ING delivered strong commercial growth and financial results in 2017, and we continued to empower customers with a differentiating experience. We also made good progress laying the foundations for the ING of the future. With disruption in banking increasing, we’re accelerating the implementation of our Think Forward strategy to deepen and expand the customer relationship.
What matters most to our stakeholders To improve as an organisation, we need to continuously identify and understand the topics our stakeholders find most important and how these relate to the actions and decisions we make. This helps us balance competing expectations and address topics in an informed way.
Risks: • Technology is removing a number of barriers to entry that once insulated financial services.
We promote activities that we believe have a positive impact on society through responsible financing and by increasing sustainable investments (SAuM). In 2017, our financing to Industry ESG leaders (IESGL) was EUR 5.5 billion, climate finance was EUR 14.6 billion, and social impact finance was EUR 0.5 billion.
Still, customers are growing concerned about boundaries when sharing personal information, particularly when it comes to their financial data. Where does it stop? At what point does processing and analysing data infringe too much on their private life?
Elements of our strategy Our Think Forward strategy was launched in 2014. It guides everything we do. This section describes the strategy and includes references to examples and additional information on how our strategy links to the material topics identified by our stakeholders.
We believe that tomorrow’s successful businesses will be those that find relevant roles on the preferred platforms of their customers – or create relevant platforms themselves. And businesses that focus relentlessly on providing a compelling and consistent customer experience, empowering people to be self-reliant and take control of their own situations.
For corporate clients and financial institutions we provide specialised lending, tailored corporate finance and debt and equity markets solutions. We also offer working capital, payments and cash management and trade and treasury services to help them achieve their business goals.
Wholesale Banking is an important contributor to the success of ING’s Think Forward strategy. Over the past five years, Wholesale Lending assets have grown by more than 30 percent and pre-tax results by more than 70 percent. We expect lending growth to continue as we support clients in their business needs. To better anticipate on these needs we will increase our investments in our data-analytic capabilities and strengthen our research coverage to help clients stay ahead of their competition. And we will support them in becoming more sustainable.
Read more in the ‘Non-financial appendix’ for an overview of ING’s climate-related disclosures.
Risk costs declined to EUR 284 million, or 19 basis points of average risk-weighted assets, from EUR 368 million, or 24 basis points in 2016. The relatively low risk costs in 2017 were supported by several larger net releases for clients and only a few larger new additions, and was realised despite higher risk costs for the Italian lease run-off portfolio.
Creating a differentiating employee experience ING believes there is a direct link between employee engagement, business performance and an ability to serve customers. It’s why we are committed to a positive employee experience from the moment someone applies for a job to the moment they leave.
As part of this, ING also continues to look at different ways to help improve operational processes across the bank so that it can service client demands rapidly and efficiently. Sometimes this means activities are transferred to shared service centres, for example in Bratislava or Bucharest, or outsourced to external providers. This is not new for ING, having already standardised and streamlined some Wholesale Banking and IT operations. Such decisions are always made with the utmost care and consideration with a full risk assessment process undertaken at Management Board level.
ING Services Polska was named the ‘Best IT workplace in Poland 2016’ by Computerworld magazine , based on a survey of 3,500 respondents.
Integrity and transparency in financial markets are essential for public and investor confidence. In light of the revised Markets in Financial Instruments Directive European legislation (MiFID II) that will come into effect in January 2018, ING revised various MiFID II-related policies and procedures. It also issued a new Investors Protection & Markets Policy and Minimum Standards. A central programme continued in 2017 to support ING’s commitment to adhere to the revised legislation and to create consistency throughout the organisation with respect to complying with the legal requirements. As part of the central project, a MiFID II awareness e-learning has been developed and launched to targeted staff in 2017.
The ESR policy framework gives ING a competitive advantage by helping us to stay a step ahead as new environmental, social and human rights regulations and standards are implemented globally. It’s regularly updated to help ING and our clients gradually enhance the implementation of key standards of the UN Guiding Principles on Human Rights and the OECD Guidelines for Multinational Enterprises. The ESR policy framework also provides guidance for compliance with new directives and government decisions to combat climate change.
Developing best practice Beyond stimulating better environmental and social performance in our portfolio, ING actively collaborates with other institutions and regulators to address environmental challenges that are sector- and not just client-specific.
(Euronext Amsterdam) 11 May² Payment date final dividend 2017 (NYSE) 2 August Publication results 2Q2018 6 August² Ex-date for interim dividend 2018
The scope of the procedures performed is substantially less than the scope of those performed in our assurance procedures on the Non-financial Information.
Responsibilities of the Executive Board for the Non-financial Information The Executive Board of ING Group is responsible for the preparation of the Non-financial Information in accordance with the GRI Sustainability Reporting Standards and the applied reporting criteria as described in the section ‘About this report’.
• In contrast to the Sarbanes-Oxley Act of 2002, the Corporate Governance Code contains an ‘apply-orexplain ’ principle, offering the possibility of deviating from the Code.
G.J. (Hans) Wijers (Born 1951, Dutch nationality, male, appointed in 2017, term expires in 2021) Former position: Chief Excecutive Officer and Member of the Executive Board of AkzoNobel N.V.
Financial reporting A description of the main features of ING Group’s internal control and risk management systems in relation to the financial reporting process is included in the statement with respect to Section 404 of the Sarbanes-Oxley Act on page 86 which is deemed to be incorporated by reference herein.
• A Digital Shoebox added to the mobile banking app for small business customers that links receipts and bills directly to transactions.
Steven van Rijswijk¹ 19,000 - 1 Koos Timmermans and Steven van Rijswijk were appointed to the Executive Board as per 8 May 2017, while Patrick Flynn and Wilfred Nagel left as per 8 May 2017 and 1 August 2017 respectively . Thus the figures for Koos Timmermans, Steven van Rijswijk, Patrick Flynn and Wilfred Nagel reflect a partial year as an Executive Board member.
Employee stock options 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 as of 31 December 2017, which were all awarded to these board members in roles within ING prior to their appointment to the Executive Board.
LSPP Deferred shares 14 May 2014 14 May 2017 32,267 6,454 € 15.35
Central works council Bank (COR) December 2017 E. (Edward) Boeijenga, chairman J. (Yoap) Brugmann, deputy chairman F.E. (Ferry) van Wezel, secretary Y.J. (Yvonne) Vork (works council support)
European works council December 2017 Austria: Otmar Haneder, (deputy Ernst Szoeke) Belgium: Jean Pierre Lambert, Herman van Eesbeek, Franck Goethals, Ahmed Sanhayi Bulgaria: Andrew Nitov, (deputy Angela Licheva) Czech Republic: Martina Žatecká, (deputy Alena Klaassenová) France: Stephen Minary, (deputy Mourad Benzaaza) Germany: Norbert Lucas (chairman), Andre Fioritto, (deputy Ulrich Probst) Hungary: Géza Bodor (vice chairman), (deputy Beáta Vodli) Italy: Claudio Casazza, (deputy Sami Zambon) Luxembourg: Alain Back, (deputy Raphael Pasquarelli) Netherlands: Maarten Kramer (secretary), Jan van Hest, Bert Woltheus, Judith Roosken, Wim van Huizen Poland: Mariusz Cieslik, Jakub Dzianowicz, Arthur Banasik Romania: Adrian Piscu, Magdalena Nitu, (deputy Vlad Pop) Slovakia: Miroslav Fliega, (deputy Julius Kis) Spain: Francisco Javier Díaz Mosquera (vice secretary), Javier Berraco Criado, (deputy Javier Losa Bordallo) United Kingdom: Mark Foley, (deputy Moises Gerstein Alvarez) Works council support: Miriam Rozenbrand, Karin van de Schouw
IFRS 9 ECL Incurred but Not Reported (IBNR) 0.7 Stage 1- 12 month ECL 0.1 0.4
A list of principal subsidiaries is included in Note 47 ‘Principal subsidiaries’.
Foreign currency translation Functional and presentation currency Items included in the annual accounts of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The Consolidated annual accounts are presented in euros, which is ING Group’s presentation currency.
In 2017 available-for-sale debt securities decreased by EUR 13 billion and is mainly related to lower positions in Government bonds, Subsovereign Supranationals and Agencies, and covered bonds.
− Loans and advances to customers 1,693 2,349 2,822 2,829 4,515 5,178
Reference is made to Note 42 ‘Transfer of financial assets’ for information on securities lending as well as sale and repurchase transactions.
Following the adoption of the amendments to the Articles of Association, at the Annual General Meeting on 25 April 2016, the depositary receipt structure was abolished on 26 July 2016. As a result of the amendments to the Articles of Association, a holder of a depositary receipt became entitled to ordinary shares in ING in exchange for depositary receipts previously held.
In addition to the legal and regulatory restrictions on distributing dividends from subsidiaries, associates and joint ventures to ING Groep N.V. there are various other considerations and limitations that are taken into account in determining the appropriate levels of equity in the Group’s subsidiaries, associates and joint ventures. These considerations and limitations include, but are not restricted to, rating agency and regulatory views, which can change over time; it is not possible to disclose a reliable quantification of these limitations. For an overview of the minimal capital requirements of ING Group refer to the ‘Capital Management’ section.
Total dividend in respect of 2015 0.65 2,519 In respect of 2016
Total dividend in respect of 2016 0.66 2,560 In respect of 2017
Ukraine PJSC ING Bank Ukraine Wholesale banking 106 30 321 9 2
Japan Branch of ING Bank N.V. Wholesale banking 35 33 2,238 17 11
Branch of ING Bank N.V. Wholesale banking 7 – – –1 –
The above mentioned deferred tax of EUR 128 million (2016: EUR 203 million) and the related unused tax losses carried forward exclude the deferred tax liability recorded in the Netherlands with respect to the recapture of previously deducted UK tax losses in the Netherlands for the amount of EUR –136 million (2016: EUR –146 million). The comparative figures in the two tables above have been adjusted accordingly.
Equity securities The fair values of publicly traded equity securities are based on quoted market prices when available. Where no quoted market prices are available, fair value is determined based on quoted prices for similar securities or other valuation techniques.
Equity securities 4 4 1 Price based Price (%) 1% 0% 54% 0%
Structured notes 6 101 125 Price based Price (%) 52% 52% 116% 111%
Cash flow hedge reserve as at 31 December, after deferred tax 263 777
Regional and business unit level The CRO is supported by regional and/or business unit CROs focussing on specific risks in the geographical and/or business areas of their responsibilities. ING’s regional and/or business unit management have primary responsibility for the management of risks (credit, market, funding and liquidity, operational and compliance risks) that arise in their daily operations. They are accountable for the implementation and execution of appropriate risk frameworks affecting their businesses to ensure compliance with procedures and processes at corporate level. The implementation is adapted if necessary to local requirements.
In line with this TOM, the new global Risk function has a two-tier governance structure. This new structure has resulted in a reshuffle of the tasks carried out by Risk Management, both at Tier 1 and Tier 2 level. Some of the activities have been transferred from the second to the first Line of Defence (i.e. operational risks) and also some responsibilities have shifted between Tier 1 and Tier 2 (i.e. more responsibility at Tier 1 for Tier 1 risk issues). The risk officer in Tier 1 focuses more on risk management within the local unit and in Tier 2 the focus is on setting policies and on monitoring the work in Tier 1 (i.e. more responsibility in managing its own risk issues, and determining and putting in place adequate controls).
Note 4 Financial assets at fair value through profit or loss Note 5 Investments Note 10 Other assets Note 13 Financial liabilities at fair value through profit or loss Note 15 Other liabilities
Regulatory environment ING’s primary supervising entity is the ECB, which is supported by many host supervisors. The ECB supervises adherence to regulatory rules: the regulatory framework defined in CRR/CRD, European Bank Authority (EBA) standards and ECB guidance. The ECB requires all ‘significant changes’ in internal models (PD, LGD and EAD) and policies to be reviewed and approved by the ECB, prior to implementation. Lower level model changes are either pre-notified or post-notified to the ECB.
Pre-settlement measurement models For regulatory capital, pre-settlement (PS) exposure is calculated using a marked to market (MtM) plus regulatory-based add-on. For internal capital purposes ING uses a combination of the below mentioned methodologies to calculate its PS exposures: • MtM plus model based add-on approach: In this approach, the PS risk is calculated as the sum of the MtM of the trade and a model-based add-on. The MtM fluctuates through the life of the contract. The model-based add-on is product-specific, and takes into account the remaining time to maturity, profiling per time-buckets etc. Add-ons are updated with a frequency that takes into account major market changes. This methodology is used for pre-deal exposure assessment of all ING financial markets products. Furthermore, it is used for post-deal risk calculations in the case of financial markets portfolios that do not justify the computational efforts and costs associated with implementation of a Scenario Simulation approach; and
• The outstandings column represents CEM exposure (MtM after netting plus the Potential Future Exposure - PFE) at a 97.5% confidence level for derivatives and securities.
The Retail Benelux and Wholesale Banking portfolios continued to improve and were the contributors to the decline in the stock of provisions. Retail risk costs were substantially lower in Retail Netherlands due to improved macro-economic and Dutch housing market conditions. In Wholesale Banking, risks costs were lower as a result of significant releases combined with limited increases. The lower stock of provisions was mainly observed in Real Estate Finance and the Netherlands Wholesale Banking portfolio, which was partly offset by increased provisions in the Belux Wholesale Banking loan book. The Retail Challengers & Growth Markets increase in stock of provisions was mainly observed in Poland and Spain, which was partly offset by a decrease in Germany.
The main concentration of forborne assets in a single country was in the Netherlands with 26% (2016: 28%) of the total Wholesale Banking forborne assets. Wholesale Banking forborne assets decreased by EUR 1.6 billion compared to 2016, of which performing EUR 1.2 billion and non-performing EUR 0.4 billion. Underlying, main changes were in the Netherlands and Asia where forborne assets decreased by EUR 0.6 billion and EUR 0.2 billion respectively. The decrease in the Netherlands was mainly driven by repayments and write offs, the decrease in Asia was mainly visible in Transportation & Logistics (EUR 0.1 billion) and Natural Resources (EUR 0.1 billion), driven by the respective Shipping and Oil & Gas portfolio’s.
Governance The Financial Markets Risk Committee (FMRC) is the market risk committee that, within the risk appetite set by ALCO Bank, sets market risk limits both on an aggregated level and on a desk level, and approves new products. FI-FM Risk advises both FMRC and ALCO Bank on the market risk appetite of trading activities.
Real Estate market risk exposure in banking books (by geographic area and sector type)
Value at Risk FI-FM Risk uses the historical simulation VaR methodology as its primary risk measure. The VaR for market risk quantifies, with a onesided confidence level of 99%, the maximum overnight loss that could occur in the trading portfolio of ING due to changes in risk factors (e.g. interest rates, equity prices, foreign exchange rates, credit spreads, implied volatilities) if positions remain unchanged for a time period of one day. Next to general market movements in these risk factors, VaR also takes into account market data movements for specific moves in e.g. the underlying issuer of securities. A single model that diversifies general and specific risk is used. In general a full revaluation approach is applied, only for a limited number of linear trading positions and a limited number of risk factors in commodity and equity risk classes a sensitivity-based approach is applied. The potential impact of historical market movements on today’s portfolio is estimated, based on equally weighted observed market movements of the previous year (260 days). When simulating potential movements in risk factors, depending on the risk factor type either an absolute or a relative shift is used. The data used in the computations is updated daily. ING uses VaR with a 1-day horizon for internal risk measurement, management control, and backtesting, and VaR with a 10-day horizon for determining regulatory capital. To compute VaR with a 10-day horizon the one day risk factor shifts are scaled by the square root of ten and then used as input for the revaluation. The same model is used for all legal entities within ING with market risk exposure in the trading portfolio.
Management of ING entities maintain local procedures aiming at enabling them to comply with local laws, regulations and the FEC Policy and Minimum Standards. Where local laws and regulations are more stringent, the local laws and regulations are applied. Likewise the FEC Policy and Minimum Standards prevail when the standards therein are stricter than stipulated in local laws and regulations and if not specifically forbidden.
As a result of frequent evaluation of the businesses from economic, strategic and risk perspective ING continues to believe that for business reasons doing business involving certain specified countries should be discontinued. In that respect, ING has a policy not to enter into new relationships with clients from these countries and processes remain in place to discontinue existing relationships involving these countries. At present these countries are Cuba, Iran, North Korea, Sudan and Syria. Each of these countries is subject to EU and/or US sanctions regimes. Iran, Sudan, and Syria are identified by the US as state sponsors of terrorism and are subject to US economic sanctions and export controls.
The phased-in and fully-loaded Group Tier 1 ratio (including grandfathered securities) as at 31 December 2017 respectively decreased from 16.3% to 16.2% and 16.6% to 16.4%. The phased and fully-loaded total capital ratio (including grandfathered securities) of ING Groep NV respectively decreased from 19.3% to 18.5% and 19.7% to 19.1%.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these annual accounts. The materiality affects the nature, timing and extent of our audit procedures and the evaluation of the effect of identified misstatements on our opinion.
Basel III, CRD IV and CRD V In December 2010, the Basel Committee on Banking Supervision (‘BCBS’) announced higher global minimum capital standards for banks and introduced a new global liquidity standard and a new leverage ratio. The BCBS’s package of reforms, collectively referred to as the ‘Basel III’ rules, will, among other requirements, increase the amount of common equity required to be held by subject banking institutions, prescribe the amount of liquid assets and the long-term funding a subject banking institution must hold at any given moment and limit leverage. Banks will be required to hold a ‘capital conservation buffer’ to withstand future periods of stress such that the total common equity Tier 1 ratio, when fully phased in on 1 January 2019, will rise to 7%. Basel III also introduced a ‘countercyclical buffer’ as an extension of the capital conservation buffer, which would allow national regulators to require banks to hold more capital during periods of high credit growth (to strengthen capital reserves and moderate the debt markets). Further, Basel III has strengthened the definition of capital that will have the effect of disqualifying many hybrid securities, including those issued by the Group, from inclusion in regulatory capital, as well as the higher capital requirements for trading, derivative and securitisation activities as part of a number of reforms to the Basel II framework. In addition, the BCBS and the Financial Stability Board (‘FSB’) published measures in October 2011 that would have the effect of requiring higher loss absorbency capacity, liquidity surcharges, exposure limits and special resolution regimes for, and instituting more intensive and effective supervision of, ‘systemically important financial institutions’ (‘SIFIs’) and so-called ‘Global’ SIFIs (‘G-SIFIs’), in addition to the Basel III requirements otherwise applicable to most financial institutions. In particular in November 2015 the FSB published the final Total Loss-Absorbing Capacity (TLAC) standard for GSIFIs, which aims for G-SIFIs to have sufficient loss-absorbing and recapitalisation capacity available in resolution. The implementation of these measures began in 2012, and full implementation is targeted for 2019, with the TLAC requirements to apply from 2019. ING Bank has been designated by the BCBS and the FSB as one of the global systemically important banks (‘G-SIBs’), forming part of the GSIFIs, since 2011, and by the Dutch Central Bank (De Nederlandsche Bank N.V., ‘DNB’) and the Dutch Ministry of Finance as a domestic SIFI since November 2011. The Basel III proposals and their potential impact are monitored via semi-annual monitoring exercises in which ING Bank participates. As a result of such monitoring exercises and ongoing discussions within the regulatory environment, revisions have been made to the original Basel III proposals as was the case with the revised Liquidity Coverage Ratio in January 2013 and the revised Net Stable Funding Ratio and Leverage Ratio in January 2014. In December 2017, the Basel III revisions were formally announced by the Basel Committee on Banking Supervision (BCBS). These new prudential rules for banks consist of a revision to the standardised approach to credit risk, the introduction of a capital floor based on standardised approaches, the use of internal models, limitation of options for modelling operating risks, and new rules for the establishment of risk-weighted items and unused credit lines at the banks. With a long implementation phase and the transposition into EU regulation still pending, some question marks remain on how this will shape up.
Since the financial crisis, ING has adapted its remuneration policies to the new national and international standards. Since the full repayment of the state aid by ING in 2014, the total direct compensation for the Executive Board members has been slightly increased, however, it remains below the median of our EURO Stoxx 50 benchmark, which is made up of similar European financial and non-financial institutions. The total direct compensation of the CEO is significantly below the median of the CEO benchmark.
Impact transformation on workforce On 3 October 2016, ING announced its plans to accelerate the Think Forward strategy. This involved moving to an integrated banking platform, leveraging the combined strenghts of the Netherlands and Belgium. Employees in Belgium expressed strong misgivings about the implications, which were expected to result in a reduction of ING’s workforce in Belgium by around 3,500 FTEs. Society at-large also expressed its concern, including the highest Belgian political institutions.
ING has started a partnership with Scalable with a highly attractive and comfortable way of investing. Together, we will offer a fully digital investment solution to ING’s retail customers in Germany. German customers with over EUR 10,000 will now be able to get easy access to a well-diversified investment portfolio online.
The Oxfam Netherlands conclusion was that, based on their international research, some international banks seem to use tax havens for tax reasons. However, they explicitly mentioned ING was not one of those banks. ING pays taxes at the normal rates in the countries where we’re active, which is reported as a global effective tax rate of about 27,4%. We don’t have any entities in ‘tax havens’ to reduce our total tax bill and we don’t provide customers with tax advice.