However, with inflation in most developed economies staying low, longer-term yields remained modest while equity markets in advanced economies performed well and corporate credit spreads were at, or close to, their tightest levels since the beginning of 2008. Volatility was subdued despite increased geopolitical tensions around North Korea.
• Leader in digital banking • Among leaders in sustainability • Balance sheet quality and stable funding base • Global network provides competitive advantage • Diversified business model • Agile way of working
In general, ING continues to favour a more harmonised European approach to regulations. This would help to align the customer experience across borders and could accelerate the digitalisation of ING’s banking services.
Safe banking requires specific knowledge of financial services, in-depth knowledge of customers, and rigorous risk-management systems. As competition from outside the banking sector continues to increase, we have to become faster, more agile and more innovative.
Helping people make smarter financial decisions with transparent tools, tailored offers and expert advice.
ING’s progress since launching the Think Forward strategy in 2014 confirms that we are heading in the right direction. With the trends we identified at that time continuing and even intensifying, we are accelerating the implementation of our strategy to remain relevant for customers in the future and to continue to provide them with a differentiating experience.
• Launch of ING Ventures, a EUR 300 million venture capital fund for fintechs
Read more about Sustainable Assets under Management in the ‘Non-financial appendix’.
Risk costs declined to EUR 13 million, or 3 basis points of average risk-weighted assets, from EUR 171 million in 2016, reflecting the positive economic conditions in the Netherlands and strong housing market.
Change is the norm. We’re in a constant state of flux. It can be a challenge managing that. Clients are continually
This is my second rotation in the ITP. I’m in charge of implementing the branch network of a new distribution model. We are changing the way we interact with and serve customers. We’re offering more online and remote solutions and extending our availability. My first rotation was in a branch, so I have a clear view on what customers expect.
Aside from the Think Forward leadership programme and the various trainings I do as part of my goals for the year, I completed the Promoting Integrity Programme, a compulsory online training to increase awareness around integrity and dilemmas. Every Dutch employee is also required to take the Banker’s Oath, committing to maintain high standards of ethical behaviour.
For details please refer to the Pillar 3 report at www.ing.com/17ar
For more information on material risks, please refer to the ‘Top and emerging risks’ section of the ‘Risk Management’ chapter, part of the consolidated annual accounts of this Annual Report, and the risk factors section of the ‘Additional information’ chapter of this Annual Report.
ING Groep N.V. A- Stable Baa1 Stable A+ Stable ING Bank N.V. A+ Stable Aa3 Stable A+ Stable – Short term A-1 P-1 F1
Audience This report is intended to serve the information needs of key stakeholder groups that affect, and are affected by our business: customers, employees, share- and bondholders, supervisors, regulators, civil society organisations and society at large. In addition, a clear and easy overview of key figures and impacts in 2017 is available at www.ing.com.
Data compilation and boundaries All financial data in this integrated report are extracted or derived from, and in line with, our annual accounts. The non-financial performance data published in this report cover five key topics: sustainable business, customers, human resources, environment and community investment. We extract or derive data on sustainability-related business activities, customers and human resources from our business systems, in line with the data in our annual accounts. Data on the topics environment and community investment are collected through an online data management system. The centralised data processing team at ING Group validates and processes the environmental data from our operations worldwide in collaboration with an independent, third-party consultancy.
The global transformation programme approved in 2016 was further developed to realise the acceleration of the Think Forward strategy. The basic starting point of the programme was ING’s value proposition, captured in multiple work streams.
In 2017, the Committee discussed the agenda for the 2017 Annual General Meeting and the proposed topics for the 2018 Annual General Meeting, including the publication of the booklet on the application of the Dutch Banking Code.
General Meetings are convened by public notice via the ING Group website (www.ing.com) at least 42 days before the day of the General Meeting.
Other diversity related aspects are also taken into consideration in light of the overall SB composition (see ‘Report of the Supervisory Board’ chapter, page 69).
Conformity statement pursuant to section 5:25c paragraph 2(c) of the Dutch Financial Supervision Act (Wet op het financieel toezicht). The Executive Board is responsible for maintaining proper accounting records, for safeguarding assets and for taking reasonable steps to prevent and detect fraud and other irregularities. It is responsible for selecting suitable accounting policies and applying them on a consistent basis, making judgements and estimates that are prudent and reasonable. It is also responsible for establishing and maintaining internal procedures that ensure that all major financial information is known to the Executive Board, so that the timeliness, completeness and correctness of the external financial reporting are assured.
Risk mitigating measures ING applies measures to mitigate risk relating to variable remuneration. Our remuneration policy takes into consideration risk, capital, liquidity and the likelihood and timing of earnings. Measures include pre-award and post-award risk assessments of variable remuneration.
The Remuneration Committee is among others responsible for the preparation of decisions to be taken by the Supervisory Board regarding remuneration of individual members of the Executive Board. Remuneration proposals for the individual Executive Board members are drawn up in accordance with the applicable Executive Board remuneration policy and cover the following aspects: remuneration structure, the amount of the fixed and variable remuneration components, the performance criteria used, scenario analyses that are carried out and, if and when considered appropriate, the internal pay relativities. The Remuneration Committee takes note of individual Executive Board members’ views with regard to the amount and structure of their own remuneration, including the aspects as mentioned above.
Fixed remuneration Variable Remuneration (VR) at 16% target VR Fixed shares Gross cash base salary0
Remeasurement of the net defined benefit asset/liability 35 –29 –29 –29
Changes in: – loans and advances to banks, not available on demand –3,126 –1,162 6,766
– other financial liabilities at fair value through profit or loss –565 –432 –1,582
In billions of euros IAS 39 LLP IFRS 9 impairment stages Estimated IFRS 9
HtC portfolio (AC) under IFRS 9. 3 A portfolio of mortgages will be measured at FVOCI under IFRS 9 instead of AC under IAS 39 resulting in an impact of approximate EUR 0.2 billion impact on CET1 capital. 4 This item mainly relates to the estimated impact of reporting loans and debt instruments at fair value through the SOPL because the cash flows of these assets do not represent SPPI.
Financial liabilities at amortised cost are recognised initially at their issue proceeds (fair value of consideration received) net of transaction costs incurred. Liabilities in this category are subsequently stated at amortised cost; any difference between proceeds, net of transaction costs, and the redemption value is recognised in the statement of profit or loss over the period of the liability using the effective interest method.
The maximum credit risk exposure for items in the statement of financial position is generally the carrying value for the relevant financial assets. For the off-balance sheet items the maximum credit exposure is the maximum amount that could be required to be paid. Reference is made to Note 44 ‘Contingent liabilities and commitments’ for these off-balance sheet items. Collateral received is not taken into account when determining the maximum credit risk exposure.
The fair values of land and buildings are based on regular appraisals done by independent qualified valuers or by internal valuers, similar to appraisals of real estate investments. Subsequent expenditure is included in the asset’s carrying amount when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably.
Trading assets and Trading liabilities include assets and liabilities that are classified under IFRS as Trading but are closely related to servicing the needs of the clients of ING Group. ING offers institutional clients, corporate clients, and governments, products that are traded on the financial markets. 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. In addition, ING provides its customers access to equity and debt markets for issuing their own equity or debt securities (securities underwriting). Although these are presented as Trading under IFRS, these are directly related to services to ING’s customers. Loans and receivables in the trading portfolio mainly relate to (reverse) repurchase agreements, which are comparable to collateralised lending. These products are used by ING as part of its own regular treasury activities, but also relate to the role that ING plays as intermediary between different professional customers. 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 does not allow netting of these positions in the statement of financial position. Reference is made to Note 13 ‘Financial liabilities at fair value through profit or loss’ for information on trading liabilities.
In 2016, Realised gains/losses on disposal of equity securities includes mainly EUR 163 million comprising the gain on disposal of the shares held in VISA Europe Limited. For further information on the disposal of shares held in VISA Europe Limited, reference is made to Note 7 ‘Share of associates and joint ventures’, and Note 18 ‘Equity’.
ING Group evaluates the results of its banking segments using a financial performance measure called underlying result. Underlying result is used to monitor the performance of ING Group at a consolidated level and by segment. The Executive Board and Management Board Banking consider this measure to be relevant to an understanding of the Group’s financial performance, because it allows investors to understand the primary method used by management to evaluate the Group’s operating performance and make decisions about allocating resources. In addition, ING Group believes that the presentation of underlying net result helps investors compare its segment performance on a meaningful basis by highlighting result before tax attributable to ongoing operations and the underlying profitability of the segment businesses. Underlying result is derived by excluding from IFRS the following: special items; the impact of divestments and Legacy Insurance.
Underlying net result 2,212 508 875 292 527 813 –269 4,957 Special items 0 0
ING Bank N.V. Wholesale banking/Retail banking 13,141 5,757 241,379 2,301 639
Romania Branch of ING Bank N.V. Wholesale banking/Retail banking 1,968 314 5,940 135 23
Spain Branch of ING Bank N.V. Wholesale banking/Retail banking 1,116 498 23,309 197 51
France1 Branch of ING Bank N.V. Wholesale banking/Retail banking 613 280 8,614 56 18
36 Taxation Statement of financial position – Deferred tax Deferred taxes are recognised on all temporary differences under the liability method using tax rates applicable in the jurisdictions in which ING Group is subject to taxation.
Realised gains/losses transferred to the statement of profit or loss (reclassifications from equity to profit or loss) 20 57 39
Total income tax related to components of other comprehensive income 253 2 115
Main changes in fair value hierarchy There were no significant transfers between Level 1 and Level 2 in 2017 and 2016.
Financial liabilities designated as at fair value through profit or loss –6 –3 –6 –3
Accounting ineffectiveness recognised in the statement of profit or loss for the year ended 31 December 2017 on derivatives and nonderivatives designated under net investment hedge accounting was EUR 3 million (2016: nil).
Fair values of outstanding derivatives designated under net investment hedge accounting
Tax cases: Because of the geographic spread of its business, ING may be subject to tax audits, investigations and procedures in numerous jurisdictions at any point in time. Although ING believes that it has adequately provided for all its tax positions, the ultimate resolution of these audits, investigations and procedures may result in liabilities which are different from the amounts recognised. ING has also identified issues in connection with its US tax information reporting and withholding obligations in respect of prior periods. While a provision has been recorded, the review of such issues is ongoing.
Monitoring and reporting By monitoring the risk control measures, ING checks if they are executed, complied with, have the expected mitigating effects and follow the development of the risks and their risk levels. Risk reporting provides senior and local management with information they need to manage risk.
Credit risk appetite statements are defined top-down across the credit risk categories (lending, investment, money market and presettlement ), and connected to ING high-level risk appetite across all risk types (solvency, credit, liquidity and funding, market, and non-financial risk). They consist of a set of high-level credit risk metrics: expected loss, economic capital, risk-weighted assets (RWA) and exposure at default. For each credit risk metric a boundary is set that is cascaded down and monitored on a monthly basis. The adherence to the boundaries and the pro-active approach to manage the portfolio within the risk appetite boundaries are part of the key performance indicators of the business line managers.
Product approvals Across ING a product approval and review process ensures effective management of risks associated with the introduction of new or modified products. It safeguards that sound due diligence is performed by relevant stakeholders to ensure that relevant risks (credit, operational, compliance, etc.) are adequately mitigated in the Product Approval and Review Process (PARP).
Pre-settlement1 50,003 1 More information on the credit risk mitigants can be found in the Pre-settlement section.
ING continues working on strengthening its global fraud resilience and to strengthen its control environment as fraudsters turn their interest to the end-user. Combining automated fraud detection tools that can be used for monitoring or early detection of fraudulent incoming and outgoing payments remains important in fraud prevention. These are used to further enhance an effective set of organisational controls.
Despite our efforts to comply with applicable laws and regulations, there are a number of risks in areas where applicable regulations are unclear, subject to multiple interpretations or under development, are in conflict with each other, or where regulators revise their guidance or courts set new legal standards. Meeting all these requirements within the strict timelines that are set poses a significant operational challenge for banks. Implementing the necessary processes and procedures to effectively comply has significant implications for IT systems and data, while people who have the necessary knowledge and skills are scarce.
Financial Account Tax Compliance Act (FATCA) Under provisions of US tax law commonly referred to as FATCA, non-US financial institutions are required to provide certain information on their US account holders and/or certain US investors to the US Internal Revenue Service (“IRS”). A 30% withholding tax will be imposed on ‘withholdable payments’ made to non-compliant non-US financial institutions. The Group intends to take all necessary steps to comply with FATCA and other US withholding tax regulations. ING is for example updating and strengthening its withholding compliance programme and reviewing, amending and filing the necessary tax returns and information reports.
In 2017, FATCA Policy ownership (including advisory and monitoring) transferred from Corporate Tax to Corporate Compliance. Also in 2017, ING issued a new, comprehensive policy which addresses the compliance requirements for withholding US taxes from our customers, remitting the tax to the US Internal Revenue Service (‘IRS’), and annually providing our customers and the IRS with summary reports of payments made and taxes withheld.
Consequently, Maximum Distributable Amount (MDA) trigger level is expected to rise from 9.0% in 2017 to 10.4% in 2018 and 11.8% in 2019 and assumes a stable Pillar 2 requirement. In the event that ING Group breaches the MDA level it may face restrictions to pay dividends, coupons on AT1 instruments and bonuses.
The Parent company annual accounts of ING Groep N.V. are prepared in accordance with the financial reporting requirements included in Part 9 of Book 2 of the Dutch Civil Code. In accordance with subsection 8 of section 362, Book 2 of the Dutch Civil Code, the recognition and measurement principles applied in these Parent company annual accounts are the same as those applied in the Consolidated annual accounts, reference is made to Note 1 ‘Accounting policies’ of the Consolidated annual accounts. Investments in group companies are accounted for in the Parent company accounts according to the equity method.
Changes in ING Groep N.V. shares held by group companies 7 –10 2 Investments in participating interests
External advisory fees 3 1 9 Interest and other financial income
Last year, we reported ‘Estimation uncertainty with respect to the digital transformation restructuring provisions’ as a key audit matter. The estimation uncertainty related primarily to the initial recognition and measurement of the restructuring provisions as per 31 December 2016. Based on the observations following our audit of the 2017 annual accounts we do not consider the subsequent measurement of the restructuring provision to be a key audit matter. We did not consider the SME derivatives remediation program a key audit matter this year given the status of the program.
In addition, we are subject to the risk that our rights against third parties may not be enforceable in all circumstances. The deterioration or perceived deterioration in the credit quality of third parties whose securities or obligations we hold could result in losses and/ or adversely affect our ability to rehypothecate or otherwise use those securities or obligations for liquidity purposes. A significant downgrade in the credit ratings of our counterparties could also have a negative impact on our income and risk weighting, leading to increased capital requirements. While in many cases we are permitted to require additional collateral from counterparties that experience financial difficulty, disputes may arise as to the amount of collateral we are entitled to receive and the value of pledged assets. Also in this case, our credit risk may also be exacerbated when the collateral we hold cannot be liquidated at prices sufficient to recover the full amount of the loan or derivative exposure due to us, which is most likely to occur during periods of illiquidity and depressed asset valuations, such as those experienced during the financial crisis of 2008. The termination of contracts and the foreclosure on collateral may subject us to claims. Bankruptcies, downgrades and disputes with counterparties as to the valuation of collateral tend to increase in times of market stress and illiquidity. Any of these developments or losses could materially and adversely affect our business, financial condition, results of operations, liquidity and/or prospects.
Holders of ING shares may experience dilution of their holdings. The issuance of equity securities resulting primarily from the conversion of some or all of such instruments would dilute the ownership interests of existing holders of ING shares and such dilution could be substantial. Additionally, any conversion, or the anticipation of the possibility of a conversion, could depress the market price of ING shares.
Reporting principles We aspire to present a balanced and comprehensive overview of our financial and non-financial performance. We disclose data on our financial performance and on the impact of our organisation on society and the environment. We report performance data on areas of our business and operations where we can have a material impact both inside the organisation and externally. The Executive Board and the Supervisory Board are the highest bodies to review and approve our Annual Report, including disclosure on all material topics.
• We set an ambition to increase lending twofold to Industry ESG Leaders, Climate Finance and Social Impact Finance each by 2022 compared to 2017.
B Describe the impact of climate-related risks and opportunities on the organisation’s businesses, strategy, and financial planning.
A Describe the organisation’s processes for identifying and assessing climate-related risks.
The following data tables provide a performance overview across key Human Resource-related topics. Further information is available in ‘Our people’ chapter.