We achieved this by building on our strong position in digital banking. In retail banking this included improvements to the mobile customer experience in the form of biometric access in a number of countries and voice recognition in the Netherlands. At ING Germany, video identification is being used in a growing number of account openings. In Wholesale Banking we launched InsideBusiness, an online and mobile platform for corporate clients. It simplifies how they do business with us by offering easy access to products and services together with tools that give them insight into their finances.
The Board proposes to pay a total 2015 dividend of EUR 2,515 million, or EUR 0.65 per (depositary receipt for an) ordinary share, subject to the approval of shareholders at the 2016 Annual General Meeting. This comprises the previously announced interim dividend of EUR 0.24 paid in August 2015 and a final dividend of EUR 0.41 per share. We are committed to maintaining a healthy Group CET1 ratio in excess of the prevailing 12.5% fully-loaded CET1 requirement and to returning capital to our shareholders. We aim to pay a progressive dividend over time.
• Grow faster than the market due to differentiating customer experience.
Read more in the issue table in the “Non-financial Appendix” about some of the public dilemmas we faced in 2015 and how we responded to them.
We aim to ensure that ING’s employees are diverse and have equal career opportunities. We strive to create an inclusive corporate culture that welcomes, acknowledges, respects and benefits from each other’s differences. Discrimination is against the law, which is reflected in ING’s policies.
Net Promoter Score Retail Banking Sustainable transitions financed and Sustainable assets under management
Earning the primary relationship We aim to build “primary relationships” with customers, earning their loyalty so that they consider us as the first bank with which they conduct their financial business. We define a retail primary relationship as a customer who has recurrent income on their ING payment account and is active with at least one other ING product. Our stated goal is to earn ten million primary retail relationships by end-2017. In 2015, we added more than half a million net new primary relationships, for a yearend total of 8.9 million.
Underlying income increased 1.7 percent to EUR 4,403 million. The interest result was supported by higher margins on lending and savings, which largely compensated for a decline in lending volumes. Lower lending volumes were partly caused by the continued transfer of WestlandUtrecht Bank (WUB) mortgages to NN Group and the run-off in the WUB portfolio. Net core lending (excluding the WUB portfolio, Bank Treasury products and movements in the mortgage hedge) declined by EUR 2.9 billion due to higher repayments on mortgages and muted demand for business lending. The net production in customer deposits (excluding Bank Treasury) was EUR 3.5 billion, reflecting increases in both savings and current accounts. Commission income was up 11.0 percent and investment and other income rose by EUR 118 million, in part due to positive hedge ineffectiveness, while 2014 included a one-off loss on the sale of real estate in own use.
Operating expenses increased by EUR 101 million, or 6.8 percent, versus 2014, largely as a result of higher regulatory costs (including the one-off charge in Poland), investments to support business growth in most of the business units and inflation adjustments in the Growth Markets.
Like all banks, ING is an organisation with both financial and non-financial objectives. Our risk and capital management frameworks and procedures are designed to help meet our strategic and financial objectives and to maintain financial stability for our customers, shareholders and other stakeholders. An integrated approach to these frameworks is key to meeting our strategic and financial objectives.
Regulation There were also many developments in the area of regulation. The financial services sector is subject to increasing scrutiny. ING supports steps to ensure the stability of the financial sector in the wake of the financial crisis. ING also supports steps to create a single financial services market across the eurozone. However, in my opinion there is an urgent need for more coordination among the many regulatory initiatives affecting the financial sector and for a vision for the longer term. Regarding financial services integration, we still have a long way to go before we have a level playing field in Europe. It is a concern for ING that we are disadvantaged as an international player by regulation in the Netherlands that for instance requires higher regulatory capital than is required by the national regulations of peers in other parts of Europe.
ING operates in a world that is moving faster and is less certain. A world with ever increasing challenges and growing competition. Against this background ING was able to deliver good results in 2015 and keep a consistent customer focus. ING is a strong bank and well positioned for the future. ING continued to serve all its stakeholders and at the same time invest in its future.
Risk Committee meetings The Risk Committee met four times in 2015. On average, 94 percent of the Risk Committee members were present at the scheduled meetings. As with the meetings of the other committees, all relevant items discussed by the Risk Committee were reported to the Supervisory Board with the Supervisory Board approving those items as required from a governance perspective.
Appreciation for the Executive Board and ING employees The Supervisory Board would like to thank the members of the Executive Board and the Management Board Banking for their hard work in 2015. Important milestones were the successful completion of the Voya Financial Inc. divestment and the further controlled sell-down of ING’s share in NN Group that led to deconsolidation and a remaining stake of 25.8% at year-end 2015. Also the delivery on ING’s ambitions
subsequent sale or purchase of shares or depositary receipts for shares. The record date is published in the notice for the general meeting. In accordance with US requirements, the depositary sets a record date for the American Depositary Shares (“ADSs”), which date determines which ADSs are entitled to give voting instructions. This record date can differ from the record date set by ING Group for shareholders and holders of depositary receipts.
R.A.J.G. (Ralph) Hamers, chief executive officer (Born 1966, Dutch nationality, male; appointed in 2013, term expires in 2017) Ralph Hamers is a member of the Executive Board of ING Group since 13 May 2013 and was appointed CEO of the Executive Board on 1 October 2013. He also serves as a member and CEO on the Management Board Banking. He joined ING in 1991 and has held various positions including Global Head Wholesale Banking Network from 2007 to 2010, Head of Network Management for Retail Banking Direct & International from 2010 to 2011, and CEO of ING Belgium and Luxembourg from 2011 to 2013. He holds a Master of Science degree in Business Econometrics/Operations Research from Tilburg University, the Netherlands.
Ancillary positions pursuant to CRD IV: Member and CFO of the Executive Board of ING Groep N.V. Member and CFO of the Management Board of ING Bank N.V.
Other relevant ancillary positions: Member of the Finances Consultative Committee of the Fonds de la Recherche Scientifique (FNRS), member of the Finance Consultative Committee of the Fondation Universitaire.
The Board convened a meeting of holders of depositary receipts, which was held on 18 November 2015. Holders of 0,009 percent of the total number of depositary receipts issued were present or were represented during this meeting. During the meeting a report was made on the activities of ING Trust Office. In addition, the Board answered various questions from holders of depositary receipts attending the meeting. The minutes of the aforementioned meeting are published on the website of ING Trust Office (www.ingtrustoffice.com).
Our internal control over financial reporting includes those policies and procedures that: • pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of ING; • provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorisations of our management and directors; and
Report of the Executive Board on internal control over financial reporting The Executive Board is responsible for establishing and maintaining adequate internal control over financial reporting. ING´s internal control over financial reporting is a process designed under the supervision of our principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
• Establishing the foundation of a high performance culture through developing a new, standardised global performance management approach and the implementation of the Orange Code
• Strengthened lending capabilities in C&G countries, enabling diversification of loan portfolios.
ING shares held by Executive Board members Executive Board members are permitted to hold ING shares as a long-term investment. The table below shows an overview of the shares held by members of the Executive Board at 31 December 2015, 2014 and 2013.
3 Shares granted to Wilfred Nagel in 2012 and 2013 were awarded for his performance in positions previous to his appointment to the Executive Board.
ING shares held by the members of the Executive Board number of shares 2015 2014 2013
CFO and CRO amounts in thousands of euros 189 Fixed remuneration
The calculation of ECL will be based on ING Group’s expected loss models (PD, LGD, EAD) currently used for regulatory capital, economic capital and IBNR and INSFA provisions in the current IAS 39 framework. The ECL models will follow the same model structure as applied for the current expected loss models. The stress test methodology is used as a basis for including forward looking macroeconomic information in the expected loss parameters.
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 profit and loss account, 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.
Deferred tax assets are recognised where it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising from investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the difference will not reverse in the foreseeable future. The tax effects of income tax losses available for carry forward are recognised as an asset where it is probable that future taxable profits will be available against which these losses can be utilised.
Income recognition Interest Interest income and expense are recognised in the profit and loss account using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.
− more than 1 year but less than 5 years 5,246 5,299
Revaluations In 2014, Revaluations included EUR 53 million related to associates of NN Group before classification of NN Group as held for sale and EUR 10 million related to ING Vysya.
11 Assets and liabilities held for sale Assets and liabilities held for sale includes disposal groups whose carrying amount will be recovered principally through a sale transaction rather than through continuing operations. This relates to businesses and other significant investments for which a sale is agreed upon but for which the transaction has not yet closed or a sale is highly probable at the balance sheet date but for which no sale has yet been agreed.
As at 31 December 2014, Assets and liabilities held for sale related mainly to the subsidiary NN Group, the associate ING Vysya and the available-for-sale investment Voya . As at 31 December 2014, the Investment in associate of 43% in ING Vysya amounted to EUR 704 million. As at 31 December 2014, the available-for-sale equity investment of 18.9% in Voya amounted to EUR 1,591 million.
Insurance and investment contracts, reinsurance contracts - Held for sale - NN Group
Trading assets Of the total amount of financial assets classified as Level 3 as at 31 December 2014 of EUR 2.7 billion, an amount of EUR 0.6 billion related to trading assets (private equity investments) that were recognised at fair value through profit and loss.
Valuation methodology The fair value of private equity investments was generally based on a forward looking market approach. This approach used a combination of company financials and quoted market multiples. In the absence of quoted prices in an active market, fair value was estimated on the basis of an analysis of the investee’s financial position and results, risk profile, prospects, price, earnings comparisons and by reference to market valuations for similar entities quoted in an active market. Valuations of private equity investments were mainly based on an ‘adjusted multiple of earnings’ methodology on the following basis: • Earnings: Reported earnings adjusted for non-recurring items, such as restructuring expenses, for significant corporate actions and, in exceptional cases, for run-rate adjustments to arrive at maintainable earnings. The most common measure was earnings before interest, tax, depreciation and amortisation (‘EBITDA’). Earnings used were usually management forecasts for the current year, unless data from management accounts for the 12 months preceding the reporting period or the latest audited annual accounts provided a more reliable estimate of maintainable earnings.
Available-for-sale The remaining EUR 1.9 billion related to Available-for-sale investments whose fair value was generally based on unadjusted quoted prices in inactive markets. This included for example debt securities and shares in real estate investment funds and private equity investment funds for which the fair value was determined using quoted prices for the securities or quoted prices obtained from the asset managers of the funds. It was estimated that a 10% change in valuation of these investments would have had no impact on Net result but would have increased or reduced Shareholders’ equity of NN Group by EUR 190 million being approximately 0.9% (before tax) of Total equity.
Designated as at fair value through profit and loss 12,616 13,551
In 2014, Changes in the composition of the group and other changes included EUR –101 million as a result of the classification of NN Group as held for sale. Reference is made to Note 54 ‘Other events’.
Net result from discontinued operations 793 746 705 1 NN Group. 2 NN Group and Voya.
Notes to the Consolidated annual accounts of ING Group - continued 32 Dividend per ordinary share
Treasury bills and other eligible bills included in cash and cash equivalents
The following table specifies the segments by line of business and the main sources of income of each of the segments: Segments of the Banking results by line of business Main source of income Retail Netherlands (Market Leaders)
Income from retail banking activities in the rest of the world, including the SME and mid-corporate segments in specific countries. The main products offered are similar to those in the Netherlands.
Special items in 2015 comprise additional charges related to previously announced restructuring programmes in Retail Netherlands announced before 2013.
– Total investment and other income 205 195 104 186 1,078 –127 1,642
– Additions to loan loss provision 714 142 72 165 500 1,594
– Rates 480 602 Option pricing model Interest rate volatility (%) 21% 93%
– FX 412 359 Present value techniques Inflation rate (%) 1% 3%
As ING has chosen to apply a 90% confidence level already for its IFRS-EU valuation of fair valued financial instruments as of end of 2014, the downward valuation uncertainty has become immaterial, whereas the potential upward valuation uncertainty, reflecting a potential profit, has increased. Specifically for the AFS Equity positions the upward valuation uncertainty decreased.
Reverse repurchase, securities borrowing and similar agreements 925 925 300 625
Derivatives 1 The line ‘Impact of enforceable master netting agreements or similar arrangements’ contains derivative positions under the same master netting arrangements being presented in different balance sheet line items.
The principal subsidiaries of ING Groep N.V. and their statutory place of incorporation or primary place of business are as follows: Proportion of ownership and interest held by the Group
5. Other structured entities In the normal course of business, ING Group enters into transactions with structured entities as counterparty. Predominantly in its structured finance operations, ING can be instrumental in facilitating the creation of these structured entity counterparties. These entities are generally not included in the consolidated financial statements of ING Group, as ING facilitates these transactions as administrative agent by providing structuring, accounting, funding, lending and operation services.
Non-voting equity securities (core Tier 1 securities) On 12 November 2008, ING Groep N.V. issued one billion non-voting equity securities to the Dutch State at EUR 10 per non-voting equity security, resulting in an increase of ING Group’s core Tier 1 capital of EUR 10 billion. The nominal value of each security was EUR 0.24. The non-voting equity securities do not form part of ING Groep N.V.’s share capital; accordingly they did not carry voting rights in the General Meeting of Shareholders.
The risk function is at all levels independent from the commercial departments which allow its criteria and opinions to be heard and taken into account. At the Bank level, it is represented by the CRO in the MBB, which ensures sufficient countervailing power in the decision-making processes to prevent excessive risks.
The chart below provides, in EUR billions, high level information on the risks arising from the Bank’s business activities.
The NFR RAS is cascaded to the divisions and business units through a set of quantitative and qualitative statements.
• For operational risk, the EC calculations are done using the same methodology as for RC apart from the application of a 99.95% confidence level. The increase in 2015 in both RC and EC is due to a model recalibration to improve the accuracy in the tail of the loss distribution and the increased impact of external loss data. More information on the Operational Risk EC, please refer to the ’Advanced Measurement Approach’ described in the Non-Financial Risk section.
Within ING Bank, the ultimate authority to approve or decline credit proposals resides with the Management Board Banking (MBB). The MBB has further delegated authorities, based on amounts and tenors to lower levels in the organisation. Transactions are approved via a dual signatory approval system that requires an individual sign off from both front office and credit risk management. For larger and higher risk credits a committee structure exists whereby the credit risk chair takes the final decision with support of the respective committee members, thereby ensuring accountability. Retail business units have delegated authority to decide within policies and mandates approved by CR and any decisions outside those policies or above the delegated mandate require a specific credit risk approval.
Exposure to corporates has increased both in actual volume and as a proportion of the total portfolio with the depreciating Euro having a significant contribution. Excluding the FX impact, lending exposure witnessed growth in Structured Finance, Real Estate Finance and Corporate and FI Lending portfolios.
Changes in 2015 to credit risk models Introduction of the Single Supervisory Mechanism of the ECB has led to a change in the implementation timelines. Model updates driven by regulatory guidance were undertaken towards the end of the year and increased RWA by EUR 5.6 billion. The Leveraged Finance LGD model update was the main contributor increasing RWA by EUR 4.2 billion. The CPF LGD model update increased RWA by EUR 1.1 billion. For further details regarding model changes and the subsequent RWA migration in 2015 we refer to the chapter Risk Weighted Assets Migration Analysis in the Pillar III section.
For corporate customers, ING Bank applies forbearance measures only to support clients that are experiencing temporary difficulties with fundamentally sound business models. The aim is to maximise the repayment opportunities of the clients, while applying a very strict policy with respect to (partial) debt forgiveness.
• Risk identification is a joint effort of the 1st and 2nd line of defence (the ‘three lines of defence governance’ model is explained in the risk governance paragraph of the general risk management section). Its goal is to detect potential new risks and changes in known risks; • Identified risks are assessed to determine the importance of the risk for ING Bank and subsequently to identify the control measures needed; • Control measures used by ING Bank include policies, procedures, minimum standards, limit frameworks, buffers and stress tests; • An important element of risk management is to continuously check if the implemented risk controls are executed and complied with and monitor that the controls are effective; and • Results and findings are reported to the governing departments and approval bodies.
in EUR thousand 2015 2014 By currency Euro –16,563 –15,890 US Dollar 424 261 Other 357 –21 Total –15,782 –15,650 in EUR thousand 2015 2014 By business Wholesale Banking 277 –1,773 Retail Banking Benelux –448 –55 Retail Challengers & Growth Markets –2,417 981 Corporate Line –13,194 –14,803 Total –15,782 –15,650 in EUR thousand 2015 2014 By accounting category Amortised Cost 4,691 16,311 Fair value through equity -22,798 –30,205 Fair value through profit and loss 2,325 –1,756 Total –15,782 –15,650
In line with NPV-at-Risk, the bank’s overall BPV position is dominated by the long-term investment of own funds, as the present value of this position is significantly impacted if interest rates move up by one basis point.
In order to measure the remaining sensitivity of the target common equity tier 1 ratio against FX rate fluctuations, the common equity tier ratio at Risk (cTaR) measure is used. It measures the drop in the common equity tier 1 ratio from the target when stressing a certain FX rate. The stress scenario for a currency corresponds with the scenario that causes a drop in the common equity tier 1 ratio. A negative sign thus indicates that a depreciation of the corresponding currency against the Euro will result in a drop of the common equity tier 1 ratio.
To ensure segregation of duties between Front Office and Credit & Trading Risk, the systems for pricing and price testing are secured in order to prevent unauthorised access.
2. Stress situation: • Stress funding & liquidity risk: The risk an organisation may become unable to meet its financial obligations when due, because insufficient cash is available or cannot be generated in time at a reasonable costs by attracting new unsecured funding or rolling over existing funding, or selling / repo-ing assets, potentially resulting in default.
This RAS hierarchy is applied consistently per significant currency for the relevant entity scopes (ING consolidated and ING Bank N.V. Solo). Where relevant the Risk Appetite Statements are cascaded down to specific regional and local levels.
The risk appetite (defined as the acceptable and authorised maximum level of risk) is set by the Bank NFRC. Adherence to this risk appetite is monitored quarterly through the NFR Dashboard which reports the key non-financial risk exposures.
Legal risk is defined as the risk related to (i) a failure (or perceived failure) to adhere to applicable laws, regulations and standards, (ii) contractual liabilities or contractual obligations that are defaulted or cannot be enforced as intended, or are enforced in an unexpected or adverse way, and (iii) liability (tort) towards third parties due to an act or omission contributable to ING Bank (potentially) resulting in impairment of ING Bank’s integrity, leading to damage to ING Bank’s reputation, legal or regulatory sanctions, or financial loss.
ING Group continued to optimise its capital structure by successfully issuing CRD IV eligible Additional Tier 1 securities (AT1 securities) in April 2015. In total USD 2.25 billion of securities were issued in two tranches; USD 1 billion in a non-callable five-year tranche with a coupon of 6% and a USD 1.25 billion in a non-callable 10-year tranche with a coupon 6.5%. These securities were on-lent to ING Bank NV as CRR/CRD IV compliant instruments, partially replacing internal securities.
At year-end 2015, ING Group received the ECBs decision on the 2015 Supervisory Review Evaluation Process (SREP). The transitional (phased-in) common equity Tier 1 requirement that ING Group has to meet on a consolidated basis in 2016 has been set at 10.25%. This requirement is the sum of (i) 9.5% being the ECB’s decision on the 2015 SREP, including the capital conservation buffer, and (ii) 0.75% for the Systemic Risk Buffer (SRB) which has been set separately for Dutch systemic banks by the Dutch Central Bank. The fullyloaded SRB requirement is currently set at 3% for ING Group and phases in over four years, with a final implementation date of 1 January 2019. The impact from countercyclical buffer requirements was insignificant at the start of 2016. With a 12.7% Group common equity Tier 1 ratio as at 31 December 2015, ING is already in compliance with the current fully-loaded requirement of 12.5.
Regulatory requirements Capital adequacy and the use of regulatory required capital are based on the guidelines developed by the Basel Committee on Banking Supervision (The Basel Committee) and the European Union Directives, as implemented by the Dutch Central Bank (Dutch Central Bank until 3 November 2014, the ECB thereafter) for supervisory purposes. In 2010 the Basel Committee on Banking Supervision issued new solvency and liquidity requirements, which superseded Basel II. The minimum requirements, excluding buffers, for the common equity Tier 1 ratio is 4.5%, the minimum Tier 1 requirement is 6% and the total capital ratio) is 8% of all risk-weighted assets. Basel III requires Banks to hold a capital of at least 80% of the old Basel I requirements, which was 8% of the RWAs as calculated with the Basel I methodology. This Basel I floor has been extended until the end of 2017.
Changes in composition of the group and other changes 2,451 968 3,419
The (increasing) restrictions on remuneration will continue to have an impact on existing ING Group remuneration policies and individual remuneration packages for personnel. This may restrict our ability to offer competitive compensation compared with companies (financial and/or not financial) that are not subject to such restrictions and it could adversely affect ING Group’s ability to retain or attract qualified employees.
Our restructuring programs may not yield intended reductions in costs, risk and leverage. Projected cost savings and impact on our risk profile and capital including those associated with the Restructuring Plan are subject to a variety of risks, including: • actual costs to effect these initiatives may exceed estimates; • divestments planned in connection with the Restructuring Plan may not yield the level of net proceeds expected, as described under ‘Risks Related to the Restructuring Plan — We are required under the Restructuring Plan to divest our remaining stake in NN by the end of 2016 and there can be no assurance that we will be able to do so on favourable terms or at all and a failure to complete the divestments on favourable terms and in a timely manner could have a material adverse impact on our assets, profitability, capital adequacy and business operations’; • initiatives that we are contemplating may require consultation with various regulators as well as employees and labour representatives, and such consultations may influence the timing, costs and extent of expected savings; • the loss of skilled employees in connection with the initiatives; and • projected savings may fall short of targets.
For both Regulatory Capital and Asset Encumbrance, the information in this Pillar III report has been provided on ING Group level. The information on Credit Risk, Market Risk, Securitisations and Operational Risk focuses on ING Bank.
Leverage ratio The Leverage ratio is a CRR/CRD IV measure indicating the level of the Tier 1 Capital compared to the total exposure. Its aim is to assess the risk of excessive leverage of the institution. In line with the regulatory requirements, ING Group will use the specific EBA templates as basis for the presentation of its Leverage ratio. These EBA templates reflect the Leverage ratio as calculated under the Leverage ratio Delegated Act which was introduced in October 2014. The Final Draft Implementing Technical Standards (ITS) of the leverage ratio has not yet been approved by the European Commission (nor published in the EU Official Journal), which could result in adjustments following clarification of certain rules. The pro-forma fully loaded in leverage ratio of ING Group based on the Delegated Act, and with notional cash pooling grossed is 4.4% at 31 December 2015.
EAD 6 Local statistical models that use various data inputs, including product type and geography.
Credit quality of credit risk exposures The table below provide a comprehensive picture of the credit quality of the banks’ assets. On-balance sheet items include loans and debt securities. Off-balance sheet items include guarantees given and irrevocable loan commitments. More information on the definition of non-performing loans and allowances can be found in the Credit quality section of the risk management paragraph of the Annual report.
We offset 100% of our remaining carbon emissions through the purchase of Voluntary Carbon Units (VCUs) from wind power projects in China and a landfill gas capture project in Indonesia.
Update on Environmental & Social Risk policies of Banks: In September the Fair Finance Guide (FFG) published its annual update in which it compared banks’ policies with their own expectations. FFG concluded that ING was lagging behind.
Exposure at default (EaD) The exposure at default uses models to estimate the outstanding amount or obligation at the moment of default in the future. Since the fact that a counterparty will go into default is not known, and the level of outstandings (see definition) that may occur on that date is also not known, ING Bank uses a combination of statistical, expert and hybrid models to estimate the exposure at default.
Future contracts Commitments to exchange currencies or to buy or sell other financial instruments at specified future dates. Exchanges act as intermediaries and require daily cash settlement and collateral deposits.
Net present value at risk (NPV at risk) NPV at risk measures the impact of changing interest rates on value. As a full valuation approach is applied, the risk figures include convexity risk that results from embedded optionalities like mortgage prepayment options.
Parameters generally taken into account are borrower credit scores, residential property values and loan-to-value ratios. The use of RMBSs to finance sub-prime borrowing is considered to be a main factor in causing the 2007-2008 financial crisis.