Retail Banking system availability in the Netherlands and Belgium (in percentage)1, 4, 8 99.7 99.7 –
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > ING at a glance
One way we’re approaching disruption in the financial services market is to disrupt ourselves. In 2018, we announced that we are expanding the Yolt multi-bank aggregation platform for retail customers to France and Italy, following its successful trial and launch in the UK. As part of the R3 consortium and with other partners, we were also involved in a host of innovations with potential for our wholesale banking clients related to blockchain, an area that promises to revolutionise financial services. These included initiatives in the area of commodity trade and finance, covering energy trading, letters of credit and know your customer, among others.
and have an impact on – our business. We do this by performing regular materiality analyses: qualitative and quantitative research on the importance of specific topics among different stakeholder groups. That way we gain insights into future trends, business risks and opportunities that influence our ability to create value. It helps us prioritise topics that our internal and external stakeholders expect us to focus on. Results of the 2018 materiality analysis are reflected in our strategic business decisions and highlighted throughout this report.
Economic growth in some key emerging markets (China, Turkey, Argentina) slowed as traderestrictive measures increased, financial conditions tightened, and in light of country-specific and geo-political factors.
Given our geographical footprint, eurozone rate developments have a larger impact than rate developments in the US.
dollar appreciation. Currencies of emerging economies with weaker macroeconomic fundamentals and greater political uncertainty have come under downward pressure, e.g. the Turkish lira.
ING values and commitments to integrity should always and everywhere guide us in how we empower our customers and how we live up to our responsibilities to stakeholders. There were instances in 2018 where ING’s actions resulted in a loss of trust from stakeholders. We take these instances very seriously and need to learn from them in order to improve for the future.
Public Prosecution Service related to an investigation that found serious shortcomings in the execution of customer due diligence and requirements related to fighting financial economic crime at ING Netherlands. We accepted full responsibility for what went wrong and reached a settlement agreement of €775 million in the third quarter.
Data is what helps us to know our customers. We must know what they want, so we can provide them with tailored services that respect their privacy; and we must know who they are, in terms of meeting regulatory requirements for preventing financial economic crime.
Customer consent, provided it’s informed and willing, is a legally acceptable way to process data for commercial means, such as to provide customers with more customised products and services.
We offer innovative products and services, such as our sustainability improvement loan and the green projects we finance, while we adhere to strict environmental and social risk policies, such as our coal policy, which aims to reduce funding to thermal coal-power generation to zero by 2025.
We are in dialogue with other banks and stakeholders about this. In December, the banks BBVA,
BNP Paribas, Société Générale and Standard Chartered joined ING in pledging to align their portfolios with global climate goals. We have a combined loan book of €2.4 trillion. ING believes that all banks would benefit from having an industry-wide standard. This would increase transparency and therefore our collective effectiveness in fighting climate change.
“The idea was that the Green as a Currency platform would give customers personalised tips to help them make sustainable lifestyle choices. It would also connect them with consumer goods companies selling products and services that comply with an independent ‘green’ standard. Consumers would earn ‘green coins’ for purchases, which they could then spend on the platform for other sustainable goods and services.
channel of choice. Inspired by the strategy’s Customer Promise – clear and easy, anytime and anywhere, empower, and keep getting better – we have delivered a differentiating digital customer experience through innovations such as digital financial advisors, forecasting tools and instant lending available through award-winning mobile apps as part of an omnichannel approach.
Banks can no longer differentiate themselves with products – they’ve become commodities. The key differentiator of the future will be the customer experience. That experience will be digital, and non-banks are setting the standard.
Persistent low interest rates and disruption from the rise of new non-bank entrants in the financial services sector are challenging banks’ traditional business models. Thinking beyond traditional banking is crucial in order to find new ways to be relevant to our customers. Here, open banking offers opportunities. By partnering with others or developing our own digital platforms, we can offer customers new and complementary services that go beyond banking – and create new revenue streams for ING.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Our strategy and how we create value 2. Operational excellence
Operational excellence requires continuous focus. We need to ensure that ING’s operations provide a seamless and flawless customer experience. Our operational excellence vision concentrates on the Customer Promise. To meet changing customer expectations arising from increasing digitalisation, we aim to converge to a single platform for financial services that will deliver a uniform customer experience across borders. This will be based on simplified and standardised products and systems supported by modular architecture, integrated and scalable IT systems, and shared services. While pursuing this ambition we are also investing to provide stable IT systems and platforms so we are there for our customers when they need us and to provide them with the highest standards of data security.
In 2018, we defined a new direction to promote a more diverse and inclusive workforce, introducing
For some, becoming a platform business, or even being platform-curious, is a relatively new phenomenon. But the reality is that Big Tech companies, like Facebook, Alibaba, WeChat and others have been platform-based for over a decade. They are the success stories of the digital age.
The main business transformation programmes are: • Unite be + nl (formerly Orange Bridge), to unite Belgium and the Netherlands. Become one bank across two countries, combining both countries’ strengths for a more consistent experience, with one integrated banking platform and a harmonised business model.
Republic in December 2018. The platform will be developed further and introduced gradually in the coming years.
Highlights: Approximately 18,000 customers are now using Wholesale Banking’s Inside Business digital portal. The introduction of a single platform for loans and trade finance has been extended across the network, with a consolidated Financial Markets franchise in the UK, over 650 IT
Supporting these business transformations are target operating models (TOMs) uniting support services globally such as HR, Finance, IT and Procurement, and the enablers, the so-called foundations: IT, global data management, process management, shared services and ING’s one agile Way of Working (WoW).
The IT target operating model introduced last year is in line with the Think Forward strategy. It aims to create speed, scale and security as well as cost efficiency and growth, with one purpose, one common backlog and one technology platform.
The quality of our people makes a difference in the quality and efficiency of our services. We aim for a global, collaborative workforce of highly skilled engineers meaning that we assess and calibrate our engineering workforce using one engineering profile. In 2018, more than 80 percent of our internal engineering staff have adopted one engineering profile and more than 60 percent of our workforce has implemented one Way of Working, both marking an increase from a year earlier.
People entrust banks with confidential information that they expect us to keep safe. It is important that we maintain that trust and comply with our legal obligations around data protection, which can differ from country to country. We are transparent about what we do with the personal data of customers, employees, suppliers and business partners, and only process it for specific business purposes. Our approach can be summarised as: the right people use the right data for the right purpose.
Operational, IT and support tasks are being centralised in shared service centres. In 2016, ING set up a fully-owned service company ING Business Shared Services BV (IBSS) to consolidate all such centres in one specialised non-banking legal entity. Currently, IBSS has four foreign branches. The
ING’s Global Process Management (GPM) department was established in 2016 to improve the customer experience for the bank’s markets, including Market Leaders, Wholesale Banking, as well as Challengers & Growth Markets. It does this by introducing a single, global approach to improving end-to-end processes and a common way to manage those processes and standardise across business units.
The ever-increasing professionalisation and automation of criminal organisations remains a concern. The growing use of online services, with some less careful with personal data, makes it easier for criminals. Training and awareness of employees is a crucial part of ING’s preventive
To fight cybercrime, ING also maintains a strong global cybercrime alliance with the financial industry, law enforcement authorities, governments and internet service providers.
Global developments are monitored in close cooperation with other banks and government institutions. Preventive measures are in place for ING data centres and organisational resilience to
The ‘threat’ landscape and ‘advanced persistent threat’ indicators are closely monitored. Preventive measures are taken where needed. Cyber-resilience reporting is part of standard risk governance processes.
Alexa and Google Home. They also expect more predictive capabilities in their products and services, so meeting that customer demand is important.
currently has around 1,200 RPA applications in use in a wide variety of business units including
CareConnect (connecting caregivers and service providers), were given the opportunity to pitch for funding and have their ideas accelerated in ING Labs.
(formerly ICEC), London and Singapore are dedicated to validating and launching disruptive businesses. They concentrate on specific ‘value spaces’ that best match the expertise and ecosystems in their locations.
ING also has an Innovation Fund to accelerate innovation across the Bank. These funds are available for all business units that need resources to bring their radically different ideas to life. We look for ideas that have the potential to disrupt how we do things or chart new territory.
As well as ING Labs, Belgium’s Fintech Village looks for technology-driven start-ups that either offer solutions relevant for financial institutions or help ING provide superior financial services to customers.
Most business units have dedicated innovation centres of expertise embedded to boost the culture of innovation. Innovations stemming from ING’s business units include One Pay in Spain which consolidates a customer’s debt with a view to improving their financial situation in a customercentric way, and ‘INGo’ in Turkey, a chatbot for customer interaction on loan applications. In 2018,
“Open banking is a crucial enabler for ING’s platform strategy. The launch of the ING Developer Portal in May 2018 was an important step in this journey. Here external developers can access ING’s application programming interfaces (APIs). These are pieces of software that allow applications to communicate with each other.
“Our open banking platform brings together producers and consumers of APIs and enables collaboration with partners to co-create the best user experience possible. One example is ING’s Payment Request API. Making it available on our platform allows other organisations to re-use it to send payment requests to their own customers.
ING maintained its good commercial performance in 2018. Net core lending grew by €36.6 billion over the year, with net customer deposits growing by €19.3 million. It’s our business to provide products and services that empower people and businesses to stay a step ahead. With digital disruption changing customer expectations we are looking for new ways to be relevant and stand out from the crowd. This also means offering services that go beyond banking.
We are transforming our organisation to create a differentiating experience for customers. One that is uniform and borderless and supported by one open and scalable platform. Our shared ING
In the first half of 2018, we successfully migrated 600,000 customers from Record Bank into ING in
In the Netherlands we now have 4.3 million mobile app users, including 1.1 million new registered users in 2018. In Belgium, digital adoption is accelerating too, with a net increase of close to 285,000 new active mobile users (36 percent) to 1.07 million users. Some 55 million mobile payments were processed in Belgium in 2018, almost four times higher than in 2017. However, many customers still value face-to-face interactions and we have to balance their needs with our digital ambitions. To this end, we extended the opening hours of our branch network in Belgium.
Germany, Romania and Wholesale Banking. We will only issue new cards to customers when their existing ones expire to avoid unnecessary waste and costs as we replace all 15 million cards worldwide.
ING actively reached out to customers in the Netherlands with interest-only mortgages to help them plan ahead for when their mortgages mature and the principal repayment is due. Customers can use the insights we provide to take timely action if needed to prevent affordability problems in the future. We believe this results in additional redemptions and product conversions and leads to de-risking of the mortgage portfolio.
In Spain, we expanded our partnership with El Corte Inglés, Europe’s largest department store, to roll out our mobile payments app Twyp in all its supermarkets. This helped to raise Twyp’s public visibility among consumers and take a key step forward in its objective to be available to as many people as possible. Customers from any bank can use Twyp to make payments and withdraw cash at 8,000 points of sale, doubling the app’s reach in less than a year.
The popularity of the no-fee Orange Everyday transaction account among consumers in Australia led to record numbers of new account openings. In August, we extended this to teens with the launch of Orange Everyday Youth. Customers can also use our Everyday Round Up digital savings tool to help pay off their mortgage more quickly. And with the New Payments Platform (NPP), ING
Our Growth Markets are businesses with a full range of retail and wholesale banking services in countries with expanding economies and strong growth potential. These include Poland, Romania and Turkey. Here we’re investing to achieve sustainable franchises and will focus on digital leadership by converging to the direct-first model and prioritising innovation.
And to make foreign payments instant and seamless for Polish consumers, for example while travelling, we introduced a multi-currency card that allows users to pay for foreign purchases from several different currency accounts without incurring any commission fees. It has proven popular, with over 100,000 users so far.
For business customers in Poland and Romania, we launched ING Business, a new digital platform that makes banking clear and easy and accessible anytime, anywhere from any device. We also introduced Invoice Financing, a digital micro-factoring solution developed in-house at ING. It gives
And in line with our ambition to help create a low-carbon society we introduced an eco-offering for
Polish entrepreneurs. The offering gives the loans we provide a responsible side because it encourages customers to take sustainable actions such as buying energy-efficient equipment for their businesses, for example, or insulating their buildings. See more about our ambition to align
We also teamed up with several merchants in Turkey to offer customers vendor financing for online purchases via our mobile app. For example, they can get a loan for a new phone from the provider at the point of sale. And in another beyond banking collaboration we teamed up with online moving services platform Octovan to develop a tool that calculates the full cost of moving into a new home. The aim is to help the 1.5 million people in Turkey who move each year avoid financial surprises. Users can also apply for a loan to cover unforeseen expenses.
Products team fosters collaboration across the regions to give clients access to more products and services. We are also strengthening core banking services, such as Debt Capital Markets and
(14.6 percent). We refined our definitions for a number of customer categories in the Netherlands in the second quarter of 2018 to align the measurement of customers with uniform definitions across ING’s countries. The number of primary retail customers overall increased 9.9 percent to 12.5 million, well on track to meet our 2020 target for 14 million. The biggest growth was in
Challengers markets, especially Australia (234,000) and Germany (233,000). Reasons include interest rate incentives on bundled savings and current accounts in Australia and selling more current accounts to existing savings customers in Germany.
We want to use our insights from over three billion customer interactions to offer a personalised and empowering experience, giving them even more reasons to interact with us. This is how we want to differentiate ING from other banks and become an essential part of people’s digital lives.
We are striving to make things easy: an onboarding process that saves time from the start; a consistent mobile-first experience across all channels and devices; and instant loans in seven countries. In some of our markets it’s even possible for customers to arrange travel insurance onthe -go by mobile phone. We are moving towards personal experiences based on data-driven insights, such as personalised money tips on our website for Belgian customers and personalised texts when German customers log in to do online banking. And we’re equipping customers with smart data-driven and robot solutions. These include money management apps such as Orange
NPS scores in 2018, ING ranked number one in seven of our 13 retail markets and second in a further three. Ⓐ
To deepen our relationships with our Wholesale Banking clients we shifted our focus from individual products to more holistic solutions in the sectors and regions where they are active.
This, along with our strategic review and new organisational structure all contributed to further simplifying and digitalising the wholesale organisation. As part of our restructuring, we brought together various client trading activities scattered across Financial Markets into one team to improve the client experience and offer consistent products and one client approach everywhere.
When it comes to experience, clients want data-driven insights, sector knowledge and easy-to-use products and tools. We can use our analytics capabilities to tailor our advice for clients and enhance our daily banking services to better meet their business needs. These include payments and cash management, working capital solutions, trade finance, overdrafts and risk-mitigating services like derivatives. Our focus is on standardising these services across the network and offering proven and relevant solutions through clients’ preferred channels, while also moving to open banking platforms.
One of the challenges of our international client base is that we may provide one client with many different products to different legal entities of the same company in different countries. This increases the complexity of coordinating due diligence in a consistent way without inconveniencing the client with duplicate requests for information.
In January 2018, the second Payment Services Directive (PSD2) came into effect in Europe, opening up the financial services space to non-banks. It gives consumers and businesses more choice about which service provider they use to pay bills, make online purchases or analyse their spending. They don’t have to use their own bank anymore – but their bank is obliged to give third parties access to their customers’ accounts to facilitate the payments.
Proposition Opportunity Tool (SPOT) in June. Using real-time data and self-adjusting algorithms, it identifies potential business opportunities for clients in areas such as debt and equity capital markets, mergers and acquisitions, capital structuring and working capital solutions. With these data-driven insights we can enhance our advisory value proposition.
Voltron blockchain platform, which is built on R3’s Corda platform. The transaction covered a polymers shipment from India to Peru and was completed in just 24 hours compared to the standard five to 10 days. It followed the pilot in May with agrifood trading giant Cargill.
Each sector requires a custom approach. For some sectors this still needs to be refined further. ING
In 2018, we financed the first offshore wind farm in Asia, which will help Taiwan reduce its reliance on coal and nuclear power, and we helped refinance Italy’s largest solar panels operator. In Austria,
And, as almost half of our loan book consists of mortgages, we announced that we are taking action to make our mortgage portfolio energy-positive. This means the homes in this portfolio will collectively produce more energy than they consume. To this end, we are developing retail products, tools and services to help homeowners make their houses more sustainable. As houses generally account for about 20 percent of CO2 emissions, we believe this could have a meaningful impact in the fight against climate change. At the same time it will help our customers to lower their CO2 footprint and energy bill. We will start in our three biggest markets in the Netherlands,
Belgium and Germany in early 2019. While we already provide ‘green’ mortgages in Germany through development bank KfW, customers can use the new products to finance solar panels, for example, or insulate their homes. To help raise awareness, consumers in the Netherlands can check the energy profile of their homes on our website and see the options and financing available to improve this.
To take sustainable finance further in the business we have set up regional Sustainable Finance teams in the Americas and Asia to support our clients in these regions. In October, ING hosted two sector-specific sustainability panels in New York. The first addressed the ‘greening’ of America’s data centres with representatives from several major tech companies. The second focused on the aviation industry.
We can help our customers accelerate the transition to a sustainable world through sustainable investing. ING provides investment solutions that have a positive impact on society and the environment.
Local empowerment initiatives include the Schuldenlab in the Netherlands, which brings together government, business and NGOs to address problematic debt, a growing social problem affecting 1.4 million Dutch households. ING in the Netherlands also supports the Jongeren Perspectief Fonds
Amazon and the Centre for Economic Policy Research. In 2018, it delivered 11 short-term research projects that should ideally lead to new business endeavours via the TFI accelerator hub, or inspire behavioural change to improve financial wellbeing via the Community hub. It also received 92 submissions for long-term projects and commissioned five of these. Through the TFI
Retail Banking recorded a solid set of 2018 results. Net profit rose 2.6 percent to €3,452 million from €3,363 million in 2017. There were no special items excluded from the underlying results in both years. The underlying result before tax increased 2.5 percent to €4,841 million in 2018.
The underlying result before tax of Retail Netherlands rose 4.4 percent to €2,342 million from €2,243 million in 2017. This was mainly due to lower risk costs and benefits from the ongoing costsaving programmes.
Underlying income rose 0.2 percent to €4,476 million. The interest result was 3.4 percent lower, mainly caused by margin pressure on savings and current accounts, and a decline in the average lending volumes, partly offset by higher margins on mortgages. Net core lending (excluding the
Underlying operating expenses declined 2.1 percent on 2017, mainly driven by the benefits from the ongoing cost-saving initiatives and lower expenses for legal claims.
Operating expenses rose by €26 million, or 1.6 percent, to €1,610 million, mainly due to higher external staff expenses related to the transformation programmes and the successful integration of Record Bank into ING Belgium.
Operating expenses declined 0.5 percent to €1,027 million from €1,032 million in 2017. This decrease was mainly caused by lower regulatory costs and a decline in marketing expenses, partly offset by higher costs to support business growth and a restructuring provision in 2018.
Risk costs were € 350 million, or 71 basis points of average risk-weighted assets, compared with €284 million, or 58 basis points, in 2017. The increase was mainly attributable to higher risk costs in
“The potential of blockchain to transform commodities trading is clear with the success of komgo, an open platform that replaces traditional paper-based administration to
Creating a differentiating experience starts with ING’s culture: entrepreneurial, open, collaborative, innovative and energetic. Our customers trust us with their money and their information. Keeping this safe and maintaining this trust are crucial. Not complying with applicable laws, regulations and standards has far-reaching consequences. We saw this in 2018, when we reached a settlement with the Dutch authorities in connection with serious shortcomings in the execution of customer due diligence requirements to prevent financial economic crime at ING in the Netherlands in the period investigated (2010-2016).
All new joiners are introduced to the Orange Code through an e-learning that explains ING’s culture, way of working and what we expect from our employees. There is also a global dilemma model to help employees make balanced decisions in line with ING’s Orange Code values and behaviours.
All our employees in the Netherlands are required to take the Banker’s Oath, committing to maintain high standards of ethical behaviour.
When it comes to recognising and managing dilemmas we have a global approach based on the values and behaviours in our Orange Code. This guides employees and managers in their decisionmaking. Given the increasing use of data to drive our decision-making we established Data Ethics
After the summer of 2018 we set up a new expertise centre to identify, assess and mitigate behaviours within our organisation that could negatively impact ING’s reputation and performance.
In the Netherlands and Belgium we initiated an approach in 2018 aimed at strengthening ING’s compliance culture and further embedding integrity. The approach focused on raising awareness and equipping employees to make balanced decisions when facing dilemmas at work, to comply with all applicable laws, standards and regulations, and to act with integrity always. One of its elements is a simulation exercise for compliance dilemmas, a creative way of getting serious messages across..
survey – and the next on organisational health. This all-encompassing approach allows us to identify issues more quickly and address them faster, thereby aiming to deepen employee engagement and enhance performance.
From a people perspective, our vision is to develop capabilities and engagement to deliver on our purpose and strategy. We do this by focusing on delivering a great employee experience and by stepping up our leadership and management capabilities.
To facilitate the bank’s digital transformation and respond faster to changing customer needs we are introducing one Way of Working (WoW) across ING, which organises employees to work in multi-disciplinary, cross-functional ‘squads’. We have also started redesigning our office spaces to encourage collaboration, flexibility and teamwork. For more information about WoW and how we help employees to adapt to it, see the ‘Innovation and transformation’ chapter.
We apply these and other principles, such as those of the UN Global Compact, UN Guiding Principles for Business and Human Rights, International Labour Organisation and OECD Guidelines for
However, we are aware that there are still issues that require attention. In our first human rights report, published in November 2018 on www.ing.com/18ar009, we outline a number of risks and the steps we are taking to alleviate these. It also describes the human rights policies we’ve implemented, the results of these and performance indicators. The report is one of the key deliverables under the Dutch Sector Banking Agreement signed by ING and other Dutch banks in
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Our people contrasting perspectives are more creative, more inventive and faster to adapt. When people feel free to be themselves they perform better.
In 2018, we defined a new direction to promote a more diverse and inclusive workforce introducing
If not managed correctly, stress at work can lead to illness, absence and potentially a loss of income. To mitigate this, ING has measures in place to promote a healthy work culture.
The health and safety departments in our business units provide resources to promote employee well-being and help employees to manage stress. Support is tailored to local needs. Examples include:  Belgium: Coach & Care programme for employees in difficult situations.
Reasons for feeling stressed at work can include pressure to deliver from colleagues or managers, a heavy workload or long hours.
Employer status in Europe and in six individual countries: Belgium, France, Italy, Poland, Spain and the United Kingdom. In Germany and Turkey, ING was ranked as a Great Place to Work. And in the
“As product owner, I’m responsible for bringing the vision of Interhyp Home to life. One of the biggest challenges is meeting customer expectations. Although we are in close contact with customers and constantly ask for feedback, it is not easy to translate the information into working software. You have to listen carefully, ask the right questions, draw conclusions and learn from mistakes.”
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Risk and capital management
ING Group’s fully-loaded CET1 ratio was 14.5% at the end of 2018. The proposed dividend, to be paid in April 2019, has already been excluded from ING Group’s capital base, in line with regulatory requirements. The Group’s phased-in CET1 ratio at the end of the year decreased by 0.2% point from the previous year to 14.5%, as risk-weighted assets increased due to volume growth and model updates, slightly offset by positive risk migration. The available CET1 capital decreased slightly by €0.1 billion compared with year-end 2017. The inclusion of interim profit after dividend reserving was more than offset by negative impacts, mainly due to IFRS9 implementation and related to Payvision acquisition.
and 19.1% to 18.4%, respectively. In 2018, ING Groep N.V. did not issue or redeem additional Tier 1 instruments. However a total of €4.7 billion of ING Bank Tier 2 bonds were redeemed and a total of €1.8 billion of Tier 2 bonds were issued by ING Groep N.V.
ING Group’s dividend policy aims to pay a progressive dividend that will reflect considerations including expected future capital requirements, growth opportunities available to the Group, net earnings, and regulatory developments. The Executive Board proposes to pay a total cash dividend of €2,646 million, or €0.68 per ordinary share, over the financial year 2018. This is subject to the approval of shareholders at the Annual General Meeting in April 2019. Taking into account the
The main objective of ING’s funding and liquidity risk management is to maintain sufficient liquidity to fund ING’s commercial activities under normal market circumstances and in times of stress across geographies, maturities and currencies. This requires a diversified funding structure, taking into consideration all relevant opportunities and constraints.
ING has a Funding & Liquidity (F&L) Framework which aims to maintain sufficient liquidity under normal, adverse and stressed market circumstances. In general, ING considers the adequacy of its
In 2018, customer lending growth outpaced customer deposit growth. As a result, the reliance on professional funding activities increased. As the share of customer deposits continued to provide an excess of stable funding, the additional lending growth was funded through short-term Certificates of Deposit and Commercial Paper (CD/CP) issuance.
The Group’s IFRS 9 implementation was completed in the first quarter of 2018. The impact on ING
As of 1 January 2022, the first stage of Basel IV (revised Internal Rating-Based Approach) will come into effect. Based on the current estimates, without management actions this is expected to potentially increase RWA by roughly 15-18% on a fully loaded basis, of which around 80% is expected as per implementation date.
By providing guidelines regarding the SREP, the European Banking Association (EBA) gives further direction for the internal capital adequacy assessment process (ICAAP) and enhancement of the capital management framework.
(BRRD) has become effective in all EU countries after transposition into national law, including in the Netherlands. The BRRD aims to safeguard financial stability and minimise the use of public funds in case banks face financial distress or fail to comply with the BRRD. Banks across the EU
ING has been replacing, and will continue to replace, maturing ING Bank N.V. debt with ING Groep
Stress testing is an integral component of our risk and capital management framework. It allows us to (i) assess potential vulnerabilities in our businesses, business model, and/or portfolios; (ii)
The results of the EBA stress test reaffirmed the resilience of our business model and the strength of ING’s capital base. Our commitment to maintain a robust, fully-loaded Group common equity
ING Group would have a fully loaded CET1 ratio of 10.70% in 2020 without management actions.
The function’s primary roles are to properly identify, measure and manage risks in normal and stressed economic conditions, and to oversee our business activities such that they are consistent with both our strategy and our risk appetite.
Promoting Integrity Programme (PIP), running since 2010. This global e-learning programme dives into dilemmas and issues that employees might face and aims to equip them to take the right decisions. In 2018, the PIP included the topics data and dilemma management. In 2019, we will revisit the set-up of the PIP. In addition, two online modules were launched to all staff: one to enhance awareness on KYC and a second one on whistleblowing.
risk exposure. ING aims to further increase the efficiency and effectiveness of our IT infrastructure and the reliability and continuity of IT processing.
Data is everywhere, in both digital and non-digital form. With cybercrime and data management a continuing threat to companies in general and to financial institutions in particular, ING has set minimum standards for platform security, data management, cybercrime resilience and security monitoring, as well as for identity and access management that the right people have the right access to the right resources at the right time.
NPL and the NPL ratio. Therefore, the comparative figures for the credit outstandings and the opening balance for the provisions have been adjusted. In 2018, ING Group’s Stage 3 ratio improved to 1.5% from 1.8% at the beginning of the year. The Stage 3 credit-impaired outstandings decreased, particularly within Retail in the Netherlands and Industry Lending, whereas the total credit outstandings went up year-on-year. On a portfolio level, improvements were observed in residential mortgages and business lending both in the Netherlands, where the Stage 3 ratio decreased to 0.7% from 1.0% and 4.7% from 6.2%, respectively, reflecting the positive macroeconomic environment. Within Industry Lending, the Stage 3 ratio for Project and assetbased finance and real estate finance dropped by 0.8 percentage points to 1.5% and 0.8 percentage points to 1.2% respectively following restructuring and repayments of some larger files.
Complying with regulations that came into effect in 2018 like GDPR, PSD2 and Markets in Financial
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Risk and capital management management. Respective control frameworks have been established and are subject to testing and monitoring by the three lines of defence.
Public Prosecution Service related to the previously disclosed criminal investigations that found serious shortcomings in the execution of customer due diligence requirements to prevent financial economic crime at ING Netherlands in the period investigated (2010-2016). Read more on www.ing.com/18ar010.
Enhancement Programme, a multi-year improvement programme with integral steering. This specific programme was officially launched early in 2017 and is expected to run until end-2020. ING
is committed to periodically providing the Dutch central bank (DNB) with regular updates on the progress made.
The programme consists of three parts: (a) look-back analysis on past deficiencies in posttransaction monitoring. The look-back analysis consists of screening of transactions executed in the past. In case unusual transactions are identified, ING is committed to following the applicable reporting process; (b) enhancement of customer due diligence files with the aim to document sufficiently the knowledge the bank has about its clients in the line with past and new requirements; (c) structural solutions that should support getting sustainably better in addressing money laundering risks in our portfolio and complying with laws and regulations.
All required screening components (name screening, pre-transaction screening, adverse media screening) will be incorporated into the client acceptance due diligence process. Once a customer is onboarded, ongoing screening and monitoring of transactions can then be activated.
KYC Committee. Going forward we will further develop the global KYC function to ensure structural embedding of standardised and uniform ways of working, with regular improvement cycles and support of advanced technologies and insights.
A client’s ESR risk profile is just the starting point when assessing how the ESR policy framework will apply in each specific business engagement. The ESR client assessment is executed by the KYC
domain and is an integral part of the client on-boarding and review processes. One of the most important determinants of ING’s ability to assess and manage environmental, social and human rights-related risks with a client is our proximity to the potential impact. The type of financial product or service offered to the client and the impacts associated with it determine the appropriate level of due diligence and mitigation measures. The sector, operating context and geography will also provide an initial indication of the degree of ESR due diligence needed.
advisors. In addition, ING Global Procurement appointed a new ESR/Sustainability officer and a dedicated ESR officer was appointed in the US to initiate ESR dialogue at an early stage of client engagement for project finance transactions.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Risk and capital management guidance from external stakeholders (clients, peer banks and NGOs). The updated ESR policy framework is scheduled to be implemented early 2Q 2019, similar to the publication on www.ing.com/18ar011. The changes to the framework included: Enhanced human rights and climate change due diligence: As part of our ambitions and strong commitment to respect human rights and combat climate change, we have enhanced our human rights and climate change policies and increased the track-record checks for all our corporate clients globally. In the updated ESR policy framework we ensured each sector policy includes the proper references to the relevant standards of the human rights and climate change overarching pillars. Incorporating these helps us to determine which transactions require further analysis and action, and provides our stakeholders with a better understanding of our approach to human rights and climate change when assessing transactions. This information will also be used for future reporting and increased transparency, which we expect will soon be required by more regulators.
The updated ESR policy also encourages clients to identify and be transparent about how human rights and/or environmental issues affect their supply chains. They should provide evidence of proper monitoring and where relevant, translate these findings into acceptance criteria for partners and suppliers.
 Palm oil policy: Whilst current ING clients either fulfil the requirements of the Roundtable of Sustainable Palm Oil (RSPO) or have committed to doing so within an acceptable timeline, ING
Equator Principles, called ‘EP4’, that is considering key issues of scope of applicability, such as human rights (including the rights of indigenous peoples) and climate change. ING co-leads the coordination of the EP4 process. In 2018, as part of rotation governance, ING stepped down from
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Risk and capital management the EP Steering Committee, having been a member since its inception 11 years ago.
within the banking sector, and how they can be applied across the range of different banking activities. ING’s leading role in human rights is reflected by our participation as a formal advisory member to the OECD on responsible business conduct in our sector. ING is an active attendee of the annual workshops for practitioners from financial institutions organised by the OECD in Paris.
everything they need in one place and on one new system. It also allows us to use data analytics and insights to create relevant and personalised communications to engage customers in interactive discussions. We can optimise our interactions across channels and monitor and react quickly to customer actions.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Composition of the Executive Board and Management Board Banking
Price/book value ratio 0.72 1.18 1.04 1 Based on the share price at year-end and the earnings per ordinary share for the financial year.
announced in September 2018 in connection with serious shortcomings in the execution of customer due diligence requirements to prevent financial and economic crime at ING in the Netherlands in the period investigated (2010-2016)
2 Ranked first in our market capitalisation peer group as of January 2019. Ranked Leader in the Environment and Social themes overall.
31 October Publication results 3Q2019 1 All dates are provisional 2 Only if any dividend is paid
An integrated report contains information on an organisation’s economic, social and environmental performance. By disclosing our financial and non-financial results, strategy, governance, external developments and the risks and opportunities we face, we aim to enable our stakeholders to assess how we create value in the long run. Our ambition is to further integrate financial and non-financial information in a concise and connected report.
This report is intended to serve the information needs of key stakeholder groups that affect, and are affected by our business. An overview of key figures and impacts in 2018 is available on www.ing.com/18ar012. Please refer to the stakeholder engagement section in the Non-financial appendix.
All financial data in this report are collected in line with annual accounting standards. The nonfinancial performance data published in this report cover five key topics: sustainable business, customers, human capital, environment and community investment. We extract or derive data on sustainability-related business activities, customers and human capital from our business systems, in line with the data in our annual accounts. Data on the topics environment and community investment are collected through an online data management system. The centralised data processing team at ING Group validates and processes the environmental data from our operations worldwide in collaboration with an independent, third-party consultancy.
The ‘Corporate Governance’ chapter and the ‘Dutch Corporate Governance Code Statement by the Executive Board’ are incorporated by reference in this Report of the Executive Board.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Independent auditor’s assurance report
Supervisory Board to withdraw the proposal. As the Supervisory Board, we acknowledge that we made serious mistakes with regard to stakeholder engagement. Stakeholders have different, sometimes conflicting, opinions on remuneration, and the issue is a particularly contentious one in
Dutch society. Following an evaluation of the decision-making process, we have formulated an approach that going forward should ensure that we sufficiently weigh any future remuneration policy changes and carefully consider stakeholder viewpoints.
Dutch authorities related to the previously disclosed criminal investigations that found serious shortcomings in the execution of customer due diligence requirements to prevent financial economic crime at ING Netherlands in the period investigated (2010-2016). This is something we deeply regret and are taking very seriously. The management and Supervisory boards are committed to leading change to strengthen ING’s risk culture so that we meet the highest standards in non-financial risk management in general and in compliance in particular.
ING enjoyed strong commercial growth in 2018. It also made good progress transforming the business to ensure it continues to support customers and deliver a superior digital experience in the future.
Management Board Banking. At a time when ING is accelerating its Think Forward strategy, an important part of that role is monitoring the transformation and the various initiatives comprising it and making sure the right priorities are set. ING’s transformation is a huge undertaking to realise an ambitious vision of the future.
Republic, France, Italy, Spain and later in Austria). The launch in the Czech Republic in December 2018 of a first version of the new digital platform is an important step that brings ING closer to the ambition of becoming one digital, mobile-first platform that offers a uniform customer experience everywhere we operate.
Banking - particularly in the areas of compliance and performance management, with clear priorities and milestones. Additional key priorities include keeping on top of developments in the regulatory and external supervision landscape, as well as in the areas of non-financial risk, compliance and internal control.
In 2019, we face many uncertainties: about economic growth, about Brexit and about how technological developments and disruption will affect our industry. There will also be new regulations at national and international level. We hope these will speed up progress on the EU
But there are also important things we know we can build on. For one, the dedication of our employees, who continue to empower ING’s customers. ING’s achievements in 2018 demonstrate that the strategy is paying off and that customers continue to turn to ING for their financial needs.
On behalf of my colleagues in the Supervisory Board, I wish to express my gratitude to ING’s employees for their dedication and hard work, to thank customers for their trust in us and shareholders for their loyalty. These bonds are the basis of ING’s success, and my colleagues and I
Supervisory Board are continuously engaged with ING and are able to devote sufficient time and attention to oversee ING’s affairs. As of 2018 onwards all outside positions of the members are collectively discussed on an annual basis, among others to safeguard continuation of such engagement.
Management Board Banking. The Supervisory Board prioritises striking a balance between the interests of all stakeholders and maintaining an open dialogue with all departments within ING.
Framework), dividend capacity, thematic reviews in connection with several regulatory requests, and updates on supervisory developments.
Board regrets the loss of trust and damage to ING’s reputation caused by this proposal. This was discussed at length during the 2018 Annual General Meeting. The Supervisory Board evaluated the decision-making process, supported by an ad hoc Supervisory Board committee. The Supervisory
Board and Management Board Banking reconfirmed their commitment to comply with applicable legal requirements and take the necessary actions to strengthen compliance risk management and the culture of compliance throughout the organisation.
Board’s understanding of and engagement with ING’s business operations and its stakeholders. The annual Supervisory Board Knowledge Days, that took place on 10-12 January 2018 in Frankfurt and that were combined with regular Supervisory Board meetings, focused on gaining more insight into
Germany’s economy and financial landscape. There was also a ‘deep dive’ into the current business and activities of ING in Germany, also covering our presence in Austria and the Czech Republic, and how these relate and contribute to ING’s Think Forward strategy. As part of the annual business visit, the Supervisory Board, together with the Management Board Banking, visited the offices of
ING’s strategy, together with the transformation programme, includes an overarching view and a number of initiatives to further improve the customer experience, earn primary customers, develop analytics skills to understand our customers better, increase the pace of innovation to serve changing customer needs, enhance efficiency, and think beyond traditional banking to develop new services and business models whilst growing our lending capabilities. As part of this, platform thinking was an important theme in 2018, with plans to become a go-to platform for customers’
Report is presented in integrated form for the fourth successive year. The annual accounts will be submitted for adoption at the 2019 Annual General Meeting as part of the 2018 Annual Report.
Board and the Executive Board and Management Board Banking, to balance the amount of prereadings and time spent, to consider competitor strategies and to develop a more balanced offering of deep dives/permanent education sessions.
The Supervisory Board’s spearheads for 2019 will be to improve stakeholder management, focus on the way forward by means of reinstating trust with customers and other stakeholders and pride with employees to be part of ING, and achieving the right balance between the provision of challenge/counterbalance and support to the Executive Board and the Management Board Banking - particularly in the areas of compliance and performance management, with clear set priorities and milestones.
Specific attention was paid to a variety of other, related topics. These included IFRS-related developments and their potential impact on our disclosures, legal proceedings, the remediation of open-control deficiencies in areas including user access and change management and loan-loss provisioning. Also addressed were non-financial risks relevant for the financial reporting, and the results of the financial control enhancement programme. While the programme was completed, the efforts to embed control more in the daily business continue to be part of ING’s business-asusual -activities. Also the settlement with the Dutch authorities, as well as the related information request from US authorities, regarding various requirements related to client on-boarding, money laundering and corrupt practices were discussed. The updated internal audit charter and the quarterly whistleblower report were also areas of attention. The Audit Committee performed a thorough assessment of the functioning of the external auditor and the scope and materiality of the audit plan and the principal risks identified in the audit plan and made recommendations to the
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Report of the Supervisory Board remuneration policies – for examples as part of the Variable Remuneration Accrual Model, which was recently introduced (see also ‘Remuneration Committee meetings’ in this section).
Special attention was paid to performance management and how to enhance the process and its effectiveness by fostering ‘continuous conversation’ between managers and employees throughout the year. In 2018, the committee discussed the agenda for the 2018 Annual General
In 2018, the Remuneration Committee met seven times. On average, 92 percent of the members were present at the scheduled meetings. The Remuneration Committee, where necessary with input and advice from the Risk Committee following strengthened risk management governance, reviewed the thresholds above which the pool for variable remuneration may be used for actually granting variable remuneration. It discussed the variable remuneration pool and reviewed the performance assessment for the Executive Board and Management Board Banking, as well as the variable remuneration proposals. Also the Executive Board remuneration policy and CEO
Staff were also reviewed, including potential cases for holdback of deferred compensation by way of malus. With regard to the investigation by the Dutch authorities, a special ad-hoc committee of the Supervisory Board was charged with the accompanying management assessment and its subsequent proposed measures, including those encompassing impact on remuneration. In addition, the proposed annual targets for the Executive Board and the Management Board Banking members were discussed. The ING Bank Remuneration Regulations Framework was updated as part of an annual review. This included the introduction of the Variable Remuneration Accrual Model.
Committee and the Supervisory Board will continue to strive for an adequate and balanced composition of the Supervisory Board when selecting and nominating new members for appointment, taking into account ING’s diversity policy and other factors.
Name Year of birth Gender Nationality Executive experience International experience Banking/Finance/Audit/Risk Operations a/o IT Corporate governance
Mr Boyer de la Giroday 1952 M Belgian • • • • • • • •
Information as at 31 December 2018 • limited/some to average experience in the area •• (had been) accountable and (had) executed over several years
Please note the following: the competencies included in this matrix represent a non-exhaustive overview of the competencies of ING's corporate board members that they already had before joining ING and/or developed during their position(s) at ING. The purpose of this matrix is to provide ING’s stakeholders with an overview on the main competencies ING considers to be the most relevant for its stakeholders. As ING’s situation, markets and environment are subject to continuous change, the contents of the matrix is subject to change as well. Furthermore, for the appointments of new corporate board members, all relevant competencies are also shared with the DNB/ECB based on their Suitability Matrix to assess the collective competence of members of the members of the management/supervisory body.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Report of the Supervisory Board
N.V. (‘ING Group’), including information on ING’s share capital, control, Executive Board, Supervisory Board and external auditor.
ING Group uses the Dutch Corporate Governance Code as reference for its corporate governance structure and practices.
 NYSE listing standards require a US company to have a compensation committee and a nominating/corporate governance committee, each composed entirely of independent directors.
 In contrast to the NYSE listing standards, the Corporate Governance Code contains an ‘apply-or explain’ principle, offering the possibility of deviating from the Corporate Governance Code. For any deviations by ING Group, please refer to the paragraph ‘Compliance with the Corporate
 The Articles of Association provide that there are no quorum requirements to hold a General
 Under NYSE listing standards, shareholders of US companies must be given the opportunity to vote on all equity compensation plans and to approve material revisions to those plans, with limited exceptions set forth in the NYSE rules. The NYSE rules require a shareholder vote on all equity compensation plans applicable to any employee, director or other service provider of a company. The results of such votes are advisory in nature rather than binding. Under Dutch law and the Corporate Governance Code, binding shareholder approval is only required for equity compensation plans (or changes thereto) for members of the executive board and supervisory board, and not for equity compensation plans for other groups of employees.
Group employee or (former) permanent adviser to ING Group is on the board of the ING Continuity
Articles of Association are amended. For reasons of flexibility and to meet the requirement as set forth in the Bank Resolution and Recovery Directive (‘BRRD’) that the amount of authorised share capital should at all times be sufficient to permit the issuance of as many ordinary shares as required for a potential future bail-in, ING Group seeks to set the authorised capital in the Articles of
Association at the highest level permitted by law, which is five times the actually issued share capital.
(including the granting of rights to subscribe for ordinary shares, such as warrants or in connection with convertible debt instruments) for a period of 18 months, ending on 23 October 2019 subject to the following conditions and limits:  No more than 40 percent of the issued share capital in connection with a rights issue, being a share offering to all shareholders in proportion to their existing holdings of ordinary shares as nearly as may be practical. However, the Executive Board and Supervisory Board may exclude certain shareholders from such a share offering for practical or legal reasons such as record dates, fractional entitlements, treasury shares, applicable legal restrictions on share offerings or in the context of a syndicated rights issue; plus
Executive Board and the Supervisory Board consider it in the best interest of ING Group to have the flexibility this authorisation provides.
This authorisation may be used for any purpose, including but not limited to strengthening capital, financing, mergers or acquisitions. However, the authorisation to issue ordinary shares by way of rights issue cannot be used for mergers or acquisitions on a stock-for-stock basis as this is incompatible with the concept of pre-emptive rights for existing shareholders.
Shares not included in the Securities Giro Transfer system (‘Wet Giraal Effectenverkeer’ system) are transferred by means of a deed of transfer between the transferor and the transferee. To become effective, ING Group has to acknowledge the transfer, unless ING Group itself is a party to the transfer. The Articles of Association do not restrict the transfer of ordinary shares, whereas the transfer of cumulative preference shares is subject to prior approval of the Executive Board. ING
Securities Giro Transfer Act (‘Wet Giraal Effectenverkeer’). A shareholder, who wishes to transfer such shares, must instruct the securities intermediary where his shares are administered accordingly.
No special rights of control referred to in Article 10 of the directive of the European Parliament and the Council on takeover bids (2004/25/EC) are attached to any share.
Pursuant to Regulation (EU) no. 236/2012 of the European Parliament and the Council on shortselling and certain aspects of credit default swaps, any person who acquires or disposes of a net short position relating to the issued share capital of ING Group, whether by a transaction in shares or ADRs, or by a transaction creating or relating to any financial instrument where the effect or one of the effects of the transaction is to confer a financial advantage on the person entering into that transaction in the event of a change in the price of such shares or ADRs, is required to publicly notify, in accordance with the provisions of the above-mentioned regulation if, as a result of such acquisition or disposal the person’s net short position reaches, exceeds or falls below 0.5% of the issued share capital of ING Group and each 0.1% above that.
Germany, 3.3% in the Netherlands, 5% in Switzerland, 9.4% in Rest of Europe and 7.2% in Rest of the World. These figures are based on year-end 2018 estimates of institutional share ownership from investor intelligence service provider IHS Markit.
As provided for in the Dutch Civil Code, implementing the BRRD, ING Group’s Articles of Association permit this convocation period to shorten to 10 days if (i) ING Group meets the criteria for early intervention measures; (ii) resolution can be avoided by means of a capital increase; and (iii) a general meeting would be required to enable ING Group to issue the required number of shares.
In accordance with US requirements, the depositary sets a record date for the ADRs, which date determines which ADRs are entitled to give voting instructions. This record date can differ from the record date set by ING Group for shareholders.
General Meetings are webcasted via the ING Group website on www.ing.com/18ar015, so that shareholders who do not attend the General Meeting in person may nevertheless follow the meeting online.
Each share entitles the holder to cast one vote at the General Meeting. The Articles of Association do not restrict the voting rights on any class of shares. ING Group is not aware of any agreement pursuant to which voting rights on any class of its shares are restricted.
ING Group provides proxy voting facilities to its investors via its website and solicits proxies from its
Proxy voting forms for shareholders are made available on www.ing.com/18ar015. By returning the form, shareholders give a proxy to an independent proxy holder (a public notary registered in the
Resolutions adopted at a General Meeting are generally published on www.ing.com/18ar015 within one week following the meeting. In accordance with the Dutch Corporate Governance Code, the draft minutes of the General Meeting are made available to shareholders on the ING Group website
Meeting to render this list non-binding, or to suspend or dismiss Executive Board members without this being proposed by the Supervisory Board, requires an absolute majority of the votes cast.
These guidelines that relate to the composition of the Executive Board, are laid down in the
Significant conflicting interests are considered to be absent and are not reported if a member of the
For an overview of loans granted to members of the Executive Board, see page 137 of the
Chairman and CEO of the Executive Board of ING Groep N.V. and of the Management Board of ING
(Born 1960, Dutch nationality, male; appointed in 2017, will step down as from 7 February 2019)
He also served as a member and CFO on the Management Board Banking. He was responsible for
Member and CFO of the Executive Board of ING Groep N.V., member, CFO and vice-chairman of the
Group at the Annual General Meeting on 23 April 2019. The appointments have been approved by the European Central Bank (‘ECB’).
Supervisory Board and ING’s wide range of activities that such individuals may become members of the Supervisory Board of ING Group. Former Executive Board members must wait at least one year before becoming eligible for appointment to the Supervisory Board.
With respect to gender diversity, another female member (Margarete Haase) was appointed as a member of the Supervisory Board at the General Meeting of 2017 and per 1 October 2017 she has been present as an observer at the meetings of the Supervisory Board. Her appointment became effective on 1 May 2018. The percentage of females within the Supervisory Board in 2018 is 25 percent. Further measures are being taken to ensure the preferred composition in terms of gender as soon as reasonably possible.
CRD IV restricts the total number of supervisory board positions or non-executive directorships with commercial organisations that may be held by a Supervisory Board member to four, or to two, if the Supervisory Board member also has an executive board position. The European Central Bank may, under special circumstances, permit a Supervisory Board member to fulfil an additional supervisory board position or non-executive directorship. Positions with, inter alia, subsidiaries or qualified holdings are not taken into account in the application of these restrictions. Such positions may not conflict with the interests of ING Group. It is the responsibility of the individual member of the Supervisory Board and the Supervisory Board to ensure that the directorship duties are performed properly and are not affected by any other positions that the individual may hold outside ING Group.
Members of the Supervisory Board are to disclose material conflicts of interest (including potential conflicts of interest) and to provide all relevant information relating to them. The Supervisory Board
as a whole as well as on the structure and operation of the internal risk management and control systems. On 31 December 2018, the members of the Risk Committee were: Robert Reibestein
Corporate Governance Code considering his academic background as well as his knowledge and experience in his previous role as board member and vice-chairman of ING Groep N.V. and ING Bank
Member of the Supervisory Board of ING Groep N.V./ING Bank N.V. and non-executive chairman of the Board of Directors of ING Belgium S.A./N.V.
These regulations require ING Group to report and certify on an annual basis on the effectiveness of
Pursuant to the terms of the Dutch Financial Supervision Act, a declaration of no objection from the
At the Annual General Meeting held on 11 May 2015, KPMG was appointed as the external audit firm for ING Group for the financial years 2016 through 2019. This appointment includes the responsibility to audit the financial statements of ING Group for the financial year 2018, to audit the effectiveness of internal control over financial reporting on 31 December 2018, to report on the outcome of these audits to the Executive Board and the Supervisory Board and to provide an audit opinion on the financial statements of ING Group. Additionally KPMG performs a review of the sustainability information in the annual report to obtain limited assurance and for a number of non-financial KPI’s reasonable assurance, about whether this information is free from material misstatement. As sustainability is of strategic importance to ING, the auditor is involved to provide assurance on this information.
The external auditor may be questioned at the Annual General Meeting in relation to its audit opinion on the financial statements. The external auditor will therefore attend and be entitled to addresses this meeting. The external auditor attended the meetings of the Risk Committee and of the Audit Committee and attended and addressed the 2018 Annual General Meeting, at which the external auditor was questioned on the audit opinion.
In 2018, the Audit Committee performed a thorough assessment of the external auditor. Based on this assessment, the Audit Committee proposed an extension of the audit mandate of KPMG for the financial years 2020 through 2023 to the Supervisory Board. The extension is under the condition of reappointment of KPMG as external auditor of ING by the General Meeting of Shareholders.
This view allows the Executive Board and senior management to form an opinion on the adequacy of internal risk management and control systems regarding the risks they face while pursuing the
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Dutch Corporate Governance Code Statement by the Executive Board
As required by section 5:25c paragraph 2(c) of the Dutch Financial Supervision Act, each of the signatories hereby confirms that to the best of his knowledge:  the ING Groep N.V. 2018 Annual Accounts give a true and fair view of the assets, liabilities, financial position and profit or loss of ING Groep N.V. and the enterprises included in the consolidation taken as a whole; and the ING Groep N.V. 2018 Annual Report gives a true and fair view of the position at the balance sheet date, the development and performance of the business during the financial year 2018 of ING Groep N.V. and the enterprises included in the consolidation taken as a whole, together with a description of the principal risks ING Groep N.V. is being confronted with.
Our remuneration policy applies to all employees, including Executive Board members. Last year, the Supervisory Board prepared a proposal to amend the Executive Board remuneration policy to bring the remuneration for the CEO position closer to peers within the Euro Stoxx benchmark.
The proposal consisted of fixed shares with an equal value to 50% of gross cash based salary.
The shares had a five year retention period, and included a minimum shareholding requirement equal to one year’s gross base salary plus fixed shares.
There are three formal moments: Priority Setting, Mid-Year Review and Year-End Evaluation. These are supported by an informal continuous conversation practice. Step Up Performance Management aims to increase focus, alignment and transparency.
Step Up Performance Management does not prescribe the priorities employees should set. However, there are some regulatory requirements: • Maximum 50% financial priorities (only for staff eligible for variable remuneration). Objectives should take into account the interest of the customer.
• Risk mitigation measures may lead to a downwards adjustment of the performance outcome and affect compensation in a negative manner.
Fixed remuneration represents a sufficiently high proportion of the total direct compensation, which is in line with the level of expertise and skills required.
The awarding of variable remuneration, where applicable, is primarily focused on long-term value creation and based on individual, business line and bank-wide performance criteria.
The variable remuneration pool (which includes both individual and collective variable remuneration), encompasses all staff eligible for variable remuneration worldwide, including Identified Staff.
ING uses a four-step approach to determine whether to award any variable remuneration in a given performance year and the maximum amount of the pool: 1. The ING CET1 ratio must be at or above the threshold established by applicable regulations; 2. ING’s return on equity (ROE) is equal to or higher than a percentage to be annually determined at the beginning of the performance year by the Management Board and the Supervisory Board; 3. If both CET1 and ROE qualifiers are met, a maximum variable remuneration pool for ING will be unlocked, as accrued in line with the VRAM; and
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Remuneration report 4. If only the CET1 qualifier is met, in principle, no bank wide variable remuneration pool will be put in place. A variable remuneration pool for staff in control functions and support functions and for those employees subject to a collective variable remuneration plan will then be accrued in an amount defined by the Management Board and approved by the Supervisory Board.
The total amount of variable remuneration awarded to all employees (worldwide) eligible for variable remuneration over 2018 was EUR 303 million, compared to total employee costs of 5,420 million.
compared to last year’s amount (EUR 403 million). For senior management the year on year variable remuneration has been reduced on average by over 60%. The variable remuneration for other staff eligible for variable remuneration will also be affected, however, to a lesser extent as appropriate.
In 2017, approval was given at the Annual General Meeting of Shareholders (AGM) to continue applying an increased maximum percentage of up to 200% for employees outside the EEA for a period of five performance years, from 2017 to 2021. ING uses this facility very rarely. In 2018 this was applied to nil employees worldwide.
The current remuneration policy for the Executive Board was adopted at the AGM on 27 April 2010.
In line with requirements laid down in the Dutch Banking Code, the Executive Board's total direct compensation is compared to Euro Stoxx 50 companies. This is because the Euro Stoxx 50 benchmark includes similar organisations in terms of size and international scope. Bearing in mind all stakeholder interests, the current Executive Board remuneration policy aims to award total direct compensation slightly below the median of the Euro Stoxx 50.
As of 1 January 2015, all members of the Executive Board participate in the Collective Defined
Executive Board members are eligible for additional benefits (e.g. the cost associated with the use of company cars, contributions to company savings plans and, if applicable, expatriate allowances). This may also include banking and insurance benefits from ING on the same terms that apply to other employees of ING in the Netherlands. In addition, tax and financial planning services are provided to ensure compliance with the relevant legislative requirements.
The Remuneration Committee’s responsibilities include the preparation of decisions to be taken by the Supervisory Board regarding remuneration of individual members of the
In this section, the remuneration details of the current and former Executive Board members relating to the period that they were members of the Executive Board have been included.
Board recommended to amend the Executive Board remuneration policy. In light of the reactions of various Dutch stakeholders, the Supervisory Board reconsidered the proposal and decided not to put it up for a vote at the Annual General Meeting.
Timmermans stepped down from his position as CFO and member of the Executive Board of ING Group on 7 February 2019 after more than 20 years of dedication to ING. Koos Timmermans joined ING in 1996 and was a member of the executive team since 2007. His efforts to align the bank’s balance sheet with new and upcoming regulation have strongly contributed to the robust financial foundation
ING has today. In order to facilitate an orderly transition, and during the contractual notice period of six months, Koos Timmermans will continue to advise the company until 31 August 2019. In line with applicable regulations a severance payment was granted. While, as part of his contract he was entitled to a maximum severance payment of one year’s fixed annual pay, the Supervisory Board at its discretion has set the severance pay at a level of 50% of fixed annual pay (EUR 601,800).
Know Your Customer (KYC) Enhancement Programme, a multi-year improvement programme with integral steering. This specific programme was officially launched early in 2017 and is expected to run until end-2020. ING is committed to periodically providing the
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Remuneration report our Challenger countries. This new environment will ultimately offer 7 million customers a uniform experience across all channels at better cost efficiency.
 WB TOM: customers are now offered the same standardised contract for account opening for the vast majority of all account opening requests globally.
• Ranked number one in Net Promotor Scores relative to competitors in 7 of 13 retail markets.
Innovation • New initiatives developed and aligned with partners to improve the customer experience, including:  Acquiring a 75% stake in Payvision, a fast-growing, leading international omnichannel payments service provider.
 A partnership with AXA to create a fully digital insurance platform that will offer clear and easy, customisable protection to retail customers in Australia, Austria, France, Germany, Italy and Czech
 Investment in the international payments platform TranferMate, with the ambition to integrate TransferMate payments into ING
 Together with HSBC conducted the first live, commercial trade finance transaction on blockchain for agrifood trading giant Cargill using the R3 Corda platform.
• Realised underlying return on equity (IFRS-EU) for ING Group of 11.2%, up from 10.2% in 2017.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Remuneration report 2018 Executive Board variable remuneration
Prior to ING reaching a settlement with the Dutch Public Prosecution Service, the Supervisory Board initiated an internal investigation (post-award risk assessment) with the help of external legal counsel.
Members of the Executive Board participate in the Collective Defined Contribution (CDC) pension plan as part of the Executive Board remuneration policy. In 2018 pension accrual only applies to salary up to an amount of EUR 105,075. The table below shows the pension costs of the individual members of the Executive Board in 2018, 2017 and 2016.
The table below contains information on the outstanding employee stock options and the movements during the financial year of employee stock options held by the members of the Executive Board as of 31 December 2018, which were all awarded to these board members in roles within ING prior to their appointment to the Executive Board.
Deferred shares are shares conditionally granted subject to a tiered vesting over a period of five years (for awards in 2018 and before), with the ultimate value of each deferred share based on ING’s share price on the vesting date.
3 Number of shares granted includes both deferred and upfront part awarded at the granting date.
Executive Board members are encouraged to hold ING shares as a long-term investment to maintain alignment with ING. The table below shows an overview of the shares held by members of the
2 Margarete Haase was appointed to the Supervisory Board by the 8 May 2017 AGM. She joined the meetings of the Supervisory Board as an observer since 9 May 2017. In light of the planned reduction of the number of her directorships, her appointment has became effective as per 1 May 2018 as decided by the Supervisory Board in January 2018.
² Margarete Haase was appointed to the Supervisory Board by the 8 May 2017 AGM. She joined the meetings of the Supervisory Board as an observer since 9 May 2017. In light of the planned reduction of the number of her directorships, her appointment became effective as per 1 May 2018 as decided by the Supervisory Board in January 2018.
– Designated as at fair value through profit or loss 2,887 4,242 – Designated as at fair value through profit or loss 59,179 11,215
– Mandatorily at fair value through profit or loss 64,783 n/a Current tax liabilities 822 750
Financial assets at fair value through other comprehensive income 5 31,223 n/a Provisions 16 1,011 1,713
References relate to the accompanying notes. These are an integral part of the Consolidated annual accounts.
Items that will not be reclassified to the statement of profit or loss: Realised and unrealised revaluations property in own use 1 26 5
Change in fair value of own credit risk of financial liabilities at FVPL 199 n/a n/a
Realised gains/losses on AFS investments reclassified to the statement of profit or loss n/a –92 –146
Share of other comprehensive income of associates and joint ventures and other income 14 –5 –14
2 Includes an amount for the initial recognition of the redemption liability related to the acquisition of Payvision Holding B.V. and Makelaarsland B.V. that reduces the Retained earnings of the Group. Future remeasurements of the redemption liability are recognised in the statement of profit or loss.
Share of other comprehensive income of associates and joint ventures and other income 138 –143 –5 –5
Share of other comprehensive income of associates and joint ventures and other income 251 –265 –14 –14
Cash flows from operating activities 32 Disposals and redemptions: Result before tax2 6,838 7,268 6,342 – Associates and joint ventures 116 245 1,071
Net cash flow from/(used in) operating activities 6,915 –5,253 8,553 Proceeds from debt securities 152,543 95,458 106,174
– Acquisition of subsidiaries, net of cash acquired –111 Repayments of subordinated loans –4,646 –2,343 –1,042
Cash and cash equivalents at end of year 47,529 18,977 16,164 1 The amounts for the period ended 31 December 2018 have been prepared in accordance with IFRS 9, the adoption of IFRS 9 led to new presentation requirements; prior period amounts have not been restated.
2 Includes dividends received as recognized within Investment Income, from equity securities included in the Financial assets at fair value through profit or loss, and from Investments in associates and joint ventures. Dividend paid and received from trading positions have been included.
Amsterdam, number 33231073. These Consolidated annual accounts, as at and for the year ended 31 December 2018, comprise ING Groep N.V. (the Parent company) and its subsidiaries, together referred to as ING Group. ING Group is a global financial institution with a strong European base, offering a wide range of retail and wholesale banking services to customers in over 40 countries.
Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and the relevant articles of Part 9 of Book 2 of the Dutch Civil Code.
Under the EU carve-out, ING Group applies fair value hedge accounting to portfolio hedges of interest rate risk (macro hedging). For further information, reference is made to Note 1 ‘Accounting policies’, d) Principles of valuation and determination of results and Note 40 ‘Derivatives and hedge accounting’.
Impact of adoption’ and the new IFRS 9 accounting policies are disclosed in note 1.3.1.2 ‘IFRS 9
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 Amendments to IAS 19 ‘Employee Benefits’: Plan Amendment, Curtailment or Settlement (issued on 7 February 2018).
ING Group early adopted the amendment to IFRS 9, otherwise effective 1 January 2019, which allows financial assets with prepayment features that permit or require a party to a contract either to pay or receive reasonable compensation for the early termination of the contract, to be measured at amortised cost (AC) or at fair value through other comprehensive income (FVOCI). ING
Total liabilities and equity 846,216 – -1,135 845,081 1 Includes the reclassification of accrued interest from other assets and other liabilities to the corresponding balance sheet item of the host contract.
B. For a specific mortgage portfolio, the measurement changed from AC to FVOCI as it meets the Hold to Collect and Sell (HtC&S) business model requirements. As the fair value of the portfolio is higher than the AC, this had a positive impact on equity; and
instead of Held-for-trading. ING has used the fair value option for the related repurchase financial liabilities.
Total financial assets at amortised cost 653,265 27,256 -1,289 679,232 1 Includes the reclassification of accrued interest from other assets to the corresponding balance sheet item of the host contract
The following table shows the effects of the reclassification and remeasurement of financial assets from IAS 39 categories into FVPL under IFRS 9.
Total financial assets at FVOCI 69,730 -32,332 203 37,601 1 Includes the reclassification of accrued interest from other assets to the corresponding balance sheet item of the host contract
Reconciliation and remeasurement of financial assets to FVPL Reconciliation and remeasurement of financial assets to FVOCI
The following table shows the effects of the reclassification and remeasurement of financial liabilities from IAS 39 categories into AC under IFRS 9.
Total financial liabilities at amortised cost 707,953 -2,228 -77 705,648 1 Includes the reclassification of accrued interest from other liabilities to the corresponding balance sheet item of the host contract
The following table shows the effects of the reclassification and remeasurement of financial liabilities from IAS 39 categories into FVPL under IFRS 9.
Loans and advances to banks 3 Amortised cost 28,811 28,691 Amortised cost Loans and advances to banks
- trading assets FVPL 116,748 65,484 FVPL (mandatorily) trading assets - non-trading derivatives FVPL 2,231 2,808 FVPL (mandatorily) non-trading derivatives - other financial assets at FVPL FVPL 4,242 2,162 FVPL (designated) other financial assets at FVPL
- trading liabilities FVPL 73,596 38,234 FVPL trading liabilities - non-trading derivatives FVPL 2,331 2,657 FVPL non-trading derivatives - other financial liabilities at FVPL FVPL 11,215 48,479 FVPL (designated) other financial liabilities at FVPL
Total liabilities 795,095 795,018 Total liabilities 1 Includes the reclassification of accrued interest from other assets and other liabilities to the corresponding balance sheet item of the host contract.
“expected credit loss” model, whereas IAS 39 recognised a LLP based on an “incurred credit loss”
The following table reconciles:  the closing LLP for financial assets in accordance with IAS 39 and provisions for loan commitments and financial guarantee contracts in accordance with IAS 37 ‘Provisions,
 the opening expected credit loss (ECL) LLP in accordance with IFRS 9 as at 1 January 2018.
Individually assessed provisions 3,902 Stage 3 – Lifetime ECL 128 4,030 1 Includes provisions for the credit risk on contingent liabilities.
Recognition of ECL under IFRS 9 (including lease receivables, loan commitments and financial guarantee contracts) -572
IFRS 9 resulted in changes to IAS 1 for the presentation of Interest income for instruments calculated using the effective interest rate (EIR) method. The revised presentation requires it be shown as a separate line item in the consolidated statement of profit or loss. To enhance the relevance of the interest disclosures, ING Group changed its separate presentation of interest (i.e.
ING Group neither transfers nor retains substantially all the risks and rewards of ownership of a financial asset, it derecognises the financial asset if it no longer has control over the asset. The difference between the carrying amount of a financial asset that has been extinguished and the consideration received is recognised in profit or loss.
Financial liabilities are derecognised from the Consolidated statement of financial position when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished and the consideration paid is recognised in statement of profit or loss.
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 features that modify consideration of the time value of money. These are contracts with for example an interest rate which is reset every month to a one-year rate. ING Group performs either a qualitative or quantitative benchmark test on a financial asset with a modified time value of money element. A qualitative test is performed when it is clear with little or no analysis whether the contractual cash flows solely represent SPPI.
Based on the entity’s business model for managing the financial assets and the contractual terms of the cash flows, there are three measurement categories into which ING Group classifies its debt instruments: Amortised Cost: Debt instruments that are held for collection of contractual cash flows under a HtC business model where those cash flows represent SPPI are measured at AC. Interest income from these financial assets is included in Interest income using the EIR method. Any gain or loss arising on derecognition is recognised directly in profit or loss. Impairment losses are presented as a separate line item in the Consolidated statement of profit or loss.
Impairment losses are presented as a separate line item in the Consolidated statement of profit or loss.
FVPL: Debt instruments that do not meet the criteria for AC or FVOCI are measured at FVPL. This includes debt instruments that are held-for-trading. Fair value movements on trading loans and deposits
ING Group reclassifies debt investments when, and only when, its business model for managing those assets changes.
There is no subsequent recycling of fair value gains and losses to profit or loss following the derecognition of investments if elected to be classified and measured as FVOCI. Dividends from such investments continue to be recognised in profit or loss as Investment income when ING
Financial liabilities are classified and subsequently measured at AC, except for financial guarantee contracts, derivatives and liabilities designated at FVPL. Financial liabilities classified and measured at FVPL are presented as follows:  the amount of change in the fair value that is attributable to changes in own credit risk of the liability is presented in OCI. Upon derecognition this Debt Valuation Adjustment (DVA) impact does not recycle from OCI to profit or loss; and
All financial assets and liabilities are recognised initially at fair value. Subsequently, only financial assets and liabilities classified as held-for-trading or designated at FVPL and financial assets classified as FVOCI are measured at fair value in the annual accounts.
For certain financial assets and liabilities, quoted market prices are not available. For such instruments, fair value is determined using valuation techniques. These range from discounting of cash flows to various valuation models, where relevant pricing factors including the market price of underlying reference instruments, market parameters (volatilities, correlations and credit ratings), and customer behaviour are taken into account. ING maximises the use of market observable
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Accounting policies > 1 inputs and minimises the use of unobservable inputs in determining the fair value. It can be subjective dependent on the significance of the unobservable input to the overall valuation. All valuation techniques used are subject to internal review and approval. Most data used in these valuation techniques are validated on a daily basis when possible.
DVA). Own issued debt and structured notes that are measured at fair value are adjusted for credit risk by means of a DVA. Additionally, derivatives valued at fair value are adjusted for credit risk by a
Critical judgements and key estimation uncertainties: Even if market prices are available, when markets are less liquid there may be a range of prices for the same security from different price sources. Selecting the most appropriate price requires judgement and could result in different estimates of fair value.
Reference is made to Note 39 ‘Fair value of assets and liabilities’ and Market risk in Note 53 ‘Risk management’ for the basis of the determination of the fair value of financial instruments and related sensitivities.
The manner in which ING Group manages credit risk and determines credit risk exposures for that purpose is explained in Note 53 ‘Risk management – Credit risk’ paragraph ‘Credit Risk Appetite and
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The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in the statement of profit or loss. Amounts accumulated in equity are recycled to the statement of profit or loss in the periods in which the hedged item affects net
Financial assets that have not had a significant increase in credit risk since initial recognition (i.e. no
Stage 2 or 3 triggers apply). Assets are classified as stage 1 upon initial recognition (with the exception of purchased or originated credit impaired (POCI) assets) and have a provision for ECL
To build the IFRS 9 models, ING Group’s expected loss models (PD, LGD, EAD) used for regulatory and capital purposes have been adjusted by removing embedded prudential conservatism (such as floors) and converted through-the-cycle estimates to point-in-time estimates to support the calculation of collective-assessment ECL under IFRS 9. The models assess ECL on the basis of forward-looking macroeconomic forecasts and other inputs. For most financial assets, the expected life is limited to the remaining maturity. For overdrafts and certain revolving credit facilities, such as credit cards, the maturity is estimated based on historical data as these do not have a fixed term or repayment schedule.
When a financial asset is credit-impaired, interest ceases to be recognised on the regular accrual basis, which accrues income based on the gross carrying amount of the asset. Rather, interest income is calculated by applying the original EIR to the AC of the asset, which is the gross carrying amount less the related loan loss provision.
Debt forgiveness (or debt settlement) involves write-off but additionally involves the forgiveness of a legal obligation, in whole or in part. This means that ING forfeits the legal right to recover the debt. As a result, the financial asset needs to be derecognised. Distinction is made in situations where ING ends the relationship with the client and situations where ING (partially) continues the financing of the client.
The probability weights applied to each of the three scenarios. This is a management judgement that ultimately requires estimation and consideration of the range of possibilities. This ensures consensus view on the likelihood of each scenario materializing is appropriately reflected in the weights applied by the Group for collective assessment ECL calculations. The sensitivity analysis in
The criteria for identifying a significant increase in credit risk. When determining whether the credit risk on a financial asset has increased significantly, ING Group considers reasonable and supportable information available to compare the risk of default occurring at reporting date with the risk of a default occurring at initial recognition of the financial asset. Whilst judgement is required in applying each financial asset with a PD rating, there is significant judgement used in determining the stage allocation PD banding thresholds. The process of comparing a financial asset’s PD with the PD banding thresholds determines its ECL stage. Assets in Stage 1 are allocated a 12 month ECL, and those in Stage 2 are allocated a lifetime ECL, and the difference is often significant. As such, the assumptions made both in assigning financial asset PDs and in setting PD
The definition of default. Whilst not a source of estimation uncertainty, judgement is exercised in management’s evaluation of whether there is objective evidence of impairment loss has been incurred for larger exposures. Management judgement is required in assessing evidence of creditimpairment.
ING Group has the positive intent and ability to hold to maturity and which are designated by management as held-to-maturity assets are initially recognised at fair value plus transaction costs.
IFRS 15 is effective for annual periods beginning on or after 1 January 2018 and has been endorsed by the EU. IFRS 15 introduces a five-step approach for recognising revenue as and when the agreed
1.4 Significant judgements and critical accounting estimates and assumptions The preparation of the consolidated annual accounts requires management to make judgements in the process of applying its accounting policies and to use estimates and assumptions. The estimates and assumptions affect the reported amounts of the assets and liabilities and the amounts of the contingent liabilities at the balance sheet date, as well as reported income and expenses for the year. The actual outcome may differ from these estimates. The process of setting assumptions is subject to internal control procedures and approvals.
Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the date of the transactions. Exchange rate differences resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of profit or loss, except when deferred in equity as part of qualifying cash flow hedges or qualifying net investment hedges.
The results and financial positions of all group companies that have a functional currency different from the presentation currency are translated into the presentation currency as follows:  Assets and liabilities included in each statement of financial position are translated at the closing rate at the date of that statement of financial position;  Income and expenses included in each statement of profit or loss are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and
Associates are all entities over which the Group has significant influence but not control. Significant influence is the ability to participate in the financial and operating policies of the investee. It generally results from a shareholding of between 20% and 50% of the voting rights or through situations including, but not limited to one or more of the following:  Representation on the board of directors;  Participation in the policymaking process; and
The difference between the proceeds on disposal and net carrying value is recognised in the statement of profit or loss under Other income.
The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement at inception date.
The leases entered into by ING Group are primarily operating leases. The total payments made under operating leases are recognised in the statement of profit or loss on a straight-line basis over the period of the lease.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Accounting policies > 1 unearned lease finance income. Lease income is recognised over the term of the lease using the net investment method (before tax), which reflects a constant periodic rate of return.
ING assesses at each reporting period, whether there is an indication that an intangible asset may be impaired. Irrespective of whether there is an indication of impairment, intangible assets with an indefinite useful life, including goodwill acquired in a business combination, and intangible assets not yet available for use, are tested annually for impairment. Goodwill is allocated to groups of
CGUs (that is, the group of cash generating units or CGUs) for the purpose of impairment testing.
Other intangible assets are capitalised and amortised over their expected economic life, which is generally between three and ten years. Intangible assets with an indefinite life are not amortised.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax basis of assets and liabilities and their carrying amounts in the consolidated annual accounts. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets and liabilities are not discounted.
Critical judgements and key estimation uncertainty: The recognition and measurement of provisions is an inherently uncertain process involving using judgement to determine when a present obligation exists and estimates regarding probability, amounts and timing of cash flows.
Legal cases are usually one of a kind. Judgment is required to estimate the probability of an unfavourable outcome and the amount of potential loss. For the assessment of litigation provisions
Key assumptions for the reorganisation provision are in estimating the amounts and timing of cash flows as the announced transformation initiatives are implemented over a period of several years.
Fee and commission expenses are generally a result from a contract with ING service providers in order to perform the service for our customers. Costs are generally presented as ‘Commission expenses’ if they are specific, incremental, directly attributable and identifiable to generate commission income.
Diluted earnings per share data are computed as if all convertible instruments outstanding at yearend were exercised at the beginning of the period. It is also assumed that ING Group uses the assumed proceeds thus received to buy its own shares against the average market price in the financial year. The net increase in the number of shares resulting from the exercise is added to the average number of shares used to calculate diluted earnings per share.
The difference between the Net cash flow in accordance with the statement of cash flows and the change between the opening and closing balance of Cash and cash equivalents in the statement of financial position is due to exchange rate differences and is presented separately in the cash flow statement.
In 2018, the movement in Cash and balances with central banks reflects ING’s active liquidity management. Amounts held at central banks reflect on demand balances.
As at 31 December 2018, Loans include receivables related to securities in reverse repurchase transactions amounting to EUR 6,686 million (2017: EUR 4,637 million) and receivables related to finance lease contracts amounting to EUR 51 million (2017: EUR 65 million). Reference is made to
Note 44 ‘Transfer of financial assets’ for information on securities lending as well as sale and repurchase transactions. Reference is made to Note 7 ‘Loans and advances to customers’ for information on finance lease receivables.
Trading, but are closely related to servicing the needs of the clients of ING Group. ING offers institutional clients, corporate clients, and governments, products that are traded on the financial markets.
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Held-to-maturity investments2 n/a 9,343 1 Debt securities include an amount of EUR -6 million and the Loans and advances includes EUR -5 million ‘Loan loss provisions’.
2 Under IFRS 9 these Investments are classified as Securities at amortised cost, reference is made to Note 6 ‘Securities at amortised cost‘.
Changes in the composition of the group and other changes –1 1 1 –1 1 Fair value through other comprehensive income debt instruments includes both debt securities and loans and advances.
No individual loan or advance has terms and conditions that significantly affect the amount, timing or certainty of the consolidated cash flows of the Group. For details on significant concentrations, refer to Note 53 ‘Risk management – Credit risk’ paragraph ‘Credit Risk Appetite and Concentration
relates to the increase in the loan loss provisions (EUR 688 million) and the release related to the
For details on credit qualities, refer to Note 53 ‘Risk management – Credit risk’ paragraph ‘Credit quality – Loan loss provisioning.
Expected credit losses for uncollectable finance lease receivables of EUR 150 million as at 31
Medium Enterprise (SME), and Retail customers. TMB is domiciled in Bangkok, Thailand and is listed on the Stock Exchange of Thailand (SET).
Accumulated impairments of EUR 15 million (2017: EUR 33 million) have been recognised. The values presented in the tables above could differ from the values presented in the individual annual accounts of the associates and joint ventures, due to the fact that the individual values have been brought in line with ING Group’s accounting principles. Where the listed fair value is lower than the statement of financial position value, an impairment review and an evaluation of the going concern basis has been performed.
The cost or the purchase price amounted to EUR 1,040 million (2017: EUR 1,044 million). Cost or the purchase price less accumulated depreciation and impairments would have been EUR 500 million
Changes in the composition of the group and other changes –4 –19 1 –3 –2 –22
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2 The fair value less cost of disposal is based on Level 1 and Level 2 inputs.
Changes in the goodwill in 2018 mainly relate to the acquisition of 75% of the shares of Payvision
Holding B.V. and 90% of the shares of Makelaarsland B.V. The acquisition of Payvision and
Several methodologies are applied to arrive at the best estimate of the recoverable amount. In line with IFRS, the recoverable amount is determined as the higher of the fair value less costs of disposal and Value in Use (VIU). Fair value less costs of disposal is based on observable share prices (Level 1 inputs in the fair value hierarchy), observable Price-to-Book multiples of relevant peer banks (Level 2), or based on a discounted free cash flow model (Level 3). The VIU calculation is based on a
Deposits from banks include non-subordinated debt from banks, except for amounts in the form of debt securities.
Savings accounts relate to the balances on savings accounts, savings books, savings deposits, and time deposits of private individuals. The interest payable on savings accounts, which is contractually added to the accounts, is also included.
Reference is made to Note 44 ‘Transfer of financial assets’ for information on securities lending as well as sale and repurchase transactions 15 Financial liabilities at fair value through profit or loss
At 1 January 2018, repurchase financial liabilities that are managed and whose performance is evaluated on a fair value basis, amounting to EUR 37,161 million, were classified as financial liabilities ‘Designated at fair value through profit or loss’, which were previously reported as ‘Trading liabilities’. The related reverse repurchase portfolios, amounting to EUR 54,825 million, are classified as financial assets ‘Mandatorily measured at fair value through profit or loss’.
In 2017 and 2018, changes in the reorganisation provisions were mainly attributable to existing initiatives following the digital transformation programmes of ING Bank.
Disclosures in respect of Net defined benefit liabilities are provided in Note 37 ‘Pension and other post-employment benefits’.
Amounts to be settled are primarily transactions not settled at the balance sheet date. They are short term in nature and are expected to settle shortly after the balance sheet date.
Debt Securities. In November ING redeemed the EUR 1,057 million 3.50% and the USD 2,058 million 4.125% Tier 2 Debt Securities.
Other reserves - Revaluation reserve: Available-for-sale and other n/a 3,447 3,830 - Revaluation reserve: Equity securities at FVOCI 1,914 n/a n/a - Revaluation reserve: Debt instruments at FVOCI 363 n/a n/a - Revaluation reserve: Cash flow hedge 604 263 777 - Revaluation reserve Credit liability 8 n/a n/a - Revaluation reserve: Property in own use 204 203 204 - Net defined benefit asset/liability remeasurement reserve –394 –400 –371 - Currency translation reserve –2,043 –1,663 –770 - Share of associates and joint ventures and other reserves 2,940 2,527 2,235 - Treasury shares –11 –15 –8
Share premium. For further information, reference is made to the section ‘Depository receipts for ordinary shares’, below.
The holder of a depositary receipt was entitled to receive from ING Trust Office payment of dividends and distributions corresponding to the dividends and distributions received by ING Trust
Groep N.V. with a par value of EUR 0.01 are held by ING Groep N.V. or its subsidiaries. The obligations with regard to the existing stock option plan and the share plans will be funded either by cash or by newly issued shares at the discretion of ING Group.
As at 31 December 2018, an amount of EUR 1,638 million (2017: EUR 1,478 million; 2016: EUR 1,325 million) related to the former Stichting Regio Bank and the former Stichting Vakbondsspaarbank
ING Groep N.V. is subject to legal restrictions regarding the amount of dividends it can pay to the holders of its ordinary shares. Pursuant to the Dutch Civil Code, dividends can only be paid up to an amount equal to the excess of the company’s own funds over the sum of the paid-up capital and reserves required by law.
Moreover, ING Groep N.V.’s ability to pay dividends is dependent on the dividend payment ability of its subsidiaries, associates and joint ventures. ING Groep N.V. is legally required to create a nondistributable reserve insofar as profits of its subsidiaries, associates and joint ventures are subject to dividend payment restrictions which apply to those subsidiaries, associates and joint ventures themselves. Such restrictions may among others be of a similar nature as the restrictions which apply to ING Groep N.V., including minimum capital requirements that are imposed by industry regulators in the countries in which the subsidiaries, associates and joint ventures operate, or other limitations which may exist in certain countries.
Group’s subsidiaries, associates and joint ventures. These considerations and limitations include, but are not restricted to, rating agency and regulatory views, which can change over time; it is not possible to disclose a reliable quantification of these limitations. For an overview of the minimal capital requirements of ING Group refer to the ‘Capital Management’ section.
ING Groep N.V. is subject to legal restrictions regarding the amount of dividends it can pay to the holders of its cumulative preference shares, when issued. Pursuant to the Dutch Civil Code, dividends can only be paid up to an amount equal to the excess of the company’s own funds over the sum of the paid-up capital, and reserves required by law.
Interest income on loans 19,387 18,406 18,476 Interest expense on deposits from banks 362 301 283
Interest income on financial assets at amortised cost 378 n/a n/a Interest expense on debt securities in issue 2,254 2,054 2,290
Interest income on non-trading derivatives (hedge accounting) 4,497 n/a n/a Interest expense on subordinated loans 711 784 816
Interest income on non-trading derivatives (hedge accounting) n/a 5,690 6,213 Interest expense other 33 331 363
The new interest presentation was applied prospectively together with the other presentation requirements of IFRS 9.
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Refer to Note 23 ‘Valuation and result and net trading income’ for the interest income and expense from trading assets and liabilities recognised in 2018.
In 2018, Valuation results on assets and liabilities designated at fair value through profit or loss
(excluding trading) include fair value adjustments on own issued notes amounting to EUR 302 million (2017: EUR -107 million; 2016: EUR -70 million). DVA adjustment on own issued notes is no longer included in Valuation results (2017: EUR -79 million; 2016: EUR -50 million). In 2018, in accordance with IFRS 9, the DVA adjustment on own issued notes is recognised in OCI.
In 2018 and 2017, Dividend income mainly consists of dividend received from ING’s equity stake in
Beijing and dividend received as a result of the merger between Equens SE and Worldline (EUR 16 million).
In 2018 the Result on disposal of group companies includes the result (fair value less cost to sell) on the intended sale of part of the ING Lease Italy business amounting to EUR -123 million.
69 million) relating to equity-settled share-based payment arrangements and EUR 3 million (2017: EUR 5 million; 2016: EUR 6 million) relating to cash-settled share-based payment arrangements.
ING shares that would ultimately be vested at the end of a performance period is dependent on
The share awards granted in 2018 relate to the performance year 2017. In 2018, 31,743 share awards (2017: 54,768; 2016: 61,532) were granted to the members of the Executive Board of ING
Board Banking. To senior management and other employees 3,989,214 share awards (2017: Every year, the ING Group Executive Board decides whether the option and share schemes are to be continued and, if so, to what extent. In 2010, the Group Executive Board decided not to continue the option scheme as from 2011. The existing option schemes, up and until 2010, will be run off in the coming years.
As per 31 December 2018, total options outstanding consists of 3,754,976 options (2017: 10,156,219; 2016: 16,861,694) relating to equity-settled share-based payment arrangements and 1,368,877 options (2017: 4,985,761; 2016: 8,713,218) relating to cash-settled share-based payment arrangements.
Range of exercise price in euros 2018 2017 2016 2018 2017 2016 2018 2017 2016
All options outstanding are exercisable. As at 31 December 2018, the aggregate intrinsic value of options outstanding and exercisable is EUR 19 million (2017: EUR 59 million; 2016: EUR 64 million).
Cash received from stock option exercises for the year ended 31 December 2018 is EUR 4 million
Total audit and non-audit services include the following fees for services provided by the Group’s auditor.
Fees as disclosed in the table above relate to the network of the Group’s auditors and are the amounts related to the respective years, i.e. on an accrual basis. The increase in audit fees 2018 primarily relates to audit activities for the implementation of IFRS 9 and IFRS 16.
Resolution Fund (SRF) and local bank taxes. As of 1 January 2016, the new ex-ante DGS in the
For Addition/(unused amounts reversed) on provision for reorganisations and relocations, reference is made to the disclosure on the reorganisation provision in Note 16 ‘Provisions’.
Authorities of EUR 775 million. On 4 September 2018, ING announced that it had entered into a
In 2016, ING Group sold its remaining 25.75%-share in NN Group in two transactions resulting in a net profit of EUR 448 million which is recognised in the statement of profit or loss in the line Net result from disposal of discontinued operations. Also included in this line, are deferred losses related to former insurance activities.
In respect of 2017 - Interim dividend, paid in cash in August 2017 0.24 933 - Final dividend, paid in cash in May 2018 0.43 1,670
In respect of 2018 - Interim dividend, paid in cash in August 2018 0.24 934
Changes in: – Loans and advances to banks, not available on demand –777 –3,126 –1,162
Total Liabilities from financing activities 112,054 981 154,402 –135,816 – 98 – –126 1,883 133,475
Total as included in the statement of financial position: – Deposits from banks –37,330 –36,821 –31,964
Specification of the main sources of income of each of the segments by line of business
ING Group evaluates the results of its banking segments using a financial performance measure called underlying result. Underlying result is used to monitor the performance of ING Group at a consolidated level and by segment. The Executive Board and Management Board Banking consider this measure to be relevant to an understanding of the Group’s financial performance, because it allows investors to understand the primary method used by management to evaluate the Group’s operating performance and make decisions about allocating resources. In addition, ING Group believes that the presentation of underlying net result helps investors compare its segment performance on a meaningful basis by highlighting result before tax attributable to ongoing operations and the underlying profitability of the segment businesses. Underlying result is derived by excluding from IFRS the following: special items; the impact of divestments and Legacy
ING Group reconciles the total segment results to the total result of Banking using Corporate Line
The information presented in this note is in line with the information presented to the Executive
Net fee and commission income 2,803 –0 2,803 2,803 2,714 2,714 2,714 2,434 2,433 2,433
Total investment and other income 1,350 19 1,369 1,369 1,259 17 1,277 1,277 1,763 21 1,785 1,785
Germany ING DiBa A.G. Wholesale / Retail 4,625 4,587 4,341 2,421 2,312 2,212 144,911 138,153 134,902 1,309 1,240 1,282 431 396 407
UK Branch of ING Bank N.V. Wholesale 672 603 599 505 550 504 64,016 78,573 29,830 180 324 290 44 76 154
France1 Branch of ING Bank N.V. Wholesale / Retail 620 591 613 323 310 280 12,063 10,678 8,614 111 93 56 45 32 18
Czech Republic Branch of ING Bank N.V. Wholesale / Retail 306 245 220 104 66 74 6,272 5,641 3,653 37 16 37 9 3 7
Slovakia Branch of ING Bank N.V. Wholesale 571 497 400 14 14 14 487 677 715 –0 2 3 1 1 1
Austria Branch of ING DiBa A.G. Wholesale / Retail 235 225 196 85 80 86 753 682 360 18 25 37 6 –1 –4
Bulgaria Branch of ING Bank N.V. Wholesale 69 70 76 9 9 9 360 268 274 –0 –2
Switzerland Branch of ING België N.V. Wholesale 244 204 192 257 224 187 8,266 9,737 9,150 169 145 122 35 38 33
Average number of employees at full time equivalent basis Total Income Total assets Result before tax Taxation
North America Canada Payvision Canada Services Ltd. Wholesale 1 3 2 2 1 0 0
USA ING Financial Holdings Corp. Wholesale 617 564 519 736 724 732 61,440 42,873 42,571 343 371 377 61 134 110
Latin America Brazil Branch of ING Bank N.V. Wholesale 88 78 70 35 47 43 1,974 1,184 2,097 16 16 13 9 4
Philippines Branch of ING Bank N.V. Wholesale 878 604 423 17 18 17 395 322 402 0 6 4 3 2 –2
South Korea Branch of ING Bank N.V. Wholesale 80 82 87 55 55 46 4,299 4,602 4,107 14 21 14 3 6 –1
Malaysia Branch of ING Bank N.V. Wholesale 5 5 5 1 139 29 3 0 –1 0
Turkey ING Bank A.S. Wholesale / Retail 4,709 5,221 5,497 678 741 757 11,521 13,798 15,864 245 267 225 50 54 45
Branch of ING Bank N.V. Wholesale 11 10 10 –0 0 1 –1 –2 –2
These are primarily post-employment healthcare benefits and discounts on ING products provided to employees and former employees.
The most recent (actuarial) valuations of the plan assets and the present value of the defined benefit obligation were carried out as at 31 December 2018. The present value of the defined benefit obligation, and the related current service cost and past service cost, were determined using the projected unit credit method.
As at 31 December 2018 the various defined benefit plans did not hold any direct investments in
ING Groep N.V. (2017: nil). During 2018 and 2017 there were no purchases or sales of assets between ING and the pension funds.
Changes in the present value of the defined benefit obligation and other post-employment benefits for the period were as follows: Defined benefit obligation
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Pension and other post-employment benefits > 37
Loans and advances to customers –394 137 35 24 –1 2 –198
Reconciliation of carrying amounts on the date of initial application IFRS 9’).
More than 5 years but less than 10 years 83 31 1
Impact on deferred tax from change in tax rates –8 55 –1
The weighted average statutory tax rate in 2018 is lower compared to 2017. This is mainly due to lower statutory income tax rates in the USA and Belgium.
The effective tax rate in 2017 was significantly higher than the weighted average statutory tax rate. This was caused by the following items:  A relatively high amount of prior period tax adjustments which ING, for the most part is expected to be reimbursed by NN Group (reimbursement is included in the result before tax), recorded under ‘Adjustment to prior periods’;  Impact on deferred tax positions following changes in the income tax rate in the USA and
Unrealised revaluations financial assets at fair value through other comprehensive income and other revaluations 53 103 17
Changes in fair value of own credit risk of financial liabilities at fair value through profit or loss
39 Fair value of assets and liabilities a) Financial assets and liabilities
– Designated as at fair value through profit or loss 59,179 11,215 59,179 11,215 1 Other assets do not include, among others: (deferred) tax assets, net defined benefit asset, inventory, property development and property obtained from foreclosures.
4 In 2018, the fair value of the loans and advances to customers as at 31 December 2017 is adjusted by the amount of the accrued interest (EUR 1,522 million). In 2017 the fair value of the accrued interest was reported, separate from loans and advances to customers, under other assets.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Fair value of assets and liabilities > 39 determining the fair value. The fair value can be subjective dependent on the significance of the unobservable input to the overall valuation. All valuation techniques used are subject to internal review and approval. Data used in these valuation techniques are validated on a daily basis when possible.
To determine whether the valuations based upon data inputs have led to an appropriate fair value, the process of independent price verification (‘IPV’) or price testing is applied. This is done to ensure the appropriate reflection of these valuations in balance sheet and the profit and loss accounts. IPV
 Bid-Offer adjustments are required to adjust mid-market values to appropriate bid or offer value in order to best represent the exit value, and therefore fair value. It is applicable to financial assets and liabilities that are valued at mid-price initially. In practice this adjustment accounts for the difference in valuation from mid to bid and mid to offer for long and short exposures respectively. In principle assets are valued at the bid prices and liabilities are valued at the offer price. For certain assets or liabilities, where market quoted price is not available, the price within the bid-offer spread that is most representative of fair value is used.
For loans and advances that are repriced frequently and have had no significant changes in credit risk, carrying amounts represent a reasonable estimate of the fair value. The fair value of other loans is estimated by discounting expected future cash flows using a discount rate that reflects credit risk, liquidity, and other current market conditions. The fair value of mortgage loans is estimated by taking into account prepayment behaviour. Loans with similar characteristics are aggregated for calculation purposes.
Level 2 based on the ability to demonstrate independent sourcing of observable inputs for swap pricing requirements.
In 2018 and 2017, financial liabilities were transferred out of Level 3 mainly due to the valuation not being significantly impacted by unobservable inputs.
Of the total amount of financial assets classified as Level 3 as at 31 December 2018 of EUR 5.4 billion (31 December 2017: EUR 2.0 billion), an amount of EUR 3.4 billion (63.2%) (31 December 2017: EUR 1.0 billion, being 49.0%) is based on unadjusted quoted prices in inactive markets. As
The remaining EUR 0.8 billion (31 December 2017: EUR 0.6 billion) of the fair value classified in
Structured notes 284 101 Price based Price (%) 77% 52% 108% 116%
– Credit 67 10 86 48 Present value techniques Credit spread (bps) 8 2 364 424
– Equity 68 161 54 128 Option pricing model Equity volatility (%) 4% 5% 94% 129%
– Equity 317 n/a Present value techniques Credit spread (%) 322 322
In reality some valuation inputs are interrelated and it would be unlikely that all unobservable inputs would ever be simultaneously at the limits of their respective ranges of reasonably possible alternatives. Therefore it can be assumed that the estimates in the table below show a greater fair value uncertainty than the realistic position at year end assuming normal circumstances/normal markets.
2 The 2018 presentation was prospectively changed together with other IFRS9 changes and includes the reclassification of accrued interest from other assets and other liabilities to the corresponding balance sheet item of the host contract.
For portfolio hedges the fair value is projected based on contractual terms and other variables including prepayment expectations. These projected fair value of the portfolios form the basis for identifying the notional amount subject to interest rate risk that is designated under fair value hedge accounting.
Before fair value hedge accounting is applied by ING Group, ING Group determines whether an
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Derivatives and hedge accounting > 40 economic relationship between the hedged item and the hedging instrument exists based on an evaluation of the quantitative characteristics of these items and the hedged risk that is supported by quantitative analysis. ING Group considers whether the critical terms of the hedged item and hedging instrument closely align when assessing the presence of an economic relationship. ING
ING Group uses the following derivative financial instruments in a fair value hedge accounting relationship: Assets Liabilities
For our main currencies the average fixed rate for interest rate swaps used in fair value hedge accounting are 1.14% for EUR and 3.38% for USD. The following table shows the net notional amount of derivatives designated in fair value hedging split into the maturity of the instruments.
Group determines the amount of the exposures to which it applies hedge accounting by assessing the potential impact of changes in interest rates and foreign currency exchange rates on the future cash flows from its floating-rate assets and liabilities. This assessment is performed using analytical techniques.
The main sources of ineffectiveness for cash flow hedges are:  differences in timing of cash flows of the hedged item(s) and hedging instrument(s);  mismatches in reset frequency between hedged item and hedging instrument.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Assets by contractual maturity > 41
Amounts presented in these tables by contractual maturity are the amounts as presented in the statement of financial position and are discounted cash flows. Reference is made to Note 53 ‘Risk
– Designated as at fair value through profit or loss 265 208 784 635 994 2,887
– Designated as at fair value through profit or loss 488 967 1,839 351 597 4,242
2 Includes Other assets, Assets held for sale, and Current and Deferred tax assets as presented in the Consolidated statement of financial position.
Non-financial liabilities are included based on a breakdown of the amounts per the statement of financial position, by expected maturity. Reference is made to the liquidity risk paragraph in Note 53 ‘Risk Management – Funding and liquidity risk’ for a description on how liquidity risk is managed.
Deposits from banks 10,506 1,068 1,940 21,571 2,242 2 37,330 Customer deposits 515,177 17,354 16,086 4,695 2,500 555,812 Financial liabilities at fair value through profit or loss – Other trading liabilities 4,075 1,318 1,465 888 1,655 286 9,687 – Trading derivatives 1,711 1,873 3,680 6,855 6,035 1,374 21,528 – Non-trading derivatives 458 312 252 988 866 –577 2,299 – Designated at fair value through profit or loss 34,914 11,753 4,115 3,519 4,921 –43 59,179 Debt securities in issue 4,066 20,961 30,282 41,068 21,413 1,961 119,751 Subordinated loans 1,713 6,497 5,339 176 13,724
Deposits from banks 10,002 648 1,687 21,893 2,591 36,821 Customer deposits 494,701 17,190 19,647 5,761 2,500 539,799 Financial liabilities at fair value through profit or loss – Other trading liabilities 29,755 11,530 1,866 1,506 2,390 636 47,683 – Trading derivatives 2,476 2,420 4,520 8,224 5,947 2,326 25,913
Financial assets at fair value through profit or loss 2,962 3,995 1,170 2,396 2,120 4,334 6,864
Loans and advances to banks Reverse repurchase, securities borrowing and similar agreements
Loans and advances to customers Reverse repurchase, securities borrowing and similar agreements
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Offsetting financial assets and liabilities > 45
Commission (SEC). As ING announced on 5 September 2018, ING has received a formal notification from the SEC that it has concluded its investigation. In the letter dated 4 September 2018 the
Committee of independent experts (the “Committee”) which has established a uniform recovery framework for Dutch SME clients with interest rate derivatives. ING has adopted this recovery
EUR 31.48 million (together with any interest payable under applicable law) to the bankruptcy trustee of the cash company. In July 2017, ING Luxembourg filed an appeal against this judgment.
A settlement with all the civil parties involved was reached in mid-2018. However, this settlement does not apply to the criminal conviction of ING Luxembourg, for which ING’s appeal remains pending. In a separate proceeding the Belgian authorities were also investigating ING Luxembourg for allegedly assisting third parties in 2001 to commit tax fraud in the context of the purchase of the shares of a different cash company. In December 2018, the Court has agreed upon a global
In most court proceedings in first instance the expense clause of the relevant mortgage contract has been declared null and ING Spain has been ordered to reimburse all or part of the applicable expenses. The courts in first instance have applied in their rulings different criteria regarding the reimbursement of expenses. ING Spain has filed an appeal against a number of these court decisions. ING Spain has also been included, together with other Spanish banks, in a class action filed by a customer association. The outcome of the pending litigation and similar cases that may be brought in the future is uncertain. A provision has been taken. However, the aggregate financial impact of the current and future litigation could change. In February 2018, the Spanish Supreme
(“Imtech”). Furthermore, on 28 March 2018, ING Bank received another claim on the same subject matter from the VEB. Each of the claimants allege inter alia that shareholders were misled by the prospectus of the rights issues of Imtech in July 2013 and October 2014. ING Bank, being one of the underwriters of the rights issues, is held liable by the claimants for the damages that investors in
ING is defending itself against the allegations. Currently, it is not possible to provide an estimate of the (potential) financial effect of this claim.
The transaction will enable ING to strengthen its footprint in omnichannel payments services and expand its merchant services for its business customers, in particular in the fast-growing ecommerce segment. Total consideration paid of the 75% of shares was, including deferred and contingent consideration, EUR 260 million.
Contingent consideration is payable by ING to the original shareholders of Payvision in the amount ranging from EUR 0 up to EUR 25 million in 3 tranches upon achievement of 3 milestones. The milestones should be achieved within (1) 6 months after completion of the acquisition, (2) 6 months after achieving milestone 1 and (3) 3 months after achieving milestone 2 (with some additional grace periods of 4 months per milestone permitted). The amounts are payable in tranches of EUR 7 million, EUR 7 million and EUR 11 million respectively. The probability of achievement of the set milestones and the time value of money were taken into consideration in the measurement of the contingent consideration at fair value of EUR 22 million on the date of acquisition. Since the date of acquisition there were no changes in the assumptions used to develop the estimate of the fair value of the contingent consideration.
The assets and liabilities recognised as a result of the acquisition are as follows; Consideration transferred
The acquired businesses contributed ‘revenues’ of EUR 40 million and net profit of EUR 6 million to the group for the period from 1 April 2018 to 31 December 2018.
In 2017 and 2016 there were no significant divestments of consolidated companies.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Structured entities > 50 3 Consolidated ING sponsored Securitisation programme (Mont Blanc); 4 Unconsolidated Securitisation programme; and 5 Other structured entities.
In addition ING Group originated various securitisations for liquidity management optimisation purposes. As at 31 December 2018, these consisted of approximately EUR 4 billion of senior secured portfolio loans, which have been issued to ING subsidiaries in Germany and Luxemburg. The underlying exposures are senior loans to large corporations and financial institutions, and real estate finance loans, mainly in the Netherlands. These securitisations did not impact ING Group’s consolidated statement of financial position and profit or loss.
In the normal course of business, ING Group structures financing transactions for its clients by assisting them in obtaining sources of liquidity by selling the clients’ receivables or other financial assets (also referred to as factoring) to an ING sponsored Special Purpose Vehicle (SPV). The senior positions in these transactions are funded by the ING administered multi seller Asset Backed
Parties are considered to be related if one party has the ability to control or exercise significant influence over the other party in making financial or operating decisions. Related parties of ING
Assets, liabilities, commitments, and income related to Associates and joint ventures result from transactions which are executed as part of the normal Banking business.
In 2018 and 2017, three members of the Executive Board of ING Groep N.V. were also members of the Management Board Banking. The members of the Management Board Banking are considered to be key management personnel and their compensation is therefore included in the tables below.
– Other 1 Excluding members that are also members of the Executive Board of ING Groep N.V.
4 No variable remuneration for 2018, as the members of the Executive Board and Management Board Banking volunteered to forfeit their entitlement to variable remuneration immediately, following the settlement agreement with the Dutch Public
Other 1 In 2017 two members left and two members joined the Executive Board. The table includes their compensation earned in the capacity as Board members.
As a global financial institution with a strong European base, offering banking services, ING is exposed to a variety of risks. ING operates through a comprehensive risk management framework and integrates risk management in its daily business activities and strategic planning. This promotes the identification, measurement and control of risks at all levels of the organisation so that ING Group’s financial strength can be safeguarded. Taking measured risks is the core of ING’s business.
‘three lines of defence’. The key risks resulting from the bank’s business model are managed by dedicated risk management departments, with various specific areas of expertise. The risk management section provide qualitative and quantitative disclosures about credit, market, liquidity and funding, business, operational and compliance risks.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Risk Management > 53 throughout ING. The MBB is composed of the Executive Board of ING Group and the heads of the business lines.
The heads of ING’s business lines and their delegates form the first line of defence and have primary accountability for the performance, operations, compliance, and effective control of risks affecting their respective businesses. They originate loans, deposits, onboard clients, monitor transactions and other products within applicable frameworks and limits, they need to know ING’s customers and are best-positioned to act in both the customers’ and ING’s best interest. The COO is responsible for proper security and controls on global applications and IT-platforms servicing the
 The SB is responsible for supervising the policy of the EB and the MBB, the general course of affairs of ING Group, ING Bank and its business (including its financial policies and corporate structure). For risk management purposes the SB is advised by two of its sub-committees:  The Audit Committee, which assists the SB in monitoring the integrity of the financial statements of ING Group and ING Bank, in monitoring the compliance with legal and regulatory requirements, and in monitoring the independence and performance of ING's internal and external auditors; and
 The EB is responsible for managing risks associated with all activities of ING Group, whereas the
Committee (CTRC) is the highest level body, with the exception of the GCTP and the Management
Over the past years, banks have been faced with regulatory and public pressure with regard to their risk management policies, processes, and systems. New requirements and regulations have been introduced and implemented. To be able to effectively address these internal and external (market and regulatory) developments and challenges, ING regularly reviews the set-up of its riskmanagement organisation to better support the Bank’s Think Forward strategy and enhance the interconnectedness of the risk oversight responsibilities in the business units with the global risk functions.
Domain owners are responsible for a specific risk domain and aim that their internal policies and standards do not overlap with other documents. The ICF aims for single testing for multiple purposes meaning that the same control should not have to be tested more than once for different functions. This means that the test results of one control can be used for more than one sign-off.
Risk models are built according to ING’s internal risk modelling methodology standards and model life cycle. After the review and documentation of each model by the Model Development (MD) and
The reputation and integrity of ING’s organisation are core elements to operate successfully in the financial world. ING’s risk culture promotes awareness of collectively shared values, ideas and goals, but also of potential threats and aligns the individual performance objectives with the short- and long-term strategy. ING therefore aims to make risk responsibilities transparent within the different levels of the organisation and hold every employee accountable for his/her actions.
ING is doing business with. Part of the training curriculum to increase risk awareness is the
The recurrence is twofold. Firstly, the identification, assessment, review, and update of mitigating measures are done periodically. Secondly, the periodic monitoring exercise may indicate emerging risks, known risks that are changing, risk levels that are changing, or that current control measures are not effective enough. Further analyses of these findings may result in renewed and more frequent risk identification, and/or assessment, and/or change of mitigating measures.
Risk identification is a joint effort of the commercial business and the risk management functions.
Risks can be controlled by mitigating measures that either lower the likelihood the risk occurs or that lower the impact when they occur. The ultimate measure to lower risk is to stop the activity or service that causes the risk (risk avoidance). Risk controlling and mitigating measures are defined and maintained at both the bank wide and local level.
Planning (DP) process. In this planning process, overseen by the EB/MBB, detailed budgetary targets and objectives are set on a rolling three year basis.
The RAF is focused on setting the risk appetite at the consolidated level and across the different risk categories, and provides the principles for cascading this risk appetite down into the organisation.
Boundary and the underlying metrics supporting the boundaries which need EB and MBB approval are called instruments.
The bank wide risk appetite is translated per risk type, which is further cascaded down into the organisation to the lowest level. Risk appetite statements are then translated into dedicated underlying risk limits which are used for the day-to-day monitoring and management of ING’s risks.
The stress testing process of ING consists of several stages, which are:  Risk identification & risk assessment: It identifies & assesses the risks ING or the relevant entity is facing when executing its strategy based on the current and possible future economic, political, regulatory and technological environment. It provides a description of the main risks related to the nature of ING’s business, activities and vulnerabilities.
 Scenario definition & parameterisation: Based on the outcome of the previous step, a set of scenarios should be determined where the relevant scope and set of risk drivers is determined for each scenario, as well as the severity, the key assumptions and input parameters. The output of this phase includes a quantitative description of the stress scenarios to be analysed, the relevant output metrics and, when applicable, a narrative description.
 Impact calculation and aggregation: Based on the quantitative description of the stress scenarios determined in the previous step, the impact is determined for the relevant scenario, scope and horizon. The impact calculation and aggregation can be part of a recurring process or are part of a specific process set-up for one-off stress tests.
After the turmoil in the financial markets and the subsequent need for governments to provide aid to financial institutions, financial institutions have been under more scrutiny from the public, supervisors and regulators. This has resulted in more stringent regulations intended to avoid future crises in the financial system and taxpayer’s aid in the future.
Next to this, in December 2017, the Basel III revisions were formally announced by the Basel
States, driven by fiscal stimulus, while it slowed in UK in light of continued uncertainty about the
would leave the EU. ING continued to take steps throughout 2018 to prepare for various options, such as applying for a banking licence in the UK, taking actions for contract continuity and working to establish alternatives in the EU for those euro clearing activities that are expected to move from
Furthermore, pessimism about macro-economic developments such as economic and geo-political situation in Turkey and a looming trade war between the US and China unsettled financial markets and dampened consumer confidence in 2018. The trade-restrictive measures negatively affected the economic growth in some key emerging markets (a.o. China). Further uncertainty about the forthcoming budget in Italy led to a considerable increase in sovereign spreads and potential economic recession. In this perspective, ING continued to carefully monitor international developments.
Ransomware have intensified worldwide. ING builds on its cybercrime resilience through its dedicated Cyber Crime Expertise and Response Team, further enhancing the control environment to protect, detect and respond to e-banking fraud, DDoS and targeted attacks. Additional controls continue to be embedded in the organisation as part of the overall internal control framework and are continuously reassessed against existing and new threats.
ING also works on strengthening its global cybercrime resilience including strong collaboration against cybercrime with the financial industry, law enforcement authorities, government (e.g.
will not only stop providing lending services to new coal-fired power plants and coal mines but also accelerate the reduction of financing to thermal-coal power generation to close to zero by 2025.
Belgium. The Financial Risk department is a Tier 2 level risk function, which has oversight at a consolidated level and is responsible for risk appetite setting, risk frameworks, model development and policies.
Transactions are approved via a dual signatory approval system that requires an individual sign-off from both front office and credit risk management. For larger and higher risk credits a committee structure exists whereby the credit risk chair takes the final decision with advice from the respective committee members, thereby ensuring accountability. Retail business units have delegated authority to decide within policies and mandates approved by credit risk. Any decisions outside those policies or above the delegated mandate require a specific credit risk approval.
 Providing consistent credit risk policies, systems and tools to manage the credit lifecycle of all activities.
The following committees are in place to review and approve transactions and policies from a credit risk point of view:  The GCTP is authorised to approve policies, methodologies and procedures related to credit, trading, country and reputation risks on a high level for ING.
 The CTRC is authorised to approve policies, models, methodologies and procedures related to credit risk on a more detailed and operational level (with the exception of issues which are mandated to the GCTP).
 The Model Risk Management Committee (MoRMC) has been established to align overall model strategy, model risk appetite, supporting model frameworks, policies and methodologies.
ING has to replace the contract by a trade with another counterparty at the then prevailing
Note 5 Financial assets at fair value through other comprehensive income -Off-balance sheet items e.g. obligations under financial guarantees and letters of credit and undrawn credit facilities Note 46 Contingent liabilities and commitments
The credit risk appetite and concentration risk framework is designed to prevent undesired high levels of credit risk and credit concentrations within various levels of the ING portfolio. It is derived from the concepts of boundaries and instruments as described in the Risk Appetite Framework.
Credit risk appetite and concentration risk boundaries and instruments are set and reviewed on an annual basis and require approval from the MBB, EB or SB.
Credit risk appetite is the maximum level of credit risk ING is willing to accept for growth and value creation. The credit risk appetite is linked to the overall bank-wide risk appetite framework. The credit risk appetite is expressed in quantitative and qualitative measures. Having a credit risk appetite achieves:  Clarity about the credit risks that ING is prepared to assume, target setting and prudent risk management;  Consistent communication to different stakeholders;  Guidelines on how to align reporting and monitoring tools with the organisational structure and strategy; and
 Alignment of business strategies and key performance indicators of business units to ING’s credit risk appetite by means of the Dynamic Planning.
 Product and secondary risk concentration: In addition, ING has established a concentration framework to identify, measure and monitor product concentration and secondary risk
NGOs). The updated ESR policy framework is scheduled to be implemented in early Q2 2019, similar to the publication on ing.com.
As the risk assessment activities are performed globally, each team involved must be familiar with
ING’s environmental and social framework. Hence, ING makes a significant investment in internal training programs to help CDUs, front office and risk management staff in assessing environmental and social risks.
advices the Credit & Trading Risk Committee (CTRC) on the final approval of the models. The model
A five-grade colour footprint is assigned to each model during this time. If a model is considered insufficiently robust or if the back-testing indicates insufficient performance, then the model is recalibrated or re-developed.
ING’s PD rating models are based on a 1-22 scale (1=highest rating; 22=lowest rating) referred to as the ‘Master scale’, which roughly corresponds to the same rating grades that are assigned by external rating agencies, such as Standard & Poor’s, Moody’s and Fitch. For example, an ING rating of 1 corresponds to an S&P/Fitch rating of AAA and a Moody’s rating of Aaa; an ING rating of 2 corresponds to an S&P/Fitch rating of AA+ and a Moody’s rating of Aa1, and so on.
The three first categories (1-19) are risk ratings for performing loans. The ratings are calculated in IT
ING’s credit risk policies outline the rules, roles and responsibilities, through the credit lifecycle. All credit risk policies are created according to policy development standards and reviewed on a regular basis. Each policy has a credit risk sponsor and is created in close consultation with various stakeholders within credit risk, front office and, where applicable, other corporate departments. All policies require approval by the CTRC and, where applicable, by the GCTP.
The acceptance, maintenance, measurement, management and reporting of credit risks at all levels of ING is executed through promotion of single, common credit risk data standards and the integration into common credit risk tools that support standardised and transparent credit risk practices. ING has chosen to develop credit risk tools centrally. The philosophy is to use a single source of data, in an integrated approach that includes ING policy, the regulatory environment in which we operate, and the daily processes which are active throughout the group. Application to these three areas is the essential requirement to aim for high data quality standards and discipline.
 Capture: aims that atomic data is captured by business units and is available for exchange according to pre-agreed standards and specifications.
modelling, regulatory and statutory reporting. Data usage or distribution is facilitated according to the agreed purpose and data confidentiality, protection, security and retention rules.
The data quality cycle consists of four stages: define, implement, monitor and improve. During the data definitions step, data quality rules are determined. Having set the definitions, local data quality rules are implemented in the source systems, and both successively and simultaneously, data quality rules are implemented in the central credit risk system. The next stage consists of data validations, monitoring and control activities performed early in the data exchange and
ING’s credit exposure is mainly related to traditional lending to individuals and businesses followed by investments in bonds and securitised assets. Loans to individuals are mainly mortgage loans secured by residential property. Loans (including guarantees issued) to businesses are often collateralised, but can be unsecured based on the internal analysis of the borrower’s creditworthiness. Bonds in the investment portfolio are generally unsecured, but predominantly consist of bonds issued by Central Governments or equivalent entities, followed by EU and/ or OECD
American Industry Classification System). This methodology has over 1,500 detailed industry descriptions, which are aggregated into 22 industry classes at the highest level. Certain countries require ING to report locally based on other industry classification methodologies, which are generally derived from the NAICS classifications presented here.
2 Based on the total amount of credit risk in the respective column using ING’s internal credit risk measurement methodologies. Economic sectors (industry) below 2% are not shown separately but grouped in Other.
4 The top 5 countries within Rest of Europe based on outstandings are Poland (EUR 32,244 million), Spain (EUR 30,156 million),
The NPL grade rating class decreased outstandings by 11.1%, mainly driven by Wholesale Banking and Retail Benelux. The NPL decrease in WB was largely visible in the industries Natural Resources,
Germany, caused largely by lowered volumes of bond investments and money market assets with
The outstandings concentration with Central Governments decreased following a reduction in government bond exposures to Germany, France and Austria within Wholesale Banking and Retail
Banks. These were completely offset by the large increase in regulatory reserve deposit with the
Outstandings in Germany increased mainly due to increased regulatory reserve deposits with
The concentration of outstandings in the Rest of Europe increased, mainly in Spain, Poland and
Industry Netherlands Belgium Germany Rest of Europe Australia Asia America Rest of World 2018 2017
Third party obligation, indemnification or undertaking (either by contract and/or by law) is a legally binding declaration by a third party that gives ING the right to claim from that third party an amount, if the customer fails on its obligations to ING. The most common examples are guarantees
(such as parent guarantees and export credit insurances), letters of comfort, or third party pledged
Investment, Money Market and Pre-settlement) and the most relevant cover forms mortgages and financial collateral (cash and securities) and guarantees. ING obtains cover which is eligible for credit risk mitigation under CRR/CRDIV, as well as cover is not eligible. Collateral covering financial market transactions is valued on a daily basis. To mitigate the credit risk arising from Financial
Over the year, the collateralisation level of the total portfolio remained stable. Excluding the presettlement portfolio, 53.1% of ING Bank’s outstandings were fully collateralised in 2018 (2017: 53.6%). Since investments traditionally do not require covers, the percentage for ‘no covers’ in this portfolio is close to 90%. Improved economic conditions in ING’s main markets contributed to improved collateral valuations, observed in consumer lending, but an increase in non-lending outstandings produced a slightly lower coverage ratio for business lending. The increase in lending for ‘Other CRR/CRDIV eligible’ covers was mainly situated in the Netherlands, accounting for 43.1%
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Risk Management > 53 most of the collateral consists of mortgages. The mortgage values are collected in an internal central database and in most cases external data is used to index the market value (e.g. on a quarterly basis the mortgage values for the Netherlands are updated using the NVM house price index).
ING Bank’s residential mortgage outstandings increased mainly in Germany (5.0%), Spain (15.3%)
and Belgium (5.6%). The largest contributor to increased mortgage outstandings among performing loans was residential mortgages to private individuals (3.0%). Mortgage outstandings in the Netherlands decreased slightly (-1.4%) due in part to the run-off and transfer of WU Bank mortgages to NN Bank. Overall NPLs have shown an improvement, falling 10.1% from EUR 3.9 billion to EUR 3.5 billion. A considerable portion of this decline in NPLs is observable in the
The value to loan for no covers in the Netherlands increased substantially year over year from 26.5% to 43.5% in 2018. This coincided with an increase in fully covered outstandings in the
Netherlands. Utilities were the only industry to experience a decrease in total covers (EUR
The largest increases in outstandings were seen in the Netherlands (35.7%) and in the region
Agreements (GMSLA), etc. Lastly, the amount is further reduced by any collateral that is held by
CCPs. In 2018, the notional Pre-Settlement exposure that was cleared via CCPs formed 58.3% of the total notional (56.8% in 2017).
 The ‘Gross MtM before netting and collateral’ is the exposure calculated in accordance with the
Current Exposure Method (CEM, which in the EU regulation is referred to as the Mark-to-Market method) without accounting for any netting or collateral benefit;  The ‘MtM after netting’ is the exposure, according to the CEM, taking into account the benefit of legally enforceable netting agreements (e.g. ISDAs), but without considering the benefit of margin collateral (e.g. CSAs);  The ‘MtM after netting and collateral’ is the exposure according to the CEM, taking into account both the benefit of netting and marginal collateral. In other words, the gap between the ‘MtM
Exposure - PFE) at a 97.5% confidence level for derivatives and securities.
The credit quality of the ING portfolio improved with non-performing outstandings which continued to decrease. The reduction in the non-performing portfolio was due to repayments combined with positive rating migration to the performing portfolio. The decrease was mainly observed in Retail
Consumer lending past due but performing (1–90 days) 4,440 4,352 1 Based on lending and investment activities
Total past due but performing exposure for consumer loans increased by EUR 0.1 billion. The improvement mostly in the 1-30 bucket has been driven by the Netherlands residential mortgages due to macro-economic factors (low unemployment, low inflation and increasing house prices), while in the 31-60 and 61-90 days past due buckets an increase has been witnessed in the Belgium residential mortgages portfolio, largely related to an operational impact of the merger with Record
Bank (a difference in the repayments process). The increase has been partly offset by a decrease in
Europe 1 Based on consumer lending. The amount of past due but performing financial assets in respect of non-lending activities was not significant.
Wholesale Banking: for business loans (governments, institutions, and corporates), ING classifies the relevant obligors as non-performing when any of the following default triggers occur:  The borrower has failed in the payment of principal or interest/fees and such payment failure has remained unresolved for the following period:  Corporates: more than 90 days; and
 Restructuring: A client is classified as Restructuring when there are concerns about the client’s financial stability, credit worthiness, and/or ability to repay, but where the situation does not require the recall or acceleration of facilities nor the liquidation the collateral. ING’s actions aim to maintain the going concern status of the client by:  Restoring the client’s financial stability;  Supporting the client’s turnaround;  Restoring the balance between debt and equity; and
Watch List, Restructuring and Recovery are discussed at least on a quarterly basis between the
Food, Beverages & 1 Economic sectors not specified in above overview are grouped in Other.
In Netherlands, EUR 973 million of the non-performing loan portfolio consisted of loans to private individuals, of which EUR 834 million were residential mortgages. In Belgium, almost half of the non-performing portfolio consisted of loans to private individuals of which EUR 883 million was residential mortgages. Similarly, in Germany, more than half of the non-performing portfolio consisted of residential mortgages.
As of 1 January 2018, the IFRS 9 accounting rules on loan loss provisioning have been implemented. These accounting rules do not change the actual credit losses, but have an impact on the timing of when these losses are reflected in the P&L. Under IFRS 9 loan loss provisions are booked given expected losses, whereas under the IAS 39 accounting practice loan loss provisions were booked from the moment losses were incurred. More specifically, loan loss provisioning becomes more forward-looking under IFRS 9 partly due to the fact that provisions will be based on the macroeconomic outlook, amongst other factors. Furthermore, loan loss provisioning will be calculated on the lifetime expected losses for assets that have experienced a significant deterioration in credit quality. As a result of these elements, loan loss provisioning in the P&L could become more volatile. More information on the impairment methodology for financial assets under
Non-Investment grade 1 Total outstanding excludes non-IFRS 9 eligible assets (for such exposures no IFRS stage is available: mainly guarantees, letters of credit and pre-settlement exposures).
Investment grade outstandings is 84.8% stage 1 and 1.0% stage 2. Non-Investment grade is 79.6%
 Forward-looking macroeconomics used as model inputs As a baseline for IFRS 9, the Group use the consensus outlook for economic variables. The Oxford Economics’ Global Economic Model (OEGEM) is then used to complement the consensus with
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Risk Management > 53 consistent projections for variables for which there are no consensus estimates available (most notably HPI and unemployment), and to ensure general consistency of the scenarios.
It should be noted that the lifetime PD thresholds are not the only drivers of stage allocation. An asset can change stages by virtue of being in arrears, on a Watch List, being forborne etc. Refer to section 1.3.1.2 of Note 1 ‘Accounting Policies’ for an exhaustive list. Furthermore, this analysis is rudimentary in that other parameters would change when an asset changes stages.
For ING retail units, clear criteria have been established to determine whether a client is eligible for forbearance – generally as part of an automated process. Specific approval mandates are in place to approve the measures, as well as procedures to manage, monitor and report the forbearance activities.
ING implemented its forbearance policy in 2014. In 2016 based on a detailed re-assessment of the relevant standards set by EBA and subsequent regulatory guidance, ING tightened the definitions under its forbearance policy. As a result of these revisions in definition and scope, performing forborne exposures recognized by ING increased significantly in 2016 as measures taken in previous periods were then recognized as forbearance. Examples of measures taken were
As per December 2018, Wholesale Banking forborne portfolio amounted to EUR 5.1 billion, which represented 1.8% of the total Wholesale Banking portfolio.
The main concentration of forborne portfolio in a single country was in the Netherlands with 22%
Natural Resources (EUR 0.5 billion), Real Estate (EUR 0.5 billion) and Builders & Contractors (EUR 0.3 billion).
administered multi-seller asset backed commercial paper (ABCP) conduit Mont Blanc Capital Corp.
 Market risk management results and findings are reported to the necessary governing departments and approval bodies.
Limit excesses are reported to senior management on a timely basis and the business is required to take appropriate actions to reduce the risk position. To adhere to the established limit framework,
Several committees govern the communication between the parties involved in market risk management. Market Risk Model Committee (MRMC) is the highest dedicated authority within ING
for the approval of all trading and banking risk models, methodologies and parameters related to market risk. Trading Pricing Model Committee (TPMC) approves pricing models for trading and banking books. The Global Credit Trading Policy committee (GCTP) is the highest dedicated authority with representatives from Financial Risk, CRO Challengers & Growth Markets and CRO
The FI-FM Risk Management Framework governs the boundary between trading books and banking books. It defines the activities ING considers to be trading according to a regulatory definition and for own funds requirement purposes. The trading activity is systematically reviewed and positions are assessed against the mandates jointly by the first and second lines of defence. As specified in the framework, the transfer of risk or the transfer of positions between banking and trading books is in principle not allowed but in exceptional cases when a re-designation is deemed necessary, the re-designation should be approved by senior management.
Economic capital for market risk is calculated for exposures both in trading portfolios and banking portfolios and includes interest rate risk, credit spread risk, equity price risk, foreign exchange rate risk, real estate risk, model risks and pension risk. Economic capital for market risk is calculated using internally developed methodologies with a 99.95% confidence interval and a horizon of one year.
framework as approved by ALCO Bank. This framework describes roles, responsibilities, risk metrics, the policies and procedures related to interest rate risk management. Furthermore ALCO Bank sets the risk appetite for interest rate risk, which is then translated into limits for the interest rate risk metrics.
From an interest rate risk perspective, commercial activities can typically be divided into three main product types: savings and demand deposits, mortgages, and loans.
 Savings and demand deposits are generally invested with the goal to hedge their value and minimize the sensitivity of the margin to market interest rates. Interest rate risk can arise when there is a lag between savings rate adjustments and the adjustments experienced through market rates or when market rate changes cannot be passed on to clients. Interest rate risk is modelled based on the stability of the deposit and the pass through rate. This takes into account different elements, such as pricing strategies, volume developments and the level and shape of the yield curve. Savings volumes are typically assumed not to be sensitive to interest rate shocks;  Interest rate risk for mortgages arises through prepayment behaviour. In modelling this risk, interest rate dependent pre-payments are considered. Next to the dependence on interest rates, modelled prepayment may include other effects such as loan to value, seasonality and the reset date of the loan. In addition, the interest sensitivity of embedded offered rate options is considered; and
Treasury), if necessary, using estimations of customer behaviour. The originating commercial business is ultimately responsible for estimating customer behaviour, leaving convexity risk and
Basis Point Value (BPV) figures provide the value perspective. Please note that corrective management actions are not taken into account in these figures although price adjustments are included in the earnings risk measure.
The NII-at-Risk is mainly influenced by the sensitivity of savings to interest rate movements due to pass through rate differences between savings rates and investment yields, but is partially offset by the sensitivity of mortgages. The investment of own funds only impacts the earnings sensitivity marginally, as only a relatively small part has to be (re)invested within the 1-year horizon.
Ramped, unfloored Ramped, unfloored parallel ▼ parallel ▲ parallel ▼ parallel ▲
Belgium, ING Germany, ING Netherlands, ING Spain and ING Poland. The annual update of the interest rate scenarios also led to a limited increase in the NII-a-Risk for year 1.
BPV measures the impact of a one basis point increase in interest rates on value. To a large extent the BPV and NPV-at-Risk reflect the same risk - the difference being that BPV does not reflect convexity risk, given the small shift in interest rates.
Real Estate price risk arises from the possibility that Real Estate prices fluctuate. This affects both the value of Real Estate assets and the earnings related to Real Estate activities.
Wholesale Banking (mainly Financial Markets) as this is the only business line within ING where trading activities take place. Trading activities include facilitation of client business and market making. FI-FM Risk is responsible for the development and implementation of trading risk policies and risk measurement methodologies, the reporting and monitoring of risk exposures against approved trading limits, and the validation of pricing models. FI-FM Risk also reviews trading
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Risk Management > 53 mandates and limits, and performs the gatekeeper role in the product review process. The management of market risk in trading portfolios is performed at various organisational levels. The
for its regulatory capital calculations. ING is closely monitoring the progress on CRR II/CRD V
FI-FM Risk uses the historical simulation VaR methodology as its primary risk measure. The VaR for market risk quantifies, with a one-sided confidence level of 99%, the maximum overnight loss that could occur in the trading portfolio of ING due to changes in risk factors (e.g. interest rates, equity prices, foreign exchange rates, credit spreads, implied volatilities) if positions remain unchanged for a time period of one day. Next to general market movements in these risk factors, VaR also takes into account market data movements for specific moves in e.g. the underlying issuer of securities.
Backtesting is a technique for the ongoing monitoring of the plausibility of the VaR model in use.
Additionally, limits have been set on SVaR and IRC. Furthermore, ING uses a variety of other controls to supplement these limits. Position and sensitivity limits are used to prevent large concentrations in specific issuers, sectors, or countries. Moreover, other risk limits are set with respect to the activities in complex derivatives trading. The market risk of these products is controlled by product specific limits and constraints.
In 2018, the average VaR was at a slightly higher level compared to 2017. Over 2018, due to position changes the trading portfolio saw an increase in the Foreign Exchange asset class.
Standardised Approach with fixed risk weights. ING does not have a Correlation Trading Portfolio or any other securitisations in the trading book.
Market risk Regulatory Capital increased during 2018 compared to 2017. The increase is mainly the result of risk position changes that resulted in higher VaR and Stressed VaR numbers. The increase is offset by a decrease in IRC, which is the result of decreased debt positions in sovereigns and financials.
(b) Average of the IRC number over the preceding 12 weeks 767 61 1,205 96
Finance function is responsible for reporting and providing management information related to funding and liquidity management.
ING’s funding consists mainly of retail and corporate deposits contributing 50% and 21% of the total funding respectively. These funding sources provide a relatively stable funding base. The remainder of the required funding is attracted by Group Treasury through long term and short term professional funding. Group Treasury manages the professional funding in line with the risk appetite ensuring sufficiently diversified and stable funding.
denominated which is in line with the currency composition of customer lending.
The LCR is a measure that compares the available buffer of High Quality Liquid Assets (HQLA) to Net outflows (Outflows- Inflows) in a 30-day stress scenario defined by the regulator. The liquidity buffer of ING is part of the counterbalancing capacity which serves as a cushion for liquidity needs under normal and stressed conditions.
The liquidity buffer consists mainly of ‘Level 1’ assets which are the most liquid ones and are predominantly represented by government or central bank assets. Only assets that are freely available (not pledged under existing contracts) for liquidity purposes are included in the buffer. The size and composition of the Liquidity buffer is determined by ING’s risk appetite and regulatory liquidity requirements.
Key emphasis is placed on understanding overall market trends and developments, credit ratings and peer comparison.
and Compliance Risk Management is in place. The functional reporting line has clear accountabilities with regard to objectives setting, remuneration, performance management and appointment of new staff as well as a mandate to instruct, veto and escalate.
The Business Environment Assessment (BEA) assesses internal control factors and external factors that could influence the internal and external operating environment in the future, and which may lead to unacceptable operational risk exposure and endanger achieving our strategic objectives.
Scenario analysis is a process used to consider the impact of rare, significant, yet plausible future events, taking into consideration alternative possible outcomes for those events, their severity and frequency. Input for scenario analysis includes the results of various internal and external assessments such as the BEA. Scenario analysis is an important component in the calculation of operational risk capital.
External non-financial loss data provides valuable information about the losses experienced by other entities outside ING, and assists ING to quantify its exposure to risk events that have not been experienced internally. External loss data is an important component in the calculation of operational risk capital.
The yearly objective setting process for both business management and NFR professionals aims to keep improving the management of non-financial and compliance risks throughout ING to safeguard that ING stays in control of its current and future non-financial and compliance risks.
The Non-Financial Risk reporting deliverables consist primarily of the quarterly Non-Financial Risk
ING has an Operational Risk Capital model in place in which the risk profile is closely tailored to its internal risk profile and its divisions, by using scenario data for capturing severe unlikely risks and internal losses, and RCSA data for capturing day-to-day risks. The business has a leading role in
The Business Continuity Management (BCM) policy and its accompanying minimum standard establish the principles, governance and framework around which BCM capability is designed, built and maintained such that ING is prepared to respond to a variety of external and internal disruptive events and can effectively recover from a severe business disruption at pre-defined service levels.
 Cybercrime remains a significant threat to ING with attack methodologies capable of rapidly evolving to adapt to new or enhanced security measures. Relatively unskilled, criminally motivated hackers are increasingly adopting the tactics, techniques and procedures (TTPs)
typically used by more sophisticated nation-stated backed adversaries. Moreover, evidence suggests that sophisticated techniques are becoming more widely commoditised. In 2018 an uptick in “Cybercrime-as-a-Service” made large scale DDoS or phishing attacks increasingly affordable and available for threat actors of all capability levels.
continues to strengthen its global cybercrime and fraud resilience through extensive collaboration with financial industry peers, law enforcement authorities, government (e.g.
User Access Management (UAM) User Access Management (UAM) is one of the focus areas of ING and an important element in our control framework to mitigate the risk of unauthorized and / or inappropriate access to systems, processes and the data and information contained therein. Consequently, the User Access
provided input to the EBA, via European Banking Forum (EBF), during the consultation round of its draft Guidelines on Outsourcing. In 2019 NFR will perform a gap-analysis on the final guidelines in order to identify and implement additional requirements.
Compliance risk is defined as the risk of impairment of ING’s integrity, leading to damage to ING’s reputation, legal or regulatory sanctions, or financial loss, due to a failure (or perceived failure) to comply with applicable laws, regulations and standards and the ING Values as part of the Orange
In cases where an employee of ING suspects an actual or potential irregularity or misconduct within ING that leads or could lead to a violation of ING Orange Code, any ING policy and/or any applicable law, regulation or code, can be reported anonymously in line with the Whistle-blower
The FEC Policy and Minimum Standards reflect relevant national and international laws, regulations and industry standards. The FEC Policy is mandatory and applies to all ING entities, majority owned ING business, businesses under management control, staff departments, product lines and to all client engagements and transactions.
(compared to the 3rd AML Directive) are related to: the establishment of an Ultimate Beneficial
European Economic Area (EEA)) and a stronger approach towards the application of due diligence on ING’s customers. The implementation date of the Directive was 26 June 2017. The implementation of the directive into Dutch law has taken place in July 2018.
In September 2018, ING was impacted by the EUR 775 million settlement agreement with the
The implementation and execution of policies and procedures related to anti-money laundering
These measures are being implemented as part of the bank-wide, global Know Your Customer (KYC)
 Set up central KYC organisation that defines standards and drives global execution and improvements. This includes the set-up of the new KYC organisation now in place. As of 4Q 2018, we have strengthened the KYC governance by including the heads of the business lines in the KYC
Committee. Going forward we will further develop the global KYC function to ensure structural embedding of standardised and uniform ways of working, with regular improvement cycles and support of advanced technologies and insights.
Association (NVB) and the Dutch central bank (DNB) on harmonising efforts in the fight against FEC
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Risk Management > 53 member states. The first information exchange by the Netherlands (as for approximately half of the signatory countries) was executed in 2017. Other signatory countries commenced their information exchange in 2018.
Speak-up A speak-up awareness campaign was launched for all ING Bank employees to enhance the awareness to raise any concern related to breaches of the Orange Code, any suspected or actual criminal conduct, unethical conduct or other misconduct by or within ING. The awareness campaign was supported by the launch of a revised whistleblower policy and a mandatory global e-learning.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Capital management > 54 54 Capital management
Group Treasury (“GT”) is the result of a merger between Capital Management and Bank Treasury which was approved by the ING management board in 2017. GT covers the full spectrum all the way from day-to-day operational management to the more strategic advisory function, and all the way from cash management, to liquidity and funding management to solvency and capital management.
 Leverage ratio – is defined as Tier 1 capital divided by the total exposure amount.
ING also applies the following risk appetite definitions:  RAF – Risk appetite framework which includes Solvency, Liquidity & funding risk, Credit risk,
The transitional (phased-in) CET1 requirement for ING Group at a consolidated level was set at 10.43% in 2018. This requirement is the sum of a 4.5% Pillar I requirement, a 1.75% Pillar II
Dutch systemic banks by the Dutch Central Bank (De Nederlandsche Bank). The CCB and the SRB
are scheduled to phase-in to 2.5% and 3.0% by 1 January 2019, respectively. This requirement excludes Pillar II capital guidance, which is not disclosed.
ING continues to maintain a strong and high quality capital level. ING Groep N.V. has a phased-in
December 2018. Therefore, ING complies with the current fully-loaded CRR/CRD IV solvency requirement of 11.83%.
N.V. instruments. In order to build up our MREL capacity, ING Groep N.V. issued multiple transactions (excluding above mentioned Tier 2 issuances) for a total amount of €11.5 billion in 2018. These transactions will not only allow us to support business growth, but will also ensure we can meet MREL and TLAC requirements with ING Groep N.V. instruments only.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Capital management > 54 million, or €0.68 per ordinary share, over the financial year 2018. This is subject to the approval of shareholders at the Annual General Meeting in April 2019. Taking into account the interim dividend of €0.24 per ordinary share paid in August 2018, the final dividend will amount to €0.44 per ordinary share and will be paid fully in cash. The total amount of €1,712 million is completely covered by the remaining balance of 'interim profits not included in CET1 capital' at year-end 2018.
Bank. Additionally, Capital Management ensures adherence to the set limits and targets by planning and executing capital management transactions. The ongoing assessment and monitoring of capital adequacy is embedded in the capital planning process. Following the dynamic business planning process, ING
prepares a capital and funding plan on a regular basis for all its material businesses and assesses continuously the timing, need and feasibility for capital management actions in scope its execution strategy. Sufficient financial flexibility should be preserved to meet important financial objectives.
ING’s risk appetite statements set targets and are at the foundation of the capital plan. These limits are cascaded to the different businesses in line with our risk management strategy.
2 Including €2,833 million which is CRR/CRD IV-compliant (2017: €2,691 million) and €2,506 million to be replaced as capital recognition is subject to CRR/CRD IV grandfathering rules (2017: €2,446 million).
2 Including €3,271 million which is CRR/CRD IV-compliant (2017: €3,123 million) and €1,907 million to be replaced as capital recognition is subject to CRR/CRD IV grandfathering rules (2017: €1,866 million).
Process (ICAAP) in the scope of ECB’s Supervisory Review and Evaluation Process (SREP). This submission includes all ICAAP related documentation such as information on ING’s internal capital models, risk measurement, assessment and aggregation, risk appetite framework, capital planning both under base case and adverse scenarios including stress testing. Based on this documentation and continuous supervisory dialogue, the ECB conducts the SREP assessment of ING and its main subsidiaries. This assessment covered four areas: business model, internal governance and risk management, risks to capital and risks to liquidity and funding on a yearly basis.
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Authorisation of Consolidated Annual Accounts
References relate to the accompanying notes. These form an integral part of the Parent company annual accounts.
Changes in the composition of the group and other changes –125 –125
The total amount of non-distributable reserves, in accordance with the financial reporting requirements per Part 9 of Book 2 of the Dutch Civil Code, is EUR 7,700 million (2017: EUR 7,678 million).
Reference is made to Note 20 ‘Equity’ and the Capital Management section in the Consolidated annual accounts for additional information, including restrictions with respect to dividend and repayment of capital.
Included in Interest and other financial income is EUR 600 million (2017: EUR 514 million) related to
Included in Interest and other financial expenses is EUR -7 million (2017: EUR -51 million) related to
For 2018, the Executive Board, with the approval of the Supervisory Board, has proposed a cash dividend of EUR 0.68 per ordinary share of EUR 0.01. In August 2018, an interim dividend of EUR
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Articles of Association – Appropriation of results
Shareholder on a date determined by the Executive Board and approved by the Supervisory Board.
Factors such as interest rates, securities prices, credit spreads, liquidity spreads, exchange rates, consumer spending, changes in client behaviour, business investment, real estate values and private equity valuations, government spending, inflation or deflation, the volatility and strength of the capital markets, political events and trends, and terrorism all impact the business and economic environment and, ultimately, our solvency, liquidity and the amount and profitability of business we conduct in a specific geographic region. In particular, we are exposed to financial, economic, market and political conditions in Germany and the Benelux countries, from which we derive a significant portion of our revenues. In an economic downturn characterised by higher unemployment, lower family income, lower corporate earnings, higher corporate and private debt defaults, lower business investments and lower consumer spending, the demand for banking products is usually adversely affected and ING’s reserves and provisions typically would increase, resulting in overall lower earnings. Securities prices, real estate values and private equity valuations may also be adversely impacted, and any such losses would be realised through profit and loss and shareholders’ equity. We also offer a number of financial products that expose us to risks associated with fluctuations in interest rates, securities prices, corporate and private default rates, the value of real estate assets, exchange rates and credit spreads.
and ‘—We operate in highly regulated industries. Changes in laws and/or regulations governing financial services or financial institutions, the application of such laws and/or regulations or noncompliance with such laws and/or regulations governing our business may reduce our profitability’
Our business and results of operations are materially affected by conditions in the global capital markets and the economy generally. In Europe, there are continuing concerns over weaker economic conditions, as well as concerns in relation to European sovereign debt, the uncertain outcome of the negotiations between the UK and the EU following the UK referendum on EU
Adverse developments in the market have included, for example, decreased liquidity, increased price volatility, credit downgrade events, and increased probability of default for fixed income securities. In addition, the confluence of these and other factors has resulted in volatile foreign exchange markets. Securities that are less liquid are more difficult to value and may be hard to dispose of. International equity markets have also continued to experience heightened volatility and turmoil, with issuers, including ourselves, that have exposure to the real estate, mortgage, private equity and credit markets particularly affected. These events and market upheavals, including high levels of volatility, have had and may continue to have an adverse effect on our revenues and results of operations, in part because we have a large investment portfolio.
The market continues to have concerns over the direct and indirect exposure of European banks and insurers to the sovereign debt of several EU Member States. These concerns have in the past, and could in the future, result 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
Brexit and the outcome of the ongoing Brexit negotiations, including with respect to the timing of
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.
A prolonged period of low interest rates, as is currently the case, may result in:  lower earnings over time on investments, as reinvestments will earn lower rates;  increased prepayment or redemption of mortgages and fixed maturity securities in our investment portfolios, as well as increased prepayments of corporate loans. This as borrowers seek to borrow at lower interest rates potentially combined with lower credit spreads.
 (depending on the position) a significant collateral posting requirement associated with our interest rate hedge program; Inflation and deflation may negatively affect our business.
A sustained increase in the inflation rate in our principal markets would have multiple impacts on us and may negatively affect our business, solvency position and results of operations. For example, a sustained increase in the inflation rate may result in an increase in market interest rates, which may:  decrease the estimated fair value of certain fixed income securities that we hold in our investment portfolios, resulting in:  reduced levels of unrealised capital gains available to us, which could negatively impact our solvency position and net income, and/or
A significant and sustained increase in inflation has historically also been associated with decreased prices for equity securities and sluggish performance of equity markets generally. A
EONIA, its administrator the European Money Markets Institute announced that, should market conditions and dynamics remain unchanged, EONIA’s compliance with the Benchmarks Regulation by January 2020 cannot be warranted as long as EONIA’s definition and calculation methodology remain in their current format. The announcement indicates that EONIA cannot be used in new contracts offered as of 1 January 2020. Public authorities have initiated industry working groups in various jurisdictions to search for and recommend alternative risk-free rates that could serve as alternatives if current benchmarks like LIBOR and EONIA cease to exist or materially change. The work of these working groups is still ongoing.
Belgium, the United Kingdom, the EU, the US and elsewhere have implemented, or are in the process of implementing measures to increase regulatory control in their respective financial markets and financial services sectors, including, among others, in the areas of prudential rules, liquidity and capital requirements, executive compensation, crisis and contingency management, bank taxes and financial reporting. Additionally, governmental and regulatory authorities in the
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Risk factors among other requirements, increase the amount of common equity required to be held by subject banking institutions, prescribe the amount of liquid assets and the long-term funding a subject banking institution must hold at any given moment and limit leverage. Banks will be required to hold a ‘capital conservation buffer’ to withstand future periods of stress such that the total common equity Tier 1 ratio, which was fully phased in on 1 January 2019, will rise to 7%. Basel III
and so-called ‘Global’ SIFIs (‘G-SIFIs’), in addition to the Basel III requirements otherwise applicable to most financial institutions. In particular, in November 2015 the FSB published the final Total Loss-
Contents | Report of the Executive Board | Corporate governance | Consolidated annual accounts | Parent company annual accounts | Other information | Appendices > Risk factors finalised early 2019. These proposals will likely impact the capital requirements for currently reported exposures (e.g. credit risk via revised standardised RWA floor) but may also lead to new capital requirements. The proposals cover multiple areas, including the Pillar 2 framework, the leverage ratio, mandatory restrictions on distributions, permission for reducing own funds and eligible liabilities, macroprudential tools, a new category of ‘non-preferred’ senior debt, the minimum requirement for own funds and eligible liabilities (MREL) and the integration of the TLAC
standard into EU legislation. The proposals are to be considered by the European Parliament and the Council of the EU and therefore remain subject to change. The final package of new legislation may not include all elements of the proposals and new or amended elements may be introduced through the course of the legislative process. Until the proposals are in final form, it is uncertain how the proposals will affect the Group or holders of its securities. The current proposals, as well as on the economic and financial environment at the time of implementation and beyond, can have a material impact on ING’s operations and financial condition and they may require the Group to seek additional capital.
In its capacity as principal bank supervisor in the EU, the ECB has extensive supervisory and investigatory powers, including the ability to issue requests for information, to conduct regulatory investigations and on-site inspections, and to impose monetary and other sanctions. For example, under the SSM, the regulators with jurisdiction over the Group, including the ECB, may conduct stress tests and have discretion to impose capital surcharges on financial institutions for risks that are not otherwise recognised in risk-weighted assets or other surcharges depending on the individual situation of the bank and take or require other measures, such as restrictions on or changes to the Group’s business. Competent regulators may also, if the Group fails to comply with regulatory requirements, in particular with minimum capital requirements (including buffer requirements) or with liquidity requirements, or if there are shortcomings in its governance and risk management processes, prohibit the Group from making dividend payments to shareholders or distributions to holders of its regulatory capital instruments. Generally, a failure to comply with the new quantitative and qualitative regulatory requirements could have a material adverse effect on the Group’s business, financial condition and results of operations.
has imposed and may in the future impose significant additional regulation on ING. Key aspects of
Bank were to establish a US. branch, we would be subject to supervision and regulation by the