liabilities > 5
Report on the audit of the financial statements 2019 included in the annual report
The audit coverage as stated in the section summary can be further specified as follows:
The 2018 Key Audit Matter with respect to instances of non-compliance with anti-money laundering and anti-terrorism financing acts is not included, as this specifically relates to the financial year 2018 and previous years.
Shareholders, on a motion of the Executive Board with approval of the Supervisory Board may resolve to distribute from the reserves to ordinary shareholders a dividend or other form of distribution to the registered Shareholder on a date determined by the Executive Board and approved by the Supervisory Board.
Additional risks of which the Company is not presently aware, or that are currently viewed as immaterial, could also affect the business operations of ING and have a material adverse effect on
Within the financial services industry, the severe distress or default of any one institution (including sovereigns and central counterparties (CCPs)) could lead to defaults by, or the severe distress of, other market participants. While prudential regulation may reduce the probability of a default by a major financial institution, the actual occurrence of such a default could have a material adverse impact on ING. Such distress of, or default by, a major financial institution could disrupt markets or clearance and settlement systems and lead to a chain of defaults by other financial institutions, since the commercial and financial soundness of many financial institutions may be closely related as a result of credit, trading, clearing or other relationships. Even the perceived lack of creditworthiness of a sovereign or a major financial institution (or a default by any such entity)
Reference Rates Committee (commonly referred to as ‘ARRC’) has recommended adoption of the
Non-compliance with laws and/or regulations concerning financial services or financial institutions could result in fines and other liabilities, penalties or consequences for us, which could materially affect our business and reduce our profitability.
Union (‘EU’). The main pieces of legislation in this field that apply to us are the EU’s Capital
Under provisions of US tax law commonly referred to as FATCA, non-US financial institutions are required to provide to the US Internal Revenue Service (‘IRS’) certain information about financial accounts held by US taxpayers or by foreign entities in which US taxpayers hold a substantial ownership interest. Every three years, certain ING branches and subsidiaries are required to certify their compliance with FATCA requirements to the IRS. If the IRS determines that any such branches and/or subsidiaries are not in compliance with the FATCA requirements, then the FATCA regulations would impose a 30 percent penalty tax on all US-source payments (e.g., interest and dividends)
Group’s ability to attract and retain key personnel, in senior management and in particular areas such as technology and operational management, client relationship management, finance, risk and product development, is dependent on a number of factors, including prevailing market conditions and compensation packages offered by companies competing for the same talent.
Based on the foregoing, there can be no assurance that U.S. investors will be able to enforce against us or members of our board of directors, officers or certain experts named herein who are residents of the Netherlands or countries other than the United States any judgments obtained in
2.2 Show that the bank has set and published a minimum of two SMART targets, which address at least two of the identified ‘areas of most significant impact’, resulting from the bank’s activities and provision of products and services.
We will continue our dialogue with the NGOs concerned as we seek to understand any potential negative impacts.