The main concentration of forborne assets is in the Netherlands with 61% of the total forborne assets (2014: 58%) and 68% of the non-performing forborne assets (2014: 70%). The increase in forborne assets was also mainly driven by the Netherlands, whereby a large part of the EUR 0.6 billion increase was seen in the consumer portfolio (EUR 0.4 billion). New inflow in the non-performing forborne assets, following a more active approach to help clients with payment difficulties, was the main driver for the increase. This increase was compensated by outflow from the non-performing to performing forborne assets, as the 1-year probation period was reached. The remaining EUR 0.2 billion increase was seen in the non-performing business portfolio and was mainly due to new inflow of forborne assets in Food, Beverages & Personal Care.
Cover values by risk category This section provides insight on the type of covers and to which extent a loan is collateralised. The cover disclosures are presented by risk category: Lending, Investment, Money-Market and Pre-settlement. For each risk category, the cover amounts are presented by the most relevant collateral forms, being mortgages and financial collateral (cash and securities), and the most relevant third party obligation being guarantees. ING Bank obtains covers which are compliant to the Capital Requirements Directive IV (CRDIV) and the related Capital Requirements Regulation (CRR) requirements, as well as those that are not compliant.
The first two tables give an overview of the collateralisation of the total portfolio of ING Bank.
Total Lending, Investment and Money Market 677,065 558,673 20,673 84,726 90,529 142,305 32.2% 22.0% 45.7%
Pre-settlement3 51,602 1 Including loans to ING Group and NN Group. 2 Excluding intercompany positions. 3 More information on the credit risk mitigants of the Pre-settlement exposure can be found in the Pre-settlement section.
A significant part (45.8% in 2015 versus 49.3% in 2014) of the ING Bank’s Residential Mortgage portfolio relates to mortgage loans provided in the Netherlands, followed by other main markets such as Germany (23.3%), and Belgium (11.5%). Given the size of the Dutch mortgages portfolio, below the valuation methodology employed to determine the cover values for the Dutch Residential Mortgages is provided.
The collateralization of the consumer lending portfolio continued to improve over the year 2015. The rise in collateralization levels is due to improved housing prices, seen all over ING Bank mortgage markets and also in the main market - Netherlands, and due to stringent policies due to which there has been a reduction in mortgages granted with low VTL’s (high loan-to-value’s).
The improved economic environment resulted in an increased demand for Real Estate lending, resulting in 6.3% increase in sector outstandings. In addition, the cover values of this traditionally well collateralized sector also increased over 2015. New transactions were done on more conservative collateral terms and improved real estate markets further helped to boost the total coverage in Real Estate.
Pre-settlement portfolio ING Bank uses various market pricing and measurement techniques to determine the amount of credit risk on pre-settlement activities. These techniques estimate ING Bank’s potential future exposure on individual and portfolios of trades. Master agreements and collateral agreements are frequently entered into to reduce these credit risks.
Despite these changes in the governance structure, the set-up of the Risk management paragraph has not change since it is based on risk types instead.
This market risk paragraph elaborates on the various elements of the risk management approach for: • Market risk economic capital for trading and banking books; • Market risks in the banking books; and • Market risks in the trading books.
Interest rate risk in the banking books 3,555 3,344 * Regulatory capital for equity investments are reported under credit risk regulatory capital.
ING Bank distinguishes three types of activities that generate interest rate risk in the banking books: • Investment of own funds (by Capital Management); • Commercial business (e.g. retail business); and • The strategic interest rate position (Bank Treasury).
Commercial activities result in interest rate risk, as for example repricing tenors of assets differ from those of liabilities. Linear interest rate risk is transferred from the commercial business to the treasury books (Bank Treasury), if necessary also based on estimations of customer behaviour. The originating commercial business is ultimately responsible for estimating customer behaviour, leaving convexity risk and (unexpected) customer behaviour risk with the commercial business.
The full value impact cannot be directly linked to the balance sheet or profit and loss account, as fair value movements in banking books are generally not reported through the profit and loss account or through equity. The value mutations are expected to materialise over time in the profit and loss account, if interest rates develop according to forward rates throughout the remaining maturity of the portfolio.
Year-on-year variance analysis NPV-at-Risk for –100 bps shock changed by EUR 819 million during 2015. The sensitivity for a –100 bps shock has mainly changed as a result of lower rates and is additionally impacted by the regulatory requirement that interest rates have to be floored at zero. NPV-atRisk for a +100 bps shock changed during 2015 showing a decrease of EUR 59 million. The NPV-at-risk for the +100 bps shock of the Corporate Line decreased due to a decreased duration of the long-term investments of own funds. Besides the change of the overall NPV-at-Risk exposure, there is change in the exposure per accounting category. The dynamics amongst the different accounting categories can be attributed to increased volumes of both savings and mortgages. As a result the exposure at amortised cost showed a downward move for the +100 bps shock. The impact of this move was mitigated by cash flow hedges, which revaluate through equity, and a decreased duration of investments. The convexity risk of the commercial business increased mainly due to lower interest rates.
Governance – FX translation result ING Bank’s strategy is to protect the target common equity tier 1 ratio against FX rate fluctuations within a certain risk appetite, whilst limiting the volatility in the profit and loss account. Therefore, hedges are only done to the extent that they can be hedge accounted for against equity. Taking this into account, the common equity tier 1 ratio hedge can be achieved by deliberately taking foreign currency positions equal to certain target positions, such that the target common equity tier 1 capital and risk-weighted assets are equally sensitive in relative terms to changing FX rates. A selection of emerging market currencies that meet specific requirements do not have a target position, but are allowed to remain open under the policy.
Foreign Investments Hedges Net exposures in EUR thousand 2015 2014 2015 2014 2015 2014
Year-on-year variance analysis The foreign investments in Chinese Yuan increased due to an increase in share price. The USD position increased mainly due to an appreciation of USD against the EUR. The INR Foreign Investments increased due to different accounting treatment of the stake in Vysya after the merger with Kotak Mahindra, INR appreciation against the Euro, and Vysya share price increase.
Risk Profile Equity price risk arises from the possibility that equity security prices will fluctuate, affecting the value of equity securities and other instruments whose value reacts similarly to a particular security, a defined basket of securities, or a securities index. This equity exposure mainly consists of the investments in associates and joint ventures of EUR 842 million (2014: EUR 861 million) and equity securities held in the available-for-sale (AFS) portfolio of EUR 4,434 million (2014: EUR 2,718 million). The value of equity securities held in the available-for-sale portfolio is directly linked to equity security prices with increases/decreases being recognised in the revaluation reserve, except in the case of impairment. Investments in associates and joint ventures are measured in accordance with the equity method of accounting and the balance sheet value and therefore not directly linked to equity security prices.
2015 2014 Gross unrealised gains 2,662 2,019 Gross unrealised losses –29 Total 2,633 2,019
Valuation techniques range from discounting of cash flows to valuation models. Such models are based on relevant risk factors such as the market price of underlying reference instruments, market parameters (volatilities, correlations and credit ratings) and customer behaviour. Some of these price factors require assumptions which imply that valuation models are subjective by nature. According to what valuation technique is used and what assumptions are made, the obtained fair value can be different, hence the implied downward and/or upward uncertainty of the accounting value may vary. For a classification of fair valued exposure to products in accordance with their degree of valuation uncertainty, refer to the section ‘Financial instruments at fair value’ of Note 40 ‘Fair value of assets and liabilities’.
Credit & Trading Risk has the role to identify and challenge market data and pricing sources that determine the parameters that will be used in the valuation models, and to calculate necessary value adjustments. The identified market data and sources used in the valuation models are independently challenged, reviewed and validated on a regular basis, most of it daily. Price testing and valuation results are reviewed and validated by local and global parameter committees.
Reference is made to Note 40 ‘Fair value of assets and liabilities’ for the basis of the determination of the fair values of the financial instruments and related sensitivities.
Backtesting Backtesting is a technique for the on-going monitoring of the plausibility of the VaR model in use. Although VaR models estimate potential future results, estimates are based on historical market data. In a backtest, the actual daily result is compared with the 1day VaR. In addition to using actual results for backtesting, ING Bank also uses hypothetical results, which measure results excluding the effect of intraday trading, fees and commissions. When the actual or hypothetical loss exceeds the VaR an ‘outlier’ occurs. Based on ING Bank’s one-sided confidence level of 99% an outlier is expected once in every 100 business days. In 2015 there was no occurrence where a daily trading loss exceeded the daily consolidated VaR of ING Bank. ING Bank reports the backtesting results on a quarterly basis to ECB.
Market Risk Weighted Assets, in EUR billions 10 11 1 As of 2015 the capital allocated to the equity portfolio was split into equity and commodity risk classes. Previously it was reported under equity risk class. 2 Standardised model is applied to FX positions in banking books.
Institutions Credit Spread (CSO11) Risk classes 1 (AAA) 0 –60 62 24 2–4 (AA) 13 –108 –21 –100 5–7 (A) 12 –207 21 –76 8–10 (BBB) –61 –180 –52 –116 11–13 (BB) –88 –64 –47 –45 14–16 (B) –3 –2 –14 –18 17–22 (CCC and NPL) –12 –11 –44 –6 Not rated 3 1 –1 –1 Total –136 –631 –96 –338 1 Credit Spread Sensitivity (CS01) measures the impact on value of a 1 basis point increase in credit spreads.
Funding and liquidity risk includes three types of risk, two under normal, and one under stress conditions: 1. Business as usual situation: • Structural funding & liquidity risk: The potential negative impact on an organisation’s income or cash position due to mismatches between expected liquidity tenors of assets and liabilities.
• Customer behaviour funding & liquidity risk: The potential negative impact on an organisation’s income or cash position due to liquidity options embedded in assets and liabilities that include a customer behaviour risk.
Governance Within ING Bank, the Management Board Bank, staff (Risk and Finance) departments, Capital Management and the Bank Treasury function have oversight of and are responsible for managing funding and liquidity risk.
The 2nd line Balance Sheet Risk function is responsible for defining the governance with regard to funding and liquidity management and facilitates the decision making processes for ALCO Bank regarding this topic. Next to this, Balance Sheet Risk sets the standards for the funding and liquidity risk approach (identify, assess, control, monitor and report) and determines adequate policies and procedures for managing and monitoring liquidity risk and checks compliance with guidelines and limits.
• The location and size of liquidity buffers reflects the Bank’s or entity’s structure (e.g. legal and geographical) and business activities.
Liquidity risk transfer and pricing Funds Transfer Pricing (FTP) is an internal measurement and allocation system that assigns a profit contribution to funds raised, lent, or invested. FTP is the pricing mechanism used within ING to transfer interest rate risk, basis risk and liquidity risk positions from commercial units to Bank Treasury. The FTP framework enables local ALCOs to set their local FTP levels and manage these risks for all internal transfers at local level. This means that these risks are transferred from the business to a separate Bank Treasury book where they can be monitored and managed more efficiently and effectively. The liquidity costs, benefits and risks are considered in the product pricing, design and offering and in the Product Approval and Review Process (PARP) or deal approval and other related processes for commercial products by the business units.
Stress testing Stress testing allows a bank to examine the effect of exceptional but plausible future events on the liquidity position of the bank and provides insight into which entities, business lines or portfolios are vulnerable to which type of risks and/or in which type of scenarios. Liquidity stress testing is an important tool in identifying, assessing, measuring and controlling funding and liquidity risks, providing a complementary and forward-looking perspective to other liquidity and funding risk management tools.
Business Environment Assessment The Business Environment Assessment (BEA) assesses all internal control factors and external factors that could influence the internal and external operating environment and may lead to unacceptable operational risk exposure.
Business units and departments perform regular BEAs and Risk & Control Self-Assessments (RCSAs) to identify and assess risks. These are conducted with involvement of the business and their ORM, Compliance and Legal departments. Based on the results of the risk assessment, response measures must be determined for the identified risks beyond the risk appetite. Risk response actions balance the expected cost for implementing these measures with the expected benefits regarding the risk reduction.
Risk response can be achieved through several combinations of mitigation strategies, for example reducing likelihood of occurrence, reducing impact, risk avoidance, risk acceptance or through the transfer of risk. Tracking takes place through ING Bank’s central risk management system.
The yearly objective setting process for both business management and NFR professionals aims to keep improving the management of non-financial risk throughout ING Bank to ensure that ING Bank stays in control of its current and future non-financial risks.
Advanced Measurement Approach (AMA) ING Bank has an Operational Risk Capital model in place in which the risk profile is closely tailored to the internal risk profile of ING Bank and its divisions, by using scenario data for capturing severe risks and internal loss and RCSA data for capturing day-to-day risks. The business has a strong role in assessing scenario severities and the ORM function in validating the results. The internal data are combined with external loss data (ORX) in the AMA capital calculation. In April 2013 ING Bank obtained accreditation for use of its enhanced AMA model for regulatory supervision purposes. ING Bank reports the regulatory capital numbers on a quarterly basis. The AMA capital for the fourth quarter of 2015 amounts to EUR 3,451 million. For the fourth quarter of 2014 the AMA capital amounted to EUR 2,700 million. The increase reflects higher operational RWA mainly caused by a model recalibration (EUR 277 million) and the increased impact of external loss data (EUR 317 million).
• Information (Technology) risk is the risk of loss, including reputational risk due to inadequate information security resulting in a loss of information, confidentiality and/or integrity and/or availability; • Continuity risk is the risk of loss due to events (e.g. natural disasters, power outages, terrorism) leading to a situation that threatens ING's business continuity; • Control risk is the risk of loss due to not complying with (operational, legal, compliance) controls set through governance procedures and/or project management methods caused by improper or insufficient monitoring (testing) on entities, legal structures or activities; • Internal fraud risk is the risk of loss due to deliberate abuse of procedures, systems, assets, products and/or services of ING by those employees who intend to deceitfully or unlawfully benefit themselves or others; ING Group Annual Report 2015 324
Main developments in 2015 Internal and external fraud ING Bank is continuously working on strengthening its global fraud resilience including enhanced collaboration against cybercrime. Exploring and combining existing data search tools that can be used for monitoring or early detection of fraudulent incoming and outgoing payments is becoming more and more important in fraud prevention. They are being further developed into an effective set of organisational controls.
ING Bank has a robust FEC control framework in place to mitigate the risks related to Financial Economic Crime, and the framework is embedded in the day-to-day processes. Amongst other controls the Sanctions Risk Assessment (SRA) procedure is a strong control to mitigate the risks related to sanctions.
Also in 2015, the Ukraine-related sanctions as imposed earlier by both the US and the EU remained in force. Those sanctions restrict amongst others the dealing in specific (financial) products with certain named parties. Management of ING Bank entities use their existing control framework to ensure compliance with these sanctions.
Non-Financial Risk Awareness Promoting Integrity Programme The Promoting Integrity Programme was started in 2010 and is an innovative programme consisting of e-learning modules on key bank-wide topics and follow-up dialogue sessions in which managers discuss the issues raised with their teams. The programme is sponsored by board members and senior managers and is created to ensure that every employee in every part of ING Bank understands how their actions and behaviour can help earn and retain customer and stakeholder trust. The modules consist of several case studies and real life examples which require staff to think about various aspects of the issue. Each module also includes a statement from a senior manager. The topics covered in 2015 were: • Everything Matters
In 2015, ING has almost completed the divestment of its Insurance activities through multiple transactions. The divestment of Voya Financial Inc. was completed in March 2015 through the sale of 45.6 million shares. INGs stake in NN Group was reduced from 68.1% at year-end 2014 to 25.8% at 31 December 2015 through multiple market transactions in February, May, June and September.
These transactions have had a strong positive impact on ING Group’s fully-loaded common equity Tier 1 ratio, reflecting not only the net profit made on selling Voya Financial Inc. shares but also a reversal of capital deductions of significant investments in financial institutions under CRR/CRD IV capital rules. As a result of these transactions and the strong profitability, ING Groups fully-loaded common equity Tier 1 ratio increased to 12.7% at year-end 2015 from 10.5% at 31 December 2014.
ING Bank’s fully-loaded common equity Tier 1 ratio increased from 11.4% at 31 December 2014 to 11.6% at year-end 2015. The increase in capital was driven by EUR 4.7 billion of net profits, which was to a large extent off-set by EUR 2.2 billion dividend up streams from ING Bank to ING Group to support our dividend policy. The merger between ING Vysya Bank and Kotak Mahindra Bank, which was completed on 7 April, had a positive impact on ING Bank’s common Equity Tier 1 capital. Over time we expect that the Banks capitalisation will gradually migrate towards Group capital levels. ING Bank decreased Tier 2 capital by redeeming EUR 1.0 billion of non-CRD IV eligible Tier 2 securities in September and EUR 20 million Tier 2 capital in December to align with earlier issued CRD IV securities. As a result, ING Banks fully-loaded total capital ratio (including grandfathered securities) increased from 16.5% at year-end 2014 to 16.6% at 31 December 2015.
Although ING welcomes how much has been accomplished to increase the resilience of the financial sector and ensure that it can continue to reliably play its role in supporting customers and economic developments, ING is also concerned about the scale of regulatory change, the multiple regulatory initiatives being pursued and the lack of clarity regarding the combined impact in the future on the financial sector, on customers and businesses that depend on it. In addition, the increasing divergence of a level playing field in Europe remains a concern for ING. With the harmonization of supervision in Europe through the Single Supervisory Mechanism progressing, we see a convergence of capital requirements as reflected in the published SREP requirements by various banks. At the same time, this trend is inhibited by national competent authorities setting macro-prudential buffers that significantly increase common equity Tier 1 requirements. For example, ING as a global systemically important bank (G-SIB), is required to hold 1% additional common equity Tier 1 capital which is intended to address risks associated with systemically important financial institutions. For example, in some jurisdictions like the Netherlands, a 3% systemic risk buffer is imposed, which exceeds the G-SIB requirement. Since most countries within the SSM have not imposed any macro-prudential buffers beyond the G-SIB buffer, this undermines the level playing field between ING and its peers, particularly within the Eurozone.
Dividend The Executive Board proposes to pay a total dividend of EUR 2,515 million, or EUR 0.65 per (depositary receipt for an) ordinary share, over the financial year 2015. This is subject to the approval of shareholders at the Annual General Meeting in April 2016. Taking into account the interim dividend of EUR 0.24 per ordinary share that was paid in August 2015, the final dividend will amount to EUR 0.41 per ordinary share and be paid in cash. The total amount of EUR 1,586 million is covered by the remaining balance of ‘interim profits not included in CET1 capital’ at year-end 2015. ING is committed to maintaining a healthy Group CET1 ratio in excess of prevailing fully-loaded requirements, currently 12.5%, and to returning capital to our shareholders. ING aims to pay a progressive dividend over time.
grandfathering rules. This amount is presented net of positions on-lent to Insurance. 3 Including EUR 6,229 million is CRR/CRD IV-compliant and EUR 2,341 million to be replaced as capital recognition is subject to CRR/CRD IV grandfathering rules. 4 The fully-loaded RWA deviated from the phased-in RWA as a result of a slightly higher threshold to which the significant Financial Institutions are risk weighted.
Group capital position: Deductions of significant investments in financial institutions according to CRR/CRD IV
The Executive Board R.A.J.G. (Ralph) Hamers, CEO and chairman P.G. (Patrick) Flynn, CFO W.F. (Wilfred) Nagel, CRO
Parent company statement of changes in equity - continued in EUR million Share capital Share premium
Total amount recognised directly in equity 101 6,068 1,897 8,066 Net result 1,251 1,251
In 2015, ING changed the presentation of the components of equity. Revaluation reserves related to the parent company, previously presented as part of Other reserves, are now separately presented on the Parent company balance sheet and the Parent company statement of changes in equity. The line ‘Legal reserves’ is renamed to ‘Legal and statutory reserves’ and comprises the ‘Share of associates and joint ventures reserve’ and the ‘Currency translation reserve’. The net defined benefit asset/liability remeasurement reserve related to pension plans of subsidiaries, previously presented as part of Other reserves, is now included in ‘Legal and statutory reserves – Share of associates and joint ventures reserve’. The changed presentation improves transparency of disclosures on the legal reserves and the non-distributable reserves. The 2014 comparatives were adjusted accordingly.
Additionally in 2015, Total equity and Other liabilities, as at 31 December 2014, are adjusted. For further information, reference is made to the ING Group Consolidated annual accounts, Note 1 ‘Accounting policies’ for information on the Change in accounting approach NN Group Anchor investment transaction and the Parent company annual accounts, Note 4 ‘Equity’ and Note 6 ‘Other liabilities’.
Effective 1 March 2014, ING Topholding N.V. legally merged with its 100% subsidiary ING Verzekeringen N.V. The merged entity was renamed NN Group N.V.
Ordinary shares (par value EUR 0.24) Number x 1,000 Amount 2015 2014 2015 2014
Impact of IPO NN Group related to the IPO of NN Group in July 2014. In 2015, ING Group changed its accounting approach in relation to the NN Group Anchor investment transaction. The line item Impact of IPO NN Group was adjusted by EUR 1,012 to EUR –3,251 million as a result of the reversal of the provision previously recognised directly in equity. The amount comprised the expected loss, at the time of the IPO of NN Group, on settlement of the two remaining tranches of mandatorily exchangeable notes in NN Group shares. As at 31 December 2014, the expected loss had decreased by EUR 92 million. The reversal of this decrease was adjusted in the line item Changes in composition of the group and other changes, resulting in a net adjustment to Other reserves of EUR 920 million. Reference is made to the ING Group Consolidated annual accounts, Note 1 ‘Accounting policies’ - Change in accounting approach NN Group Anchor investment transaction and the Parent company annual accounts Note 6 ‘Other liabilities’.
Derivatives from group companies 220 56 1 Other liabilities – Other amounts owed and accrued liabilities, as at 31 December 2014, is adjusted as a result of the changes in accounting approach for the NN
In 2015, ING Group changed its accounting approach in relation to the NN Group Anchor investment transaction which resulted in an adjustment of EUR 920 million to Other liabilities – Other amounts owed and accrued liabilities, as at 31 December 2014 from EUR 1,447 million to EUR 527 million. The adjustment comprised the reversal of the provision previously recognised for expected losses on settlement of the two remaining tranches of mandatorily exchangeable notes into NN Group shares. Reference is made to the ING Group Consolidated annual accounts Note 1 ‘Accounting policies’ - Change in accounting approach NN Group Anchor investment transaction and the Parent company annual accounts, Note 4 ‘Equity’.
7 Other Fees for audit and non-audit services Reference is made to the ING Group Consolidated annual accounts, Note 29 ‘Other operating expenses’ for disclosures related to fees for audit and non-audit services.
As at 31 December 2015, ING Groep N.V. guarantees various US dollar debentures (that mature between 2023 and 2036) which were issued by a subsidiary of Voya Financial Inc. In the Shareholder’s agreement between ING Groep N.V. and Voya Financial Inc. it is agreed that the aggregate outstanding principal amount of the debentures will be reduced from EUR 436 million as at 31 December 2015 (2014: EUR 417 million) to no more than EUR 276 million as at 31 December 2016, no more than EUR 184 million as at 31 December 2017, no more than EUR 92 million at 31 December 2018 and zero at 31 December 2019.
Report on the audit of the annual accounts Our opinion We have audited the accompanying annual accounts 2015 of ING Groep N.V., Amsterdam (‘ING Group’) as set out on pages 103 to 348.
In our opinion: • the consolidated annual accounts give a true and fair view of the financial position of ING Group as at 31 December 2015, and of its result and its cash flows for 2015 in accordance with International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 of the Dutch Civil Code.
Materiality Based on our professional judgement we determined materiality for the annual accounts as a whole at EUR 280 million. Materiality is based on 5% of the result before tax from continuing operations, adjusted for unusual items. We have also taken into account misstatements and/or possible misstatements that in our opinion are material for the users of the annual accounts for qualitative reasons.
Following our assessment of the risk of material misstatement to ING Group’s annual accounts, we have selected 33 reporting units which represent the principal business units within ING Group’s reportable segments and account for approximately 92% of ING Group’s total assets and approximately 95% of ING Group’s profit before tax. 15 reporting units required an audit of the complete financial information, either due to their overall size or risk profile. Specific audit procedures on certain balances and transactions were performed for 18 reporting units. We have used the work of mostly other EY auditors when auditing these reporting units in and outside the Netherlands.
These matters were addressed in the context of our audit of the consolidated annual accounts as a whole and in forming our opinion thereon. We do not provide a separate opinion on these matters.
ING also re-evaluated the effectiveness of its internal control over the financial reporting and concluded the accounting for specific transactions with a high degree of complexity will require enhanced documentation, review and dialogue regarding alternative considerations and policy judgements. We assessed and tested the design and operating effectiveness of the controls over the accounting and related disclosures for divestments and other complex transactions.
Fair values of financial instruments and hedge accounting (see page 209) Fair value measurement, hedge accounting and associated valuation adjustments can be a subjective area and more so for areas of the market reliant on model based valuation or with weak liquidity and price discovery. Also, considering the current low interest rate environment, existing prepayment models could lose their predictive value required for the hedge accounting applied. Valuation techniques and models used can be subjective in nature and involve various assumptions regarding pricing and pre-payment behaviour. The use of different valuation techniques and assumptions could produce significantly different estimates of fair value and/or hedge effectiveness. Associated risk management disclosure is complex and dependent on high quality data. Specific areas of focus include the valuation of financial instruments with high estimation uncertainty for which observable market prices or market parameters are not available.
Responsibilities of the Executive Board and Supervisory Board for the annual accounts The Executive Board is responsible for the preparation and fair presentation of these annual accounts in accordance with IFRS-EU and with Part 9 of Book 2 of the Dutch Civil Code, and for the preparation of the Report of the Executive Board in accordance with Part 9 of Book 2 of the Dutch Civil Code. Furthermore, the Executive Board is responsible for such internal control as it determines is necessary to enable the preparation of the annual accounts that are free from material misstatement, whether due to fraud or error.
As part of the preparation of the annual accounts, the Executive Board is responsible for assessing ING Group’s ability to continue its activities. Based on the financial reporting frameworks mentioned, the Executive Board should prepare the annual accounts using the going concern basis of accounting unless management either intends to liquidate ING Group or to cease operations, or has no realistic alternative but to do so. Management should disclose events and circumstances that may cast significant doubt on ING Group’s ability to continue as a going concern in the annual accounts.
Our responsibilities for the audit of the annual accounts Our responsibility is to plan and perform the audit assignment to obtain sufficient and appropriate audit evidence for our opinion. Our audit has been performed with a high, but not absolute, level of assurance, which means we may not have detected all errors and fraud.
• Evaluating the overall presentation, structure and content of the annual accounts, including the disclosures; and • Evaluating whether the annual accounts represent the underlying transactions and events in a manner that achieves fair presentation.
Report on other legal and regulatory requirements Report on the Report of the Executive Board and other information Pursuant to legal requirements of Part 9 of Book 2 of the Dutch Civil Code (concerning our obligation to report about the Report of the Executive Board and other information): • We have no deficiencies to report as a result of our examination whether the Report of the Executive Board, to the extent we can assess, has been prepared in accordance with Part 9 of Book 2 of the Dutch Civil Code, and whether the information as required by Part 9 of Book 2 of the Dutch Civil Code has been annexed.
• We report that the Report of the Executive Board, to the extent we can assess, is consistent with the annual accounts.
Engagement We have been appointed as auditors for the audit of the 2015 annual accounts of ING Group at the annual meeting held on 12 May 2014 and have been the external auditor for a long time. The most recent rotation of the signing external auditor on the audit of the ING Group annual accounts was in 2012. Rotation of the signing external auditor is one of our safeguards to maintain our auditor independence.
Addition to reserves pursuant to Article 37 (4) of the Articles of Association 1,495
Disruptions, uncertainty or volatility in the capital and credit markets, including in relation to the ongoing European sovereign debt crisis, may also limit our access to capital. Such market conditions may in the future limit our ability to raise additional capital to support business growth, or to counterbalance the consequences of losses or increased regulatory capital and rating agency capital requirements. This could force us to (i) delay raising capital, (ii) reduce, cancel or postpone payment of dividends on our shares, (iii) reduce, cancel or postpone interest payments on our other securities, (iv) issue capital of different types or under different terms than we would otherwise, or (v) incur a higher cost of capital than in a more stable market environment. This would have the potential to decrease both our profitability and our financial flexibility. Our results of operations, financial condition, cash flows, regulatory capital and rating agency capital position could be materially adversely affected by disruptions in the financial markets.
Basel III and CRD IV In December 2010, the Basel Committee on Banking Supervision (‘Basel Committee’) announced higher global minimum capital standards for banks and introduced a new global liquidity standard and a new leverage ratio. The Basel Committee’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 Tier 1 common equity 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 Basel Committee 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 G-SIFIs, 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 on. ING Bank was designated by the Basel Committee and the FSB as one of the global systemically important banks (‘G-SIBs’), forming part of the G-SIFIs, in 2011, 2012, 2013, 2014 and 2015, and by the Dutch Central Bank (De Nederlandsche Bank N.V., ‘DNB’) and the Dutch Ministry of Finance as a domestic SIFI in 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. It remains to be seen whether further amendments to the 2010 framework and standards will be made by the Basel Committee in the coming years. For European banks, the Basel III requirements were implemented through the socalled Capital Requirements Regulation and Capital Requirements Directive IV (‘CRD IV Regulation’ and ‘CRD IV Directive’, respectively), which were adopted by the EC in June 2013 following approval by the European Parliament in April 2013. The CRD IV Regulation entered into force on 28 June 2013 and the CRD IV Directive on 17 July 2013, and all banks and investment firms in the EU (as opposed to the scope of the Basel III requirements, which apply to ‘internationally active banks’) were required to apply the new rules from 1 January 2014 in phases, with full implementation by 1 January 2019. While the full impact of these rules, and any additional requirements for SIFIs or G-SIFIs, if and as applicable to the Group, will depend on how the CRD IV Directive has been transposed into national laws in each Member State, including the extent to which national regulators and supervisors have set more stringent limits and additional capital requirements or surcharges. As next phase in regulatory requirements for banks’ risk and capital management, the regulators are focusing on the required capital calculations across banks. Since the start of the financial crisis there has been much debate on the risk-weighted capitalisation of banks, and specifically on whether internal models are appropriate for such purposes. These developments have suggested that stricter rules may be applied by a later framework. The Basel Committee on Banking Supervision (BCBS) released several consultative papers, containing proposals to change the methodologies for the calculation of capital requirements. Within these proposals BCBS suggests methods to calculate RWA using more standardised or simpler methods in order to achieve greater comparability, transparency and consistency. These proposals will likely impact the capital requirements for currently reported exposures (e.g. credit risk via revised standardised RWA floor) but may also lead to new capital requirements (e.g. proposals to enhance Interest Rate Risk in Banking Book). The current proposals, as well as on the economic and financial environment at the time of implementation and beyond, can have a material impact on ING’s operations and financial condition and they may require the Group to seek additional capital.
For instance, ING Group’s wholly owned subsidiary, ING Bank, may from time to time consider whether to establish a branch office in the U.S. If ING Bank were to establish a U.S. branch, we would be subject to supervision and regulation by the Federal Reserve under various laws and various restrictions on our activities under those laws, including the Bank Holding Company Act of 1956, as amended, and the International Banking Act of 1978, and, as a consequence, such supervision and regulation, including such restrictions on activities could materially impact our operations. These would include, among others, the Volcker Rule and heightened supervisory requirements and prudential standards. Dodd-Frank also includes various securities law reforms that may affect the Group’s business practices and the liabilities and/or exposures associated therewith, including a provision intended to authorise the SEC to impose on broker-dealers’ fiduciary duties to their customers, as applied to investment advisers under existing law, which new standard could potentially expose certain of ING’s U.S. broker-dealers to increased risk of SEC enforcement actions and liability. In 2011, the SEC staff released a study on this issue, and members of the SEC’s Investor Advisory Committee voted in November 2013 to recommend the proposal implementing a uniform fiduciary standard for most brokers and registered investment advisers to the SEC.
Foreign Account Tax Compliance Act Under the Foreign Account Tax Compliance Act (‘FATCA’), U.S. federal tax legislation passed in 2010, a 30% withholding tax will be imposed on ‘withholdable payments’ made to non-U.S. financial institutions (including non-U.S. investment funds and certain other non-U.S. financial entities) that fail (or, in some cases, that have 50% affiliates which are also non-U.S. financial institutions that fail) to provide certain information regarding their U.S. account holders and/or certain U.S. investors (such U.S. account holders and U.S. investors, ‘U.S. account holders’) to the U.S. Internal Revenue Service (‘IRS’). For non-U.S. financial institutions that fail to comply, this withholding will generally apply without regard to whether the beneficial owner of a withholdable payment is a U.S. person or would otherwise be entitled to an exemption from U.S. federal withholding tax. ‘Withholdable payments’ generally include, among other items, payments of U.S.-source interest and dividends and the gross proceeds from the sale or other disposition of property that may produce U.S.-source interest and dividends. Furthermore, FATCA may also impose withholding on non-U.S. source payments by nonU. S. financial institutions that comply with FATCA to non-U.S. financial institutions that fail to comply with FATCA. Withholding pursuant to FATCA will take effect on a ‘phased’ schedule, which started in July 2014 with respect to U.S.-source payments and will start no earlier than January 2019 with respect to non-U.S. source payments by non-U.S. financial institutions. In general, non-publicly traded debt and equity interests in investment vehicles will be treated as ‘accounts’ and subject to these reporting requirements. In addition, certain insurance policies and annuities are considered accounts for these purposes.
Many countries, including the Netherlands, have entered into, and other countries are expected to enter into, agreements (‘intergovernmental agreements’ or ‘IGAs’) with the United States to facilitate the type of information reporting required under FATCA. While the existence of IGAs does not eliminate the risk of the withholding described above, these agreements are expected to reduce that risk for financial institutions and investors in countries that have entered into IGAs. IGAs will often require financial institutions in those countries to report information on their U.S. account holders to the taxing authorities of those countries, who will then pass the information to the IRS.
In addition to a ‘write-down and conversion’ power and a ‘bail-in’ power, the powers currently proposed to be granted to the resolution authority under the BRRD include the two categories of measures introduced by the Intervention Act, as described above. In addition, the BRRD stipulates, among the broader powers to be granted to the relevant resolution authority, that it will confer powers to the relevant resolution authority to amend the maturity date and/or any interest payment date of debt instruments or other eligible liabilities of the relevant financial institution and/or impose a temporary suspension of payments.
Additional Tier 1 Securities In April 2015, ING issued USD 2.25 billion of Additional Tier 1 securities (‘AT1 Securities’). ING may issue additional AT1 Securities, or other instruments with similar terms (also known as contingent convertible bonds or ‘cocos’), in the future. The Dutch parliament adopted Article 29a of the Dutch Corporate Income Tax Act of 1969 (Wet op de vennootschapsbelasting 1969) in 2015 to provide debt treatment of securities similar to the AT1 Securities for the purpose of Dutch corporate income tax (25% rate) and (indirectly) dividend withholding tax purposes (15% non-grossed up rate). The interest payment obligation for the year 2015 in respect of the AT1 Securities is EUR 90 million. For 2015, that amount was treated by ING as a deductible interest expense for Dutch corporate income tax purposes and as exempt for Dutch dividend withholding tax purposes. However, there is a risk that the European Commission will take the view, and that court would uphold such view if contested, that the tax deductibility of interest payments on the AT1 Securities is in contravention of the European Commission’s temporary state aid rules for assessing public support to financial institutions during the crisis (the ‘Revised State Aid Guidelines’). The Revised State Aid Guidelines provide for strengthened burden-sharing requirements, which require banks with capital needs to obtain shareholders’ and subordinated debt holders’ contributions before resorting to certain state aid measures. If a determination were made that deduction of interest payments on AT1 Securities and other similar securities, including those ING may issue in the future, is inconsistent with the Revised State Aid Guidelines, amounts ING would have to pay to the Dutch State with respect to interest payments that have previously been treated as an expense for Dutch corporate income tax purposes and that have been paid free of withholding taxes could be substantial, in particular if ING is unable to redeem the securities (e.g. for the year 2015, the total amount of payment in this respect could be EUR 38 million excluding interest). The terms of the AT1 Securities provide that ING can redeem the AT1 Securities only upon the occurrence of specific events (not including a determination that the tax treatment of the AT1 Securities is inconsistent with European rules against state aid) or after 5 years or 10 years (depending on the series) after their date of issuance.
U.S. Sovereign Credit Rating In 2011, Standard & Poor’s Ratings Services (‘S&P’) lowered its long-term sovereign credit rating on the U.S. from AAA to AA+. Although other ratings agencies have not similarly lowered the long-term sovereign credit rating of the U.S., they have put that credit rating on review. Amid the lingering uncertainty over the long-term outlook for the fiscal position and the future economic performance of the U.S. within the global economy and potential future budgetary restrictions in the U.S., as illustrated by the recent budget negotiations and partial shutdown of the U.S. government in October 2013, there continues to be a perceived risk of a future sovereign credit ratings downgrade of the U.S. government, including the rating of U.S. Treasury securities. On 15 October 2013, Fitch Ratings placed the U.S.’s AAA credit rating under ‘rating watch negative’ in response to the crisis, a step that would precede an actual downgrade, which was however upgraded again to ‘stable’ in March 2014. It is foreseeable that the ratings and perceived creditworthiness of instruments issued, insured or guaranteed by institutions, agencies or instrumentalities directly linked to the U.S. government could also be correspondingly affected by any such downgrade. Instruments of this nature are key assets on the balance sheets of financial institutions and are widely used as collateral by financial institutions to meet their day-to-day cash flows in the short-term debt market. The impact of any further downgrades to the sovereign credit rating of the U.S. government or a default by the U.S. government to satisfy its debt obligations likely would create broader financial turmoil and uncertainty, which would weigh heavily on the global financial system and could consequently result in a significant adverse impact to the Group.
Risks and ongoing concerns about the debt crisis in Europe, as well as the possible default by, or exit from, the Eurozone of one or more Member States and/or the replacement of the Euro by one or more successor currencies, could have a detrimental impact on the global economic recovery, sovereign and non-sovereign debt in these European countries and the financial condition of European and other financial institutions, including us. For example, concerns regarding Greece’s potential exit from the Eurozone reached a peak in the summer of 2015 with the rejection of the bailout terms by the Greek people via a referendum and the failure to make the IMF loan repayment in June 2015. Additionally, the possibility of capital market volatility spreading through a highly integrated and interdependent banking system remains elevated. In the event of any default or similar event with respect to a sovereign issuer, some financial institutions may suffer significant losses, following which they would require additional capital, and such capital may not be available. Market and economic disruptions stemming from the crisis in Europe have affected, and may continue to affect, consumer confidence levels and spending, bankruptcy rates, levels of incurrence of, and default on, consumer debt and home prices, among other factors. There can be no assurance that the market disruptions in Europe, including the increased cost of funding for certain government and financial institutions, will not spread, nor can there be any assurance that future assistance packages will be available or, even if provided, will be sufficient to stabilise the affected countries and markets in Europe or elsewhere. To the extent uncertainty regarding the economic recovery continues to negatively impact consumer confidence and consumer credit factors, our business and results of operations could be significantly and adversely impacted. In addition, the possible exit from the Eurozone of one or more European states and/or the replacement of the Euro by one or more successor currencies could create significant uncertainties regarding the enforceability and valuation of Euro-denominated contracts to which we (or our counterparties) are a party and thereby materially and adversely affect our and/or our counterparties’ liquidity, financial condition and operations. Such uncertainties may include the risk that (i) an obligation that was expected to be paid in Euros is redenominated into a new currency (which may not be easily converted into other currencies without incurring significant cost), (ii) currencies in some Member States may depreciate relative to others, (iii) former Eurozone Member States may impose capital controls that would make it complicated or illegal to move capital out of such countries, and/or (iv) some courts (in particular, courts in countries that have left the Eurozone) may not recognise and/or enforce claims denominated in Euros (and/or in any replacement currency). The possible exit from the Eurozone of one or more Member States and/or the replacement of the Euro by one or more successor currencies could also cause other significant market dislocations and lead to other adverse economic and operational impacts that are inherently difficult to predict or evaluate, and otherwise have potentially materially adverse impacts on us and our counterparties, including our depositors, lenders, borrowers and other customers. These factors, combined with volatile oil prices, reduced business and consumer confidence and/or continued high unemployment, have negatively affected the economy of main geographic regions where we conduct our business. Our results of operations, liquidity position, capital position and investment portfolio are exposed to these risks and may be adversely affected as a result. In addition, in the event of extreme prolonged market events, such as the recent global credit crisis, we could incur significant losses and may lead to USD funding shortage for EU Banks.
Economic and other factors could lead to contraction in the residential mortgage and commercial lending market and to decreases in residential and commercial property prices, which could generate substantial increases in impairment losses. Additionally, continuing low oil prices could have an influence on the repayment capacity of borrowers.
• (depending on the position) a significant collateral posting requirement associated with our interest rate hedge Program; We may incur losses due to failures of banks falling under the scope of state compensation schemes. In the Netherlands and other jurisdictions, deposit guarantee schemes and similar funds (‘Compensation Schemes’) have been implemented from which compensation may become payable to customers of financial services firms in the event the financial service firm is unable to pay, or unlikely to pay, claims against it. In many jurisdictions in which we operate, these Compensation Schemes are funded, directly or indirectly, by financial services firms which operate and/or are licensed in the relevant jurisdiction. ING Bank is a participant in the Dutch Deposit Guarantee Scheme, which guarantees an amount of EUR 100,000 per person per bank (regardless of the number of accounts held). Until now, the costs involved with making compensation payments under the Dutch Deposit Guarantee Scheme had been allocated among the participating banks by the DNB, based on an allocation key related to their market shares with respect to the deposits protected by the Dutch Deposit Guarantee Scheme. Given our size, we may incur significant compensation payments to be made under the Dutch Deposit Guarantee Scheme, which we may be unable to recover from the bankrupt estate. Such costs and the associated costs to be borne by us may have a material adverse effect on our results of operations and financial condition. On 4 July 2015, the new EU Directive on deposit guarantee schemes, had to be implemented by EU member states. As a consequence, the Dutch Deposit Guarantee Scheme is to change from an ex-post scheme, where we would have contributed after the failure of a firm, to an ex-ante scheme where we will pay quarterly risk-weighted contributions into a fund for the Dutch Deposit Guarantee Scheme. The fund is to grow to a target size of 0.8% of all deposits guaranteed under the Dutch Deposit Guarantee Scheme, to be reached in July 2024. The Dutch decree implementing the Deposit Guarantee Scheme Directive entered into force on 26 November 2015.
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 material adverse effect on the calculated risk figures and, ultimately, future results.
Furthermore, we may undertake future equity offerings with or without subscription rights. In case of equity offerings with subscription rights, holders of ING shares in certain jurisdictions, however, may not be entitled to exercise such rights unless the rights and the related shares are registered or qualified for sale under the relevant legislation or regulatory framework. Holders of ING shares in these jurisdictions may suffer dilution of their shareholding should they not be permitted to, or otherwise chose not to, participate in future equity offerings with subscription rights.
Introduction Basis of disclosure The information in this report relates to ING Group N.V. and all of its subsidiaries (hereafter ING Group). There are no differences between the scope of consolidation for prudential purposes compared to the accounting scope of consolidation as reported in the annual accounts in Note 50 ‘Principal subsidiaries’.
Regulatory framework The Pillar III report is prepared in accordance with the Capital Requirements Regulation (‘CRR’) and Capital Requirements Directive IV (‘CRD IV’) as required by the supervisor authority. The purpose of this report is to meet the regulatory disclosure requirements in accordance with Part Eight of the CRR, especially the articles 431 to 455, which came into force on 1 January 2014.
Regulatory capital Capital Adequacy Rules – CRR/CRD IV The rules for required Regulatory Capital and 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 Dutch Central Bank for supervisory purposes.
Common Equity Tier 1 capital Opening amount 40,543 31,511 Profit included in CET1 capital 1,495 1,495 Adjustment prudential filters own credit risk –135 –129 Change in goodwill and intangibles –302 88 Change in revaluation reserves 1,689 240 Change in third party interest 40 40 Change in deductions significant investments in Financial Institutions 4,073 12,714 Other –5,849 –5,171 Closing amount 41,554 40,788
Opening amount 0 5,727 Change in AT 1 instruments 847 847 CRR/CRD IV phased-in adjustments (excl. significant investments in FIs) 575 Change in deductions significant investments in Financial Institutions 3,436 Closing amount 4,858 6,574
Capital adequacy assessment As at 1 January 2014, the CRR/CRD IV capital rules entered into force. According to CRR/CRD IV capital adequacy rules, the minimum Common Equity Tier 1 ratio has to be 4.5%, the minimum Tier 1 requirement 6% and the total capital ratio 8% of all risk-weighted assets.
Subordinated loans qualifying as Tier 1 capital3 6,574 6,574 6,574 5,727 5,727 5,727 Deduction of goodwill and other intangibles1 –956 –638 –1,346 –1,009 Provision shortfall2 –340 –227 –525 –394 CRD-IV eligible Tier 1 Hybrids Investments >10% FI, exceeding 10% threshold –419 –278 –3,856 –4,222 Minority interests, counting as Additional Tier 1 capital Available capital - Tier 1 46,412 46,750 47,362 40,543 40,375 37,239
Supplementary capital - Tier 23 8,570 8,570 8,570 9,371 9,371 9,371 Provision shortfall2 –340 –227 –525 –394 IRB excess provision Investments >10 FIs, exceeding 10% threshold –419 –278 –5,659 –4,222 Minority interests, counting as Tier 2 capital 102 102 102 103 103 103 Available Tier 3 funds BIS capital 54,325 54,916 56,034 43,834 45,233 46,713
Article 429 (7) of Regulation (EU) No 575/2013) EU-6b (Adjustment for exposures excluded from the leverage ratio exposure measure in accordance with Article 429
Regulation (EU) No 575/2013 15 Agent transaction exposures EU-15a (Exempted CCP leg of client-cleared SFT exposure) 16 Total securities financing transaction exposures (sum of lines 12 to 15a) 81,283 81,283 Other off-balance sheet exposures 17 Off-balance sheet exposures at gross notional amount 210,856 210,856 18 (Adjustments for conversion to credit equivalent amounts) –141,762 –141,762 19 Other off-balance sheet exposures (sum of lines 17 to 18) 69,093 69,093 Exempted exposures in accordance with CRR Article 429 (7) and (14) (on and off balance sheet)
Figures for Derivatives and Securities Financing are based on the current exposure method, which generally is equal to the marked-tomarket value of the underlying trades plus a (regulatory defined) ‘add-on’ which represents estimated potential future exposure. The amounts are then further modified by an adjustment that is related to the underlying collateral (market) values (after a haircut is applied) and any legal netting or compensation that may be permitted under various master agreement arrangements such as International Swaps and Derivatives Association (ISDA master agreements and Credit Support Annexes (CSAs).
Approaches applied On 1 January 2008, ING Bank adopted the Advanced Internal Ratings Based (AIRB) approach for the majority of its significant portfolios that contain credit risk in accordance with the approvals granted by ECB and various local regulators, as required. However, there remains a small portion of the portfolio that is subject to the Standardised Approach (SA). The majority of SA portfolios at ING Bank relate to subsidiaries where the home regulator does not have a robust AIRB framework or requirement. Depending on the regulatory landscape, ING will continue to explore opportunities to transition additional portfolios from SA to AIRB. ING Bank does not have any portfolios that use the Foundation Internal Ratings Based (FIRB) Approach. The AIRB and SA approaches are explained in more detail in the Credit Risk Measurement section of the Risk Management paragraph. An analysis on the AIRB and SA portfolios with their accompanying tables is provided in the SA and AIRB Approach sections of Pillar III.
Overall, RWA management has a very high priority throughout ING Bank in all aspects of our business. From product design, to pricing, to divestment decisions, RWA management is extensively monitored, reported, and managed at all levels of the organisation.
Advanced IRB and Standardised Approach ING uses two methods to calculate Regulatory Capital for Credit Risk within its portfolio: the Advanced Internal Rating Based (AIRB) approach and the Standardised Approach (SA). The AIRB approach is permitted by the Regulator if there are regulatory approved rating models (PD, EAD and LGD) in place and if the (local) management understands and uses these rating models (Basel Use Test) in their credit decision making processes. ING Bank does not use the Basel Foundation IRB Approach (FIRB) for any of its portfolios. This section is to be read in conjunction with the Risk Management paragraph of the Annual Report.
• Retail - Secured by immovable property SME (included in most tables with Other Retail) includes all retail loans which are covered by commercial properties.
• Retail Other includes all other retail credit obligations related to Retail SMEs (such as partnerships and one-man businesses) and private individuals (such as consumer loans, car loans and credit cards). Under these exposure class definitions, it is possible for a private individual to be included under both Secured by Res. Mortgage and Retail Other.
The SA exposure class ‘Exposures in default’ is mapped to the ING exposure class in which the exposure would have been if it was performing.
Mortgage Other Retail Total 2015 Total 2014 READ RWA READ RWA READ RWA READ RWA READ RWA READ RWA READ RWA AIRB approach On-balance 103,296 5,270 48,430 10,258 181,014 86,398 271,119 42,302 28,207 14,341 632,066 158,568 601,769 157,036 Off-balance 8,768 422 7,614 2,265 68,255 25,726 7,419 474 9,191 2,592 101,247 31,480 90,725 28,078 Securities Financing 591 3 13,308 1,408 1,842 92 15,741 1,503 15,590 2,085 Derivatives 2,229 262 33,509 5,383 9,317 4,753 39 16 45,094 10,415 46,041 11,421 Total AIRB 114,884 5,957 102,861 19,314 260,429 116,970 278,538 42,776 37,436 16,949 794,148 201,967 754,125 198,620
SA approach On-balance 2,866 2,302 3,750 1,015 8,123 7,178 6,901 3,125 8,819 6,204 30,460 19,824 24,891 16,833 Off-balance 113 36 986 923 71 50 2,100 1,535 3,270 2,544 3,210 2,528 Securities Financing 39 38 5 3 45 41 5 5 Derivatives 642 315 20 20 10 8 672 343 302 155 Total SA 2,905 2,340 4,510 1,370 9,130 8,122 6,972 3,175 10,930 7,747 34,448 22,752 28,408 19,522
CVA (SA portfolio) 20 20 42 CVA (AIRB portfolio) 74 4,899 13 4,985 6,369 Total CVA 74 4,919 13 5,005 6,412
The ING Bank portfolio falls for 90% under the AIRB approach and for 10% under SA in terms of RWA (excl. CVA RWA). The total portfolio increased in 2015 by EUR 46.4 billion in READ to EUR 836.7 billion and by EUR 4.9 billion RWA to EUR 231.6 billion. The increase in READ as well as RWA is mainly a result of growth witnessed in the Wholesale Banking and Challenger & Growth portfolios but also as a result of the appreciation of the major currencies against the Euro.
Institutions credit risk disclosure This table presents the READ and RWA (excluding CVA RW), segmented by relevant factors for the exposure class ‘Institutions’.
Institutions Europe 75,466 80,003 –5.7% 13,827 17,269 –20% Netherlands 7,845 8,214 –4.5% 1,775 2,489 –29% Belgium 8,601 8,907 –3.4% 1,667 1,570 6% Germany 3,259 8,737 –62.7% 430 743 –42% Other Europe 55,761 54,144 3.0% 9,955 12,467 –20%
The Institutions portfolio decreased by EUR 6.0 billion and consequently declined RWA by EUR 5.1 billion. The RWA reduction was mainly the result of a released internal guarantee for the funding of NN Bank, the reduced exposure and risk weight of the Default Fund Contribution to Central Clearing Parties and decreased exposure to Greece and Russian banks. The Bond Investments portfolio declined as a result of maturing Cedula investments. The appreciation of the US Dollar against the Euro resulted in an increase in READ
Additional Pillar III information - continued and RWA of respectively EUR 3.9 billion and EUR 1.2 billion. The increase in the 'more than 60%' LGD bucket was driven by increased short-term nostro exposure.
2015 2014 LTV READ LTV READ Netherlands1 83% 129,814 87% 134,526 Germany 70% 69,967 71% 64,530 Belgium, Luxembourg 72% 30,760 74% 29,509 Australia 62% 29,875 61% 29,577 Spain 64% 10,453 65% 9,653 Italy 59% 7,673 57% 7,747 Poland 61% 4,626 59% 3,828 Turkey 57% 1,472 54% 1,264 Romania 68% 870 67% 693 Total 74% 285,510 77% 281,328
In Italy the house price index continued to decrease in 2015 resulting in an increase of the LTV from 57% to 59%.
Although the average LTV for the Polish mortgages portfolio is still relatively low at 61%, the LTV increased due to new production which was targeted at younger customers. The current economic outlook is positive and the housing market is developing favourably, with increasing house prices and transaction rates. However, the political climate could have adverse effects on the economy in the longer run.
The Advanced Internal Rating Based approach (AIRB) The AIRB approach has five main elements that drive the CRR/CRD IV ‘risk-based approach’ for the determination of RWA. The elements are: the CRR/CRD IV Exposure Class, Probability of Default (PD), Exposure at Default (EAD), Loss Given Default (LGD) and Maturity (M).
Exposure Class: The exposure class (a grouping of credit risks associated with a common obligor type or product type) is a driver for the correlation factor. To calculate Capital the default correlation between a transaction and all other transactions in the portfolio are taken into account. The correlation factor determines which portion of the standalone risk of a transaction is retained when the transaction is included in the portfolio and the portfolio diversification benefits are taken into consideration.
PD 1 The government related entities PD model is expert based and assigns ratings based on stand-alone credit fundamentals as well as degree of government support.
LGD 6 Local statistical models or hybrid models use various data inputs on cure behaviour as well as cost and recovery.
LGD 7 Local statistical models or hybrid models use various data inputs on cure behaviour as well as cost and recovery >7 years
1 Belgian PD models provide a rating at a customer level, covering both secured and unsecured loans. Includes the AIRB portfolio only; excludes securitisations, CVA RWA, equities and ONCOA.
AIRB credit exposures by exposure class The table below gives an overview of the relevant parameters for determining the capital requirements for AIRB models. The Bank of International Settlements (BIS) requires an exposure class breakdown in this table which differs from the ING Bank exposure classes shown in previous tables.
10 0.26 - 0.37% 90,839 0.32 21.53 45.54 19,764 0.22 62 BBB- 11 0.37 - 0.58% 99,388 0.45 20.22 47.88 24,781 0.25 90 BB+ 12 0.58 - 1.00% 78,616 0.74 22.11 46.90 25,326 0.32 129 BB 13 1.00 - 1.77% 43,874 1.30 26.31 43.74 22,572 0.51 151 BB- 14 1.77 - 3.23% 21,737 2.47 28.35 39.21 15,433 0.71 152 B+ 15 3.23 - 6.05% 14,120 4.29 24.69 44.71 10,092 0.71 150 B 16 6.05 - 11.67% 6,191 8.33 28.80 40.24 5,844 0.94 146 B- 17 11.67 - 20.20% 5,704 16.22 28.09 41.31 7,168 1.26 263 CCC 18 20.20 - 29.58% 3,774 24.86 25.53 35.36 5,375 1.42 239 CC 19 >29.58%-100% 2,392 41.98 26.81 43.92 2,778 1.16 257 C
ING Bank’s Probability of Default (PD) rating models are based on a 1-22 scale, which corresponds to the same rating grades that are assigned by external rating agencies. Risk Ratings (PD) for performing loans (1-19) are calculated in ING Bank with regulatory approved models. Risk Ratings for non-performing loans (20-22) are set on the basis of an approved discretionary methodology by the Global or Regional Restructuring unit. Overall the risk weights of the ING portfolio are a mixture of low risk weights for Sovereigns and Residential Mortgages combined with higher risk weights for Corporates. Many central governments exposure receive a zero risk weight due to the high quality rating (permanent partial use of the SA rules). Mortgages generally benefit from large levels of (over) collateralisation.
As of October 2015, PD values of the ING Bank Master scale as stated above are adjusted using both internal and external default data, covering the period 1981 until 2013. External data from Standard & Poor’s is used. Internal default experience is reflected for a better fit of ING Bank’s portfolios compared to the predominantly US based Standard & Poor´s data.
The relatively low RWA density for Sovereigns and central banks is driven by certain sovereign entities, which are rated between 1-4 and whose exposures receive a regulatory risk weight of nil %.
Res. Mortgage Other retail Total Total Average PD 13% –36% –20% –16% –12% –17% –10% Average LGD 0% –1% 2% –11% 7% –2% –5% READ 14% –8% 15% 1% –6% 5% 7% RWA –3% –38% 15% –13% 1% –1% 6% RWA density –15% –33% 0% –14% 7% –6% –1%
Over the course of 2015 the risk profile of the AIRB portfolio improved with the average PD decreasing with 17%. The PD decrease seen in the Institutions exposure class was mainly driven by portfolio composition changes with most notable a strong reduction related to a Deposit Guarantee Scheme exposure.
The increase in the average PD of the Sovereigns portfolio of 13% is mainly a result of increasing customer deposits in Japanese Yens and consequently higher placements with the Bank of Japan for which the county rating has deteriorated, resulting in not being 0% risk weighted placement anymore. The LGD increase in the Corporates portfolio is mainly a result of the Commercial Property Finance LGD model update which now incorporates more conservatism. The improved PD values in the Corporates exposure class improved with 20% for which the main drivers were the restructuring of a few files within the Real Estate Finance portfolio and an improving risk profile of the Corporates segment within the Netherlands. This was partially offset by pressure on oil and commodity prices in combination with economic and political turmoil in Russia and Ukraine which resulted in an upward trend of PD values in mainly the Structured Finance portfolio partly offsetting the overall downward trend. The PD and LGD improvement in the Secured by Residential mortgage portfolio is primarily driven by the Dutch mortgage portfolio, where economic conditions improved especially with respect to house prices and employment in the Netherlands and was accompanied with a more efficient arrears management. On top of the improving economies in most of the key retail countries, the Residential Mortgage portfolio and the SME portfolio PDs have showed the most significant improvements.
Res. Mortgage Other retail Total Expected loss rate 2014* 0.02% 0.06% 0.39% 0.19% 1.08% 0.25% Observed Loss Rate 2015 0.00% 0.00% 0.33% 0.17% 0.98% 0.21%
0% 10% 20% 35% 50% 75% 100% 150% Others Total Sovereigns and their central banks 81 969 1,855 2,905 Non-central government public sector entities 3 118 121 Banks 3,292 936 192 4,420 Corporates 6,430 51 6,481 Regulatory retail portfolios 9,562 9,562 Secured by residential property 5,855 1,110 6,965 Secured by commercial real estate 2,155 1,432 3,587 Past due loans 19 347 41 407 Total 2015 81 3,295 5,855 4,197 9,562 11,366 92 34,448 Total 2014 1 1,069 4,832 3,805 9,184 9,424 93 28,408
The non-performing loans include all loan types whereas in the next table the non perfoming loans only include Lending and Debt Securities.
Bank Impaired loan book - movements Impaired loans at 1 January 20151 6,245 8,593 2,051 16,889 Classified as impaired during the year2 1,529 2,838 802 5,169 Outflow from impaired excluding write-offs –1,215 –3,305 –618 –5,138 Amounts written off –520 –956 –242 –1,718 Changes in composition of the bank 0 0 0 0 Exchange rate and other movements3 152 2 –31 123 At 31 December 2015 6,191 7,172 1,962 15,325
Res. Mortgage Other retail Total Total Private Individuals 4,403 960 5,363 6,143 Real Estate 2,232 93 263 2,588 3,294 Natural Resources 1,344 12 1,356 952 Builders & Contractors 669 226 895 964 Services 1 580 228 809 716 Transportation & Logistics 721 75 796 790 Food, Beverages & Personal Care 584 110 694 686 General Industries 576 111 687 764 Retail 294 100 394 370 Utilities 314 8 322 343 Commercial Banks 319 319 1,253 Chemicals, Health & Pharmaceuticals 218 30 248 250 Automotive 157 44 201 205 Media 109 39 148 179 Other 18 34 100 3 55 210 281 Total 18 354 7,898 4,499 2,261 15,030 17,190
Includes both AIRB and SA portfolios; only Lending and Investment are included; excludes securitisations, equities and ONCOA.
Res. Mortgage Other retail Securitisation Total Total Private Individuals 1 884 709 1,594 1,335 Real Estate 841 20 86 947 1,316 Natural Resources 420 7 427 304 Builders & Contractors 324 97 421 479 Services 307 102 409 399 General Industries 356 51 407 468 Food, Beverages & Personal Care 291 54 345 430 Transportation & Logistics 296 38 334 338 Utilities 204 3 207 118 Retail 107 59 166 211 Chemicals, Health & Pharmaceuticals 130 16 146 155 Automotive 103 24 127 117 Non-Bank Financial Institutions 6 25 15 44 90 65 Media
Includes both AIRB and SA portfolios; excludes securitisations, equities and ONCOA. Excludes revaluations made directly through the equity account. 1 Sectors with cumulative provisions of less than EUR 50 million are grouped under ‘Other’. 2 At the end of 2015, the stock of provisions included provisions for amounts due from banks: EUR 14 million (2014: EUR 6 million).
Res. Mortgage Other retail Total Total Netherlands 1,065 8 1,073 1,594 Belgium 1,080 639 1,719 2,081 Germany 252 24 276 182 Other Europe 325 443 768 725 Americas 2 2 3 Asia / Pacific 490 490 556 Rest of World 0 1 Total 3,214 1,114 4,328 5,143
Secured by Res. Mortgage 4,639 599 300 206 501 500 Other Retail 1,327 158 42 35 91 309 Total 2015 5,966 757 342 241 592 809
If all of the unused commitments were called upon at the same time, ING Bank’s credit risks (in terms of outstandings) would increase by 14.6%. As part of its Regulatory EAD models, ING Bank makes an estimate of how much of these unused commitments would be drawn under normal circumstances. The effect is included in the calculation of the RWA, together with a similar effect applied to uncommitted facilities, albeit at a lower rate.
CVA risk CRR/CRD IV introduced an additional regulatory capital charge for material increases in the CVA, the market price of the credit risk of derivatives. In particular, as credit spreads of ING Bank’s counterparties increase, CVA will increase as well and ING Bank will incur a loss. ING Bank follows the standardised approach for calculation of the capital charge to cover CVA Risk (CVA Capital) in accordance with the CRR/CRD IV. The scope of the products and counterparties that the CVA Capital charge is applied to also follows those regulations. The most important factors in the calculation of CVA Capital according to the standardised approach are the CVA Exposure, the CVA Risk Weight and the Maturity. The CVA exposure is similar to the READ, but includes collateral held under collateral agreements. The CVA Risk Weight is prescribed in regulation and depends directly on the risk rating of the counterparty. The Maturity is similar to the Maturity used in the calculation of Counterparty Default Risk, but contrary to its use there not capped at 5 years.
The largest cause for the reduction of Capital for CVA over 2015 is that Securities Financing (repo-style) transactions were excluded from the scope of the calculation.
The derivative portfolio of ING Bank primarily facilitates hedging mortgage portfolio and Lending portfolio facilities. Approximately 78% of the derivatives portfolio is related to interest rate derivatives of which a large part is cleared via Central Clearing Parties (CCP) (see table Credit risk derivatives table below). A majority of these institutions are based the United Kingdom, Netherlands, France, Germany and the United States. The decrease in commodity derivatives is mainly caused by deteriorated market circumstances and maturing petroleum gas commodity derivative contracts. The increase in Equity derivatives is due to strong equity price fluctuations on the equity market this year.
Securities financing by product type The table below is based on the mark-to-market plus (regulatory) add-on methodology used for calculating CRR/CRD IV RWA for determining the gross exposures. The methodology to calculate the READ is called the Current Exposure Method (CEM) and together with the other building blocks (PD, LGD and Maturity) it allows ING Bank to classify virtually all of its Securities Financing exposures under the AIRB approach.
eligible AIRB Sovereigns 7,052 2,870 2,526 2,333 105,724 668 37 2,022 214 Institutions 145,996 46,789 34,326 35,348 90,508 1,622 4,472 3,903 2,234 Corporates 13,235 11,425 11,145 14,090 220,214 97,193 11,091 50,712 75,131 Res. Mortgage secured 270,912 441,324 2,787 25,602 244 Other Retail 44 40 40 51 28,419 19,484 1,387 6,486 4,386 Securitisations 429 429 429 601 7,461 Total AIRB 166,756 61,553 48,466 52,423 723,238 560,291 19,774 88,725 82,209
The Risk Management Paragraph of the Annual Report includes an extensive cover section where exposures are categorised into different Value-to-Loan (VLT) buckets which gives insight in the level of collateralisation of ING Bank’s portfolio.
Exposures secured by guarantees received From time to time, ING Bank extends loans for which it receives a specific financial guarantee from a non-related counterparty or obligor. The figures in the table below represent the READ that has been guaranteed by these non-related parties. It does not include non-guaranteed amounts. For example, if a given credit risk is only partially guaranteed by a third party then only the portion of the amount which is guaranteed is included in the figures below. For the Residential Mortgages portfolio the guarantees relate to mortgages covered by governmental insurers under the Nationale Hypotheek Garantie (NHG) in the Netherlands. The NHG guarantees the repayment of a loan in case of a forced property sale.
Res. Mortgage Other retail Total Total Under AIRB Approach 1,944 4,194 48,659 25,605 6,424 86,826 85,622 Total 2.2% 4.8% 56.0% 29.5% 7.4% 100.0% 100.0%
2015 2014 Delta % Securitisations Geography 8,130 7,815 4.0% America 3,388 3,483 –2.7% Asia 38 53 –28.2% Australia 13 32 –60.2% Europe 4,692 4,247 10.5%
Securitisations Product Type 8,130 7,815 4.0% Residential Mortgage Backed Securities 3,286 4,025 –18.3% Asset Backed Securities 2,897 2,218 30.6% Securitisation Liquidity1 846 947 –10.7% Interest Rate Derivatives 423 106 298.0% Other 678 519 30.6%
Investor securitisations ING Bank’s goal is to maintain a portfolio of high quality liquid assets that meets the regulatory requirements of CRR/CRD IV and the Delegated Act of October 2014 regarding liquidity. ING invests in high quality Residential Mortgage Backed Securities (RMBS) and Asset Backed Securities (ABS) keeping close track of the securitisation investment positions via monthly monitoring reports and weekly update calls.
The following table provides the breakdown of current exposures by risk weight bands. The amount of securitisation positions is based on the regulatory exposure values calculated according to the CRR/CRD IV after consideration of credit conversion factors (CCFs) where applicable as used for the purpose of Pillar I, but prior to the application of credit risk mitigates on securitisation positions. Given the focus on high quality securitisations the portfolio composition is shifting to the lowers risk band.
Exposure values (by regulatory approach) IRB RBA (incl. IAA) 6,370 6,108 262 6,370 6,310 12.50 72 72 0 72 47 Total 6,442 6,180 262 6,442 6,357
In the table above an overview of Investor Securitization exposures and their respective capital requirements are shown. In line with ING’s policy and Risk Appetite the vast majority of positions are rated AA- and above, and almost the entire portfolio remains within the investment grade. Positions that have deteriorated in credit quality have been adequately provisioned and have been reduced significantly. The RWA increase in the 12.50 risk weight bucket is related to an AAA rated investment for which a rating was unavailable on 31st of December 2015.
In its role as administrative agent, ING Bank facilitates these transactions by acting as administrative agent, swap counterparty and liquidity provider to Mont Blanc. ING Bank also provides support facilities (liquidity and program wide enhancement) backing the transactions funded by the conduit. The types of asset currently in the Mont Blanc conduit include trade receivables, consumer finance receivables, car leases and residential mortgages..
ING Bank supports the commercial paper programmes by providing the Special Purpose Entity (SPE) with short-term liquidity facilities. These liquidity facilities primarily cover temporary disruptions in the commercial paper market. Once drawn these facilities bear normal credit risk. A number of programmes are supported by granting structured liquidity facilities to the SPE, in which ING Bank covers at least some of the credit risk incorporated in these programmes itself (in addition to normal liquidity facilities), and might suffer credit losses as a consequence. Furthermore, under a Programme Wide Credit Enhancement ING Bank guarantees to a limited amount all remaining losses incorporated in the SPE to the commercial paper investors.
The liquidity facilities, provided to Mont Blanc are EUR 796.3 million. There was no drawn liquidity amount at 31 December 2015. Mont Blanc has no investments in securitisation positions that ING Bank has securitised. Nor are there entities either managed or advised by ING Bank that invest in Mont Blanc.
Opening amount 1,178 2,802 5,331 1,412 10,723 Movement in risk levels and market movement 619 129 –1,752 –84 –1,088 Model updates/changes - - - - - Acquisitions and disposals - - - - - Total movement 619 129 –1,752 –84 –1,088
Main Drivers The main market risk sensitivities of capital are interest rate and credit spread driven, resulting from cash flow hedges and available for sale debt securities. Furthermore the sensitivity of the currency translation reserve is an intended open position to stabilise the common equity tier1 ratio for foreign exchange movements, as the RWA are impacted as well by these market movements.
The presented distribution of liquid assets over different classes represents the liquid assets across the whole bank. This includes also entities where restrictions may apply on transferability and convertibility due to regulatory constraints or other measures. The buffer slightly decreased in 2015 compared to 2014, mainly due to an increase of positions in central banks reserves and securities issued or guaranteed by sovereigns, central banks and multilateral development banks, which was more than offset by a decrease in liquid assets eligible at central banks and other liquid assets.
In 2015, the median asset encumbrance ratio for ING Group was 18%. The comparable figures for 2014 are not based on the median values but as per 31 December 2014. This is due to the fact that the median values for 2014 are not available and 31 December 2014 was the first data set based on the CRR requirements.
Assets of ING Group 99,648 - 745,199 - Equity instruments 8,666 8,666 11,254 11,254 Debt securities 7,620 7,511 123,172 123,380 Other assets 2,200 - 91,642 -
The high-priority material issues identified and disclosed in our materiality analysis are reported on in the relevant sections of the Annual Report including this appendix. For a detailed description of data-gathering scope and process on specific datapoints, please refer to the Sustainability Data Reporting Protocol: This provides the definitions on performance indicators and describes the internal data-gathering process.
We aim to increase our sustainable transitions financed Sustainable transitions financed rose by 22% from EUR 19.5 billion to EUR 23.8 billion
Community Total donations 12.7 11.3 1 Refer to note 29 of the ING Group Consolidated Annual Accounts 2015. Includes: Computer costs, office expenses, travel and accommodation expenses, advertising and public relations, external advisory fees and postal charges. 2 Refer to note 28 of the ING Group Consolidated Annual Accounts 2015. 3 Refer to the P&L of the ING Group Consolidated Annual Accounts 2015 in the Annual Report 2015. 4 Refer to note 29 and 39 of the ING Group Consolidated Annual Accounts 2015.
United Kingdom 1.2 1 Rest of the world. 2 Other financial instruments such as term loans and derivatives.
En er gy (o il an d ga s, p ow er g en er at io n)
Environmental and Social Risk: department within risk management fully dedicated to assessing environmental and social impacts associated with ’High Risk’ transactions, which in the context of EP generally refer to Category A and B projects in non-designated countries. Negative advice from the ESR Desk can only be waived by ING’s highest Credit Committee or the Executive Board. In practice such waivers are exceptional.
Project Finance Project Related Corporate Loans EP risk category1 EP risk category Sector A B C Total A B C Total
Total travel 215 35 193 31 219 35 Total travel carbon per FTE in tonne – 0.7 – 0.6 – 0.7
Non-eco-labelled paper 316 423 493 1 Residual waste is total waste minus the waste that is recycled.
The way our food is being produced is a subject of public debate. ING takes its responsibility seriously and participates in the debate. We advise clients on environmental and social best practices and demand compliance with laws and regulations. In response to the SOMO report, MHP confirmed that its production facilities adhere to EU animal welfare standards.
Forest fires to clear land for agricultural purposes are a re-occurring annual event with large scale negative impacts on deforestation, biodiversity and air pollution. We have discussed the topic with Wilmar, a major palm oil company financed by ING. The company recognises that slash-and-burn practices remain rampant among small-scale farmers and local communities, which often leads to uncontrolled fires that may inevitably spread to their plantations or those of their suppliers. However, Wilmar confirmed they were not involved in these practices themselves. Earlier, the company publicly adopted a strict ’No burning’ policy. It does not tolerate the use of fire in land preparation or development. This policy applies to all Wilmar operations worldwide, including those of its subsidiaries and third-party suppliers.
Fossil fuels: Several NGO’s in different countries where ING operates have shared their concerns about fossil fuels and the impact thereof on climate change. In the Netherlands and Belgium The Fair Finance Guide shared their opinion in a report about climate change. In Australia various NGO’s campaigned to encourage their supporters to contact their banks about investments in fossil fuels and if necessary divest their funds from these banks.
Low interest rates: ING DiBa found itself in a public debate . Clients expressed concerns over decreasing interest rates in return for depositing their savings. This was picked up by the media and reported on.
Amortised costs The amount at which the financial asset or liability is measured at initial recognition less principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, and minus any reduction for impairment or uncollectability.
Basel I Regulatory requirements issued by the Basel Committee on Banking Supervision for the solvency calculation, which were superseded by Basel II, and apply to ING from 2008 onwards.
Common equity Tier 1 capital Capital definition specified in article 26 of the capital requirements regulation (CRR). Common equity Tier 1 items of institutions consist of the following: a. capital instruments; b. share premium accounts related to the instruments referred to in point (a); c. retained earnings; d. accumulated other comprehensive income; e. other reserves; and f. funds for general banking risk.
Corporate governance The way in which a company is governed and how it deals with the various interests of its customers, shareholders, employees, business partners and society at large.
Credit default swap (CDS) A CDS is a financial derivative instrument that synthetically transfers the credit risk of a specific reference entity between two counterparties. The protection buyer pays a fixed periodic fee, usually expressed in basis points per annum, on the notional amount. The protection seller makes no payment unless some specified credit event relating to the reference entity occurs, in which case he/she is obliged to make a payment to compensate the loss incurred by the protection buyer.
Cumulative preference shares Shares that entitle the holder to a fixed annual dividend. In the case of a profit distribution, these shares take precedence over ordinary shares. If the profit available for distribution isn’t enough to pay this dividend in full, the shortfall will be made up from the reserves as much as possible. If, and to the extent that, the dividend distribution can’t be made from the reserves, the profits earned in subsequent years shall first be used to make up the shortfall before any distribution may be made on shares of any other category.
Deferred tax assets/liabilities arising from temporary differences The amounts of income tax receivable/payable in future periods in respect of taxable temporary differences between carrying amounts of assets or liabilities in the balance sheet and tax base, based on tax rates that are expected to apply in the period when the assets are realised or the liabilities are settled.
Finance lease A lease that transfers substantially all the risks and rewards associated with ownership of an asset to the lessee. Title may or may not eventually be transferred.
Fintech This stands for ‘financial technology’. It’s used to describe companies (generally startups) that are using software and technology to disrupt current banking models and deliver innovative financial services.
Human capital return on investment The human capital return on investment (HCROI) provides a means of measuring a company’s profitability in relation to total employee costs. It is calculated by removing nonemployee costs from overall operating costs and deriving the resulting operating profitability.
ING Trust Office The purpose of the ING Trust Office is to: a. acquire and administer, for the purposes of management, registered shares in the capital of ING Groep N.V. and to issue depository receipts for these shares; b. to promote the exchange of information between ING Group and the holders of depository receipts and shareholders in ING Group; and c. to promote the solicitation of proxies.
Interest margin Difference between the average interest received on funds lent and the interest paid by the bank on capital raised.
Interest rate risk Probability that the market interest rates will rise significantly higher than the interest rate earned on investments such as bonds, resulting in their lower market value.
In the money A call option is said to be ‘in the money’ if the exercise price is lower than the price of the underlying value. A put option is said to be in the money if the exercise price is higher than the price of the underlying value.
Irrevocable letters of credit This represents an obligation on behalf of a customer to pay an amount of money upon submission of a specific letter or document, or to accept a bill of exchange, subject to certain conditions. An irrevocable letter of credit cannot be cancelled or adjusted by the bank that has granted it for the duration of the agreement unless all those concerned agree.
Leverage ratio The Basel III leverage ratio is defined as the capital measure (the numerator) divided by the exposure measure (the denominator expressed as a percentage).
Nomination Committee The Nomination Committee, consisting of members of the Supervisory Board, assists the Supervisory Board on aspects such as the composition of the Supervisory Board and Executive Board.
Operating lease A contract that allows use of an asset, but not ownership of the asset. Different than a finance lease.
Outstandings Total amount of all drawn portions of a facility and thus the sum of all transactions of a specific facility.
Performing loans Loans for which customers currently meet and are expected to meet their financial obligations in full and on time.
(even in bankruptcy) and can’t be paid to the reporting enterprise, unless either the proceeds represent surplus assets that aren’t needed for the policy to meet all the related employee benefit obligations, or the proceeds are returned to the reporting enterprise to reimburse it for employee benefits already paid.
Sustainable assets under management / socially responsible investments Assets of customers registered at ING Bank that are defined as sustainable following an assessment of environmental, social and governance (ESG) parameters / criteria.
Photography Boards, CEO and Chairman: Sander Stoepker; Cover and the rest of the photography: Jeroen Dietz