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 that can be followed-up with 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. In 2016 Cybersecurity was addressed, with a closer look at CxO fraud, the risks of malicious apps, innovation and vulnerability to cybercrime, how to secure our assets (including responsible disclosure) and identity theft.
Classroom sessions were delivered on general non-financial risk awareness for all lines of defence in the Netherlands and in other countries. This included training in introduction programmes for new staff and talent programmes. The international Training on Operational Risk was held for staff in ING Bank worldwide who are new to the ORM function. Compliance Risk Management held its mandatory international Compliance Officer Training programme for all new Compliance Officers in ING Bank worldwide and also held an advanced Compliance Officer Training for senior compliance officers in ING Bank worldwide. For Compliance and ORM staff, there were classroom trainings on Risk Assessment and Monitoring. Classroom trainings and workshops were held for risk officers involved in the areas of Information Risk and Business Continuity Risk to update and align these communities with regard to models, toolkits, internal standards and procedures.
Introduction Business Risk for ING Bank has been defined as the exposure to value loss due to fluctuations in volumes/margins, expenses as well as the impact of customer behaviour risk. It is the risk inherent to strategy decisions and internal efficiency. The calculation of business risk capital is done by calculation of two components that are combined to one business risk figure via the variance-covariance methodology: 1. Expense risk covers the risk that expenses will deviate from the expected expenses over the horizon of the relevant activities. This risk primarily relates to the (in)flexibility to adjust expenses, when that is needed. Expense risk only concerns non-financial expenses (e.g. staff and IT expenses); financial expenses are not in scope; and 2. Customer behaviour risk relates to clients behaving differently than expected and the effect that this behaviour can have on customer deposits and mortgage pre-payments. The customer behaviour risk is calculated by stressing the underlying assumptions in the models for behavioural assets and liabilities.
In January 2016, ING sold 33 million ordinary shares of NN Group and subsequently exchanged the final tranche of EUR 337.5 million mandatory exchangeable subordinated notes in February 2016, which were issued in 2014 as part of the anchor investment in NN Group. These transactions reduced ING’s remaining stake in NN Group from 25.8% to 14.1%. In April 2016, ING sold its remaining 14.1% stake in NN Group. The divestment of NN Group is the final step of ING´s programme to divest all of its insurance and investment management businesses as part of the restructuring agreement with the European Commission. As a result of the sale of NN Group shares, NN Group is no longer an investment, and available Tier 1 instruments on-lent to NN Group no longer need to be deducted from available Tier 1 capital. This had a positive impact on available Tier 1 capital of EUR 0.8 billion.
All net capital flows in 2016 related to the sale of insurance related activities are disclosed in Note 51 ‘Other events’.
In November 2016, ING Group issued USD 1,000 million contingent convertible Securities which qualify as Additional Tier 1 capital under CRD IV/CRR to strengthen ING’s capital base. The perpetual bond, which will be on-lent to ING Bank can be called by ING Group five years after issuance, has a coupon of 6.875%.
The transitional (phased-in) common equity Tier 1 requirement that ING Group had to meet on a consolidated basis in 2016 was set at 10.25%. This requirement is the sum of (i) 9.5% being the ECB’s decision on the 2015 Supervisory Review and Evaluation Process (SREP), including the capital conservation buffer, and (ii) 0.75% for the Systemic Risk Buffer (SRB) which has been set separately for Dutch systemic banks by the Dutch Central Bank. The fully-loaded SRB requirement is currently set at 3% for ING Group and phases in over four years, with a final implementation date of 1 January 2019. The impact from countercyclical buffer requirements was insignificant at the start of 2016.
At year-end 2016, ING Group received the ECBs decision on the 2016 SREP. The common equity Tier 1 requirement for ING Group was set at 9.0% in 2017. This requirement consists of a 4.5% Pillar 1 requirement, a 1.75% Pillar 2 requirement, a 1.25% Capital Conservation Buffer (CCB) and the 1.50% Systemic Risk Buffer (SRB) which has been set separately for Dutch systemic banks by the Dutch Central Bank (De Nederlandsche Bank). This excludes Pillar 2 guidance, which is not disclosed. The CCB and the SRB are scheduled to phase-in over the coming years to 2.5% and 3.0% respectively by 1 January 2019. Consequently, the fully-loaded Maximum Distributable Amount (MDA) trigger level is expected to rise from 9.0% in 2017 to 11.75% in 2019 and assumes a stable Pillar 2 requirement. In the event that ING Group breaches the MDA level it may face restrictions to pay dividends, coupons on AT1 instruments and bonuses. The impact from the Countercyclical Buffer (CCyB) is negligible at this stage.
G-SIBs will be required to meet the TLAC requirement alongside the minimum regulatory requirements set out in the Basel III framework. Specifically, they will be required to meet a Minimum TLAC requirement of at least 16% of the resolution group’s riskweighted assets (TLAC RWA Minimum) as from 1 January 2019 and at least 18% as from 1 January 2022. Minimum TLAC must also be at least 6% of the Basel III leverage ratio denominator (TLAC Leverage Ratio Exposure (LRE) Minimum) as from 1 January 2019, and at least 6.75% as from 1 January 2022. Buffer requirements will come on top of the RWA requirement but not on top of the leverage requirement. In addition, the Single Resolution Board has assumed full power as per 1 January 2016. The work plan for the SRB in 2016 focused on determining the preferred resolution strategy, the resolution entity and the required amount of Minimum Required Eligble Liabilities (MREL).
As per 31 December 2016 the total amount of available distributable items following the CRD IV definition is EUR 37,959 million, slightly higher compared with EUR 36,284 million in 2015.
Regulatory adjustments additional Tier 1 0 0 –798 –1,281 1 The interim profit of the fourth quarter 2016 has not been included in CET1 capital as of 31 December 2016. 2 Of which EUR 3,542 million (2015: EUR 3,531 million) is CRR/CRD IV compliant and EUR 2,954 million (2015: EUR 3,718 million) to be replaced as capital recognition subject to CRR/CRDIV grandfathering rules. 3 Of which EUR 7,347 million (2015: EUR 6,229 million) is CRR/CRD IV-compliant and EUR 2,141 million (2015: EUR 2,341 million) to be replaced as capital recognition is subject to CRR/CRD IV grandfathering rules.
ING Group Annual Report 2016 324 in EUR million Share capital Share premium Revaluation reserves
Realised gains/losses transferred to the statement of profit or loss 128 –274 –146
Realised gains/losses transferred to the statement of profit or loss –77 –17 –94
Changes in the composition of the group and other changes 232 –293 –61
• Revaluations on investment property and certain participations recognised in income and consequently presented in Retained earnings in the consolidated accounts, is presented in the Share of associates and joint ventures reserve in the parent company accounts.
In 2015, Disposal of group companies included the further divestment of ING’s stake in NN Group, resulting in loss of control and deconsolidation of NN Group at the end of May 2015. As at 31 December 2015, the remaining interest in NN Group was 25.75% and was included in ‘Investments in associates and joint ventures’. Reference is made to Note 2 ‘Investments in associates and joint ventures’.
During 2016, ING sold its remaining shares in NN Group. As at 31 December 2015, Investments in associates and joint ventures comprised ING’s investment, of 25.75%, amounting to EUR 2,153 million in NN Group.
As at 31 December 2016 an amount of EUR 8,566 million (2015: EUR 9,495 million) is expected to be settled after more than one year from the balance sheet date.
Issued share capital as at 31 December 2015 3,870,183 928 Issue of shares 8,301 2
In 2016, ING Groep N.V. issued 8.3 million depositary receipts for ordinary shares (converted into ordinary shares per 26 July 2016) (2015: 11.3 million depositary receipts for ordinary shares). These issues were made in order to fund obligations arising from sharebased employee incentive programmes.
During the Annual General Meeting of Shareholders, held on 25 April 2016, it was decided to reduce the par value per ordinary share from EUR 0.24 to EUR 0.01. As a result of this, EUR 891 million is attributed to the Share premium. Reference is made to the ING Group Consolidated annual accounts, Note 19 ‘Equity’ - Depository receipts for ordinary shares.
Changes in the composition of the group and other changes –333 –333 2015 Retained earnings
Notes to the parent company statement of profit or loss 7 Staff expenses
As at 31 December 2016, 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 404 million as at 31 December 2016 (2015: EUR 436 million; 2014: EUR 417 million) to no more than EUR 190 million as at 31 December 2017, no more than EUR 85 million at 31 December 2018 and nil at 31 December 2019.
Report on the accompanying annual accounts 2016 Our opinion In our opinion: • the accompanying consolidated annual accounts give a true and fair view of the financial position of ING Groep N.V. ('ING Group')
What we have audited We have audited the annual accounts 2016 of ING Groep N.V., based in Amsterdam. The annual accounts include the consolidated annual accounts and the parent company annual accounts.
The consolidated annual accounts comprise: 1 The consolidated statement of financial position as at 31 December 2016. 2 The following consolidated statements for 2016: the statement of profit or loss, the statements of comprehensive income, changes in equity and cash flows. 3 The notes comprising a summary of the significant accounting policies and other explanatory information.
In November 2015, we chaired a two-day meeting of the partners and staff of KPMG member firms who undertake audits of the most significant group entities, with the involvement of the Group’s management. This meeting ensured that we would have a consistent approach to the audit globally, assisted in our determination of the significant risks and provided an opportunity for those partners and staff to directly liaise with ING Group’s management.
We also reviewed the working papers of the former auditors, to help familiarise ourselves with the controls on which they relied for the purposes of issuing their opinion, the substantive audit procedures they have carried out and to understand the evidence they obtained over key judgements.
Materiality Based on our professional judgement, we determined the materiality for the annual accounts as a whole at EUR 240 million. The materiality is determined with reference to the profit before taxation from continuing operations (4.1%). We consider profit before taxation from continuing operations as the most appropriate benchmark based on our assessment of the general information needs of users of the annual accounts. We believe that profit before tax from continuing operations is a relevant metric for assessment of the financial performance of ING Group. Given the relatively high balance sheet total and gross income, we have not used alternative benchmarks in determining materiality. We have also taken into account misstatements and/or possible misstatements that in our opinion are material for qualitative reasons for the users of the annual accounts.
Applying these scoping criteria led to a full or specific scope audit for 39 components, in total covering 14 countries. This resulted in a coverage of 81% of profit before taxes and 87% of total assets. The remaining 19% of profit before taxes and 13% of total assets results from remaining components. For these remaining components, we performed analytical procedures at the aggregated group level in order to corroborate our assessment that there are no significant risks of material misstatement within these remaining components.
Due to the significance of loans and advances to customers and the related estimation uncertainty, we consider the valuation of loans as a key audit matter. Refer to the ‘Principles of valuation and determination of results’ section in Note 1 of the Consolidated Annual Accounts and related disclosures in the ‘Risk Management’ paragraph. Our response Our audit approach included testing both the effectiveness of internal controls around determining loan loss provisions as well as substantive audit procedures.
We assessed collective impairment methodologies, focusing on the retail and wholesale banking portfolios due to their relative size and the potential impact of changing inputs and assumptions. With the assistance of our financial risk management specialists, we have evaluated the models, assumptions and data used by ING Group for the collective impairment for incurred but not reported loan losses (‘IBNR’), including the appropriateness of the loss emergence period as a critical factor used in these models. In addition, we have assessed the methodology and framework designed and implemented by ING Group as to whether the collective provision model outcomes should be adjusted to better reflect the current circumstances of the portfolio performance and economic conditions.
In particular, there was increased management attention on access rights to the applications, operating systems and databases. These are important to ensure that access and changes to applications and data are properly authorised and made in an appropriate manner. We have therefore identified the effectiveness of user access management as part of the general IT controls a key audit matter. Our response Our audit approach relies to a large extent on automated controls and therefore procedures are designed to test access controls over IT systems. Inappropriate access to an application or infrastructure could impact an automated control and therefore compromise financial data. The use of each application has been considered in the evaluation of each IT related deficiency. Given the IT technical characteristics of this part of the audit, we involved our IT audit specialists in all stages of the annual accounts audit (risk assessment, planning, execution and reporting).
Additionally, we considered whether ING Group’s disclosures of the application of judgement in estimating provisions and contingent liabilities adequately reflect the uncertainties associated with legal matters. Our observation Overall, we conclude that the provision for claims in respect of legal matters is fairly stated and related disclosures as appropriate and concur with the nature and extent of disclosure in note 45 of the contingent liabilities for claims and litigation in the annual accounts.
Description The recognition and measurement of restructuring provisions requires significant judgement by management. This specifically relates to the restructuring provision following the publicly announced ‘Accelerating Think Forward’ strategy on 3 October 2016. There is significant management judgement involved in the assumptions over projected employee redundancy cost.
Report on the other information included in the annual report In addition to the annual accounts and our auditor’s report thereon, the annual report contains other information that consists of: • The report of the Executive Board. • Other information pursuant to Part 9 of Book 2 of the Netherlands Civil Code. • The Report on corporate governance.
Based on the below procedures performed, we conclude that the other information: • is consistent with the annual accounts and does not contain material misstatements; • contains the information as required by Part 9 of Book 2 of the Netherlands Civil Code.
By performing these procedures, we comply with the requirements of Part 9 of Book 2 of the Netherlands Civil Code and the Dutch Standard 720. The scope of the procedures performed is substantially less than the scope of those performed in our audit of the annual accounts.
Report on other legal and regulatory requirements Engagement We were engaged by resolution at the Annual General Meeting of Shareholders as auditor of the ING Group on 11 May 2015 for the audit of the year 2016.
Our responsibilities for the audit of annual accounts Our objective is to plan and perform the audit 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 material errors and fraud during the audit.
Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these annual accounts. The materiality affects the nature, timing and extent of our audit procedures and the evaluation of the effect of identified misstatements on our opinion.
See also ‘—Interest rate volatility and other interest rate changes may adversely affect our profitability’, ‘—Continued risk of resurgence of turbulence and ongoing volatility in the financial markets and the economy generally have adversely affected, and may continue to adversely affect, our business, financial condition and results of operations’, and ‘—Market conditions observed over the past few years may increase the risk of loans being impaired. We are exposed to declining property values on the collateral supporting residential and commercial real estate lending’ below.
Continued risk of resurgence of turbulence and ongoing volatility in the financial markets and the economy generally have adversely affected, and may continue to adversely affect, our business, financial condition and results of operations.
European sovereign debt crisis and the United Kingdom’s withdrawal from the European Union Market concerns over the direct and indirect exposure of European banks and insurers to the sovereign debt of several EU Member States since 2010 have resulted in a widening of credit spreads and increased costs of funding for some European financial institutions. The sovereign debt crisis has also highlighted issues relating to the strength of the banking sector in Europe and the Euro. In addition, risks and ongoing concerns about the crisis in the Italian banking sector and its potential spill-over effect into other Member States, deterioration of the political situation in Turkey, as well as the possible default by one or more Member States could have a detrimental impact on the global economic recovery, sovereign and non-sovereign debt in these countries and the financial condition of European and other financial institutions, including us. For example, concerns regarding Greece’s financial condition and potential exit from the Eurozone were raised again in early 2017. 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. We are exposed to the risk of downgrades of European sovereign ratings or corporate ratings, because they may affect our financial costs and, as a result, our profitability. Market disruptions in Europe related to sovereign debt and the banking sector continue to be a threat to global capital markets and remains a challenge to global financial stability. 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, which may not be available. Market and economic disruptions stemming from the crisis in Europe also 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 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. Additionally, extreme prolonged market events, such as the recent global credit crisis, could cause us to incur significant losses and may lead to USD funding shortages for EU Banks.
We need liquidity to pay our operating expenses, interest on our debt and dividends on our capital stock, maintain our securities lending activities and replace certain maturing liabilities. Without sufficient liquidity, we will be forced to curtail our operations and our business will suffer. The principal sources of our funding include a variety of short- and long-term instruments, including deposit fund, repurchase agreements, commercial paper, medium- and long-term debt, subordinated debt securities, capital securities and stockholders’ equity.
Disruptions, uncertainty or volatility in the capital and credit markets 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.
Our revenues and profitability and those of our competitors have been and will continue to be impacted by requirements relating to capital, additional loss-absorbing capacity, leverage, minimum liquidity and long-term funding levels, requirements related to resolution and recovery planning, derivatives clearing and margin rulesand levels of regulatory oversight, as well as limitations on which and, if permitted, how certain business activities may be carried out by financial institutions.
Pursuant to requirements of the Dodd-Frank Act, the SEC and CFTC are required to consider whether stable value contracts should be regulated as ‘swap’ derivative contracts. In the event that stable value contracts become subject to such regulation, certain aspects of our business could be adversely impacted, including issuance of stable value contracts and management of assets pursuant to stable value mandates.
For instance, ING Group’s wholly owned subsidiary, ING Bank, may at some point in 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.
Many countries, including the Netherlands, have entered into agreements (‘intergovernmental agreements’ or ‘IGAs’) with the U.S. to facilitate the type of information reporting required under FATCA. While the existence of IGAs will 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.
Bank Recovery and Resolution Regimes In June 2012, the ‘Intervention Act’ (Wet bijzondere maatregelen financiële ondernemingen) came into force in the Netherlands, with retroactive effect from 20 January 2012. The Intervention Act mainly amended the Dutch Financial Supervision Act and the Dutch Insolvency Act allowing Dutch authorities to take certain actions with respect to a failing bank or insurer that cannot be wound up under ordinary insolvency rules due to concerns regarding the stability of the overall financial system. It comprised two categories of measures. The first category of measures related to banks or insurers facing serious financial difficulties and included measures related to the timely and efficient liquidation of the failing institution. This set of measures gave the DNB the power to transfer customer deposits, assets and/or liabilities other than deposits and issued shares of an entity to third parties or to a bridge bank if the DNB deemed that, in respect of the relevant institution, there were signs of adverse developments with respect to its funds, solvency, liquidity or technical provisions and it could be reasonably foreseen that such developments would not be sufficiently or timely reversed. The DNB was also granted the power to influence the internal decision-making of failing institutions through the appointment of an ‘undisclosed administrator’. The second category of measures can be triggered if the stability of the financial system is in serious and immediate danger as a result of the failure of a Dutch financial institution and includes measures intended to safeguard the stability of the financial system as a whole. This set of measures granted authority to the Dutch Minister of Finance to take immediate measures or proceed to expropriation of assets or liabilities , or shares in the capital, of failing financial institutions. Within the context of the resolution tools provided in the Intervention Act, holders of debt securities of a bank subject to resolution could also be affected by issuer substitution or replacement, transfer of debt, expropriation, modification of terms and/or suspension or termination of listings.
In addition to a ‘write-down and conversion’ power and a ‘bail-in’ power, the powers 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 or alter the maturity date or interest payment date of debt instruments, including by suspending payment for a temporary period, or to amend the interest amount payable under such instruments. None of these actions would be expected to constitute an event of default under those debt instruments or other eligible liabilities entitling holders to seek repayment.
Financial Stability Board In addition to the adoption of the foregoing measures, regulators and lawmakers around the world are actively reviewing the causes of the financial crisis and exploring steps to avoid similar problems in the future. In many respects, this work is being led by the FSB, consisting of representatives of national financial authorities of the G20 nations. The G20 and the FSB have issued a series of papers and recommendations intended to produce significant changes in how financial companies, particularly companies that are members of large and complex financial groups, should be regulated. These proposals address such issues as financial group supervision, capital and solvency standards, systemic economic risk, corporate governance, including executive compensation and risk culture, and a host of related issues associated with responses to the financial crisis.
Additional Governmental Measures Governments in The Netherlands and abroad have also intervened over the past few years on an unprecedented scale, responding to stresses experienced in the global financial markets. Some of the measures adopted subject us and other institutions for which they were designed to additional restrictions, oversight or costs. Restrictions related to the Restructuring Plan are further described in Note 50 ‘The European Commission Restructuring Plan’ to the consolidated financial statements.
The inability of counterparties to meet their financial obligations could have a material adverse effect on our results of operations. Third parties that owe us money, securities or other assets may not pay or perform under their obligations. These parties include the issuers and guarantors (including sovereigns) of securities we hold, borrowers under loans originated, reinsurers, customers, trading counterparties, securities lending and repurchase counterparties, counterparties under swaps, credit default and other derivative contracts, clearing agents, exchanges, clearing houses and other financial intermediaries. Defaults by one or more of these parties on their obligations to us due to bankruptcy, lack of liquidity, downturns in the economy or real estate values, continuing low oil or other commodity prices, operational failure or other factors, or even rumours about potential defaults by one or more of these parties or regarding a severe distress of the financial services industry generally, could have a material adverse effect on our results of operations, financial condition and liquidity. Given the high level of interdependence between financial institutions, we are and will continue to be subject to the risk of deterioration of the commercial and financial soundness, or perceived soundness, of sovereigns and other financial services institutions. This is particularly relevant to our franchise as an important and large counterparty in equity, fixed income and foreign exchange markets, including related derivatives.
Operational risks, such as systems disruptions or failures, breaches of security, cyber attacks, human error, changes in operational practices or inadequate controls including in respect of third parties with which we do business may adversely impact our business, results of operation and reputation. We face the risk that the design and operating effectiveness of our controls and procedures may prove to be inadequate. Operational risks are inherent to our business. Our businesses depend on the ability to process a large number of transactions efficiently and accurately. In addition, we routinely transmit, receive and store personal, confidential and proprietary information by email and other electronic means. Although we endeavour to safeguard our systems and processes, losses can result from inadequately trained or skilled personnel, IT failures (including due to a computer virus or a failure to anticipate or prevent cyber attacks or other attempts to gain unauthorised access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or impairing operational performance, or security breaches by third parties), inadequate or failed internal control processes and systems, regulatory breaches, human errors, employee misconduct, including fraud, or from natural disasters or other external events that interrupt normal business operations. We depend on the secure processing, storage and transmission of confidential and other information in our computer systems and networks. The equipment and software used in our computer systems and networks may not always be capable of processing, storing or transmitting information as expected. Despite our business continuity plans and procedures, certain of our computer systems and networks may have insufficient recovery capabilities in the event of a malfunction or loss of data. As part of a continuous life cycle management process we are replacing some important elements of our IT landscape as contemplated by our Think Forward strategy. Any failure or delay in implementation or integration of the new IT/operational systems on the anticipated time schedule or a failure of these systems to operate as anticipated could affect our ability to implement our Think Forward strategy in the manner and time frame currently contemplated. Like other financial institutions and global companies, we are regularly the target of attempted cyber attacks, including denial-of-service attacks and attempts to gain unauthorised access, and the techniques used for such attacks are increasingly sophisticated. We have faced, and expect this trend to continue, an increasing number of attempted cyber attacks as we have expanded our mobile- and other internet-based products and services, as well as our usage of mobile and cloud technologies. In addition, due to our interconnectivity with third-party vendors, exchanges, clearing houses, financial institutions and other third parties, we could be adversely impacted if any of them is subject to a successful cyber attack or other information security event. Whilst we have policies and processes to protect our systems and networks, and strive to continuously monitor and develop them to protect our technology infrastructure and data from misappropriation, they may be vulnerable to unauthorised access, computer viruses or other malicious code, cyber attacks and other external attacks or internal breaches that could have a security impact and jeopardise our confidential information or that of our clients or our counterparties. These events can potentially result in financial loss and harm to our reputation, hinder our operational effectiveness, result in regulatory censure, and could have a material adverse effect on our business, reputation, revenues, results of operations, financial condition and prospects.
As part of their responses to the financial crisis of 2008, the EC and national governments throughout Europe have introduced and are expected to continue introducing various legislative initiatives that aim to ensure that financial institutions’ remuneration policies and practices are consistent with and promote sound and effective risk management, and impose restrictions on the remuneration of personnel, with a focus on risk alignment of performance-related remuneration. Such initiatives include, among others, measures set out in Directive 2013/36/EU (CRD IV), the Guidelines on Remuneration Policies and Practices published by (the predecessor of) the European Banking Authority, the Regulation of the DNB on Sound Remuneration Policies (Regeling beheerst beloningsbeleid Wft 2014), the Dutch law with respect to the limitation of liability of the DNB and AFM and the prohibition of the payment of variable remuneration to board members and day-to-day policy makers of financial institutions that receive state aid (Wet aansprakelijkheidsbeperking DNB en AFM en bonusverbod staatsgesteunde ondernemingen) and the Dutch Law on Remuneration Policies of Financial Undertakings (Wet beloningsbeleid financiële ondernemingen, Wbfo). Currently, implementation of the CRD IV rules varies significantly across the various Member States. The proportionality principle that allows for a minimum threshold for deferrals and pay-out in financial instruments to identified staff is applied differently in the various European countries. For instance, in the Netherlands a threshold of € 10.000 is applied; in Germany € 50.000; in Belgium € 75.000 and in the UK £500.000. This creates a situation where there is no level playing field. In addition, the Wbfo has introduced a variable remuneration cap of 20% of base salary for employees working in the financial sector in the Netherlands. Employees can be exempted and receive variable remuneration up to the Wbfo individual cap of 100%, provided that the average pay-out for the whole group does not exceed 20% of the collective base salaries. For this group, as well as for persons working outside the Netherlands, exceptions are possible, in line with CRD IV, but only under strict conditions. In addition, the Wbfo limits exit compensation, retention compensation and guaranteed variable remuneration. The introduction of the Wbfo has created an unlevel playing field in the Netherlands for ING due to the fact that branch offices in the Netherlands of financial institutions that fall under CRD IV (i.e. that have their corporate seat in another EER country) are not limited to the 20% cap but can apply to the higher CRD IV caps (e.g. 100%, or up to 200% with shareholder approval).
Since the financial crisis, ING has adapted its remuneration policies to the new national and international standards. Since the full repayment of the state aid by ING in 2014, the total remuneration package for the Executive Board members has been slightly increased, however, it remains significantly below the median of our EURO Stoxx 50 benchmark, which is made up of similar European financial and non-financial institutions.
Other factors, besides our financial results, that may impact our share price include, but are not limited to: • market expectations of the performance and capital adequacy of financial institutions in general; • investor perception of the success and impact of our strategies; • investor perception of our positions and risks; • a downgrade or review of our credit ratings; • potential litigation or regulatory action involving ING or sectors that we have exposure to; • announcements concerning financial problems or any investigations into the accounting practices of other financial institutions; and • general market circumstances.
The Disclosure Committee (DC), responsible for all ING Group disclosures, assesses the accuracy of the content before reporting their conclusions to the Audit Committee (AC) who review the outcome and provide final approval. However, the ultimate authority for the preparation and disclosure of financial information is vested within the Executive Board. This process ensures that both Executive Board and Supervisory Board are given sufficient opportunity to review and challenge the Group’s financial statements and other significant disclosures before they are made public. Stand-alone reports that are not published in the annual report require management (General Manager or Head of department involved) to seek appropriate verification and validation of the information.
Regulatory framework In 2010, the Basel III framework was adopted and consequently translated in the European Union (EU) into regulation through the Capital Requirement Regulation (CRR) and Capital Requirement Directive IV (CRD IV). The CRR is binding for all EU member states and became effective per 1 January 2014. For more information, please refer to the chapter ‘Regulatory environment’ in the Risk Management Paragraph.
The Basel Committee’s framework is based on three pillars: the Pillar I on minimum capital requirements, which defines the rules for the calculation of credit, market and operational risk, Pillar II about Supervisory review process, which requires banks to undertake an internal capital adequacy assessment process for risks not included in Pillar I, and Pillar III on Market discipline, requiring disclosures to allow investors and other market participants to understand the risk profiles of individual banks.
The Pillar III report is published on an annual basis as part of the ING Group Annual Report. However, some capital requirements as laid down in Article 438 and, as well as information on risk exposure or other items prone to rapid change rapidly, are disclosed on a quarterly basis. Some ING Group’s subsidiaries publish information on capital and solvency on their websites or annual reports pursuant to local regulatory requirements.
Key goal is to improve comparability and consistency of disclosures by introducing harmonised templates. There are two type of templates/tables:  Prescriptive fixed format (template) for quantitative information that is considered essential for the analysis of a bank’s regulatory capital requirements, and  Flexible format (table) for information considered meaningful to the market but not central to the analysis of a bank’s regulatory capital adequacy.
In March 2016, the Basel Committee issued a consultative paper for the second phase of the RPF, which suggested: (i) further revision of the Phase I proposals, including the introduction of additional key regulatory metrics (when applicable) to a
“dashboard”, disclosure of ‘hypothetical risk-weighted assets’ calculated based on the standardised approach - to serve as a benchmark to RWA calculations using the internal ratings-based approach - and increased granularity for the disclosure of the Prudent Valuation Adjustment (PVA).
The implementation date of the Phase 1 alterations is dependent on the expected finalisation of the underlying regulatory standards as displayed in the total overview of the RPF below.
Furthermore, EBA proposed to postpone the implementation date to year-end 2017, rather than year-end 2016 as proposed by BCBS. However, G-SIBs like ING Group are required to disclose a subset composed of the amounts on risk exposures and minimum capital requirements per year-end 2016. Further, EBA explicitly refers to and makes use of COREP and FINREP to populate the fixed and variable disclosure templates to ease the implementation. As part of the review of the Pillar III framework, EBA also requests to publish a compilation of the quantitative information in an editable format/ MS Excel file.
EU CRB-C Geographical breakdown of exposures 392 EU CRB-D Concentration of exposures by industry or counterparty types 394 EU CRB-E Maturity of exposures 395 EU CR1-A Credit quality of exposures by exposure class and instrument 402 EU CR1-B Credit quality of exposures by industry or counterparty types 403 EU CR1-C Credit quality of exposures by geography 403 EU CR1-D Ageing of past-due exposures 406 EU CR1-E Non-performing and forborne exposures 405 EU CR3 Credit risk mitigation techniques – overview 414
EU CR5 Standardised approach 401 Credit risk and CRM in the IRB approach EU CR6 IRB approach – Credit risk exposures by exposure class and PD range 396
Public disclosure of return on assets The CRD IV requires ING Group to disclose information on its return on assets. ING Group has decided to calculate ROA based on underlying results and average assets derived from quarter-end assets to align it with the other indicators. The underlying ROA represents profit as a percentage of average total assets. In 2016, the underlying ROA was 0.58% (in 2015: 0.46%).
The rules express the regulators’ and legislators’ opinions of how much capital a bank and other regulated credit institutions must retain in relation to the size and the type of risk taking expressed in the form of risk-weighted assets. The most important part of the capital base is the shareholders’ equity. In addition to equity, the institution may issue certain liabilities such as hybrid instruments to be included in the capital base. The legal minimum requirement (excluding buffers) stipulates that the capital base must correspond to at least 8% of the Risk-Weighted Assets (RWA).
Common Equity Tier 1 capital Opening amount 41,554 40,788 40,543 31,511 Profit included in CET1 capital 2,091 2,091 1,495 1,495 Adjustment prudential filters own credit risk 24 31 -135 -129 Change in goodwill and intangibles -284 58 -302 88 Change in revaluation reserves 732 -188 1,689 240 Change in third party interest 20 20 40 40 Change in deductions significant investments in Financial Institutions 558 1,389 4,073 12,714 Other -229 379 -5,849 -5,171 Closing amount 44,466 44,568 41,554 40,788
Opening amount 4,858 6,574 0 5,727 Change in AT 1 instruments 1,132 1,132 847 847 CRR/CRD IV phased-in adjustments (excl. significant investments in FIs) 487 575 Change in deductions significant investments in Financial Institutions 419 3,436 Closing amount 6,897 7,706 4,858 6,574
Capital position As at 1 January 2014, the CRR/CRD IV capital rules entered into force. According to CRR/CRD IV capital adequacy rules, the Common Equity Tier 1 ratio has to be at least 4.5%, the Tier 1 ratio at least 6% and the total capital ratio at least 8% of all risk-weighted assets.
Deduction of goodwill and other intangibles1 -615 -307 -956 -638 Provision shortfall2 -195 -97 -340 -227 CRD-IV eligible Tier 1 Hybrids Investments >10% FI, exceeding 10% threshold -419 -278 Minority interests, counting as Additional Tier 1 capital Available capital - Tier 1 51,363 51,856 52,274 46,412 46,750 47,362
2016 Total RWA 314,325 Weighted countercyclical buffer rate 0.01% Countercyclical buffer requirement 36.2
Applicable amounts Applicable amounts Applicable amounts Applicable amounts 1 Total assets as per published financial statements 845,081 845,081 841,769 841,769 2 Adjustment for entities which are consolidated for accounting purposes but are outside the scope of regulatory consolidation 3 (Adjustment for fiduciary assets recognised on the balance sheet pursuant to the applicable accounting framework but excluded from the leverage ratio exposure measure in accordance with Article 429(13) of Regulation (EU) No 575/2013 ‘CRR’)
EU-6b (Adjustment for exposures excluded from the leverage ratio exposure measure in accordance with Article 429 (14) of Regulation (EU) No 575/2013)
7 Other adjustments1 172,269 173,180 145,010 146,666 8 Total leverage ratio exposure 1,093,011 1,093,922 1,071,518 1,073,174 1 The adjustment for Receivables for cash variation margin provided in derivatives transactions has been included in the line Other adjustments.
EU-5a Exposure determined under Original Exposure Method 6 Gross-up for derivatives collateral provided where deducted from the balance sheet assets pursuant to the applicable accounting framework 7 (Deductions of receivables assets for cash variation margin provided in derivatives transactions)
8 (Exempted CCP leg of client-cleared trade exposures) -156 -156 9 Adjusted effective notional amount of written credit derivatives 15,656 15,656 15,606 15,606 10 (Adjusted effective notional offsets and add-on deductions for written credit 11 Total derivative exposures (sum of lines 4 to 10) 30,518 30,518 30,418 30,418 Securities financing transaction exposures 12 Gross SFT assets (with no recognition of netting), after adjusting for sales 13 (Netted amounts of cash payables and cash receivables of gross SFT assets) -19,509 -19,509 -22,569 -22,569 14 Counterparty credit risk exposure for SFT assets 3,661 3,661 15,786 15,786 EU-14a Derogation for SFTs: Counterparty credit risk exposure in accordance with
Capital and total exposures 20 Tier 1 capital1 51,363 52,274 46,412 47,362 21 Total leverage ratio exposures (sum of lines 3, 11, 16, 19, EU-19a and EU19b )
The main changes in and differences between ING Bank’s economic capital and regulatory capital are: • The capital adequacy assessment in this section disregards any inter-risk diversification in the EC calculation, in accordance with the final EBA guidelines on common procedures and methodologies for the SREP. However, ING Bank is of the opinion that applying diversification across different risk types reflects economic reality. In case diversification was taken into account, the total EC would decrease with EUR 5.6 billion to EUR 28.8 billion. Note that for RC diversification was never taken into account; • Apart from the below described risk specific differences, the EC numbers are based on a 99.95% confidence level, while the confidence level is 99.9% for RC. The EC figures include business risk, while there is no business risk defined for RC; • The credit risk EC methodology includes internally calibrated asset correlations and excludes conservative floors otherwise present in the credit risk RC calculations. Furthermore, credit risk EC includes transfer risk while RC does not. Economic capital for credit risk decreased in 2016, mainly due to a credit quality improvement, besides a decrease of credit valuation adjustment (CVA) exposure and Other Non-Credit Obligation Assets (ONCOA).
Credit Risk Basis and scope of presentation In the credit risk section of Pillar III, data included in tables are related to ING Bank’s credit risk resulting from Lending (both on- and off-balance); Securities Financing, Derivatives (collectively Counterparty Credit Risk); Money Market activities, and Investment Risks. Compared to the Pillar III section of 2015, new templates have been added in accordance with EBA Pillar III disclosure requirements. A separate section for counterparty risk has been added.
Exposures associated with Securitisations (Asset Backed Financing, Commercial / Residential Mortgage Backed Securities) are shown separately because of their specific treatment. These amounts also relate to the amount invested prior to any impairment activity or mark-to-market adjustments. These amounts are also considered to be ‘Credit Risk outstandings’.
• Divestments/ de-consolidations: The periodic transfer of residential mortgages from WestlandUtrecht to NN Bank as a part of overall the strategy for WestlandUtrecht continued over 2016, further reducing RWA by EUR 0.5 billion.
• CVA RWA: RWA attributable to CVA capital movements decreased by EUR 1.4 billion over 2016, predominantly due to change in the calculation of pre-settlement exposure and regulatory maturity. Other: The remaining RWA decrease of EUR 2.3 billion was the result of multiple smaller changes. Improved and on-time handling of customer rating led to a decline of EUR 1.0 billion in RWA attributed to penalty ratings. Remainder of the RWA decreases stemmed from improvements in covers and provisions allocation.
Credit risk approach ING Bank 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). 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.
Mortgage Other Retail Total 2016 Total 2015 READ RWA READ RWA READ RWA READ RWA READ RWA READ RWA READ RWA
CVA (SA portfolio) 13 0 14 20 CVA (AIRB portfolio) 28 2,973 565 3,567 4,985 Total CVA 28 2,987 566 3,581 5,005
Total Bank including CVA 104,368 7,907 88,853 16,478 308,068 146,147 290,161 44,903 47,056 24,061 845,430 240,339 836,726 231,628 Excludes equities and ONCOA. Default Fund Contribution to Central Clearing Parties is included under exposure classes Institutions and Corporate.
The ING Bank portfolio falls for 89% under the AIRB approach and for 11% under SA in terms of RWA (excl. CVA RWA). The total portfolio increased in 2016 by EUR 8.7 billion (2015: EUR 46.4 billion) in READ and also by EUR 8.7 billion (2015: EUR 4.9 billion) in RWA. The increase in READ was mainly a result of growth witnessed in the Wholesale Banking and Challenger & Growth portfolios while RWA growth was driven by implementation of model updates apart from the portfolio growth.
Improvements in risk profile were observed in the mortgages (especially in the Netherlands), Real Estate Finance and Corporate & FI Lending portfolios. These improvements were offset by deterioration of the credit quality of some specific portfolios, notably shipping, and the direct and indirect negative effects of continued low oil and other commodity prices. Despite the imbalances in emerging economies and financial markets which continued in 2016, ING’s overall risk profile improved during the year leading to decline in RWA in the banking book. FX rates fluctuated over quarters, but over the year FX movements had a small impact in READ and RWA.
However, these declines were more than compensated by the various model updates in the Netherlands and Belgium. Also, some methodology changes implemented for regulatory compliance further contributed to the RWA increase. These two in total contributed to a relatively higher increase in RWA compared to READ.
SA portfolio increase over the year was mainly due to the shift of the Dutch Healthcare portfolio from AIRB to SA approach. In addition to this development, rating downgrades for Turkey and Poland contributed to a higher increase in RWA compared to READ since these two countries form majority of the SA portfolio.
Sovereigns Total per rating 104,368 117,789 -11% 7,879 8,297 -5% Performing 104,368 117,771 -11% 7,879 8,229 -4% Non-performing 0 18 -100% 0 68 -100% 0 0 Sovereigns Geography/business units 104,368 117,789 -11% 7,879 8,297 -5% Africa 560 313 79% 58 180 -67% America 5,159 3,490 48% 586 18 3092% Asia 4,242 6,868 -38% 327 428 -23% Australia 2,679 3,061 -12% 166 0 0% Europe 91,729 104,057 -12% 6,741 7,671 -12% 0 0 Sovereigns Europe 91,729 104,057 -12% 6,741 7,671 -12% Netherlands 17,590 25,205 -30% 233 224 4% Belgium 14,658 14,691 0% 158 147 8% Germany 22,889 24,364 -6% 0 64 -100% Other Europe 36,591 39,797 -8% 6,350 7,236 -12% 0 0 Sovereigns Product Type 104,368 117,789 -11% 7,879 8,297 -5% Bond Investments 67,823 70,427 -4% 4,337 4,373 -1% Revolving 13,705 23,983 -43% 624 776 -20% Money Market 15,644 15,128 3% 2,306 2,270 2% Term Loans 4,582 4,414 4% 306 390 -21% Derivatives 2,259 2,229 1% 272 262 4% Other 355 1,609 -78% 34 225 -85%
The majority of the sovereign exposure comprises of investments in bonds issued by European sovereigns. Next to Germany, the Netherlands and Belgium a large part of sovereign exposure is observed in Poland, Luxembourg and France. The main driver for the READ decrease in the Netherlands was a decline in the central bank deposits of EUR 7.4 billion) at the Dutch Central Bank (also visible in the <0.05% PD bucket), which carries a 0% risk weight therefore not impacting the RWA.
The main driver for the RWA increase in America (EUR 0.6 billion) and Australia (EUR 0.2 billion) was the implementation of the EU equivalence regulation, which asserts that a 0% risk weight no longer applies to sovereigns outside the EU that have supervisory and regulatory arrangements in place that are at least equivalent to those applied in the EU.
Institutions Europe 63,618 75,466 -16% 9,334 13,827 -32% Netherlands 7,317 7,845 -7% 1,252 1,775 -29% Belgium 9,107 8,601 6% 1,734 1,667 4% Germany 2,072 3,259 -36% 303 430 -30% Other Europe 45,122 55,761 -19% 6,046 9,955 -39%
Institutions LGD Bands 88,853 107,372 -17% 13,491 20,683 -35% <10% 23,745 26,663 -11% 1,211 1,534 -21% 10% to 20% 7,005 9,584 -27% 843 1,346 -37% 20% to 30% 3,205 6,012 -47% 608 1,372 -56% 30% to 40% 52,959 55,941 -5% 9,373 11,058 -15% 40% to 50% 71 276 -74% 53 195 -73% 50% to 60% 1,226 5,147 -76% 772 3,037 -75% more than 60% 641 3,748 -83% 631 2,142 -71% Includes both AIRB and SA portfolios; excludes equities, CVA RWA and ONCOA.
Corporate credit risk disclosure The table below presents the READ and RWA (excl. CVA RWA), segmented by relevant factors for the exposure class ‘Corporates’. The figures per geography for each exposure class are based on the country of residence of the obligor. The Industry breakdown for this table is based on the NAICS system (North American Industry Classification System).
Retail credit risk disclosure The table below presents the READ and RWA (excl. CVA RWA), segmented by relevant factors for the exposure class ‘Retail’. The figures per geography for each exposure class are based on the country of residence of the obligor.
READ RWA 2016 2015 Delta % 2016 2015 Delta % Retail Total per rating 337,217 333,876 1% 68,964 70,647 -2% Performing 332,193 327,116 2% 62,570 62,297 0% Impaired/Non-performing 5,024 6,760 -26% 6,394 8,351 -23%
Retail LGD Bands 337,217 333,876 1% 68,964 70,647 -2% <10% 116,023 108,381 7% 6,547 5,362 22% 10% to 20% 109,066 109,392 0% 17,144 17,784 -4% 20% to 30% 23,469 34,637 -32% 5,880 9,816 -40% 30% to 40% 20,893 23,761 -12% 6,220 6,117 2% 40% to 50% 18,623 15,732 18% 6,782 6,319 7% 50% to 60% 17,129 12,446 38% 7,371 6,745 9% more than 60% 32,013 29,527 8% 19,022 18,503 3% Includes both AIRB and SA portfolios; excludes equities, CVA RWA and ONCOA.
LTV Residential Mortgages per country The table below shows the weighted average Loan-to-Value (LTV) ratio of the ING Bank Residential Mortgage portfolio per country. All LTV figures are based on market values. In most portfolios, ING uses house price developments to index these market values. In several markets, customers provide additional collateral or (government sponsored) mortgage insurance programs are used. None of these additional covers are included in the LTV figures.
PD 71 The PD mortgages models are all developed statistically and include borrower specific information, payment behaviour and product related information. These are statistical models that directly predict a PD.
The gross carrying value refers to the original exposure pre-credit conversion factors for the on- and off-balance sheet items. The net carrying values correspond to the original exposure (on and off-balance) pre-credit conversion factors corrected for allowances, impairments and provisions. In the table on Credit quality of exposures by exposure class and instruments, the gross carrying values and the net carrying values are provided . The next four tables the Net Carrying Values are broken down per exposure class, Geography, Counterparty Type and Maturity.
Exposure by geography The table below presents a breakdown of net carrying value of exposures and their totals by geographical areas and exposure classes under the AIRB and SA approaches.
The Central Governments or Central Banks exposure for ING is mostly concentrated within Europe. The majority of the exposure comprises uncommitted/unadvised limits.
The SA portfolio comprises of Secured by Mortgages on Immovable Property, Retail, and Corporates exposure class. These exposures are mainly observed in Poland and Turkey with some Commercial Property Finance in Australia.
Central governments or central banks 85,935 136,268 0 3,623 225,826 Institutions 89,080 8,666 20 3,189 100,954 Corporates 74 81,424 49,995 0 85,703 192,313 409,510 Retail 273,566 5,598 1,548 12,989 8,252 23,783 325,737 Total AIRB approach 273,640 87,022 226,558 157,923 93,975 222,908 1,062,027
Within the SA Secured by Mortgages on Immovable Property exposure class, most exposures can be found in the Manufacturing, Wholesale and Retail Trade, Human Health Services and Social Work Activities, and Activities of Households as Employers industries. The Retail portfolio shows the highest exposures within Manufacturing, Wholesale and Retail Trade, Professional, Scientific and Technical Activities, and Activities of Households as Employers industries. The Corporates exposure class holds most exposures within the industry types Manufacturing, Wholesale and Retail Trade, and Human Health Services and Social Work Activities.
Exposure by maturity The table below presents a breakdown of the net carrying value by residual maturity, for both AIRB and SA exposure classes.
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 and EL. The elements are: the Exposure Class, Probability of Default (PD), Regulatory Exposure at Default (READ), Loss Given Default (LGD) and Maturity (M). For further details on these elements please see the ‘Risk Management’ part of the consolidated annual accounts.
The average Credit Conversion Factor CCF (the conversion of off-balance sheet exposure into credit exposure equivalents) is calculated as the off-balance exposure post-crm and post-ccf over the original off-balance sheet exposure. The CCF’s percentages are applied on product or transaction level and are regulatory driven.
Central Governments and Central Banks 0.00 to < 0.15 87,684 131,631 6% 95,367 0.0% 1,212 30% 2.63 3,509 4% 4 -2
Corporate 0.00 to < 0.15 35,245 78,364 32% 60,411 0.1% 15,940 32% 2.73 13,018 22% 17 -5 Corporate 0.15 to < 0.25 23,089 27,062 35% 32,673 0.2% 7,848 25% 2.92 9,055 28% 17 -5 Corporate 0.25 to < 0.50 66,370 55,139 36% 86,025 0.4% 24,957 23% 3.08 30,940 36% 77 -26 Corporate 0.50 to < 0.75 1,149 450 48% 1,364 0.6% 2,135 30% 2.89 672 49% 2 -1 Corporate 0.75 to < 2.50 61,379 33,074 39% 74,410 1.2% 34,991 24% 3.17 45,438 61% 231 -89 Corporate 2.50 to < 10.00 10,395 4,526 45% 12,287 5.5% 11,330 25% 2.91 11,122 91% 162 -59 Corporate 10.00 to < 100.00 5,599 2,884 29% 6,464 23.4% 21,374 21% 2.77 8,017 124% 320 -132
Retail 0.00 to < 0.15 61,311 15,077 66% 71,372 0.1% 4,228,271 25% 3,879 5% 13 -5 Retail 0.15 to < 0.25 63,761 3,705 51% 65,685 0.2% 723,298 16% 4,707 7% 21 -10 Retail 0.25 to < 0.50 97,514 3,434 59% 99,728 0.4% 1,129,103 16% 11,467 11% 63 -23 Retail 0.50 to < 0.75 27,191 1,311 56% 27,936 0.7% 509,064 23% 6,402 23% 43 -19 Retail 0.75 to < 2.50 30,045 2,499 68% 31,901 1.2% 1,163,149 27% 11,529 36% 114 -52 Retail 2.50 to < 10.00 10,572 652 56% 10,990 4.5% 439,278 27% 7,667 70% 136 -59 Retail 10.00 to < 100.00 5,153 226 66% 5,330 22.5% 186,922 26% 5,628 106% 307 -138 Retail default 4,601 46 54% 4,675 100.0% 88,581 31% 5,985 128% 1,053 -1,053
The CCF is lower for products and/or transactions seen in the corporate exposure class as opposed those seen in the Central Government exposure class, explaining the higher observed average CCF percentage in the latter exposure class.
The Annual Average historical default rate is calculated over the last 6 years, from 2011 until 2016. The performing clients at the end of each year were followed through the following year (12 months) and their into-default moments were flagged each month. In case a client went into-default more than once within the 12-month observation period, the last (i.e. most recent) observed into-default moment was used. The annual average observed default rate represents the average of the 6 years observed number weighted default rates.
Central Governments 0.00 - 0.01 AAA 0.010% 0.010% 85 93 Central Governments 0.01 - 0.03 AA 0.021% 0.021% 515 532 Central Governments 0.03 - 0.04 AA 0.031% 0.031% 253 267 Central Governments 0.04 - 0.05 AA 0.041% 0.041% 202 161 Central Governments 0.05 - 0.06 A 0.052% 0.052% 48 39 Central Governments 0.06 - 0.08 A 0.062% 0.062% 86 74 Central Governments 0.08 - 0.11 A 0.092% 0.092% 43 37 Central Governments 0.11 - 0.17 BBB 0.139% 0.139% 27 22 0.245% Central Governments 0.17 - 0.26 BBB 0.212% 0.213% 32 26 Central Governments 0.26 - 0.37 BBB 0.307% 0.306% 24 25 Central Governments 0.37 - 0.58 BB 0.444% 0.445% 23 21 Central Governments 0.58 - 1.00 BB 0.756% 0.756% 6 9 Central Governments 1.00 - 1.77 BB 1.321% 1.335% 13 11 Central Governments 1.77 - 3.23 B 2.377% 2.441% 24 23 Central Governments 3.23 - 6.05 B 4.391% 4.410% 17 18 0.926% Central Governments 6.05 - 11.67 B 8.349% 8.349% 14 23 Central Governments 11.67 - 20.20 CCC 16.324% 16.324% 7 8
EU CR9: IRB – Backtesting of probability of default (PD) per exposure class
Risk weights per exposure classes The table below presents the breakdown, post conversion factor and post risk mitigation techniques, of exposures under the Standardised approach by exposure class and risk weight (corresponding to the riskiness attributed to the exposure according to SA approach). The risk weights presented encompass all those assigned to each credit quality step in Article 113 to Article 134 in Part Three, Title II, Chapter 2 of Regulation (EU) 575/2013.
Transportation and Storage 1,195 32,608 -381 33,422 Accommodation and Food Service Activities 115 4,530 -49 4,596 Information and Communication 343 17,898 -107 18,134 Financial and Insurance Activities 421 232,026 -92 232,355 Real Estate Activities 1,474 45,481 -498 46,457 Professional, Scientific, and Technical Activities 512 23,965 -231 24,247 Administrative and Support Service Activities 407 21,121 -126 21,402 Public Administration and Defence; Compulsory Social Security
Education 15 1,812 -7 1,820 Human Health and Social Work Activities 105 10,852 -47 10,910 Arts, Entertainment, and Recreation 47 1,502 -26 1,523 Other Service Activities 69 2,690 -33 2,727 Activities of Households as Employers; Producing Activities of Households for own use
Europe 12,740 862,182 -4,867 870,054 Netherlands 5,269 261,185 -1,799 264,656 Germany 780 169,692 -544 169,928 Belgium & Luxemburg 2,677 161,640 -672 163,645 Other Europe 4,014 269,665 -1,853 271,826 Africa 90 6,109 -7 6,191 America 838 86,350 -241 86,947 Asia 254 100,960 -236 100,979 Australia 155 47,840 -12 47,983 Total 14,077 1,103,441 -5,363 1,112,154 Excludes Counterparty Credit Risk exposures, Securitisations, CVA RWA, Equities and ONCOA. 1 Includes 119 million for contingent liabilities
The decrease of EUR 1.7 billion in non-performing loans was mainly driven by the continuing improving Dutch economy. In Wholesale Banking a significant NPL decrease was observed within Real Estate Finance (EUR 0.5 billion) due to write-offs, repayments and improved clients. This was offset by an increase in Structured Finance (EUR 0.5 billion), mainly driven by the Shipping and Oil & Gas portfolios, the latter also being the main driver for the watch listed clients increase.
Portfolios in Market Leaders continued to improve, Wholesale Banking corporate lending was also relatively strong with a few incidental defaults. Challenges continued in industries like Oil & Gas, Shipping, and Telecom while on the other hand, improved risk profiles were witnessed in other portfolios of the bank such as in Residential Mortgages and in the REF portfolio. Encouraging signs in the Dutch housing market have helped reduce the risk costs due to improved house prices and risk profiles. Risk costs in Turkey and Ukraine have trended downwards in previous quarters.
There was an improvement in the bank coverage ratio to 39.0% (2015: 38.5%) due to improved non-performing loan levels and a comparatively lesser decrease in stock provision level.
CCR risk approach Analysis of the counterparty credit risk exposure by approach In the table below the portfolio’s counterparty credit risk exposure, calculated according the regulatory requirements, is presented. ING is using the Current Exposure Method (or MTM / Mark to Market) method as described in the CRR (art 274), which is a Standardised Approach. There are no exposures under de Internal Model method. For the calculation of the collateral, ING uses the comprehensive method for Securities Financing Transactions (SFT). There is no Contractual Cross Product netting.
For the regulatory exposure at default (READ) calculation for counterparty default risk, ING uses the Current Exposure Method (or MTM / Mark to market) method as described in the CRR (art 274). The READ measure consist of a MTM part and a regulatory prescribed addon to reflect the potential future exposure in the trade. The READ is calculated on a daily basis to take into account the changes in the MTM value due to market movements and changes in the portfolio composition. This calculation is done on: • A gross basis (ignoring any collateral received and ignoring any netting between trades, by applying (max(MTM,0) for each trade).
(floored MtM) Potential future exposure EAD post-CRM RWA Mark to market (Derivatives) 96,440 9,880 37,530 9,726 Financial collateral comprehensive method (for SFT’s) 7,619 1,146 Total 96,440 9,880 45,149 10,872 Excluding exposure class Securitizations
Retail sub-total 24 2.98% 935 54% 11 44% Total Portfolio 58,149 0.23% 12,801 33% 2.7 10,338 18% Excluding exposure class Securitisations. All figures are in millions of EUR, except for the number of obligors. The maturity is not available for the retail exposure class, for all other cells that are left blank, the values are minimal
Derivatives by product type The table below shows the derivatives exposure by product type, where the exposure measure is based on the regulatory exposure at default (READ) used for counterparty default risk under CRR.
Interest Rate Derivatives 1,940 24,435 6,054 10 32,439 33,930 FX Derivative 312 3,574 3,694 8 7,588 5,972 Equity Derivative 3 1,195 415 9 1,622 2,176 Exchange Traded Products 1,370 147 1,516 2,094 Commodity Derivative 4 34 960 0 999 997 Credit Derivative 268 176 443 410 Derivatives Other 72 9 81 187 Total (ALL) 2,259 30,948 11,455 27 44,689 45,766
Derivatives by underlying 136,343 91,328 45,015 7,485 37,530 Securities Financing Transactions 37,208 22,933 14,275 6,657 7,619 Cross-product netting Total 173,551 114,261 59,290 14,142 45,149 Excluding exposure class securitization
The table below presents the exposures to central counterparties, broken down by qualified (QCCP) and non-qualified CCPs: EU CCR5-A: Impact of netting and collateral held on regulatory exposure values
During 2016, the total trade exposure EAD (post-credit risk mitigation) for QCCP’s has increased, due to the following reasons:  Increased cleared trade volumes  Cleared trades previously reported on INGs clearing brokers, are now reported on the CCP (where the “look-through” approach could be applied as described under CRR art. 305, 2/3).  In 2016 ESMA has authorised new CCP’s (increase in number of Qualified CCPs). For this reason, the share of QCCPs in the total of cleared trades, has increased.
The trade exposure RWA has decreased, due to the following reasons:  Exposure previously booked with the regulatory risk weight of the clearing broker, has now been given the 2% risk weight that applies to CCP exposure, based on the same “look-through” approach as described above.  In 2016 ESMA has authorised new CCP’s (increase in number of Qualified CCPs). For this reason, the risk weight of the newly qualified CCPs could be reduced to 2%.
In 2014 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 used for CVA Capital is similar to the Maturity used in the calculation of Counterparty Default Risk, but without the 5 years cap.
Interest Rate Derivatives 5,100 0.87% 4.13 2,280 FX Derivative 3,409 0.89% 1.76 722 Equity Derivative 1,128 0.93% 2.88 390 Commodity Derivative 46 0.96% 2,44 15 Credit Derivative 357 1.00% 3,12 149 Derivatives Other 55 0.84% 4.40 25 Securities Financing Total 2016 10,096 0.89% 3.15 3,581 Total 2015 11,680 0.89% 3.78 5,005 Includes both AIRB and SA portfolios; excludes securitisations, equities and ONCOA.
Protection bought Protection sold Notionals Single-name credit default swaps -1,973 513 Index credit default swaps - - Total return swaps - - Credit options - - Other credit derivatives - - Total notionals -1,973 513 Fair values -6 -1 Positive fair value (asset) 4 Negative fair value (liability) -9 -2
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. 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.
Product Type 6,924 8,130 -17.4% Asset Backed Securities 3,875 2,897 25.2% Residential Mortgage Backed Securities 1,549 3,286 -112.2% Securitisation Liquidity (1) 720 846 -17.5% Interest Rate Derivatives 330 423 -28.1% Other 450 678 -50.8%
Exposure Class (2) 6,924 8,130 -17.4% Securitisation Investor 5,476 6,442 -17.6% Securitisation Sponsor 1,448 1,688 -16.6% Excludes equities and ONCOA. 1 These are structured financing transactions by ING for clients by assisting them in obtaining sources of liquidity by selling the clients’ receivables or other financial assets to an SPV. 2 Securitisation benefits are excluded. Own originated securitisations are explained in a separate section.
The liquidity facilities, provided to Mont Blanc are EUR 812.3 million. There was no drawn liquidity amount at 31 December 2016. Mont Blanc has no investments in securitisation positions that ING Bank has securitised.
As long as the securitisation exposures created are not transferred to third parties, the regulatory capital remains unchanged. These are not detailed hereunder. Apart from the structuring and administration costs of these securitisations, these securitisations are profit / loss neutral.
VaR SVaR IRC CRM Other Total RWA Total capital requirements 1 RWA at previous year end 1,797 2,931 3,579 8,307 665 1a Regulatory adjustment 1,262 1,962 239 3,464 277 1b RWA at previous year-end (end of the day) 535 969 3,339 4,844 387 2 Movement in risk levels -86 85 -1,839 - 1,840 -147 3 Model updates/changes 4 Methodology and policy 5 Acquisitions and disposals 6 Foreign exchange movements 7 Other 8a RWAs at the end of the reporting period (end of the day)
Year-on-year variance analysis During 2016, market risk economic capital decreased from EUR 8.6 billion to EUR 8.0 billion. The main driver of the decrease is the sale of shares in Kotak Mahindra Bank, with a value of 490 million euro. The foreign exchange Economic Capital also decreased markedly, mainly due to the position change in INR, GBP and USD currencies, and the lower volatility (of CNY, RUB and USD) in the time period used in the Historical Value-at-risk calculation..
Collateral received by ING Group 79,098 34,397 Equity instruments 12,339 3,357 Debt securities 66,759 30,920 Other collateral received 120 Own debt securities issued other than own covered bonds or ABSs
ING Group manages it balance sheet prudently whereby a variety of funding sources is readily available. Given this situation, the level of encumbrance of ING Group’s balance sheet is relatively low. Encumbered assets on ING Group’s balance sheet comprise to a large extent mortgages and other loans which are used as cover pool for covered bond programs issued by subsidiaries in the Netherlands, Belgium and Germany, as well as external securitisations and other types of collateralized deposits. Of the total encumbered assets of the Group, EUR 77 billion are loans and advances, mostly mortgages, that serve as collateral for these type of liabilities. The cover pool assets are not considered encumbered when the securities are retained within ING Group. The issued securitisations and especially the covered bonds have over collateralisation, meaning that the assets in the cover pool are higher than the issuance. Furthermore, assets are encumbered as a result of the repo- and securities lending business and cash and securities collateral posted for derivative and clearing transactions in which pledging collateral is a requirement. As part of its normal securities financing and derivatives trading activities ING enters into standard master agreements such as ISDA and Global Master Repurchase Agreements (GMRA), which contain Credit Support Annexes (CSA) or other similar clauses. Under the terms of these contracts ING could be required to provide additional collateral in the event ING is downgraded by one of the established rating agencies. Refer to the paragraph Counterparty Credit Risk. The main part of ING Group’s repo- and reverse repo activities are short-term dated. Repo transactions are mostly conducted with securities which have been obtained as collateral in reverse repo transactions, which are not recognized on the balance sheet. Where securities recognized on the balance sheet have been used in a repo transaction, these remain recognized on the balance sheet and are reported as encumbered. Of the unencumbered other assets included in the table ‘Assets’, the vast majority of the assets is not available for encumbrance. This category comprises assets such as derivative receivables, tax assets, property and equipment, intangible assets and investments in associates and joint ventures.
We aim to achieve number-one net promoter score (NPS) ranking compared to our main competitors in each of our retail banking markets
ING’s financial empowerment activities aim to help people in make better financial decisions. In 2016, 23.9 million people felt financially empowered
Our share of renewable electricity increased by 14% compared to our base year to 91% of our total global electricity use.
In addition, a media, trend and peer analysis was performed to capture emerging topics and to ensure the topics reported in 2015 are still relevant. The results from these analyses were discussed during external stakeholder dialogue and internal interviews and served as a basis for drafting the 2016 materiality matrix. Our materiality assessment approach and results are discussed and approved at the board level.
– Media & telecom 1,3% ● ● ● ● ● ● ● ●
In November 2015, ING decided to end the financing of new coal-fired power plants and thermal coal mines worldwide. ING also won’t finance any new clients whose business is over 50 percent reliant on operating coal-fired power plants or thermal coal mines. Standing commitments and new clients whose business complies with our policy may lead to additional lending exposure to the sector. Overall, given our reluctance to finance new thermal coal mines, new coal-fired power plants and new clients predominantly relying on thermal coal, we aim to reduce our overall credit exposure to thermal coal-related businesses.
In addition, we acknowledge coal being used in the energy mix of Diversified Utility Companies (DUC) that operate various energy sources (typically coal, gas, nuclear, and/or renewables) to generate power. Within this category however, the exact energy mix used is not known to ING. ING’s power generation lending portfolio to DUC’s reached EUR 2.9 billion at YE2016.
Thermal coal category 1 The 2016 renewables figure reported above differs from the 2016 renewables figure reported in the Sustainable Transitions Financed (STF) table in the “Wholesale Banking” chapter. STF is reported on exposure in line with the STF reporting protocol, while the power generation portfolio is reported in outstandings
For example, in 2016 the ESR team, together with Structured Export Finance team from Frankfurt, visited a construction site in Russia. Sibur is Russia’s largest integrated gas processing and petrochemicals company, and its subsidiary ZapSibNeftekhim is currently constructing a petrochemical complex for the production of polymers. The project is financed by a consortium of 12 international banks and follows the Equator Principles.
The graphs below show 2016 EP screened transactions versus funded (those that reached financial close) for Project Finance and Project Related Corporate Loans2.
1 2 Category A – Projects with potential significant adverse environmental and social risks and/or impacts that are diverse, irreversible or unprecedented; Category B – Projects with potential limited adverse environmental and social risks and/or impacts that are few in number, generally site-specific, largely reversible and readily addressed through mitigation measures; and Category C – Projects with minimal or no adverse environmental and social risks and/or impacts. The difference between the number of screened and funded transactions might be due to a number of reasons including environmental and social matters. Also, some of the EP screened transactions may reach financial close in the future.
1 Refer to note 26 of the ING Group Consolidated Annual Accounts 2016.
Total number of employees by employment type (full-time and part-time), by gender (headcount)
ING Group Annual Report 2016 436 1 We achieved our target of reaching 1 million children through UNICEF education programmes in 2005-2015. Since 2015 we are supporting a new
Our direct footprint Our approach also outlines our 2020 targets for improving our operational eco-efficiency, namely: • We will reduce our CO2e emissions by 20% by 2020 (base year 2014) – achieved in 2016. • We will reduce global residual waste by 20% by 2020 (base year 2014). • We will reduce our water footprint by 20% by 2020 (base year 2014). • We will remain carbon neutral by offsetting remaining carbon emissions.
Total carbon per FTE in tonne 1.2 1.5 1.6 1 In 2016 we updated our emissions factors according to the IEA 2015 factors, DEFRA 2016, and factors from suppliers providing a more accurate calculation of our
Non-eco-labelled paper 64 316 423 1 Residual waste is total waste minus the waste that is recycled. 2 In 2016 we saw an increase in residual waste due to a slight uptick in coverage (we do not extrapolate waste values), the relocation of our UK office, and archive dumps in Belgium and Turkey.
1 This year we restated our base-year water consumption figure based on a more complete coverage (87% compared to 53%) and based on our new reporting protocol. We now extrapolate our water consumption to adjust for missing data. See our Non-financial reporting protocol for more information.
Sustainable procurement With more than EUR 4 billion in global procured spend and 25,000 suppliers worldwide, we have a real opportunity to drive our sustainability agenda through our supply chain. By encouraging suppliers to share our standards and work towards continual improvement, we believe we can make a demonstrable impact while mitigating risks.
There were no customer complaints. However ING DIRECT believes it could have been clearer in the communications and has voluntarily decided to credit customers any difference. The total amount that will be credited to customers by 30 September is approximately USD 5 mln. The total number of customers is more than 24,000. ING DIRECT wrote to all Living Super customers to explain the action and let customers know how much they will receive. More than 50,000 people choose Living Super for their retirement savings.
Myronivsky Hliboproduct: Various stakeholders, retail clients, government officials and NGOs raised questions on our financing of Ukrainian company Myronivsky Hliboproduct (MHP). MHP operates mega stalls with chickens and was accused of not living up to EU (animal welfare) standards.
Living wages report This research focused on loans provided by banks to companies active in the electronics and clothing manufacturing sector. The aim was to research in what manner banks promote their corporate clients to pay their workers and the workers in their supply chain a decent living wage.
The PAX website, press release, 16 June 2016 (Suzanne Oosterwijk, project lead Cluster munitions PAX) mentioned “Financial institutions should not want to be involved in any way with cluster munitions, also not via foreign subsidiaries.” And, “the Netherlands has showed leadership to forbid investments in cluster munitions. If other countries too would forbid these explosive investments and if financial institutions would end their investments, that could be a great contribution to a cluster munitions free world.”
Our elaborate stance towards the defence industry and nuclear weapons and cluster munition in particular can be found on our webpage Our Stance: Stance/Defence.htm
When ING approved financing, the permits for the pipeline were already provided. As it turned out the Sioux claimed their rights had not been taken into account. Social media amplified this controversy, leading to various protest throughout the world, including in front of ING’s global HQ.
As the situation keeps on developing, we provide continuous updates including a Q&A on: ING and the Dakota Access pipeline
Available Financial Resources (AFR) The available financial resources equal the market value of assets minus the market value of liabilities, excluding hybrids issued by ING Group, which count as capital. ING’s policy is that the available financial resources should exceed economic capital for Bank and Group.
Capital Requirements Directive (CRD IV) For European banks, the Basel III requirements are implemented through the Capital Requirement Regulation (CRR) and the Capital Requirement Directive IV (CRD IV). The CRD IV directs all EU member states to implement certain components of Basel III in their own law, taking into account transitional arrangements, in the Netherlands through amendments to the ‘Wet Financieel Toezicht’ (Act on Financial Supervision).
Central Clearing Parties or Central Counterparties (CCP) A legal entity between two trade counterparties in a bilateral transaction. The parties legally assign their trades to the CCP , and the CCP becomes the counterparty to each, assuming all rights and responsibilities. Thus, from the point of view of the original counterparties, the counterparty credit risk exposure is shifted from the other original counterparty to the CCP.
Concentrations of credit risk Concentrations of credit risk exist when changes in economic, industry or geographical factors similarly affect groups of counterparties whose aggregate exposure is significant in relation to ING Group’s total exposure.
Country of residence From the perspective of a given country, a resident is an individual or legal entity that has its major operations in the given country. All of ING’s customers and entities are said to be residents in one country only.
Country risk The risk that a government will not fulfil its obligations or that it will obstruct the remittance of funds by debtors, either for financial reasons (transfer risk) or for other reasons (e.g. political risk).
Credit institutions All institutions that are subject to banking supervision by public authorities, including mortgage banks, capital market institutions, multilateral development banks and the International Monetary Fund (IMF).
Defined contribution plan Post-employment benefit plans under which ING pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods.
Employee value proposition Sets out the various rewards and benefits received by employees in return for their performance.
ESR framework The Environmental and Social Risk (ESR) Framework is a set of policies and governance to identify, assess and manage ING’s engagement with companies operating in sectors that are more vulnerable to environmental and social risks and impacts.
Financial instruments Contracts that give rise to both a financial asset for one company and a financial liability or equity instrument for another company.
Hybrid capital Tier 1 instruments issued by ING Group (e.g. perpetual debt securities and preference shares). Hybrid capital securities are perpetual fixed income securities with an embedded call and coupon deferral feature. All hybrid capital securities rank senior to core Tier 1 securities and ordinary shares of ING Group and they are structurally subordinated to the senior debt instruments issued by ING Groep N.V.
Monte Carlo simulation A model to calculate value at risk, assuming that changes in risk factors are normally distributed together, taking into account non-linear behaviour of financial products.
Mortgage-backed securities (MBS) A security with cash flows backed by typically the principal and/or the interest payments of a pool of mortgages.
Net promoter score Net promoter score (NPS) is a way of measuring customer loyalty and satisfaction. It’s based on a direct question: ‘How likely is it that you would recommend our company/product/service to a friend or colleague?’ Promoters respond with a score of 9 or 10 (out of 10) and are considered ‘loyal enthusiasts’. Detractors are those who respond with a score of 0 to 6 (‘unhappy customers’). Scores of 7 and 8 are ‘passives’, and will only count towards the total number of respondents, but not directly affect the formula. NPS is calculated by subtracting the percentage of customers who are detractors from the percentage of customers who are promoters.
Obligor This is a person or entity who’s legally obliged to provide some benefit or payment to another. Financially, it usually refers to a bond issuer who’s obligated to make payments on the principal and interest of the outstanding debt.
• are available to be used only to pay or fund employee benefits, are not available to the reporting enterprise’s own creditors (even in bankruptcy), and cannot be returned to the reporting enterprise, unless either the remaining assets of the fund are sufficient to meet all the related employee benefit obligations of the plan or the reporting enterprise, or the assets are returned to the reporting enterprise to reimburse it for employee benefits already paid.
Qualifying asset (related to borrowing costs) An asset that necessarily takes a substantial period of time to get ready for its intended use or sale.
Recognition The process of incorporating in the balance sheet, or profit and loss account, an item that meets the definition of an element and satisfies the following criteria for recognition: • It’s probable that any future economic benefit associated with the item will flow to or from the enterprise; and • The item has a cost or value that can be measured reliably.
Recoverable amount The higher of an asset's fair value less costs of disposal and its value in use.
Significant influence The power to participate in the financial and operating policy decisions of an entity, but not to have control over these policies. Significant influence may be gained by share ownership, statute or agreement.
Stress testing Stress testing examines the effect of exceptional but plausible scenarios on the capital position of ING. Stress testing can be initiated internally or be external parties such as the European Central Bank.
Sub-sovereign supranationals and agencies (SSA) SSAs comprise, among others, multilateral development banks, regional governments, local authorities and US agencies. Under certain conditions, SSA bonds may qualify as ‘Level 1 High Quality Liquid Assets’ for LCR.
Treasury bills Generally, these are short-term debt certificates issued by a central government. Dutch Treasury Certificates are regarded as Dutch Treasury Bills.
Treasury shares An entity’s own equity instruments, held by the entity or other members of the consolidated group.
The VaR for market risk quantifies, with a one-sided confidence level of 99%, the maximum overnight loss that could occur due to changes in risk factors (e.g. interest rates, equity prices, foreign exchange rates, credit spreads, implied volatilities) if positions remain unchanged for a time period of one day. Note that risk due to DVA and CVA sensitivities is not covered in this trading risk measure. Next to general market movements in these risk factors, VaR also takes into account market data movements for specific moves in e.g. the underlying issuer of securities.