The Think Forward strategy with its purpose to empower people to stay a step ahead in life and in business continued to guide our direction in 2016.
• Grow faster than the market by offering a differentiating customer experience
1 This information constitutes forward-looking statements as referenced in the “Disclaimer” and is not intended to be a complete list of such matters. For more information on what can impact ING Group’s results of operations and financial position, please see “Additional Information, Risk factors” on page 345 of the Annual Accounts.
Read more in the “Our strategy and how we create value” chapter about innovation.
Managing risks is at the heart of what we do and can have a material impact on our business and society. Safe banking requires strong risk management, both financial and non-financial.
Elements of our strategy Our Think Forward strategy was launched in March 2014 and guides everything we do. In this section we give you an overview of the strategy with references to where you can look in the Annual Report for examples and additional information and how our strategy links to the material topics identified by our stakeholders.
Our goal is to ultimately converge our different banking models into one globally scalable platform. As a first step, we will move to an intermediate state (2016-2021) where we will converge businesses with similar customer propositions that can benefit from a more standardised approach and economies of scale.
G-SIBs will be required to meet the TLAC requirement alongside the minimum regulatory requirements set out in the Basel III framework. Specifically, they will be required to meet a Minimum TLAC requirement of at least 16% of the resolution entity’s risk-weighted assets (TLAC RWA Minimum) as from 1 January 2019 and at least 18% as from 1 January 2022. Minimum TLAC must also be at least 6% of the Basel III leverage ratio denominator (TLAC Leverage Ratio Exposure (LRE) Minimum) as from 1 January 2019, and at least 6.75% as from 1 January 2022. Buffer requirements will come on top of the RWA requirement but not on top of the leverage requirement. In addition, the Single Resolution Board has assumed full power as per 1 January 2016. The work plan for the SRB in 2016 focused on determining the preferred resolution strategy, the resolution entity and the required amount of Minimum Required Eligible Liabilities (MREL).
R.M.M. (Roel) Louwhoff (51) COO/CTO on the Management Board Banking Roel Louwhoff was appointed a member and chief operations officer (COO) of the Management Board Banking as of 1 May 2014. He was also appointed chief transformation officer (CTO) per 1 October 2016. In this role, that he fulfils alongside his COO role, he is responsible for operations of the bank-wide transformation that was announced in October 2016. In his COO role, Roel is responsible for operations, IT (including standardisation), data management, information security, process management, and procurement.
Score: 88 (out of 100) Position: 3 (out of 409 financial peers)
Corporate Governance - continued members of the executive board are employees of the company while members of the supervisory board are not. The latter are often former state or business leaders and sometimes former members of the executive board. A member of the executive board or other officer or employee of the company cannot simultaneously be a member of the supervisory board. The supervisory board must approve specified decisions of the executive board. Under the Corporate Governance Code, all members of the supervisory board, with the exception of not more than one person, should be independent. The definition of independence under the Corporate Governance Code however differs in its details from the definitions of independence under the NYSE listing standards. In some cases, Dutch requirements are stricter; in other cases the NYSE listing standards are stricter. The Audit Committee, Risk Committee, Remuneration Committee, Nomination Committee and Corporate Governance Committee of ING Group are comprised of members of the Supervisory Board.
This delegation of authority allows ING Group to respond promptly to developments in the financial markets. Without such delegation, should ING Group wish to issue new shares, there would be an increased risk that conditions in the financial markets may change during the time needed to convene a General Meeting, especially given the 42-day statutory convocation period in the Netherlands.
ING Group strives to maintain an open and constructive dialogue with current and potential investors, and with industry analysts. The scope of such bilateral communication may range from single investor queries via email, to more elaborate discussions with analysts or institutional investors that take place via telephone or face-to-face. ING Group’s Investor Relations department is the main point of contact for these communications. Executive Board members or Management Board Banking or divisional management members may also participate in investor meetings. These meetings are not announced in advance, nor can they be followed by webcast or any other means. Information provided during such occasions is limited to what is already publicly available.
P.G. (Patrick) Flynn, Chief Financial Officer (“CFO”) (Born 1960, Irish nationality, male; appointed in 2009, term expires in 2017) Patrick Flynn has been a member of the Executive Board and CFO of ING Group since 27 April 2009. He also serves as a member and CFO on the Management Board Banking. He is responsible for ING’s financial strategy, including internal and external reporting, budgeting, procurement, forecasting, capital management, investments/acquisitions and divestments, tax management, investor relations and business performance reporting and analysis, including measuring adherence to financial targets. He is a Chartered Accountant, a member of the Institute of Chartered Accountants Ireland, and a member of the Association of Corporate Treasurers in the UK. He holds a Bachelor’s degree in Business Studies from Trinity College Dublin.
Separate charters have been drawn up for the Audit Committee, the Risk Committee, the Remuneration Committee, the Nomination Committee and the Corporate Governance Committee. These charters are available on the website of ING Group (www.ing.com). A short description of the duties for the five Committees follows below.
According to its articles of association and the Trust Conditions, ING Trust Office was guided primarily by the interests of the holders of depositary receipts, taking into account the interests of ING Group and its affiliated enterprises.
Costs In 2016, the costs of the activities of ING Trust Office amounted to EUR 418,192 (2015 EUR 460,508). An amount of EUR 204,250 (2015 EUR 282,430) is related to the costs of administration of the depository receipts. ING Trust Office was advised by a law firm in respect of the termination of the depositary receipt structure. The costs of the external advice amounted to EUR 54.904.
The outcome of the performance assessment is linked to remuneration consequences such as moderate adjustments to fixed salary or variable remuneration awards (if appropriate).
ING believes that in principle fixed remuneration should be considered sufficient to compensate employees for their daily work. For some positions limited variable remuneration opportunities apply.
The legal, regulatory and market environment is continuously changing and this may further impact ING. In order to ensure that ING can adapt to these dynamic and uncertain factors, the Supervisory Board will continue to re-evaluate the Executive Board remuneration policy as and when required.
Non-financial performance indicators • Think Forward Strategy: improving customer experience and enabling commercial growth
Variable remuneration (fully in shares) ¹ 316 23,092 293 28,404 - -
Pension costs of the individual members of the Executive Board amounts in thousands of euros 2016 2 2015 1 2014 1 As from 1 January 2015 pension accrual only applies to salary up to an amount of EUR 100,000. 2 As from 1 January 2016, this amount increased to EUR 101,519.
Basic earnings per ordinary share from continuing operations 1.09 1.16 0.50
Diluted earnings per ordinary share from continuing operations 1.09 1.15 0.49
Net cash flow from/(used in) investing activities 31 6,134 4,196 –7,419
6 Included in Repayment of subordinated loans is a cash outflow of EUR 128 million related to the third and final tranche of mandatory exchangeable subordinated notes from the Anchor investors into NN Group ordinary shares in February 2016.
As at 31 December 2016, Cash and cash equivalents includes cash and balances with central banks of EUR 18,144 million (2015: EUR 21,458 million; 2014: EUR 12,233 million). The decrease in cash and balances with central banks is as a result of the lowering of excess liquidity and negative interest rates. Reference is made to Note 32 ‘Cash and cash equivalents’.
Basis of preparation of the Consolidated annual accounts The ING Group Consolidated annual accounts have been prepared in accordance with International Financial Reporting Standards (IFRS) and interpretations issued by the IFRS Interpretations Committee (IFRS IC) as adopted by the European Union (EU) and the relevant articles of Part 9 of Book 2 of the Dutch Civil Code.
The Group’s investment in associates and joint ventures (net of any accumulated impairment loss) includes goodwill identified on acquisition. The Group’s share of its associates and joint ventures post-acquisition profits or losses is recognised in the statement of profit or loss, and its share of post-acquisition changes in reserves is recognised in equity. The cumulative post-acquisition changes are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate or joint venture equals or exceeds its interest in the associate or joint venture, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate or joint venture.
The recognition of a net defined benefit asset in the consolidated statement of financial position is limited to the present value of any economic benefits available in the form of refunds from the plans or reductions in future contributions to the plans.
Loans include balances (mainly short-term deposits) with central banks amounting to EUR 2,880 million (2015: EUR 1,104 million).
Disposals and redemptions –682 –216 –30,483 –48,331 –630 –1,219 –31,795 –49,766
− Loans and advances to customers 2,349 2,900 2,829 2,872 5,178 5,772
In November 2016, ING Groep N.V. issued USD 1,000 million securities that qualify as Additional Tier 1 capital under CRR/CRD IV. The issuance was in the form of 5 Year Callable USD denominated Perpetual Additional Tier 1 Contingent Convertible Securities, with coupon 6.875%. The securities are subject to full conversion into ordinary shares of ING Groep N.V. in the event that ING’s phased-in CET1 ratio would fall below 7%. ING has classified this instrument as a financial liability because ING is obliged to deliver cash or another financial asset, or to otherwise settle the instrument in such a way that it would be a financial liability (e.g. by delivering a variable number of shares) upon the occurrence of an uncertain future event (i.e. a trigger event) that is beyond the control of both the issuer and the holder.
In February, March, and September 2016 respectively, ING Groep N.V. redeemed the final tranche of subordinated loans from the Anchor investors (EUR 338 million), GBP 66 million 5.14% Bond and the USD 800 million 7.05% ING Perpetual Debt Securities.
In 2016, the share premium increased by EUR 896 million, mainly as a result of a transfer from issued share capital as described above.
In 2015 and 2014, Transfer to insurance liabilities/DAC comprised the change in insurance liabilities related to NN Group and Voya, until deconsolidation at the end of May 2015 and the end of March 2014 respectively.
Changes in composition of the group and other changes 10 –3
Interest expense on non-trading derivatives (no hedge accounting) 652 652 1,255
In July 2014, 2.8 million share awards of ING Group were converted in NN Group share awards, these are presented in the line Vested.
–2,492 –1,442 –2,036 Not included in cash and cash equivalents: – deposits from banks –22,155 –23,501 –18,174
Special items –63 –957 –1,021 1 Amounts are adjusted for comparison purposes. Czech Republic, previously fully reported within Wholesale Banking is now segmented to both Retail and
Additional notes to the Consolidated annual accounts 35 Pension and other post-employment benefits ING Group maintains defined contribution and defined benefit plans. In 2016 and 2015, the defined benefit plans of the Group are mainly within the United Kingdom and Belgium.
In 2016, EUR 467 million Remeasurement of plan assets and EUR –498 million Actuarial gains and losses arising from changes in financial assumptions are mainly due to a decrease in discount rates.
Presented in the statement of financial position as: – deferred tax liabilities –860 –643
More than 5 years but less than 10 years 30 118 1
42 Transfer of financial assets The majority of ING's financial assets that have been transferred, but do not qualify for derecognition are debt instruments used in securities lending or sale and repurchase transactions. Reference is made to Note 48 ‘Structured entities’.
ING announced the sale of its remaining 14.1% stake in NN Group on 14 April 2016, fulfilling the terms of the revised restructuring agreement with the EC as amended in 2012, whereby ING was required to fully divest its shareholding in NN Group before the end of 2016. In the course of 2016, the European Commission confirmed that ING’s Restructuring was completed.
ING Group Annual Report 2016 243 51 Other events NN Group
February 2015 – Further divestment of NN Group In February 2015, ING Group sold 52 million ordinary shares of NN Group. As part of the transaction, NN Group repurchased 8.3 million ordinary shares. The gross proceeds to ING Group from the offering, including the repurchase by NN Group, amounted to EUR 1.2 billion. The transaction reduced the ownership of ING in NN Group from 68.14% (at 31 December 2014) to 54.58%. The transaction did not impact the statement of profit or loss of ING Group as NN Group continued to be fully consolidated. The transaction had a negative impact of EUR 1,769 million on the shareholder’s equity of ING Group, being the difference between the net proceeds of the transaction and the IFRS carrying value per the transaction date of the equity stake sold.
VISA In 2015, VISA announced a definitive agreement for VISA Inc. to acquire VISA Europe. This announcement, together with letters received by ING Bank and its subsidiaries from VISA which detailed ING’s share in the transfer proceeds, provided the basis for reassessment of the fair value of shares held by ING Bank and its subsidiaries. The shares are recognised as Investment in availablefor -sale equity securities. The fair value of the shares, EUR 154 million as at 31 December 2015, was determined by taking into account the upfront consideration, consisting of cash and preferred shares, the earn-out consideration and any uncertain factors that could affect the upfront and earn-out consideration. The increase in fair value of EUR 154 million was recognised in Equity in 2015. The transaction was subject to regulatory approvals.
The internal audit function forms the third line of defence. It provides an on-going independent (i.e. outside of the businesses and the risk organisation) and objective assessment of the effectiveness of internal controls of the first two lines, including financial and nonfinancial risk management.
Step 3. Cascade into statements per risk type and business unit The risk appetite is translated per risk type, which is further cascaded down into the organisation to the lowest level .The risk appetite statements are then translated into dedicated underlying risk limits which are used for day-to-day monitoring and management of ING Bank’s risks.
Transaction Assessment: • Front Office: departments that originate transactions and have direct contact with the client or project sponsors; • Risk Management: departments that provide control over front office activities and generally sign off on the environmental and social impacts for ’Low Risk’ or ‘Medium Risk’ transactions; • Environmental and social risk department within risk management fully dedicated to assessing environmental and social impacts associated with ’High Risk’ transactions. Negative advice from the ESR department can only be waived by ING’s highest credit committee or the Managing Board Banking (MBB). In practice such waivers are very exceptional.
Total Business Lending 310,395 128,578 17,004 89,204 98,559 132,672 33.6% 4.1% 5.9% 7.4% 10.6% 38.3% of which Total Nonperforming 9,438 4,352 293 3,210 3,961 3,705 24.1% 4.4% 6.4% 14.2% 13.8% 37.2% 1 Including loans to ING Group. 2 Excluding intercompany positions. 3 ‘Others’ comprises industries with outstandings below EUR 13 billion.
Total 3,970 4,328 1 Based on consumer lending. The amount of past due but performing financial assets in respect of non-lending activities was not significant.
Portfolios in Retail Benelux continued to improve, Wholesale Banking corporate lending was also relatively strong with a few incidental defaults. Challenges continued in industries like Oil & Gas, Shipping and Telecom while on the other hand, improved risk profiles were witnessed in other portfolios of the bank such as in residential mortgages and in commercial property finance. Encouraging signs in the Dutch housing market have helped to reduce the risk costs due to improved house prices and risk profiles. Risk costs in Turkey and Ukraine have trended downwards in 2016.
Liquidity risk management within ING Bank falls under the supervision of the ALCO function, with ALCO Bank as the highest approval authority overseeing the execution of the overall strategy set by the MBB.
Contingency funding plan In the contingency funding plan, contingency liquidity risk is addressed which specifically relates to the organisation and planning of liquidity management in time of stress. Within ING Bank, for contingency purposes, a dedicated crisis team – consisting of key MBB members and senior management representatives from e.g. Risk, Finance, Capital Management and Bank Treasury – is responsible for liquidity management in times of crisis. Throughout the organisation contingency funding plans are in place to enable senior management to act effectively and efficiently in times of crisis. The contingency funding plans are developed in line with the ING Recovery Plan and are tested on a regular basis, both centrally and at business unit level.
In cases where an employee from ING Bank suspects a breach of external laws and regulations, internal policies and minimum standards and/or the Orange Code they are encouraged to (anonymously) speak up in line with the Whistleblower policy using the most appropriate channel, e.g. the (external) ethics line.
ING Group Annual Report 2016 334 11 Interest and other financial expenses
Because we use assumptions to model client behaviour for the purpose of our market risk calculations, the difference between the realisation and the assumptions may have an adverse impact on the risk figures and future results. We use assumptions in order to model client behaviour for the risk calculations in our banking books. Assumptions are used to determine the interest rate risk profile of savings and current accounts and to estimate the embedded option risk in the mortgage and investment portfolios. The realisation or use of different assumptions to determine client behaviour could have a material adverse effect on the calculated risk figures and, ultimately, future results.
Capital requirement Capital Adequacy Rules – CRR/CRD IV The rules for required Regulatory Capital or Capital adequacy are based on the guidelines developed by the Basel Committee on Banking Supervision (The Basel Committee) and the European Union Regulation and Directives, as implemented by the European Central Bank and the Dutch Central Bank for supervisory purposes.
Includes both AIRB and SA portfolios; excludes equities, CVA RWA and ONCOA.
Retail Europe 303,929 303,534 0% 66,769 68,509 -3% Netherlands 135,611 142,607 -5% 20,635 26,242 -21% Belgium 43,535 42,660 2% 10,259 8,284 24% Germany 81,356 77,107 6% 20,920 19,772 6% Rest of Europe 43,428 41,160 6% 14,955 14,211 5%
Credit quality of exposures by exposure classes and instruments This section provides a comprehensive picture of the credit quality of the banks’ assets per exposure class.
Simple risk weight method A small part of ING’s portfolio – some of the equity exposure – is subject to the simple risk weight method for calculating the regulatory capital. The table below shows more details on the equity exposure for which this method is used.
Through our “Power for Youth” partnership with UNICEF, we aim to reach 335,000 adolescents in six less-developed countries by 2018, helping them to develop the social and financial knowledge and skills needed to build a brighter future
Impact Measurement ING sees climate change as one of the biggest challenges of our time and we are committed to reducing the impact of our own operations as well as helping clients to reduce theirs. In 2016, we conducted a pilot to measure the indirect emissions impact and performance of two specific asset classes within our lending portfolio. This provided us with insight into what is needed to be able to properly measure the emissions impact of our entire portfolio. While we arrived at a reasonable measurement, we struggle with the outcome as we found that the margin of error was unacceptable for disclosure. This is a result of the lack of data availability. To further improve our methodology, we continue to work with internal and external partners, but also look forward to the establishment of international market standards that will help create benchmarking capabilities and a level playing field among peers. Therefore, we do not only provide input for more local initiatives but also actively provide input for international efforts like the Financial Stability Board Taskforce for climate-related financial disclosure to provide guidance to the financial sector on this topic.
In line with our sustainability direction we contribute to multiple international initiatives and cooperate as a member in platforms such as the Equator Principles Association and the Ellen MacArthur Foundation for circular economy. We seek external direction and validation of our sustainability priorities by endorsing international standards such as the UN Global Compact, the OECD Guidelines for Multinational Enterprises and the Global Reporting Initiative. A full overview of partnerships, memberships and endorsements can be found on ING’s corporate website ing.com (www.ing.com/16ar12).
Paying cash: The future of cash is a widely and controversial discussed industry topic in the German media landscape, especially after the European Central Banks (ECB) announcement, that it will no longer produce the EUR 500 note. In Germany paying by cash is still the first choice of consumers in contrast to many other European countries, also in times of digitalization.
d. Loans to other sustainable projects: Other sustainable projects include energy efficiency, greenhouse gas reduction, climate change mitigation, waste management, water efficiency, public transport and social welfare.