(1) Source: Brand Finance plc, February 2015. (2) Source: MSCI, Bloomberg, January 2015.
Contents Report of the Executive Board CEO statement 2 How we create value 4 Our strategy and progress 8 Market and regulatory context 14 What matters most to our stakeholders 17 How we are balancing our responsibilities 20 Key figures 22 Retail Banking 24 Commercial Banking 34 People 43 Innovation and information technology 46 Risk and capital management 48 ING Shares 54 Composition of the Executive Board and Management Board Banking 57 About this report 58 Assurance report of the independent auditor 60
Consolidated annual accounts Consolidated balance sheet 100 Consolidated profit and loss account 101 Consolidated statement of comprehensive income 103 Consolidated statement of cash flows 104 Consolidated statement of changes in equity 106 Notes to the consolidated annual accounts 108 Risk management 244 Capital management 318
We are also doing well from a financial perspective. We have comfortably passed the ECB’s latest comprehensive assessment. The outcome reflects our strong capital position and resilient balance sheet.
Our purpose and strategy – the rationale To remain relevant for customers and stay in tune with all the changes in the financial sector we need a clear customer proposition that sets us apart from the competition and a well thought-out strategy drawing on our strengths. We co-created our new purpose and strategy with customers and employees. We challenged ourselves to rethink our identity: ‘Who are we, why are we here and what do we stand for?’
We understand that people want a bank that shows a genuine interest in them and helps them get a good grip on their finances in order for them to succeed in life. We understand that companies want a bank that helps them to run a better business. I believe if we can get this right, we also serve other stakeholders.
When preparing the strategy, we spoke to many customers. What they said was: ‘We don’t need banks, but we do need banking’. We know. We can only be successful if we find ways to be relevant in their daily lives or in the daily operations of our business clients; we have to forge meaningful connections with people, with businesses and with society.
All of these insights have been incorporated in our purpose: empowering people to stay a step ahead in life and in business.
serves our customers. More is explained in the Strategy and Retail Banking chapters.
Developing innovation and analytics skills When we launched ING Direct in 1997, we changed the banking landscape. We were the disruptive challengers then and we need to disrupt again today. That disruptive spirit is an important source of strength. ING is a business in motion – we are thinking forward and acting now.
One of our key challenges is to accelerate innovation to find even better ways to serve customers. Innovation is happening now at ING, and you can find many examples in this report.
Our efforts are bearing fruit. The launch of voice recognition technology for the mobile app in the Netherlands was a first for European banks. It is making mobile banking easier and more accessible for our customers. In Belgium we introduced fingerprint technology. And in Germany, ING-DiBa’s new video-based identification is simplifying the process of opening an account.
Driving sustainable progress We seek external direction and validation of our sustainability priorities by endorsing international standards such as the UN Global Compact, while considering those trends that could have an impact on our organisation.
We want to improve today’s practice and achieve our purpose. We are taking action now and thinking ahead to position ourselves as a leading European bank, empowering our customers to stay a step ahead in life and in business.
We add value by delivering products and services that improve people’s lives and fuel economic growth. The illustration highlights the pivotal role we play as a bank in society, addressing how we create value for our customers and other stakeholders (balloons at the top) and how we earn our income and apply our resources (text at the bottom of the next page).
Furthermore, our aim is to help people and businesses by providing them with financial insight, overview and advice, for example to manage their financial futures.
Supporting life-changing decisions EUR 274.3 bln mortgages outstanding. We have offered mortgages to customers who use these funds to buy or invest in a home.
How we are strengthening our own resources › Investing in our people: values, competencies, experience, motivations and behaviours
growth and export EUR 9.3 bln net growth was achieved in Structured Finance and General Lending & Transaction Services through our Commercial Banking network in more than 40 countries.
Developing our capabilities We perform our core tasks by combining our resources to best effect in the provision of our products and services. In a dynamic environment we will only continue to add value by enhancing our capabilities and executing our core tasks more efficiently.
About the value we create We create value with and for our stakeholders, both in a narrow economic sense and, more broadly, through our contribution to social progress and our efforts to help protect the environment. As a ‘Systemically Important Financial Institution’ (SIFI) our long-term performance is contingent on the overall impact of our activities for society as a whole. We believe that our own profitability and performance depends on our ability to marshal our resources to meet social, economic and environmental issues. From a long-term perspective, the broader measure is therefore the more accurate indicator of the value we create.
We act as an important financial intermediary, especially between individuals, groups and businesses. Our core activities are crucial to the smooth functioning of society. We are conscious of this responsibility. We are not complacent; we recognise that while banking services are indispensable, banks are not. Increasingly, alternative enterprises/mechanisms, often technologically based, are taking on roles that have traditionally been exclusively undertaken by banks.
Our strategy and progress chapter and the Market and regulatory context chapter for more information.
In March 2014, we presented a new purpose and strategy to meet the new challenges we face as a bank in a fast-changing world. In this section we explain our strategy, report on progress so far and describe how this will shape our future activities.
Driving sustainable progress At the beginning of 2014, as we entered the final stage of the restructuring, it was time to put more focus on placing the customer at the heart of everything we do.
Delivering on restructuring We have been on a journey since late 2008 to radically simplify our operations. In 2009, a restructuring programme that met the European Commission’s requirements was agreed. In the successive years we have put that into effect with only a few steps remaining. We have conducted over 50 divestment transactions over a five-year period. The total transaction value would reach around EUR 40 billion, if we include the market value of our remaining stake in NN Group as it was at year-end 2014. We believe the effect of these divestment transactions leaves our company stronger, simpler and more sustainable.
We had also reduced our stake in Voya Financial, Inc. (‘Voya’), our former American insurance business. We are required to fully divest our Voya holding by 2016. At year- end 2013 our stake was 57 percent, at year-end 2014 this had been reduced to approximately 19 percent. In March 2015, we completed the divestment of Voya shares.
The Dutch State has been repaid in full. In November 2008, ING received EUR 10 billion in aid from the Dutch State in the form of core Tier 1 securities. In 2009, we started repaying the Dutch State and made the final payment on 7 November 2014. This was achieved six months ahead of the repayment schedule agreed with the European Commission in 2012.
Total payments on this aid package amount to EUR 13.5 billion, resulting in an annualised return of 12.7 percent for the Dutch State.
Risk and capital management chapter for more information about the sale of non-core assets and the repayment to the Dutch state.
Our strategy on a page With the launch of our Think Forward strategy in March 2014, a one-page overview was created to show our new strategy in a clear and visual way to all our stakeholders.
Some commitments remain We are executing the Restructuring Plan as agreed with the European Commission and met key milestones in 2014. Only limited commitments remain outstanding. These include: › Divestments We plan to divest our remaining stake in NN Group in line with agreed timelines and we expect that this divestment will also realise two further commitments: 1. To reduce our balance sheet by approximately 45 percent ‘pro rata’ – excluding growth of the balance sheet of existing business in the meantime (compared to Q3 2008).
› Acquisition and price leadership ING agreed not to acquire (parts of) financial companies until 18 November 2015 or the deconsolidation of NN Group, whichever comes first. These deadlines also apply to the price leadership ban, which means that we agreed not to be a price leader on standardised products in certain markets.
Reassessing our role The financial crisis gave us the opportunity to rethink our role in society. Our focus now is on having enduring relevance for our customers. We want to empower them to realise their own vision for a better future. This is the essence of our new strategy.
Our Customer Promise Our Customer Promise is all about empowering people and creating a differentiating customer experience. Staying true to this Promise means that we aim to empower by making it easy for people to understand, convenient for people to use, possible for people to manage their finances effectively and to stay a step ahead every day.
Keep getting better Life and business are about moving forward. We will keep looking for new ways to make things better with new ideas, new solutions and new approaches to make things easier for our customers. That way, we can all stay a step ahead.
In Retail Banking our primary relationships are with customers who have a payment account with recurrent income and at least one other product with ING. In Commercial Banking, we use lending capabilities, sector knowledge and transaction services to anchor primary customer relationships.
In July 2014, we appointed a chief innovation officer (CInO) responsible for developing and promoting innovative ideas and solutions, applying new technologies and delivering/improving the speed-tomarket of successful ideas.
In April 2014, we appointed a chief operations officer (COO). Our COO is responsible for Operations & IT, change management and procurement. He is a member of the MBB. With his appointment, we have intensified our focus on operational excellence.
Performance culture Culture is our third enabler. We need to excel at attracting and keeping the talent to get us where we need to go. We want to foster a culture where employees are empowered to deliver for our customers.
We surveyed over 13,000 employees to find out what they thought about ING’s culture. This provided positive feedback on our strong customer focus, our shared vision, our professional standards, and our dedicated talent development.
We strive to diversify our asset base as we continue to grow client franchises. We have identified specific opportunities in retail banking, such as consumer finance and SME lending.
We believe we have strong deposit-gathering capabilities across Europe, a significant position in European digital banking and a successful commercial bank.
Market leaders These are the Benelux countries where we have leading market positions in retail and commercial banking.
Differentiating strategy implementation by country We are delivering on strategy differently, depending on the characteristics of geographical markets in which we are active. Our strategic priorities and enablers remain consistent, but the detailed implementation is adapted for local conditions.
We seek to use our direct banking expertise to grow our lending business at low cost in areas like consumer lending and lending to SMEs. We will also seek to grow our corporate client base and develop capabilities in Industry Lending and Transaction Services in most of these countries.
Growth markets We strive to invest to achieve sustainable share and will focus on digital leadership by converging to the direct-first model and prioritising innovation.
We plan to maintain our cost discipline, which should help to get the underlying cost/income ratio from the current 58.7 percent at year-end 2014 to the 50–53 percent range. We strive for all businesses to deliver an improving cost/income ratio. We will therefore need to cut costs at the operations in the Benelux to fund sustainable and profitable growth in other countries.
Three key trends are having a major impact on ING and its competitors. First, our revenue and profitability are linked with the economic environment. Second, the financial services sector is subject to increasing regulatory scrutiny. Third, digitisation and changing customer behaviour are reframing our markets. In combination, these trends are altering the competitive context in which we operate.
Financial markets rallied for most of the year, with US stock markets reaching record highs. Yields on US Treasury bonds moved with changing expectations for the timing of future Fed interest hikes. European stock markets followed the US upwards, although as the year progressed the effects of the crisis in Ukraine and the weakness of the European recovery started to weigh more on markets. European bond yields fell and spreads between European sovereigns decreased in line with ECB policy.
ING firmly supports the establishment of the SSM and the supervisory responsibility of the ECB. As a predominantly European, cross-border universal bank, we have a strong interest in properly functioning European financial markets and advocate a harmonised approach to European supervision. The SSM should contribute to removing barriers to the free flow of capital and liquidity in the Internal Market. We expect to see a gradual elimination in the fragmentation caused by national regulation and supervision.
The Bank Recovery and Resolution Directive (BRRD) also came into effect in 2014. This requires European banks and authorities to put recovery and resolution plans in place and mandates the establishment of national resolution funds to be financed by banks. We support the BRRD which significantly reduces the likelihood that the failure of a systemically important bank will contaminate the system and burden taxpayers.
The financial system has already been strengthened considerably in recent years and the risks for customers and society as a whole have been substantially reduced. In general we support the measures described above, as they should contribute to creating a true level playing field. They help to safeguard the financial system, improve individual banks’ financial resilience and support an increasing focus on customers across the industry.
Competitive landscape Technology is collapsing the barriers to entry that once protected our business. Competition is coming from many different directions, with relatively new players providing more segmented offers to our customers and clients. Technology giants, payment specialists, retailers, telecommunication companies, crowd-funding initiatives and aggregators are all encroaching on traditional banking services. In general, they don’t want to become banks, they are more interested in the transaction data that ING and other banks have in abundance. Just as we are keen to gain traction from other data sources so we can better serve our customers.
The diagram below shows what we perceive to be our strengths, weaknesses, opportunities and threats.
Strengths › Presence in Challengers and Growth market countries with moderate to strong economic growth.
Opportunities › Regaining trust by demonstrating care, especially towards customers and by explaining better why strategic choices are made (transparency).
ING Group 16 Report of the Executive Board Market and regulatory context continued
The materiality matrix as shown in the figure represents the outcomes of the 2014 materiality assessment. It combines the results of the 2014 stakeholder materiality survey with our own extensive analysis of the impact of these issues on our business. The issues with the highest priority for stakeholders and the biggest estimated impact on our business appear in the top right of the chart.
High-priority material issues The table on the following pages describes the 15 high-priority issues identified in our 2014 materiality assessment. Because of their importance, we report on each of these high-impact/high-stakeholder significance issues in greater depth throughout this Report.
‘Innovative business solutions’ has also gained momentum. This is in line with our strategic priority ‘to keep getting better’. We will keep looking for innovative solutions that keep us a step ahead.
The key outcomes of our materiality assessment coincide with our purpose, customer promise, and strategic priorities that were presented in March 2014. We are pleased with these results but we are not complacent. We will continue to assess the expectations of our stakeholders and work to improve our performance on high-priority material issues.
We need to invest in product and service innovation to meet rapidly changing customer needs.
In our view financial empowerment is helping customers to manage their financial future.
ING Group 18 Report of the Executive Board What matters most to our stakeholders continued
We aim to prevent that our investments do harm. We are eager to finance activities that have a positive impact on society. These are increasingly important matters for our stakeholders and for us.
8 Regulatory developments Compliance with laws and regulations is fundamental. We respect the law and the rules we set out for ourselves. We aim to act in accordance with the expectations of society.
Stakeholder engagement 9 Transparency and openness Being transparent and open about our investments, products and services, and other topics is helping the business move forward and earning the trust of our stakeholders.
We continued to work hard on regaining trust, demonstrating that we care about our customers and all other stakeholders, and we intend to be even clearer about why certain strategic choices are made.
Training and development opportunities and skills management programmes support employees and are of great value in creating a performance culture.
In 2014, we invested around EUR 57 million in learning and development for our employees.
Remuneration needs to be well-balanced to retain and recruit highly qualified staff. Not only employees, but virtually all stakeholders find that important.
Increased insight into consumer payment patterns, for instance, means we can warn customers sooner that they risk defaulting on monthly mortgage obligations. Data analysis also plays an important role in protecting our customers from bank-card fraud. Moreover, advanced analytics help us target offers more precisely so customers only receive offers for products that are relevant to them.
Notwithstanding the above, as the internet places so much power in the hands of any technically proficient individual, there continue to be risks online. We therefore aim to actively raise our customers’ awareness of actions they can take themselves to safeguard their information, such as using strong passwords, installing updates and not sharing personal information with others.
These factors differ for each role, line of business and country. We also respect different national conventions and changing international standards on responsible remuneration.
As much as possible for a global financial institution of our size, we aim to take account of all these differences and also of the standards applied within similar financial institutions in the various countries in which we operate.
(1) The leverage ratio is calculated using the published IFRS-EU balance sheet, in which notional cash pooling activities are netted, plus off balance-sheet commitments. In January 2015, the EC formally adopted the Delegated Act for the leverage ratio. The pro forma leverage ratio of ING Bank, taking into account the combined impact of grossing up the notional cash pool activities and the alignment with the Delegated Act, is 3.6%.
The increase reflects higher interest results, strict expense control and lower risk costs, despite negative CVA/DVA impacts and redundancy provisions in 2014.
The CET1 ratio was up from a pro forma 10.0 percent in 2013, reflecting retained earnings and increased debt and equity revaluation reserves due to a decline in interest rates, and a higher market value of ING’s stake in Bank of Beijing.
This includes CVA/DVA impacts and the redundancy/restructuring provisions of 2013 and 2014. Excluding these, the cost/income ratio improved to 55.1 percent in 2014, from 56.2 percent in 2013.
Our customer-centric focus helped us achieve a first place ranking in nine countries, compared with two or more selected local peers. NPS surveys were held in 11 countries with retail banking activities.
A yearly employee engagement survey looks at how engaged, enabled and energised our employees feel. Our score was 75 percent, showing a slight improvement over last year (74 percent).
In 2014, we have taken steps to deliver on the new ING Bank Think Forward strategy and to align Retail Banking with its strategic priorities. Our focus is on becoming the primary bank for customers, being innovation-driven and fulfilling relevant customer needs.
Digital first Technology offers customers a range of channels for their banking needs. They expect consistent, reliable and straightforward banking services that are just a click away. Keeping pace with the speed of technological developments while maintaining operational excellence and security is a challenge.
Customers increasingly use digital channels to interact with us. In the Netherlands, the number of mobile logins amounted to 619.6 million and logins via the internet to 414.2 million. Belgium’s Smart Banking app has been downloaded 800,000 times since its launch in 2011. This application for tablets won international recognition in 2014 from the independent MAPA research institute, which specialises in digital banking. MAPA crowned the "My Budget" application as one of the top applications worldwide.
A new application was also created for the Belgian private-banking customers, which offers complete functionality. On top of portfolio reporting, we have also launched a secured web repository with all useful market information which is only accessible in a closed environment for our private-banking customers.
We are taking measures to expand digital banking further, while at the same time strengthening our local advisory capabilities in the branch network.
Part of our Customer Promise is to be available “anytime, anywhere”. The development of digital wallets is one of the newer ways that we are putting this into practice.
ING Turkey’s digital wallet, ParaMara, bundles different payment methods with discounts from merchant loyalty programmes. After downloading the app to set up the wallet on their smartphone, customers can use ParaMara to send money to friends and family, either by using their Facebook account username or by typing in a mobile phone number. They can also transfer money between their debit and credit cards.
ParaMara users can create prepaid cards instantly and can top up their prepaid cards through ParaMara directly or by using ING ATMs.
At year-end, around 25,000 customers – half of whom were new – were using a digital wallet in Turkey. In Spain, 16,093 digital wallets were in use; in Poland 6,800 (so called V.me wallets) and in Italy 100 pilot customers are using this service.
Security and anti-cybercrime initiatives were an important priority again in all of our business units in 2014. Cybercrime increasingly takes place on an international scale and cybercriminals keep getting “smarter”. This keeps challenging our business and responses to it.
Empowering initiatives in 2014 In 2014, we introduced a number of initiatives across the businesses to empower people to stay a step ahead in life and in business.
ING Spain is helping its customers track their finances on any device (mobile, desktop or tablet), thanks to its responsive web design. Customers can benefit from an automatic categorisation of their transactions and are able to create and track budgets or expenses by category. They can also check their expenses in graphs, customising the view they prefer – daily, weekly, monthly and annually.
The Netherlands also introduced a “contactless” payment method, following a successful pilot in 2013; at year-end 2014, more than six million customers were able to use their debit cards with this functionality.
Another example is the Business Calculator – the result of best-practice sharing – between Belgium and the Netherlands. This online free-of-charge tool offers a quick and straightforward answer to the big question every start-up company has: Is my idea financially viable? This helps to avoid what are sometimes difficult discussions with start-ups, as the calculator produces an objective prediction. And in Italy, VoceArancio is a social media hit, delivering topical and practical financial information every day.
Exports are crucial to the Dutch economy. That is why we are empowering promising Dutch companies in their international expansion. The Oranje Handelsmissiefonds (Orange Trade Mission Fund) is a joint initiative of ING Bank, the Dutch SME Association, KLM and the Ministry of Foreign Affairs. This Fund aims to help and inspire exporting businesses to increase their chance of international success. This includes support before and during official trade missions, sharing expertise and helping entrepreneurs to do business internationally.
Other initiatives in the Netherlands, such as the Ondernemend Oranje Kapitaal (Dutch Orange Capital Enterprise Fund) and the Week van de Ondernemer (Week of the Entrepreneur) were continued.
Creating a differentiating customer experience We believe we can create a truly differentiating customer experience by rigorously pursuing our new strategy.
Understanding our customers Meeting customer needs is at the heart of the retail business. It begins by really understanding their requirements. Only when we have a clear understanding of what our customers need will we be able to develop relevant, distinctive solutions that meet those needs and add real value. This is vital if we are to create a truly differentiating customer experience.
It is also important to provide products and services that are clear and easy for customers to understand and use. We strive to align our systems, structure and processes to deliver great customer experience cost effectively.
ING France was the first to launch Le Web Café in December 2013. It is not just a place where customers can ask ING for advice, customers can also help each other with financial issues. Web Café is a groundbreaking example of co-creation, a genuine partnership between customers and their bank in the French financial sector.
The Web Café features a forum, a lab and a blog. Customers ask their questions in the Web Café. Bank staff monitor the online forum and intervene to respond to difficult questions. In the lab, customers propose ideas and improvements for ING products and services. The blog presents tips to help customers organise their finances properly and independently.
ING monitors the Web Café to prioritise its service provision and develop new services. It has been such a hit that ING is likely to launch it in the Netherlands in the first half of 2015.
Extending accessibility of services Our promise to deliver services anytime, anywhere also implies a commitment to make them accessible to all sections of society. Last year, 75.7 percent of our retail banking business units offered products and services to customers with special physical needs. In the 2013 report, we committed to increasing accessibility for customers with special needs. We have delivered on that promise in various ways during 2014.
Inge is a new way of making mobile banking easy for our customers. It features distinctive voices and is safe to use for transactions.
Financial inclusion Our view is that financial services should be accessible to consumers from all walks of life. Therefore, in addition to serving “regular” customers, we also develop products and services for minorities or marginalised segments in society through our financial inclusion initiatives. For example, ING Australia participated in an industry initiative of the Australian Bankers’ Association to offer fee-free withdrawals and balance enquiries to their customers at selected ATMs in very remote, indigenous communities.
ING Australia has also partnered with fundraising website StartSomeGood to launch a crowdsourcing website that helps philanthropic entrepreneurs promote social change in the country.
The direct bank conducts most of its business online or via telephone. It has introduced Servicepoint, open Mondays to Fridays from 9:00 am to 7:00 pm and on Saturday mornings, as an additional, face-to-face service channel.
Extending financial literacy We believe good financial habits are developed early in life. We therefore support programmes and projects that create financial capabilities and develop entrepreneurial skills in young people.
ING Poland involves its employees on a voluntary basis in the nationwide Junior Achievement Day, organised through its partnership with the Junior Achievement Foundation.
We participated in this initiative for the 11th time in 2014. ING Poland employees invited secondary school students to come to the Bank, so they could follow the activities of a selected department at the Bank for a single day. We familiarised them with banking work and increased their awareness of the larger world of finance.
ING Turkey’s acclaimed financial literacy Orange Drops education campaign won a Stevies silver in the Corporate Social Responsibility category at the 11th International Business Awards. Aimed at primary school children, the programme involved over 300 teachers and 15,000 students in 150 schools.
ING Groenbank’s sustainable products and services ING’s sustainable products and services offering is a key pillar for our business. ING Groenbank offers lending services at favourable rates for a diverse range of sustainable projects, from wind turbines to organic farming to solar panels, both in and outside the Netherlands. As such, it encourages businesses to put their activities on a more sustainable footing.
Over the next few years, a considerable number of sustainable projects may materialise in the Netherlands as a result of the SER Energieakkoord (Energy Agreement by the SER, the Social and Economic Council). ING Groenbank can play a role in making society more sustainable by providing an extra stimulus via its green loans.
We apply the NPS methodology to measure customer engagement and use NPS results and customer feedback to improve customer service and internal processes.
According to the latest research results available over 3Q and 4Q, our NPS in 2014 made us number one in all countries where NPS surveys were held, except for Austria (third) and Turkey (third), against two or more selected local peers. These scores demonstrate that we are regarded as one of the best banks at meeting customer needs.
ING Netherlands is the first Dutch bank to let customers post comments on its website about products and services they bought. Customers like to hear the opinion and experiences of their peers. It helps us gain valuable consumer data and customer comparisons help customers make well-considered choices. Eventually, we plan to extend this service to business customers.
On the same page, it lists a number of clear improvements that have come from this feedback, such as making mobile payments available to all accounts and including a comparative table of its credit cards.
Underlying income rose 5.1 percent, from 2013 to EUR 10,685 million. The increase was driven by higher interest results in most countries due to higher volumes and improved margins on lending and savings. The margin on current accounts declined due to the low interest rate environment.
Total underlying income rose by 7.3 percent to EUR 2,490 million. The interest result increased by 8.6 percent, driven by higher volumes in almost all products and increased margins on mortgages and savings.
The net lending portfolio grew by EUR 5.1 billion in 2014, of which EUR 1.9 billion in mortgages and EUR 3.2 billion in other lending. Funds entrusted increased by EUR 3.9 billion, mainly in current accounts.
We have numerous initiatives that are bringing our strategy to life. We are earning more primary relationships and enhancing our payment solutions.
Innovations in products and with distribution channels, especially digital, are making banking with ING easier and more accessible. These innovations aim to empower customers to take smarter financial decisions.
Looking ahead, we are now focusing on future-proofing our activities. We intend to become agile – fast, and innovative enough to keep pace with our customers’ ever-changing expectations.
Trophy Cabinet The Bank has received recognition in a number of business lines for its efforts on several continents during 2014.
In 2014, we were involved in many transactions that support our clients’ efforts to transition to more sustainable business models. We are focusing on sustainable lending as we believe that sustainable business is good business. We are committed to working with our clients on addressing their sustainability challenges.
› We also saw positive developments in General Lending & Transaction Services, and especially in our focus areas Working Capital Solutions and Trade Finance Services.
› We prioritised sustainability in our lending business to support our clients’ transitions towards sustainability.
At a glance – who are we? We act as a relationship bank for clients around the world. We serve a range of organisations, including multinational corporations, financial institutions, governments and supranational bodies, through an extensive network of offices in more than 40 countries.
We have developed an operating model that places our clients at the heart of all we do. We deliver tailored services through integrated solutions and advice designed to meet their short- and long-term financing, liquidity, transaction and risk-management needs.
Industry Lending Industry Lending supports clients in selected industries, leading with sector specialised lending, creating relationships for clients to be introduced to all our services, and creating high-quality loan assets which redeploy customer deposits. Our activities are grouped as Structured Finance and Real Estate Finance.
ETIG specialises in capital-intensive industry sectors such as offshore services, shipping, aviation, utilities and power, infrastructure, mining, and oil and gas. ETIG performed well in 2014, achieving a steady growth of its lending activities in most of its industry sectors, most notably in transportation, infrastructure, and oil and gas.
There is increasing demand for alternative sources of energy. We support clients seeking alternative energy sources with innovative financing solutions.
Trade & Forfaiting Review recognised us as: Best Trade Bank in Metals & Mining (Gold) Best Trade Bank in Oil & Energy (Silver) Best Structured Commodity Finance Bank (Silver)
We supported Freeport LNG (Liquefied Natural Gas) in their USD 8.4 billion senior secured debt financing for the development and construction of the first two (of three) LNG liquefaction trains and expansion of the common facilities on Quintana Island near Freeport, Texas. Our project finance and sector expertise and the strength of ING’s global network were critical. The structured export finance team in Tokyo worked with natural resources sector specialists and financial market experts in New York to help complete this award-winning transaction.
The STAR Rafineri project entails the construction and operation of a refinery on Turkey’s west coast by Azerbaijan’s national oil and gas company, SOCAR, and the State Oil Fund of Azerbaijan. SOCAR is using the facility to expand its reach beyond Azerbaijan and to assist in the development of Petkim, a petrochemical subsidiary located next to the site.
BMG is a market-leading provider of specialist liquidity management solutions, including global cash-pooling and netting to multinational corporations.
And Global Finance recognised us as: Best Trade Finance Bank in the Netherlands Best Treasury and Cash Management Provider in the Netherlands Best Treasury and Cash Management Provider in Belgium Best Supply Chain Provider in Central and Eastern Europe
Trade Receivables Purchase Programmes (TRPP) provide funding solutions by purchasing large portfolios of trade receivables. These are then structured as implied double-A-rated loans using securitisation techniques. For CMA-CGM, the third largest container-ship operator in the world, we acted as co-lender and co-arranger in a USD 880 million TRPP with a USD 175 million participation by ING. The transaction supports our client’s financing structure while providing him with an attractive alternative source of funding.
In the payments market we see developments that impact our business and lead to an increasing disintermediation in the medium to long term. The most important are changing customer behaviour and expectations. The benchmark for service delivery is becoming more and more influenced by what non-bank players can offer due to regulatory changes and new developments in technology.
We have also been investing in our flow businesses in TS and FM to place ourselves at the heart of our clients’ core processes and daily financial operations.
As part of the transformation programme we have introduced a new Client Service Model, to harmonise the way we serve our clients. This was substantially implemented during 2014. The model ensures consistent, high-quality ING service, better tailored to client needs wherever they are in the world. It is more streamlined and more responsive.
We believe that standardised documentation will reduce administrative overheads for all parties and help to ensure reliable, timely and efficient processing.
Develop analytics skills to understand our clients better We are increasingly able to provide our clients with creative, targeted solutions that address the challenges they face today and those they may encounter in the future, supported by our analytics capabilities. We have launched initiatives such as the Transaction Services Solutions Group, which focuses on the analysis of clients’ payments, trade and working capital requirements and established a new Commercial Banking Advanced Data Analytics team mandated to develop data analytics products (algorithms and interfaces) which enhance ING’s client-driven activities.
Our investment in analytics supporting Working Capital Solutions is helping us to devise capital-efficient programmes that help our clients better understand and optimise their terms of trade. This approach is extending our understanding of our clients’ financial supply chains and further helping us secure primary relationships.
InsideBusiness Portal, ING Commercial Banking’s new gateway, gives our clients a ‘One Bank’ online and mobile experience with easy access to a wide range of commercial banking products and services on their preferred devices including tablets and mobile phones.
Norbert Dentressangle SA (ND) is a major European transport and logistics company operating in 26 countries. Its acquisition of US logistics and transport specialist Jacobson in 2014 expanded its geographical footprint in this fast-growing market and gave significant room for further development.
ING set up a working group under our integrated client approach combining various product teams to assist ND in structuring its balance sheet, hedging and funding within the framework of this transformational acquisition.
Sustainable Lending drives and promotes sustainable business opportunities within the mainstream global lending portfolio of ING by adopting an inclusive approach that applies to all industries supported by Commercial Banking. By focusing on clients who adopt best-in-class sustainable practices to prepare for the scarcity and rising costs of resources and energy, we ensure a healthy and strong portfolio and support tomorrow’s economy.
Sustainable transitions financed, year-end 2014 Sustainable transitions financed represents the volume of business that ING conducts with clients and projects that satisfy the following criteria: they provide sustainable solutions and they outperform their sector on environmental and/or social performance. As of yearend 2014, total sustainable transitions financed were EUR 19.5 billion, covering business areas such as energy, real estate and transport amongst others.
Sustainable transitions financed covers several business areas of Commercial Banking that support: › Renewable Energy in the areas of wind, solar, geothermal, hydro and biomass
ING also figures prominently, through its Energy & Carbon Efficiency Finance team, in the Energy Efficiency Financial Institutions Group (EEFIG). The European Commission and UNEP FI convened this working group in late 2013. EEFIG is tackling the challenge of sourcing finance for energy efficiency measures at the volumes required to achieve the EU’s climate and energy policy goals.
A growing portfolio in renewables We are supporting our key clients in the utilities sector in their strategic transition towards a lower carbon footprint. In 2014, we financed wind, solar, hydro and geothermal energy projects worldwide.
Industry Lending posted an underlying result before tax of EUR 1,252 million, up 36.5 percent compared with 2013. This increase was mainly caused by lower risk costs in Real Estate Finance, and higher income in Structured Finance due to strong volume growth. This was partly offset by lower income from Real Estate Finance due to a downsizing of the portfolio. General Lending & Transaction Services’ underlying result before tax declined by 6.3 percent to EUR 474 million, due to higher risk costs, while income and expenses remained flat.
Underlying income excluding CVA/DVA impacts declined by 1.8 percent compared with 2013, mainly in the runoff businesses and Financial Markets, but was higher in Industry Lending supported by the strong performance in Structured Finance. Operating expenses increased 1.8 percent to EUR 2,430 million in 2014, mainly due to EUR 50 million of additional redundancy provisions taken in the fourth quarter (of which EUR 11 million was for the further digitalisation of our banking services in the Netherlands and EUR 39 million for the ongoing transformation programmes in Commercial Banking). The restructuring programmes are on track to realise EUR 340 million of annual cost savings by 2017; of this amount EUR 203 million has been realised so far.
We are moving forward by combining the financial strength that sets us apart from our peers with a superior banking experience that makes a real difference for our clients.
We foster a collaborative and innovative culture. We make it easy for employees to engage with senior management, and we reward innovative thinking.
These programmes were well received by the participants. As a result, we are going to update the programme and plan to roll it out in the countries to the next level of leaders, reporting to the 330 senior bankers.
For 2015, we are working on a new Leadership Roadmap – an integrated global solution providing vision, principles and a framework to empower leaders to enact the Think Forward strategy. One of the key challenges is to align all the HR processes, including Recruitment, Talent Management, Performance Management and Leadership Development. We will also develop a Flagship Leadership Development programme to accelerate the development of ING’s top leaders and renew the ING International Talent Programme.
Our employees make the difference for our customers. That’s why a strong performance culture is a key enabler for our strategic goals. We empower our employees, provide them with the tools they need and encourage them to act on their own initiative and put customers first. With Performance Culture being one of our key strategic enablers, our people-related activities will remain a key priority.
In all cases, we are committed to equipping our employees so they are able to make a valuable contribution inside or outside ING. The “Todos para Uno” programme in Spain is a good example of this.
In its first year (September 2013), the initiative focused on the relatives and friends of our professionals, who were seeking employment. A second edition (March/ April 2014) was then organised for our unemployed customers, and their unemployed relatives and friends. In the third edition (November 2014), we added new cities and the initiative now covers Barcelona and Valencia, in addition to Madrid.
In 2014, we refreshed and simplified our performance management systems to help focus the energies of employees on our key strategies and also meet the needs of our regulatory environment.
Operating in an ever-changing environment with higher retirement age and less job security, there is a growing need to address future skills requirements, as well as help individuals take responsibility for their own career development.
Steer your Career aims to inspire and empower our employees to discover, develop and deploy their talents – good for our employees, customers and ING.
This challenging programme was the subject of a major content change in 2014. It demands outstanding performance and clear personal commitment from participants. Nearly 80 percent of these recruits remain with ING for at least five years after graduating.
Work/life balance We recognise that the changes within and outside ING place more pressure on our workforce. We encourage a proper work/life balance, which we believe benefits job satisfaction and performance. We have introduced a range of initiatives including allowing part-time working/sabbaticals, the Energy@ING programme, making it possible to work from home and support with managing stress.
The results also demonstrated that the customer continues to be top of mind. However, efficient work processes remain a challenge; teamwork and efficiency, both key drivers for enablement, scored less well. It is therefore good that we have stepped up our efforts in 2014 to simplify and streamline the organisation and its processes and to enhance operational excellence.
Financial compensation is not the only factor making ING an attractive employer. As mentioned previously, our organisational culture, development possibilities, opportunities for international mobility and other benefits are frequently cited as important factors for employees.
Our approach to inclusiveness drives diversity, creative collaboration and empowerment – the very essence of our ING strategy. We believe the composition of our workforce should reflect society and our customers. We become a stronger, more resilient organisation by accommodating diverse talents, beliefs and perceptions in the workplace.
However, as with many financial sector organisations, diversity is a challenge. It is something we take very seriously. We work hard to improve diversity through training, networking and mentoring programmes, and by strengthening our leadership pipeline.
Agile, innovative organisations encourage experimentation, reward successes and learn from failures. ING’s Innovation Fund (see box) supports employee-generated ideas. We also recognise that innovation requires continuous management attention.
Collaboration and standardisation ING’s Common application programming interface (API) was also in use at the hackathon. This is a set of standardised APIs that allow the different ING businesses to easily re-use internally developed applications. The Common API supports a more flexible, modular IT architecture and facilitates increased collaboration and standardisation. We believe it will greatly increase our efficiency and reduce implementation times. We also promote collaboration through the OrangeSharing platform, where internal communities work together in virtual teams, sharing programming code, expertise and best practice.
Increased agility We continued the roll out of the Agile development methodology to all business units. The Agile approach greatly reduces IT delivery times by focusing on the rapid development of working prototypes, and allows ING to respond quickly to new customer expectations or changing market conditions. Agile also supports continuous delivery of IT services. Customer feedback can be rapidly incorporated into new software releases. We are able to co-create functionalities and services with customers, increasing satisfaction and loyalty.
stakeholders. ING Group has emerged from it with a strong capital base to protect customers and contribute to a sustainable financial environment.
As a financial intermediary, ING is in the transformation business. We empower our customers by structuring products and financial services to meet their requirements. To achieve that, we transform: in our retail business, for example, we accept savings, which are generally short-term and provide long-dated mortgage loans; through our payments and cash management services we enable customers to have access to their money when and where they need it.
› Formulates and implements policies and procedures, sets limits and risk appetite; › Executes transaction approval processes with veto right; › Provides oversight, challenges and support to optimise the risk/reward trade-off 3rd line of defence Audit
Managing risks Effective risk management continuously works on creating the right balance between mitigating the potential impact of unexpected events and creating value. Within ING Bank we continually challenge our understanding, measurement, and management of risk. We combine advanced technology and common sense to further strengthen our strategy while retaining the trust of our stakeholders. This is even more important in today’s competitive environment.
Managing non-financial risks Non-financial risk issues can seriously impact the functioning of our different businesses and expose the bank to significant reputational and financial damage. These issues differ for each business activity and require tailored approaches to counter them. ING, for example, monitors possible new fraud methods and money laundering practices that can emerge following the introduction of new retail payment methods and products, and continues to expand anti-fraud and sanction risk assessment programmes in our lending acceptance processes. The proper management of our exposure to corruption risk is also receiving increased attention. We constantly strengthen our compliancerelated methodologies and procedures as a result of lessons learned from external events, such as the manipulation of financial benchmarks.
We believe that technology and innovation will play a crucial role in the future of banking in general, and in ING’s strategy in particular. The growth of electronic distribution and communication channels has increased the speed and convenience for our customers in conducting their banking business with us. Customer demand for banking services anytime and anywhere changes the way customers interact with the bank. We are committed to delivering convenience without compromising security. ING continues to implement and improve comprehensive prevention, detection and responsive measures to defend customers, information and systems against cyber attacks.
In the AQR exercise, the ECB – based on its own, nonIFRS methodology – concluded that ING Bank has no capital deficit. Our adjusted CET1 ratio was revised down by 29 basis points to 10.1% as of 31 December 2013. This is well above the threshold CET1 ratio of 8%. ING Bank’s 10.4% starting CET1 ratio for this exercise was lower than its 31 December 2013 reported CET1 ratio of 11.7%. This was largely due to the agreement to separate the Dutch pension fund from ING and the implementation of CRR/CRD IV.
In the stress test that followed the AQR exercise, participating banks were tested against a baseline and an adverse scenario based on the EBA common methodology and assumptions. Using the starting point of the AQR adjusted CET1 ratio of 10.1%, ING Bank’s CET1 ratio would increase to 10.4% in the baseline scenario and decrease to 8.7% in the adverse scenario. Both are comfortably above the threshold CET1 ratios of 8% and 5.5% respectively for the scenarios in this exercise.
Environmental and social risk management ING makes a positive contribution to global economic growth and development by promoting responsible lending and investment practices. ING monitors these developments very closely to anticipate all appropriate actions. Furthermore the assessment and management of environmental and social risks (ESR) falls under the scope of the OECD and other regulatory bodies and is applicable to all multinational enterprises. We also observe that in some countries ESR management is already part of central bank regulation.
ING’s ESR framework applies globally. Nonetheless, the ESR assessment process specifically focuses on corporate clients (approx. 30% of ING Bank’s assets), and as such clients often have more significant environmental and social impacts. Through the ongoing dialogue with our corporate clients, we aim to support them in managing their environmental and social impacts in accordance with internationally recognised environmental and social standards and good practice.
As a Global Systemically Important Financial Institution (G-SIFI), ING Bank is subject to additional regulatory constraints. The precise impact of these rules and any additional requirements for SIFIs or G-SIFIs will depend on how the CRD IV Directive is transposed into national laws, in particular the extent to which national regulators and supervisors can set more stringent limits and additional capital requirements or surcharges.
Unacceptable Unacceptable risk (1) Unacceptable risk (1) Unacceptable risk (1) Unacceptable risk (1)
In the medium term, this data will allow ING to assess each corporate client’s environmental and sustainability performance and ESR exposure in specific sectors. This will improve our ability to manage ESR risks for individual clients and transactions – irrespective of the product or service ING offers – and improve strategic decision making in sectors that, for example, are more exposed to fossil fuels or have poor labour and safety standards through their supply chain.
The table above illustrates the ESR matrix for clients and transactions with relevant ESR ratings. The aggregation of these ratings is the basis of ING’s ESR portfolio management.
A consistent approach to capital management ING Group’s overall approach to capital management is to make sure all capital levels are adequate, but also to challenge them constantly to ensure optimal use of capital. ING Group optimises and manages capital at the Group level as well as at the Bank level. ING Bank manages its capital within its different entities to ensure all meet local capital requirements.
ING’s Capital Management strategy is driven by the strategic aims of the Group and the risk appetite set by the Board. Our policy is to retain sufficient financial flexibility to meet ING’s strategy in all market conditions. ING’s risk appetite statements are at the foundation of the capital plan. These set targets above the minimum regulatory requirements.
ING Group is well on track to sell all insurance activities by the end of 2016. The successful IPO of NN Group and sell-down of Voya shares has unlocked significant flexibility. ING Group is now in the final stage of restructuring. We will retain full flexibility over the best method for disposal of outstanding shares and divest our remaining stakes while maintaining an orderly market.
Capital developments at ING Group This has been a very important year for ING Group, marking the end of its reliance on financial support from the Dutch State. All of its capital commitments have now been repaid in full.
ING Group’s fully-loaded CET1 ratio is 10.5% at the end of the year. The proposed dividend, to be paid in May 2015, has already been deducted from ING Group’s capital base, in line with regulatory requirements.
ING Bank’s capital position is primarily managed according to its published common equity Tier 1 ratio and leverage ratio. These are ING Bank’s main constraining factors and the most widely used variable for assessing banks’ capitalisation.
› Economic capital. Although it is currently not a constraining factor, economic capital is used to manage the Bank’s risk profile and to set limits.
We have entered the CRR/CRD IV era with a strong capital position, capable of withstanding financial market challenges and new regulations. This provides a strong platform for broadening lending opportunities, supporting our clients and helping to grow the economy.
Prices of depositary receipts for ordinary shares Euronext Amsterdam by NYSE Euronext in EUR 2014 2013 2012
Core Tier 1 securities ING strengthened its capital position in the Autumn of 2008 by issuing EUR 10 billion of non-voting core Tier 1 securities to the Dutch State. These securities have now been repaid and are no longer outstanding.
Score: 69 (out of 100) Not included in World Index or Europe Index
Investors and financial analysts may contact: ING Group Investor Relations (AMP C.03.049) P.O. Box 1800 1000 BV Amsterdam The Netherlands
ING Group 56 Report of the Executive Board ING Shares continued the ING Investors and Media app at www.ing.com mailto:investor.relations%40ing.com?subject=
R.A.J.G. (Ralph) Hamers (48), CEO and chairman Executive Board ING Group and chairman Management Board Banking Ralph Hamers was appointed a member of the Executive Board of ING Group on 13 May 2013. On 1 October 2013, he was appointed CEO and chairman of this Board and of the Management Board Banking. He is also head of Challengers and Growth markets ad interim. Ralph Hamers joined ING in 1991. Before his appointment to the Executive Board, he was CEO of ING Belgium and Luxembourg.
W.L.A. (Bill) Connelly (56), member Management Board Banking and head of Commercial Banking Bill Connelly was appointed to the Management Board Banking as from 1 January 2011. He is also head of Commercial Banking. Prior to this appointment, Bill Connelly combined the roles of global head of Commercial Banking Services and CEO of ING Real Estate Investment Management.
R.M.M. (Roel) Louwhoff (49), member Management Board Banking and chief operations officer Roel Louwhoff was appointed a member of the Management Board Banking on 1 May 2014. He is also chief operations officer (COO) and has global responsibility for Operations & IT, change management and procurement at ING Bank. Prior to this appointment, Roel Louwhoff was CEO of BT Operate. Most relevant ancillary position: Non-Executive Director Transcom Worldwide S.A.
Clockwise from left: Roel Louwhoff, Koos Timmermans, Ralph Hamers, Bill Connelly, Patrick Flynn, Wilfred Nagel
How we defined content for this report and materiality In drawing up content for this report we have taken into account the topics that can have a material impact on our business as well as risks and opportunities, applicable regulation and trends. We are continually listening to key constituencies and as material issues change, we adapt our reporting to fit developing stakeholder expectations. We have undertaken a materiality analysis to guide our reporting with the aim of providing a more balanced and complete picture of our performance over the reporting year.
Audiences This report is intended to serve the information needs of key stakeholder groups that affect, and are affected by our business: customers, employees, shareholders, bondholders, supervisors, regulators, civil society organisations, citizens and society at large. Sustainability rating agencies and analysts can find the content they need for an in-depth analysis of our performance on sustainability in this report and the accompanying sustainability annex.
The detailed scope of the different sustainability performance indicators is highlighted in ING’s sustainability reporting protocol at www.ing.com/sustainability.
The Corporate Governance section starting on page 68 and the paragraphs of the Remuneration report “Remuneration policy for senior management” on page 94 and “2014 remuneration structure senior management” also on page 94 are incorporated by reference in this Report of the Executive Board.
A review is focused on obtaining limited assurance. The procedures performed in obtaining limited assurance are aimed at the plausibility of information which does not require exhaustive gathering of evidence as in engagements focused on reasonable assurance. The performed procedures consisted primarily of making inquiries of management and others within the entity, as appropriate, applying analytical procedures and evaluating the evidence obtained. Consequently a review engagement provides less assurance than an audit.
Procedures performed Our main procedures included the following: › Performing an external environment analysis and obtaining an understanding of the sector, relevant social issues, relevant laws and regulations and the characteristics of the organisation; › Evaluating the acceptability of the reporting policies and their consistent application, such as assessment of the outcomes of the stakeholder dialogue and the reasonableness of assumptions made by management; › Evaluating the in accordance option with the Sustainability Reporting Guidelines G4 (option Comprehensive) of GRI; › Evaluating the design and implementation of the systems and processes for data gathering and processing of information as presented in the Report; › Interviewing management (or relevant staff) at corporate and business division level responsible for the sustainability strategy and policies; › Interviewing relevant staff responsible for providing the information in the Report, carrying out internal control procedures on the data and the consolidation of the data in the Report; › Evaluating internal and external documentation, in addition to interviews, to determine whether the information in the Report is reliable; › Analytical review of the data and trend explanations submitted for consolidation at group level.
NN Group’s successful listing in July 2014 marked the beginning of a new, independent future for the company. This was the culmination of a very intense period for many at ING, with excellent cooperation between the bank and insurance businesses.
The success of the IPO was made possible by the hard work and continued support of many people: customers, employees, shareholders, regulators, the Dutch State and other stakeholders. Together with the reduction of ING’s stake in Voya Financial to 19 percent as at year-end 2014 and full divestment in March 2015, it heralds the endphase of the restructuring.
New technological developments are accelerating change in the business environment for the banking sector, and at ING. The Supervisory Board has discussed the massive shift to mobile. In our view, this creates opportunities for those companies that excel at adapting quickly to customers’ and other stakeholders’ changing needs.
The Supervisory Board held 10 meetings in 2014. The new Bank strategy and the preparation for the NN Group IPO were important topics on the agenda in 2014. The Committees of the Supervisory Board discussed a range of subjects, the main ones being the quarterly results, risk management, corporate governance and human resources.
Supervisory Board meetings The Supervisory Board met 10 times in 2014 of which nine meetings were regular meetings. On average, 96% of the Supervisory Board members were present at the meetings. This attendance rate illustrates that the members of the Supervisory Board are engaged in ING and have sufficient time available to devote the required attention to ING’s affairs. The Executive Board was present at each Supervisory Board meeting, but each Supervisory Board meeting was preceded by a session with only the Supervisory Board members present. Members of the Supervisory Board and senior management also had contacts and meetings outside the regularly scheduled Supervisory Board meetings.
Apart from closely monitoring the financial results in 2014, the Supervisory Board’s main focus during 2014 was the launch of the new Think Forward strategy of ING Bank and the preparation of the initial public offering (IPO) for NN Group. The repayment of the outstanding core Tier 1 securities to the Dutch State also remained an important topic throughout the year. In this context the capital strategy of ING was also regularly discussed.
Permanent education At the annual Supervisory Board Knowledge Day in January 2014, the Supervisory Board was briefed on economic, regulatory, technology and customer behaviour trends. Presentations on innovation, deepening customer relationships and an introduction to predictive analytics were on the agenda. The Supervisory Board was informed on a number of HR topics relating to ING’s talent review process and performance management within ING Bank.
IPO NN Group The Supervisory Board extensively discussed NN Group’s pre-IPO capital structure and approved the proposed measures to further strengthen the capital structure of NN Group. A mandate was given to NN Group to issue subordinated public debt and the NN Group debt prospectus was approved. The Supervisory Board discussed the analyst presentation regarding the NN Group IPO and met twice to take a number of decisions regarding the IPO of NN Group, including approval of the NN Group equity prospectus. The first indication of the price and possible size of the NN Group IPO offering was presented to the Supervisory Board in June. The Supervisory Board decided to appoint a Pricing Committee consisting of Supervisory and Executive Board members, and gave a mandate to the Pricing Committee to extensively review and decide on the proposed offering price range and size of the NN Group IPO. Jeroen van der Veer was appointed chairman of the Pricing Committee, and Joost Kuiper and Hermann Lamberti became members on behalf of the Supervisory Board. Ralph Hamers, Patrick Flynn and Wilfred Nagel were members of the Committee on behalf of the Executive Board. The Pricing Committee met twice in June with no absentees. The Supervisory Board members of the Pricing Committee ratified the decision of the Executive Board members regarding the price and size of the IPO and on 2 July the NN Group IPO was successfully launched. In the second half of 2014, the Supervisory Board discussed proposals on how to further divest NN Group in order to comply with the EC restructuring requirements.
The future composition and nomination of potential candidates of the Supervisory Board was a topic of discussion throughout the year.
The Audit Committee reviewed quarterly press releases, the Annual Report and the Form 20-F report. In the first half of the year the capital plan for NN Group was a topic of frequent debate as well as various disclosures relating to NN Group. An Audit Committee subcommittee devoted particular attention to the Financial Risk Reporting Framework for NN Group. The Audit Committee reviewed and advised positively on the NN Group debt prospectus.
Risk Committee meetings The Risk Committee met five times in 2014. On average, 94.4% of the Risk Committee members were present at the scheduled meetings. All relevant issues discussed in the Risk Committee were reported to the Supervisory Board.
Nomination Committee meetings The Nomination Committee met 10 times in 2014 with no absentees. Following the new Banking strategy the Nomination Committee devoted considerable time to senior executive succession planning for ING Bank. The Nomination Committee supported the nomination of a COO for ING Bank. The Nomination Committee also discussed the future composition and potential candidates for the Management Board Banking, taking into account that two Management Board Banking members, Eli Leenaars and Hans van der Noordaa, had left ING to pursue their careers elsewhere. The future composition of the Supervisory Board for ING Group/Bank was also discussed as two Supervisory Board members would step down to join the future Supervisory Board of NN Group. The Nomination Committee requested an executive recruitment firm to search for Supervisory Board candidates with financial expertise, taking into account ING’s ambition of having at least 30% female Supervisory Board members. Several candidates were interviewed by members of the Nomination Committee in the second half of 2014. The Nomination Committee advised to nominate a candidate for the Supervisory Board at the 2015 AGM. In preparation for the NN Group IPO, the Nomination
ING Insurance Committee meetings The ING Insurance Committee, set up in November 2013, met five times in the first half of 2014 for NN Group. One member was absent once. After the IPO, the ING Insurance Committee was dissolved.
Composition of the Supervisory Board At the Annual General Shareholders’ Meeting on 12 May 2014, Tineke Bahlmann (State nominee) decided to resign from the Supervisory Board since the corporate governance arrangements between ING and the Dutch State had expired as a result of the unwinding of the Illiquid Assets Back-up Facility and the repayment of more than 75% of the remaining core Tier 1 securities. Peter Elverding decided to resign from the Supervisory Board because of his desire to reduce his board commitments. Luc Vandewalle retired from the Supervisory Board having reached the statutory age of 70. Eric Boyer de la Giroday was appointed to the Supervisory Board on 12 May 2014 at the Annual General Meeting.
Corporate governance chapter for more information about the composition of the Supervisory Board committees at year-end 2014.
Appreciation for the Executive Board and ING employees The Supervisory Board would like to thank the members of the Executive Board and the Management Boards for their hard work in 2014. At the end of March the Think Forward strategy was launched and the IPO of NN Group was successfully conducted in July, marking the end of a long and intense process the outcome of which ING can be proud of. For NN Group the listing marked the beginning of a new independent future. The Supervisory Board would also like to thank all employees of ING who continue to serve the interests of customers, shareholders and other stakeholders of ING and have shown continued commitment in the past year.
Clockwise from left: Eric Boyer de la Giroday, Joost Kuiper, Jeroen van der Veer, Hermann-Josef Lamberti, Henk Breukink, Carin Gorter, Robert Reibestein, Isabel Martín Castellá
This section, including the parts of this Annual Report incorporated by reference, together with the separate publication “ING’s implementation of the Dutch Corporate Governance Code” dated April 2010, on the website of ING Group ( ), also serves as the “corporate governance statement“ referred to in section 2a of the Decree with respect to the contents of the annual report (Besluit tot vaststelling van nadere voorschriften omtrent de inhoud van het jaarverslag).(1)
Transactions with the Dutch State The terms and conditions of the support agreements concluded in reaction to the financial crisis between ING Group and the Dutch State in 2008 and 2009 provided for special governance arrangements. Pursuant to these arrangements the Dutch State could recommend two candidates for appointment to the ING Group Supervisory Board, who, being appointed, would have special approval rights.
Shareholder participation and position of ING Trust Office (Stichting ING Aandelen) During the years 2010–2014, participation of shareholders, excluding the ING Trust Office, and holders of depositary receipts in the decision-making in the annual shareholders’ meeting of ING Group (“General Meeting”) consistently increased from 41.3 percent to 54 percent.
principles of the Banking Code regarding remuneration with respect to the members of its Executive Board and considers these principles as a reference for its own corporate governance. ING Group’s remuneration policy for the Executive Board and senior management is compliant with these principles.
› In contrast to the Sarbanes-Oxley Act of 2002, the Corporate Governance Code contains a “comply-orexplain ” principle, offering the possibility of deviating from the Corporate Governance Code as long as any such deviations are explained. To the extent that such deviations are approved by the General Meeting, the company is deemed to be in full compliance with the Corporate Governance Code.
› Dutch law requires that ING Group’s external auditors be appointed at the General Meeting and not by the Audit Committee.
› The shareholder approval requirements for equity compensation plans under Dutch law and the Corporate Governance Code differ from those applicable to US companies which are subject to NYSE’s listing rules that 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 company 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.
The rights of a depositary receipt holder to participate in the discussions and decision-making of the General Meeting are described on page 81.
Share issuances are to be decided by the General Meeting, which may also delegate its authority. Each year, the General Meeting is asked to delegate authority to the Executive Board to issue new ordinary shares or to grant rights to subscribe for new ordinary shares, both with and without pre-emptive rights to existing shareholders. The powers delegated to the Executive Board are limited: › In time: powers are delegated for a period of 18 months.
› In terms of control: resolutions by the Executive Board to issue shares require the approval of the Supervisory Board.
Repurchase of shares ING Group may repurchase outstanding shares and depositary receipts for such shares. Although the power to repurchase shares and depositary receipts for shares is vested in the Executive Board subject to the approval of the Supervisory Board, prior authorisation from the General Meeting is required for these repurchases. Under Dutch law, this authorisation lapses after 18 months. Each year, the General Meeting is asked to approve the Executive Board’s authority to repurchase shares.
b. ING Group if, as a result of which acquisition or disposal his net short position reaches, exceeds or falls below 0.5% of the issued share capital of ING Group and each 0.1% above that.
ING Group publishes a comprehensive quarterly disclosure package which includes extensive and detailed financial figures with relevant explanatory remarks. This information is discussed thoroughly during press and analyst and investor conference calls on the day of the earnings release, which are broadly accessible to interested parties. The publication dates of quarterly earnings releases are announced in advance on ING Group’s corporate website ( ).
The geographical distribution of ING Group’s investor base is diverse – an estimated 38% of our shares are held in the US, 19% in the UK, 9% in France, 6% in Switzerland, 5% in the Netherlands, 5% in Germany, 10% in the Rest of Europe and 8% in the Rest of the World.
These figures are based on year-end 2014 estimates of institutional share ownership provided by NASDAQ Corporate Solutions.
› The relevant holder of depositary receipts may delegate the powers conferred upon him or her by means of the voting proxy, provided that the relevant holder of depositary receipts has announced his or her intention to do so to ING Trust Office observing a term before the commencement of the General Meeting, which term will be determined by ING Trust Office.
Proxy voting facilities The Shareholder Communication Channel (Stichting Communicatiekanaal aandeelhouders) ceased to exist in 2013. ING Group continues to provide proxy voting facilities to its investors via its website and solicits proxies from its ADS holders in line with common practice in the US.
). ING Group indemnifies the members of the Executive Board against direct financial losses in connection with claims from third parties, as far as permitted by law, on the conditions laid down in their employment or commission contract. ING Group has also taken out liability insurance for the members of the Executive Board.
R.A.J.G. (Ralph) Hamers, chief executive officer (Born 1966, Dutch nationality, male; appointed in 2013, term expires in 2017) Ralph Hamers has been a member of the Executive Board of ING Group since 13 May 2013, and was appointed chairman of the Executive Board on 1 October 2013. He joined ING in 1991 and has held various positions including Global Head Commercial Banking Network from 2007 to 2010, Head of Network Management for Retail Banking Direct & International from 2010 to 2011, and CEO of ING Belgium and Luxembourg from 2011 to 2013. He holds a Master of Science degree in Business Econometrics/Operations Research from Tilburg University, the Netherlands.
W.F. (Wilfred) Nagel, chief risk officer (Born 1956, Dutch nationality, male; appointed in 2012, term expires in 2016) Wilfred Nagel was chief executive officer of ING Bank Turkey until his appointment as, amongst other roles, a member of the Management Board Banking as of 5 October 2011. He joined ING in 1991 and held various positions including Global Head Credit Risk Management from 2002 to 2005 and CEO Wholesale Banking in Asia from 2005 to 2010. He was appointed a member of the Executive Board of ING Group on 14 May 2012. He is responsible for ING’s risk management departments including compliance. He holds a Master’s degree in Economics from VU University Amsterdam.
ING Group needs to balance several relevant selection criteria when composing its Supervisory Board but strives for an adequate and balanced composition thereof, by taking into account all relevant selection criteria including, but not limited to experience in retail and wholesale banking, insurance, gender balance, executive experience, experience in corporate governance and experience in the political and social environment. Annually, the Nomination Committee assesses the composition of the Supervisory Board. In the context of such assessment, ING Group aims to have a gender balance by having at least 30% men and at least 30% women amongst its Supervisory Board members. In 2014, Tineke Bahlmann and Yvonne van Rooy stepped down as Supervisory Board members. This means that the composition of the Supervisory Board does not meet the above-mentioned gender balance (25% women).
Under special circumstances however, the Supervisory Board may deviate from this general rule, among others, in order to maintain a balanced composition of the Supervisory Board and/or to preserve valuable expertise and experience. As a general rule, members of the Supervisory Board shall also resign at the end of an Annual General Meeting in the year in which they attain the age of 70 and shall not be reappointed. However, the Supervisory Board may, at its discretion, decide to deviate from this age limit. The schedule for resignation by rotation is available on the website of ING Group ( ).
and decision-making on the topic or the transaction in relation to which he or she has a conflict of interest with ING Group.
Company secretary ING Group’s company secretary is Jan-Willem Vink, general counsel of ING Group.
Committee. Below you will find a charter of the five committees of the Supervisory Board.
The Nomination Committee advises the Supervisory Board, among other things, on the composition of the Supervisory Board and Executive Board. On 31 December 2014, the members of the Nomination Committee were: Jeroen van der Veer (chairman), Henk Breukink, Isabel Martín Castellá and Joost Kuiper.
The Corporate Governance Committee assists the Supervisory Board in monitoring and evaluating the corporate governance of ING as a whole and the reporting thereon in the Annual Report and to the General Meeting and advises the Supervisory Board on improvements.
Remuneration and share ownership The remuneration of the members of the Supervisory Board is determined by the General Meeting and is not dependent on the results of ING Group. Details of the remuneration are provided in the Remuneration report on pages 94-95. Members of the Supervisory Board are permitted to hold shares and depositary receipts for shares in the share capital of ING Group for long-term investment purposes. Details are given on page 96. Transactions by members of the Supervisory Board in these shares and depositary receipts for shares are subject to the ING regulations regarding insiders.
J. (Jeroen) Van der Veer (chairman) (Born 1947, Dutch nationality, male; appointed in 2009, term expires in 2017)
E.F.C.B. (Eric) Boyer de la Giroday (Born 1952, Belgian nationality, male: appointed in 2014, term expires in 2018)
Most relevant ancillary positions: chairman of the Board of Directors ING Belgium S.A./N.V.
Former managing director of F&C and country head for F&C Netherlands (asset management firm).
Former Vice-President and member of the Management Committee of the European Investment Bank.
C.W. (Carin) Gorter (Born 1963, Dutch nationality, female; appointed in 2013, term expires in 2017)
Former Senior Executive Vice-President Compliance, Legal and Security ABN AMRO Bank N.V. and member of the Monitoring Committee Dutch Banking Code.
Change of control clauses in material agreements ING Group is not a party to any material agreement that becomes effective or is required to be amended or terminated, in case of a change of control of ING Group following a public bid as defined in section 5:70 of the Dutch Financial Supervision Act. ING Group subsidiaries may have customary change of control arrangements included in agreements related to various business activities, such as joint venture agreements, letters of credit and other credit facilities, ISDA-agreements, hybrid capital and debt instruments, reinsurance agreements and futures and option trading agreements. Following a change of control of ING Group (as the result of a public bid or otherwise), such agreements may be amended or terminated, leading, for example, to an obligatory transfer of the interest in the joint venture, early repayment of amounts due, loss of credit facilities or reinsurance cover, and liquidation of outstanding futures and option trading positions.
Amendment of the Articles of Association The General Meeting may resolve to amend the Articles of Association, provided that the resolution is adopted on a proposal of the Executive Board, which has been approved by the Supervisory Board. Such a resolution of the General Meeting requires a majority of at least twothirds of the votes cast at a General Meeting, whereby at least two-thirds of the issued share capital is represented. An amendment of the Articles of Association has to be passed by notarial deed.
External auditor At the Annual General Meeting held on 13 May 2013, Ernst & Young Accountants LLP (EY) was appointed to audit the financial statements of ING Group for the financial years 2014 and 2015, 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.
The external auditor may only provide services to ING Group and its subsidiaries with the permission of the Audit Committee.
ING Group’s policy on external auditor independence is available on the website of ING Group ( ).
In these meetings, among other things, the following topics were discussed: › the results of ING Group based on the published figures of 2013 and the quarterly and half-year figures of 2014; › several items on the agenda of the AGM 2014; › the progress in the restructuring of ING Group, more specifically the transfer of the share tranches in Voya and the (planned and executed) IPO on 2 July 2014 of NN Group N.V.; › the results of the stress test and the Asset Quality Review (AQR) and the required core Tier 1 Capital; › the repayment to the Dutch State; › an update on the “Think Forward” strategy of ING Bank.
Meeting of holders of depositary receipts on 19 November 2014 According to the Trust Conditions, ING Trust Office may consult holders of depositary receipts in a separate meeting if and when it considers this necessary or desirable. In addition, one or more holders of depositary receipts who jointly hold at least 10% of the total number of depositary receipts issued by ING Trust Office, may request the Board in writing, setting out the matters to be considered in detail, to convene a meeting of holders of depositary receipts.
ING Trust Office was informed that, although the completion of these divestments may well extend until the end of 2016, the Executive Board and the Supervisory Board have decided that a review of ING Group's entire corporate governance will be conducted in 2015, including the depositary-receipts structure, and that this item will be put on the agenda of the 2016 Annual General Meeting.
Outstanding depositary receipts On 31 December 2014, the nominal value of administered ordinary shares amounted to EUR 926,001,315.12 for which 3,858,338,813 depositary receipts were issued, each with a nominal value of EUR 0.24. During the reporting year, the net number of depositary receipts increased by 17,994,589.
The Board reappointed Paul Frentrop for a final term of four years, as of 1 May 2014 and ending on 1 May 2018. Jan Veraart stepped down as chairman of the Board as of 1 June 2014 and was succeeded by Herman Hazewinkel, who was reappointed as of 1 January 2015 for a final term of four years. Mick den Boogert was also reappointed as of 1 January 2015 for a second term.
The annual remuneration for the chairman of the Board amounts EUR 25,000 and for the other members of the Board EUR 20,000.
Costs In 2014, the costs of the activities of ING Trust Office amounted EUR 523,311 (2013 EUR 456,320).
No external expert advice has been called in by ING Trust Office in 2014.
The composition of the Board is currently as follows: Sebastian Kortmann, chairman of the Board, Rob van den Bergh, Allard Metzelaar who was reappointed as of 13 May 2014, and Wim van Vonno.
› provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use or disposition of our assets that could have a material effect on our financial statements.
This chapter sets out the remuneration policy for the Executive Board, senior management and the Supervisory Board. After repayment of the Dutch State and the introduction of the Dutch Law on Remuneration Policies of Financial Undertakings (Wbfo), the Remuneration Committee of the Supervisory Board reviewed the current remuneration policy for the Executive Board. The Remuneration Committee proposed to amend the remuneration policy, as set out on page 93, which was adopted by the full Supervisory Board and which will be submitted for shareholder approval at the annual General Meeting on 11 May 2015. Following adoption of this amendment, the amended remuneration policy will become effective as of performance year 2015. In addition, the Remuneration Report provides information on the remuneration levels for 2014.
In determining compensation of ING’s leadership a variety of factors are taken into consideration, such as the complexity of functions, the scope of responsibilities, the alignment of risks and rewards, national and international legislation and the long-term objectives of the Company and its stakeholders, which is all the more important given the changing international standards regarding responsible and sound remuneration. These factors differ for each role, line of business and country. As much as possible for a global financial institution of this size, ING is taking account of all these differences and of the standards applied within similar financial institutions in the various countries in which it operates.
Total direct compensation: reduced emphasis on variable remuneration Total direct compensation levels are based on market data that include peers both inside and outside the financial sector in the international context in which ING operates. Total direct compensation is benchmarked against a peer group of companies that, in the opinion of the Supervisory Board, are comparable with ING in terms of size and scope. In line with the foregoing, the Supervisory Board has determined that the peer group consists of the companies in the Dow Jones Euro Stoxx 50 index. These are 50 companies, including ING, in a range of financial and non-financial industries, which are based in countries within the eurozone.
Increased focus on risk and non-financial performance Variable remuneration is linked to performance and will take into consideration both individual and company performance criteria. Performance measurement will account for risk requirements and cost of capital. In addition to financial indicators, performance will also be assessed based on non-financial drivers, by means of a number of targets regarding economic, environmental, customer satisfaction and social criteria.
Variable remuneration will not exceed 100% of base salary at the time of allocation. The policy provides for an at-target variable remuneration of 80% of base salary if performance criteria are met (split 50/50 in cash and shares (1)). If performance criteria are exceeded, the variable component can be increased from target to maximum, not exceeding 100% of base salary at the time of allocation. If performance is below target, the variable component will be decreased or not awarded.
In line with applicable regulations, at maximum 40% of total variable remuneration is awarded “upfront” in the year following the performance year. The remaining part of the total variable remuneration (at minimum 60%) is deferred. It is subject to tiered vesting on the first, second and third anniversary of the grant date (one-third per annum). The entire long-term component is subject to an ex-post performance assessment by the Supervisory Board. The ex-post performance assessment cannot lead to an upward adjustment of the deferred variable remuneration.
Pensions Executive Board members In the AGM of 12 May 2014, it was decided that members of the Executive Board appointed after 1 January 2015 will be given the choice to join the Collective Defined Contribution pension scheme based on a fixed premium methodology or to receive a pension allowance. Members of the Executive Board appointed before 1 January 2015 were given the same choice as from 1 July 2014. In addition, individual Executive Board members participating in the pension plan that existed before the introduction of the 2010 plans (approved by the 2006 AGM) were given the choice to keep their existing pension arrangement.
As indicated in the remuneration policy the performance of the Executive Board will be assessed based on financial and non-financial performance indicators.
Financial performance indicators include: Non-financial performance indicators include: 1. Underlying net results for ING Group 2. Reduce double leverage in ING Group 3. Repayment of the Dutch State 4. IPO NN Group 1. Develop and launch an adjusted Bank strategy for organisation, governance and people management 2. Develop an ING IR strategy in line with the adjusted ING strategy 3. Further strengthen the operational and legal structure 4. Develop an updated sustainability strategy and agenda for the bank 5. Develop and implement a forward-looking risk appetite strategy 6. Enhance the Non-Financial Risk management
Total direct compensation of the individual members of the Executive Board amounts in thousands of euros amount number of shares amount number of shares amount number of shares
Base salary 1,270 794 Variable remuneration in cash – – Variable remuneration in shares – – – –
Pension costs of the individual members of the Executive Board amounts in thousands of euros 2014 2013 2012
(1) Ralph Hamers was appointed to the Executive Board on 13 May 2013. The 2013 pension costs for him reflect the partial year as an Executive Board member.
There were no pension costs for former members of the Executive Board in the past three years.
Long-term incentives awarded in previous years In 2014 no long-term incentives were awarded to the Executive Board members.
A retention period of five years as from the grant date applies to all share and option awards granted to Executive Board members. During this five-year period, the Executive Board members are only allowed to sell part of their shares at the date of vesting to pay tax over the vested amount of the award.
(1) Performance shares are shares conditionally granted with the final shares awarded based on ING’s performance at the end of each performance cycle.
Benefits The individual members of the Executive Board receive other emoluments apart from the compensation and pension benefit. These other emoluments include employer contributions in saving schemes or are related to long home/work distances and housing, and amounted in 2014, 2013 and 2012 to the following gross amounts: Other emoluments amounts in thousands of euros 2014 2013 2012
Loans and advances to Executive Board members The table below presents the loans and advances provided to Executive Board members and outstanding on 31 December 2014, 2013 and 2012.
ING shares held by members of the Executive Board number of shares 2014 2013 2012
In 2010 the AGM approved the existing Executive Board remuneration policy. During the period in which ING was subject to the Prohibition Act on Variable Remuneration, ING could not remunerate the Executive Board members in accordance with the remuneration policy.
New legislation The impact of the Wbfo on the total direct compensation of the members of the Executive Board will even further increase the gap with ING’s peers. In accordance with the current policy, variable remuneration levels of the Executive Board are set at 80% (of base salary) in case of at target performance and 100% (of base salary) as a maximum in case of outperformance. The Wbfo introduces a variable remuneration cap of maximum 20% of base salary. Applying these lower variable remuneration caps will reduce the ING Executive Board remuneration levels to the lowest quartile in the benchmark which is not sustainable, considering ING's international footprint. ING is serving 32 million clients across 40 countries. At least 70% of employees work outside the Netherlands and 65% of total income is earned abroad.
To be able to attract and retain highly qualified leaders, ING cannot afford prolonged significant downward deviation from the median remuneration levels of its peers.
2015 Remuneration Executive Board As a result of the Wbfo, the members of the Executive Board will be eligible for at target variable remuneration of 16% of base salary if performance criteria (as predetermined by the Supervisory Board) are met. If performance criteria are exceeded, the variable component can be increased from target to maximum, in total not exceeding 20% of base salary at the time of allocation. Any variable remuneration will be fully awarded in shares and will be subject to the agreed deferral arrangements (40% is awarded “upfront” in the year following the performance year and the remaining 60% is deferred with a 3 year tiered vesting) as laid down in the 2010 Executive Board remuneration policy. The impact of this reduction of variable remuneration is a decrease of total compensation at target (according to policy) of 35%; from EUR 2,286,000 to EUR 1,473,000 for the CEO and from EUR 1,620,000 to EUR 1,044,000 for the CFO/CRO. Taking the benchmark position of ING into account, this made the Supervisory Board decide to adjust the remuneration level of the members of the Executive Board, by increasing the fixed remuneration.
2015 Executive Board Pensions As of 1 January 2015, all members of the Executive Board are participating in the Collective Defined Contribution (CDC) pension scheme. Following the introduction of legislation with effect from 1 January 2015 pursuant to which pension premiums on salaries in excess of EUR 100,000 are no longer exempt or deductible from wage tax, the Executive Board members are compensated for the resulting loss of pension accrual by means of a cash allowance to be annually determined in accordance with the CLA.
Remuneration policy for senior management As much as possible for a global financial institution of its size, ING aims to take account of all the differences and standards applied within similar financial institutions in the various countries in which it operates. The
(1) Variable Remuneration (2) Total Direct Compensation amounts in thousands of euros amounts in thousands of euros remuneration policies applicable to members of the Management Boards and senior management are in line with international and local legislation and practices, which may therefore deviate from the remuneration policy for members of the Executive Board.
Furthermore, and in addition to financial indicators, performance is also assessed on non-financial drivers. Nonfinancial indicators aim at further improving sustainable business practices. Non-financial indicators include customer satisfaction, workforce diversity, stakeholder engagement and sustainable business practices.
With effect from 1 January 2014, the Capital Requirements Directive IV led to a significant increase in the number of ING’s identified staff. All these identified staff are subject to the requirements set by Capital Requirements Directive IV. ING has continued to review and amend the remuneration for its identified staff in order to comply with the Capital Requirements Directive IV. The requirements relate to the allocation of variable remuneration and the ratio between fixed and variable remuneration and are intended to mitigate risk relating to remuneration. Measures include an ex-ante and ex-post assessment of variable remuneration prior to award and vesting respectively, significant deferral of variable remuneration, an equal divide between variable remuneration in cash and in shares, as well as retention periods on all equity remuneration as soon as it becomes unconditional.
Variable remuneration cap for certain employees The Wbfo has introduced restrictions on the ratio between fixed and variable remuneration for all global staff of Dutch credit institutions and their subsidiaries in the Netherlands and abroad.
In order to maintain ING´s competitive position in these markets and to minimize any disadvantages in its ability to recruit and retain key employees and taking into account that this does not limit the ability of the Company to strengthen its capital base, the Executive Board and the Supervisory Board deem it in the best interest of the Company to increase the cap up to 200% for a select group of staff working in the Commercial Banking (including Lending Services, Financial Markets and other departments within Commercial Banking) and Bank Treasury businesses.
Taking the above into account approval is sought in the Annual General Meeting for any and all resolutions regarding the increase of the maximum ratio between the fixed and variable components of remuneration from 100% to 200%, by the subsidiaries of the Company for no more than 1% of ING’s global staff for each of the performance years 2014, 2015 and 2016.
For performance year 2014 this increased ratio may be applied to identified staff globally and for performance years 2015 and 2016 the application of this increased ratio is restricted to all staff employed outside the EEA.
Remuneration Supervisory Board The annual remuneration of the Supervisory Board members as adopted by the General Meetings in 2006 and 2008 amounts to: chairman EUR 75,000, vicechairman EUR 65,000, other members EUR 45,000. In addition to the remuneration each member receives an expense allowance. For the chairman and vice-chairman the annual amount is EUR 6,810. For the other members the amount is EUR 2,270.
The remuneration levels for Supervisory Board members will be reviewed in 2015 as a consequence of increased level of responsibility and the increased frequency and intensity of Supervisory Board meetings.
2014 Remuneration Supervisory Board amounts in thousands of euros Remuneration VAT Remuneration VAT
(1) As per 1 January 2013 new VAT legislation was implemented based on which the Dutch SB members qualify as VAT taxable persons and are obliged to charge 21% VAT to ING on their remuneration.
Loans and advances to Supervisory Board members Supervisory Board members may obtain banking and insurance services from ING Group subsidiaries in the ordinary course of their business and on terms that are customary in the sector. The Supervisory Board members do not receive privileged financial services. The table below presents the loans and advances to Supervisory Board members outstanding on 31 December 2014, 2013 and 2012.
(1) The amount reflects a housing mortgage loan granted in 1992, well before Jeroen van der Veer's appointment to the Supervisory Board.
(1) The numbers reflect the shares held by the members of the Supervisory Board and their partners. (2) Hermann-Josef Lamberti is a member of the Supervisory Board as of May 2013. (3) Eric Boyer de la Giroday is a member of the Supervisory Board as of May 2014.
Additional notes to the consolidated annual accounts 41 Pension and other post-employment benefits 187 43 Fair value of assets and liabilities 197 44 Derivatives and hedge accounting 211 45 Assets by contractual maturity 213 46 Liabilities by maturity 214 47 Assets not freely disposable 215 48 Transfer of financial assets 216 49 Offsetting financial assets and liabilities 217 50 Contingent liabilities and commitments 221 51 Legal proceedings 222 52 Companies and businesses acquired and divested 224 53 Principal subsidiaries 229 54 Structured entities 231 55 Related parties 233 56 Transactions with the Dutch State and the European
ASSETS Cash and balances with central banks 2 12,233 13,316 17,657 Amounts due from banks 3 37,119 42,996 39,053 Financial assets at fair value through profit and loss 4
Deferred acquisition costs 11 1,353 4,549 Assets held for sale 12 165,532 156,884 65,596
Continuing operations Interest income banking operations 48,163 51,394 60,003 Interest expense banking operations –35,859 –39,693 –48,119 Interest result banking operations 23 12,304 11,701 11,884
Result on disposals of group companies 25 195 27 1,604 Gross commission income 3,297 3,303 3,024 Commission expense –1,004 –1,099 –977
Addition to loan loss provisions 6 1,594 2,289 2,125 Intangible amortisation and other impairments 30 88 136 203
Discontinued operations 33 Net result from discontinued operations 746 705 1,001 Net result from classification as discontinued operations –470 –42 –394 Net result from disposal of discontinued operations –1,572 17 752 Total net result from discontinued operations –1,296 680 1,359
Earnings per ordinary share from discontinued operations 34 Basic earnings per ordinary share from discontinued operations –0.37 0.13 0.34 Diluted earnings per ordinary share from discontinued operations –0.36 0.13 0.34
Reference is made to Note 42 ‘Taxation’ for the disclosure on the income tax effects on each component of the other comprehensive income.
Disposals and redemptions: – group companies (including cash in company disposed) –1,216 –4,638 –6,536 – associates and joint ventures 2,505 462 92 – available-for-sale investments 69,444 129,243 137,418 – held-to-maturity investments 1,172 3,439 2,308 – real estate investments 192 265 290 – property and equipment 55 61 71 – assets subject to operating leases 3 – investments for risk of policyholders 28,003 65,528 72,201
Repayments of subordinated loans –375 –1,470 –10 Proceeds from borrowed funds and debt securities 146,714 156,663 332,492 Repayments of borrowed funds and debt securities –151,471 –164,738 –333,165 Repayment of non-voting equity securities –1,500 –750 –750 Repurchase premium (2) –750 –375 –375 Payments to acquire treasury shares –31 –17 Sales of treasury shares 17 119 160 Proceeds of IPO NN Group 14 1,747 Proceeds of IPO Voya 14 1,848 Proceeds from issuance of Undated Subordinated Notes 986 Net cash flow from/(used in) financing activities –4,663 –8,703 –1,665
Cash and cash equivalents at beginning of year 17,180 24,150 34,280 Effect of exchange rate changes on cash and cash equivalents –4 882 219 Cash and cash equivalents at end of year 38 17,113 17,180 24,150
(1) Result before tax includes results from continuing operations of EUR 3,707 million (2013: EUR 4,167 million; 2012: EUR 4,241 million) as well as results from discontinued operations of EUR –1,025 million (after tax EUR –1,296 million), for 2013 EUR 732 million (after tax EUR 680 million) and for 2012 EUR 1,441 million (after tax EUR 1,359 million).
ING Group 104 Consolidated annual accounts Consolidated statement of cash flows of ING Group
Notes to the consolidated annual accounts amounts in millions of euros, unless stated otherwise
IFRS 11 Amounts due from banks –16 Loans and advances to customers –8 –19 Investments in associates and joint ventures 273 258 Real estate investments –96 –98 Assets held for sale –443 –2,876 Other assets –230 –252 Impact on Total assets –520 –2,987
Amounts due to banks –57 Customer deposits and other funds on deposit –8 –73 Other liabilities –12 –38 Liabilities held for sale –443 –2,876 Impact on Total liabilities –520 –2,987
Net result from continuing and discontinued operations (after change in accounting policy) 3,810 4,523
Basic earnings (before change in accounting policy) 2,706 3,519 3,825.0 3,796.1 0.71 0.93 Impact of Japan Closed Block VA change in accounting policy 313 201 0.08 0.05 Basic earnings (after change in accounting policy) 3,019 3,720 3,825.0 3,796.1 0.79 0.98
Diluted earnings (before change in accounting policy) 2,706 3,519 3,833.5 3,802.4 0.71 0.93 Impact of Japan Closed Block VA change in accounting policy 313 201 0.08 0.05 Diluted earnings (after change in accounting policy) 3,019 3,720 3,833.5 3,802.4 0.79 0.98
In 2014, NN Group is presented as Assets and liabilities held for sale and discontinued operations because it is assessed highly probable that ING will lose control within a year. As a result of the classification to held for sale and discontinued operations, goodwill and certain other non-current non-financial assets amounting to EUR 470 million were written-off as the fair value less cost to sell was lower than the carrying value of the disposal group. The write-off is presented in the profit and loss account in the line ‘Net result from classification as discontinued operations’.
Voya In May 2013, ING Group sold 28.8% of its interest in Voya (‘Voya’, formerly Insurance ING U.S., and a wholly owned subsidiary of ING Group) through an initial public offering (‘IPO’). In October 2013, ING Group further reduced its interest in Voya to 56.5%. The 2013 divestment transactions did not impact the profit and loss account of ING Group, as Voya continued to be fully consolidated. From the third quarter of 2013 Voya was presented as Assets and liabilities held for sale and discontinued operations because it was assessed highly probable that ING would lose control within a year.
In September 2014, ING Group sold a further 10.8% to reduce ING Group’s interest in Voya to 32.5%. ING Group sold 22.3 million Voya shares in the public offering. In addition ING Group sold to Voya 7.7 million shares for an aggregate amount of USD 300 million. The gross proceeds to ING Group from the public offering and the concurrent repurchase by Voya amounted to EUR 888 million (USD 1.2 billion). These transactions resulted in an after tax profit of EUR 40 million and are recognised in the profit and loss account in the line Net result from disposal of discontinued operations.
Reference is made to Note 12 ‘Assets and liabilities held for sale’, Note 14 ‘Equity’, Note 33 ‘Discontinued operations and Note 57 ‘Other events’ and Note 58 ‘Subsequent events’.
Significant upcoming other changes in IFRS-EU after 2014 IFRS 15 ‘Revenue from Contracts with Customers’ In May 2014, the IASB issued IFRS 15 ‘Revenue from Contracts with Customers’. The standard is effective for annual periods beginning on or after 1 January 2017 with early adoption permitted. IFRS 15 is not yet endorsed by the EU. IFRS 15 provides a principles-based approach for revenue recognition, and introduces the concept of recognising revenue as and when the agreed performance obligations are satisfied. The standard should in principle be applied retrospectively, with certain exceptions. ING is currently assessing the impact of this standard.
IFRS 9 ‘Financial Instruments’ IFRS 9 ‘Financial Instruments’ was issued by the IASB in July 2014. The new requirements become effective as of 2018. IFRS 9 is not yet endorsed by the EU. IFRS 9 is replacing IAS 39 ‘Financial Instruments: Recognition and Measurement’, and includes requirements for classification and measurement of financial assets and liabilities, impairment of financial assets and hedge accounting.
Reference is made to Note 43 ‘Fair value of assets and liabilities’ for more disclosure on fair values of real estate investments.
To include credit risk in the fair valuation, ING applies both credit and debit valuation adjustments (CVA, DVA). Own issued debt and structured notes that are valued 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 CVA. The CVA is of a bilateral nature as both the credit risk on the counterparty as well as the credit risk on ING are included in the adjustment. All market data that is used in the determination of the CVA is based on market implied data. Additionally, wrong-way risk (when exposure to a counterparty is increasing and the credit quality of that counterparty decreases) and right-way risk (when exposure to a counterparty is decreasing and the credit quality of that counterparty increases) are included in the adjustment. ING also applies CVA for pricing credit risk into new external trades with counterparties. To address the risk associated with the illiquid nature of the derivative portfolio, ING applies an additional ‘liquidity valuation adjustment’. The adjustment is based on the market price of funding liquidity and is applied to the uncollateralised derivatives. This additional discounting is taken into account in both the credit and debit valuation adjustments.
Investments in associates held for sale Associates held for sale are measured at the lower of the carrying value and fair value less costs to sell. Any subsequent decrease in fair value below this carrying amount will be recognised in the profit and loss account. Subsequent increases in fair value will only be recognised to the extent that these are a reversal of previously recognised decreases in fair value. Changes in fair value include both changes in market value of the listed shares and the related foreign currency impact. Any dividend received is recognised as income in the profit and loss account if and when declared.
Analysis of insurance business Where amounts in respect of insurance business are analysed into ‘life’ and ‘non-life’, health and disability insurance business which is similar in nature to life insurance business is included in ‘life’.
Foreign currency translation Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in euros, which is ING Group’s functional and presentation currency.
Dividend income from equity instruments classified as at fair value through profit and loss is generally recognised in Investment income in the profit and loss account when dividend has been declared. Investment result from investments for risk of policyholders is recognised in investment result for risk of policyholders. For derivatives reference is made to the ‘Derivatives and hedge accounting’ section. For all other financial assets classified as at fair value through profit and loss changes in fair value are recognised in Net trading income.
Repurchase transactions and reverse repurchase transactions Securities sold subject to repurchase agreements (‘repos’) are retained in the consolidated financial statements. The counterparty liability is included in Amounts due to banks, Other borrowed funds, Customer deposits and other funds on deposit, or Trading as appropriate.
Property and equipment Property in own use Land and buildings held for own use are stated at fair value at the balance sheet date. Increases in the carrying amount arising on revaluation of land and buildings held for own use are credited to the revaluation reserve in shareholders’ equity. Decreases in the carrying amount that offset previous increases of the same asset are charged against the revaluation reserve directly in equity; all other decreases are charged to the profit and loss account. Increases that reverse a revaluation decrease on the same asset previously recognised in net result are recognised in the profit and loss account. Depreciation is recognised based on the fair value and the estimated useful life (in general 20–50 years). Depreciation is calculated on a straight-line basis. On disposal the related revaluation reserve is transferred to retained earnings.
Adjustments to the fair value as at the date of acquisition of acquired assets and liabilities that are identified within one year after acquisition are recognised as an adjustment to goodwill; any subsequent adjustment is recognised as income or expense. On disposal of group companies, the difference between the sale proceeds and carrying value (including goodwill) and the unrealised results (including the currency translation reserve in equity) is included in the profit and loss account.
For other types of flexible life insurance contracts DAC is amortised over the lives of the policies in relation to the emergence of estimated gross profits. Amortisation is adjusted when estimates of current or future gross profits, to be realised from a group of products, are revised. The estimates and the assumptions are reassessed at the end of each reporting period. Higher/lower expected
Other post-employment obligations Some group companies provide post-employment healthcare and other benefits to certain employees and former employees. The entitlement to these benefits is usually conditional on the employee remaining in service up to retirement age and the completion
of a minimum service period. The expected costs of these benefits are accrued over the period of employment using an accounting methodology similar to that for defined benefit pension plans.
Government grants Government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, the grant is recognised over the period necessary to match the grant on a systematic basis to the expense that it is intended to compensate. In such case, the grant is deducted from the related expense in the profit and loss account.
Loans and advances to banks include balances (mainly short-term deposits) with central banks amounting to EUR 3,105 million (2013: EUR 5,393 million).
Reference is made to Note 47 ‘Assets not freely disposable’ for restrictions on Amounts due from banks.
Exposure to debt securities ING Group’s exposure to debt securities is included in the following balance sheet lines: Debt securities (1)
Available-for-sale investments 92,684 130,632 Held-to-maturity investments 2,239 3,098 Loans and advances to customers 10,579 21,914 Amounts due from banks 2,583 3,059 Available-for-sale investments and Assets at amortised cost 108,085 158,703
(1) Excludes exposure to debt securities related to businesses classified as held for sale. In 2014 mainly NN Group (2013: mainly Voya).
In 2014, the change in Exposure to debt securities includes EUR –63,749 million (EUR –69,959 million as per classification date) related to the classification of NN Group as held for sale. Reference is made to Note 12 ‘Assets and liabilities held for sale’ and Note 57 ‘Other events’.
ING Group’s total exposure to debt securities included in available-for-sale investments and assets at amortised cost of EUR 108,085 million (2013: EUR 158,703 million) is specified as follows by type of exposure and by banking and insurance operations: Debt securities by type and balance sheet lines - Available-for-sale investments and Assets at amortised cost (banking operations)
Government bonds 43,307 43,307 Covered bonds 721 721 Corporate bonds 6,436 6,436 Financial institutions’ bonds 4,303 4,303 Bond portfolio (excluding ABS) 54,767 54,767
Approximately 90% (2013: 90%) of the exposure in the ABS portfolio is externally rated AAA, AA or A.
The Dutch Government Debt Securities related to the restructured Illiquid Assets Back-Up Facility (‘IABF’) was classified as Loans and advances to customers until repayment by the Dutch Government in early 2014 (2013: EUR 2.5 billion (USD 3.4 billion)). Reference is made to Note 56 ‘Transactions with the Dutch State and the European Commission Restructuring Plan’.
Loans to, or guaranteed by, public authorities 26,504 29,132 18,894 15,119 45,398 44,251
In 2014, the change in Loans to, or guaranteed by, public authorities includes the repayment of EUR 2.7 billion by the Dutch State on the Illiquid Assets Back-Up Facility (‘IABF’) loan. In 2013, EUR 6.1 billion was repaid by the Dutch State on the IABF loan.
TMB Public Company Limited TMB Public Company Limited (‘TMB’), is a public listed retail bank in Thailand.
Share of results In 2014, Share of results of EUR 138 million (2013: EUR 150 million) and impairments of nil (2013: nil) are presented in the profit and loss account in Share of result from associates and joint ventures for EUR 138 million (2013: EUR 150 million).
Transfers to and from Property in own use 26 Transfers to and from Other assets –6 –61 Fair value gains/(losses) 3 –5 Disposals –192 –265 Exchange rate differences –2 Changes in the composition of the group and other changes –1,119 –11 Closing balance 80 1,046
In 2014, Changes in the composition of the group and other changes includes EUR –1,022 million related to the classification of NN Group as held for sale. Reference is made to Note 12 ‘Assets and liabilities held for sale’ and Note 57 ‘Other events’.
Real estate investments 80 1,046 Investments in associates and joint ventures 159 1,085 Other assets – property development and obtained from foreclosures 405 746 Property and equipment – property in own use 1,020 1,243 Investments – available-for-sale 99 1,495
(1) Excludes exposure to real estate related to businesses classified as held for sale. In 2014 mainly NN Group (2013: mainly Voya).
Gross carrying amount as at 31 December 1,840 2,169 Accumulated depreciation as at 31 December –612 –696 Accumulated impairments as at 31 December –208 –230 Net carrying value as at 31 December 1,020 1,243
Most recent appraisal in the current year 57 63 Most recent appraisal one year ago 14 17 Most recent appraisal two years ago 18 10 Most recent appraisal three years ago 4 4 Most recent appraisal four years ago 7 6
Changes in equipment Data processing equipment Fixtures and fittings and other equipment Total
Goodwill is allocated to goodwill reporting units as follows: Goodwill allocation to reporting units
Goodwill impairment testing Goodwill is tested for impairment at the lowest level at which it is monitored for internal management purposes. This level is defined as the so called ‘reporting units’ as set out above. Goodwill is tested for impairment by comparing the carrying value of the reporting unit to the best estimate of the recoverable amount of that reporting unit. The carrying value is determined as the IFRS-EU net asset value including goodwill. The recoverable amount is estimated as the higher of fair value less cost to sell and value in use. Several methodologies are applied to arrive at the best estimate of the recoverable amount.
Amortisation and unlocking –249 –1,885 –7 –7 –256 –1,892 Effect of unrealised revaluations in equity 660 660 Exchange rate differences 31 –494 31 –494 Changes in the composition of the group and other changes –1,381 –2,094 –53 –1,434 –2,094
In 2013, Changes in the composition of the group and other changes included EUR –4,416 million as a result of the classification of Voya as held for sale and EUR 2,409 million as a result of the classification to continuing operations of ING Japan.
In 2013, the separate reporting of the Japan Closed Block VA business line triggered a write-off of all deferred acquisition costs (DAC) related to the Japan Closed Block VA business of EUR 1,405 million, partly compensated by a release of the Life insurance provision related to unearned revenues of EUR 867 million. The write-off was included in Amortisation and unlocking. Reference is made to Note 33 ‘Discontinued operations’.
For flexible life insurance contracts the growth rate assumption used to calculate the amortisation of the deferred acquisition costs for 2013 was 6.0% gross and 4.3% net of investment management fees. Percentages were based on the portfolios from continuing operations.
As at 31 December 2013, Assets and liabilities held for sale related to Voya and the remaining ING Insurance and investment management businesses in Asia (‘Asia’) excluding ING Japan.
NN Group In July 2014, ING Group sold 31.9% of its interest in NN Group (a wholly owned subsidiary of ING Group) through an Initial Public Offering (‘IPO’) and transactions with anchor investors and underwriters reducing its remaining interest in NN Group to 68.1%. These partial divestment transactions did not impact the profit and loss account of ING Group in 2014, as NN Group continued to be fully consolidated. Reference is made to Note 14 ‘Equity’.
Voya As of 30 September 2013, Voya was presented as Assets and liabilities held for sale and discontinued operations because it was assessed highly probably that ING would lose control within a year. The sale in March 2014 of 37.7 million shares reduced ING Group’s stake in Voya to approximately 43.2%, from 56.5% as at 31 December 2013. Following this transaction, Voya was deconsolidated and was accounted for as an associate held for sale. The investment in Voya was recognised at its fair value which amounted to EUR 2,914 million at the date when control was lost.
If ING would sell its entire equity interest in Voya, this interest may be sold at a discount to the quoted market price.
Debt securities in issue 2,548 Other borrowed funds 7,341 138 Insurance and investments contracts 119,237 135,851 51,828 Amounts due to banks 56 Customer deposits and other funds on deposit 5,911 14,207 Financial liabilities at fair value through profit and loss 3,100 2,554 2,081 Other liabilities 6,487 5,310 –619
Provision for life insurance for risk of policyholders 39,671 46 39,717 Life insurance provisions 113,196 160 113,356
Deferred acquisition costs (DAC) For flexible life insurance contracts the average growth rate assumption used to calculate the amortisation of the DAC for 2014 is 6.4% gross and 4.8% net of investment management fees.
The fair values of the financial instruments carried at fair value were determined as follows: Methods applied in determining fair values of financial assets and liabilities – Held for sale – NN Group 2014 Level 1 Level 2 Level 3 Total
Investments for risk of policyholders 36,997 3,985 240 41,222 Non-trading derivatives 152 6,944 7,096 Financial assets designated as at fair value through profit and loss 454 38 492 Available-for-sale investments 51,445 18,981 1,851 72,277
Financial liabilities Non-trading derivatives 30 3,069 3,099 Investment contracts (for contracts at fair value) 1,515 54 1,569
Level 3 Financial assets at fair value Financial assets measured at fair value in the balance sheet as at 31 December 2014 of EUR 121.8 billion include an amount of EUR 2.7 billion (2.2%) that is classified as Level 3 (31 December 2013: EUR 3.1 billion (3.0%)).
Financial assets in Level 3 include both assets for which the fair value was determined using valuation techniques that incorporate unobservable inputs and assets for which the fair value was determined using quoted prices, but for which the market was not actively trading at or around the balance sheet date. Unobservable inputs are inputs which are based on NN Group’s own assumptions about the factors that market participants would use in pricing an asset, developed based on the best information available in the circumstances. Unobservable inputs may include volatility, correlation, spreads to discount rates, default rates and recovery rates, prepayment rates and certain credit spreads. Fair values that are determined using valuation techniques using unobservable inputs are sensitive to the inputs used. Fair values that are determined using quoted prices are not sensitive to unobservable inputs, as the valuation is based on unadjusted external price quotes. These are classified in Level 3 as a result of the illiquidity in the relevant market, but are not significantly sensitive to NN Group’s own unobservable inputs.
Key assumptions Key assumptions in the valuation of private equity investments are the Earnings multiples and the Marketability/liquidity adjustments. The Marketability/liquidity adjustment is typically in the range of 10% to 20%. Earnings multiples used range from 2.8x to 8.8x (2013: 2.6x to 10.1x) after Marketability/liquidity adjustment (net).
Financial assets designated as at fair value through profit and loss 37 943 813 1,793 Available-for-sale investments 4,315 47,878 613 52,806
Methods applied in determining fair values of non-financial assets - Held for sale - Voya 2013 Level 1 Level 2 Level 3 Total
Reclassifications to Loans and advances to customers in 2009 In the second quarter of 2009 NN Group reclassified certain financial assets from Investments available-for-sale to Loans and advances to customers. NN Group identified assets, eligible for reclassification, for which at the reclassification date it had the intention to hold for the foreseeable future. The table below provides information on this reclassification. Information is provided for this reclassification as at the date of reclassification and as at the end of the subsequent reporting periods. This information is disclosed under IFRS-EU as long as the reclassified assets continue to be recognised in the balance sheet.
In 2014, the change in Other assets includes EUR –3,641 million (EUR –3,607 million as per classification date) as a result of the classification of NN Group as held for sale and EUR –195 million related to the deconsolidation of Vysya. Reference is made to Note 12 ‘Assets and liabilities held for sale’ and Note 57 ‘Other events’.
Disclosures in respect of Net defined benefit assets are provided in Note 41 ‘Pension and other post-employment benefits’ and deferred tax assets are provided in Note 42 ‘Taxation’.
In 2013, the change in Other assets includes EUR –2,495 million as a result of the classification of Voya as held for sale and EUR 1,251 million as a result of the classification to continuing operations of ING Japan.
Gross carrying amount as at 31 December 887 1,601 Accumulated impairments as at 31 December –482 –855 Net carrying value 405 746
Accrued interest and rents Accrued interest and rents includes EUR 3,152 million (2013: EUR 4,541 million) accrued interest on assets measured at amortised cost under the IAS 39 classification Loans and receivables.
In 2014, ING Groep N.V. issued 18.0 million (depositary receipts for) ordinary shares at par value (2013: 9.3 million) in order to fund obligations arising from share-based employee incentive programmes. No changes occurred in the issued share capital in 2012.
Share premium In 2014 and in 2013, share premium increased with EUR 8 million and EUR 4 million respectively as a result of issuance of ordinary shares for share-based employee incentive programmes. No changes occurred in the share premium in 2012.
Impact of NN Group relates to the IPO of NN Group as explained in Note 57 ‘Other events’.
Changes in composition of the group and other changes includes EUR –502 million related to the deconsolidation of Voya. Reference is made to Note 12 ‘Assets and liabilities held for sale’ and Note 57 ‘Other events’.
Changes in composition of the group and other changes includes a decrease of EUR 3,279 million in Retained earnings as result of the transfer of part of the Net defined benefit asset/liability remeasurement reserve due to the financial independence of the Dutch ING Pension Fund. Furthermore, Changes in composition of the group and other changes also includes EUR 87 million related to the deconsolidation of Voya. Reference is made to Note 12 ‘Assets and liabilities held for sale’, Note 41 ‘Pension and other postemployment benefits’ and Note 57 ‘Other events’.
Minimum capital requirements for ING Group’s subsidiaries, associates and joint ventures are as follows: Minimum capital requirements – subsidiaries, associates and joint ventures 2014 ING Bank NN Group Other Total
In 2013, minority interests increased with EUR 4,358 million due to the IPO and second tranche sale of Voya, as explained in Note 57 ‘Other events’. This amount represents approximately 43% of the net asset value under IFRS-EU of Voya. The proportional interests held and key information on Voya is included in the tables below.
As at 31 December 2014, ING Group has unused lines of credit available including the payment of commercial paper borrowings relating to debt securities in issue of EUR 11,532 million (2013: EUR 8,081 million).
› ING Bank issued a 5 year USD 0.4 billion privately placed government guarantee senior unsecured bond in March 2009 with a floating rate of 3 months USD LIBOR + 145 basis points. These bonds were repaid on 27 March 2014.
2013 – Repurchase of certain Dutch Government guaranteed notes In 2013, ING Bank repurchased certain EUR and USD denominated Dutch Government guaranteed notes. One offer was for the EUR-denominated notes with a total principal amount of EUR 4.0 billion (3.375% fixed rate notes which were due on 3 March 2014). The aggregate principal amount of the notes repurchased was approximately EUR 1.28 billion or 32%, leaving a remaining amount outstanding of approximately EUR 2.72 billion. ING Bank paid a purchase price of EUR 1,022.19 per EUR 1,000 principal amount for the EUR denominated notes. In 2013, a charge of EUR 14 million (EUR 11 million after tax) was recognised in Other income - Other on the EUR-denominated notes.
Furthermore in 2013, ING Bank repurchased an additional EUR 1.1 billion and USD 500 million of Dutch government guaranteed notes. These repurchases resulted in an additional charge of EUR 11 million (EUR 8 million after tax) and was recognised in Other income - Other.
The Tier 1 hybrid as mentioned in Note 15 ‘Subordinated loans’ was replaced by the EUR 1.5 billion 3.625% CRD-IV eligible Tier 2 securities that were successfully issued by ING Bank in February 2014 and are recognised in Other borrowed funds.
The deferred profit sharing amount on unrealised revaluation is included in Provision for (deferred) profit sharing and rebates and amounted to EUR 3,488 million as at 31 December 2013.
Changes in the composition of the group and other changes –71,081 –41,239 –40,291 –54,915 –180 –4,770 –111,552 –100,924
Prior year provisions – benefit payments to policyholders –4,805 –17,361 –3,094 –15,466 –756 –7,899 –33,583 – interest accrual and changes in fair value
‘Effect of changes in other assumptions’ in 2013 related mainly to the assumption refinement for the Insurance US Closed Block VA business. This effect was included as part of Net result from discontinued operations in the Consolidated profit and loss account.
In 2014, Changes in the composition of the group and other changes includes EUR –398 million related to the classification of NN Group as held for sale. Reference is made to Note 12 ‘Assets and liabilities held for sale’ and Note 57 ‘Other events’.
– for prior years –490 –86 5 –485 –86 – interest accrual of provision 17 40 17 40
In 2014, Changes in the composition of the group and other changes includes EUR –3,272 million related to the classification of NN Group as held for sale. Reference is made to Note 12 ‘Assets and liabilities held for sale’ and Note 57 ‘Other events’.
Prior year provisions – payments to contract holders –195 –4,522 – interest accrual 1 13 – valuation changes investments 83 69
Estimate of cumulative claims: At the end of accident year 1,096 1,109 1,100 1,020 1,078 1,200 1,169 1,217 1,232 1,217 1 year later 979 1,041 1,057 923 1,060 1,213 1,198 1,244 1,182 2 years later 856 940 978 859 1,033 1,153 1,159 1,191 3 years later 840 911 965 861 1,032 1,146 1,157 4 years later 843 896 974 842 1,024 1,129 5 years later 836 893 960 837 1,041 6 years later 834 875 965 849 7 years later 834 875 970 8 years later 828 875 9 years later 835 Estimate of cumulative claims 835 875 970 849 1,041 1,129 1,157 1,191 1,182 1,217 10,446
Cumulative payments –721 –775 –841 –679 –820 –867 –866 –793 –699 –453 –7,514
19 Amounts due to banks Amounts due to banks include non-subordinated debt due to banks, other than amounts in the form of debt securities.
Reference is made to Note 48 ‘Transfer of financial assets’ for information on securities lending as well as sale and repurchase transactions.
In 2014, the change in the fair value of financial liabilities designated as at fair value through profit and loss attributable to changes in credit risk is EUR –98 million (2013: EUR –129 million) and EUR –282 million (2013: EUR –167 million) on a cumulative basis. This change has been determined as the amount of change in fair value of the financial liability that is not attributable to changes in market conditions that gave rise to market risk (i.e. mainly interest rate risk based on yield curves).
Share-based payment plan liabilities 26 44 47 Prepayments received under property under development 21 Amounts to be settled 2,475 4,258 4,832
Disclosures in respect of Net defined benefit liabilities are provided in Note 41 ‘Pension and other post-employment benefits’ and deferred tax liabilities are provided in Note 42 ‘Taxation’.
In 2014, the increase in Reorganisation provisions mainly includes a reorganisation provision of EUR 349 million which is recognised in the segment Retail Netherlands relating to an expected reduction of the workforce of around 1,700 FTE’s over the next three years. In addition, ING will reduce the number of positions employed by external suppliers by 1,075.
In addition, in 2013, a reorganisation provision of EUR 61 million was recognised at ING Belgium related to an expected reduction of the workforce of around 1,100 FTE’s over a period of two years.
Each of these initiatives will be implemented over a period of several years and the estimate of the reorganisation provisions is inherently uncertain. The provision at balance sheet date represents the best estimate of the expected redundancy costs and are expected to be sufficient to cover these costs.
The remainder mainly relates to year-end accruals in the normal course of business.
Realised gains/losses on disposal of equity securities 33 61 367 29 59 62 120 367 Impairments of available-for-sale equity securities –14 –3 –22 –14 –3 –22 Realised gains/losses and impairments of equity securities 19 58 345 29 59 48 117 345
ING Vysya 202 ING Direct USA 5 743 ING Direct Canada 1 1,124 ING Direct UK 10 –260 Other –7 11 –3
In 2014, the result on the partial disposal of NN Group and the result on the disposal of Voya (2013: Insurance and investment management business in Hong Kong, Macau and Thailand and ING Life Korea; 2012: Malaysian operations) is not included above but included in the Result on disposal of discontinued operations. Reference is made to Note 33 ‘Discontinued operations’ and Note 52 ‘Companies and businesses acquired and divested’.
Net result on non-trading derivatives –346 1,220 –413 98 –2 –248 1,220 –415
Net trading income relates to trading assets and trading liabilities which include assets and liabilities that are classified under IFRSEU as ‘Trading’ but are closely related to servicing the needs of the clients of ING. ING offers institutional and corporate clients and governments products that are traded on the financial markets. A significant part of the derivatives in the trading portfolio are related to servicing corporate clients in their risk management to hedge for example currency or interest rate exposures. In addition, ING provides its customers access to equity and debt markets for issuing their own equity or debt securities (‘securities underwriting’). Although these are presented as ‘Trading’ under IFRS-EU, these are directly related to services to ING’s customers. Loans and receivables in the trading portfolio mainly relate to (reverse) repurchase agreements, which are comparable to collateralised borrowing (lending). These products are used by ING as part of its own regular treasury activities, but also relate to the role that ING plays as intermediary between different professional customers. Trading assets and liabilities held for ING’s own risk are very limited. From a risk perspective, the gross amount of trading assets must be considered together with the gross amount of trading liabilities, which are presented separately on the balance sheet. However, IFRS-EU does not allow netting of these positions in the balance sheet. Reference is made to Note 4 ‘Financial assets at fair value through profit and loss’ and Note 21 ‘Financial liabilities at fair value through profit and loss’ for information on trading liabilities.
Pension costs 1,209 255 –249 Other staff-related benefit costs 9 –24 9 Social security costs 514 512 532 Share-based compensation arrangements 60 67 106
In 2014, a charge of EUR 871 million is recognised in Pensions costs related to the Dutch defined benefit plan settlement. Reference is made to Note 41 ‘Pension and other post-employment benefits’ for information on pensions.
In 2013 and 2012, the Dutch Government imposed an additional tax charge of 16% on the income in excess of EUR 150,000 of each employee who is subject to Dutch income tax. The tax is charged to the company and does not affect the remuneration of involved staff. The tax imposed on ING for relevant employees amounts to nil in 2014 (2013: EUR 15.7 million; 2012: EUR 21.9 million), which is included in the table above.
Remuneration of senior management, Executive Board and Supervisory Board Reference is made to Note 55 ‘Related parties’.
As at 31 December 2014, ING Group holds no own shares (2013: nil; 2012: 26,429,948) in order to fulfil its obligations with regard to the existing stock option plan.
The weighted average share price at the date of exercise for options exercised during 2014 is EUR 10.60 (2013: EUR 8.24; 2012: EUR 6.15).
Summary of stock options outstanding and exercisable 2012 Range of exercise price in euros
As at 31 December 2014, total unrecognised compensation costs related to stock options amounted to nil (2013: nil; 2012: EUR 3 million). Cash received from stock option exercises for the year ended 31 December 2014 is EUR 24 million (2013: EUR 22 million; 2012: EUR 8 million).
In July 2014, 2,8 million share awards of ING Group were converted in NN Group share awards, these are presented in the line Vested.
For Addition/(releases) of provision for reorganisations and relocations reference is made to the disclosure on the reorganisation provision in Note 22 ‘Other liabilities’.
The External advisory fees include fees for audit services and non-audit services provided by the Group’s auditors.
(1) The tax effect on the result on disposal of discontinued operations in 2014 is EUR 114 million (2013: nil; 2012: nil).
In 2013, Net result from disposal of discontinued operations included mainly the tax exempt divestment gain on the sale of the
Operating cash flow –4,006 –7,906 3,486 Investing cash flow 1,295 11,110 –2,881 Financing cash flow 3,834 –1,780 –2,939 Net cash flow 1,123 1,424 –2,334
› IPO of NN Group in 2014: EUR 1,747 million in ‘Net cash flow from financing activities – Proceeds of IPO NN Group’
In 2013, sales proceeds in cash of EUR 1,422 million is presented in the consolidated statement of cash flows under ‘Net cash flow from investment activities – Disposals and redemptions: group companies’ and is not included in the table above.
Attribution to non-voting equity securities The attribution in 2014 includes the premium of EUR 750 million (2013: EUR 375 million; 2012: EUR 375 million) paid in relation to the repayment of the EUR 1,500 million (2013: EUR 750 million; 2012: EUR 750 million) non-voting equity securities.
Dilutive instruments Diluted earnings per share is calculated as if the stock options and share plans outstanding at the end of the period had been exercised at the beginning of the period and assuming that the cash received from exercised stock options and share plans is used to buy own shares against the average market price during the period. The net increase in the number of shares resulting from exercising stock options and share plans is added to the average number of shares used for the calculation of diluted earnings per share.
The potential conversion of the non-voting equity securities had an anti-dilutive effect on the earnings per share calculation in 2013 and 2012 (the diluted earnings per share becoming higher or less negative than the basic earnings per share). Therefore, the potential conversion was not taken into account in the calculation of diluted earnings per share for these years.
Weighted average number of ordinary shares outstanding during the period (in millions) Per ordinary share (in euros)
Diluted earnings from continuing operations 1,907 2,524 2,440 3,856.0 3,833.5 3,802.4 0.49 0.66 0.64
Net result from discontinued operations 478 520 922 Net result from classification as discontinued operations –320 –42 –394 Net result from disposal of discontinued operations –1,564 17 752 Total net result from discontinued operations –1,406 495 1,280 3,849.7 3,825.0 3,796.1
Notes to the consolidated statement of cash flows 36 Net cash flow from investing activities Information on the impact of companies acquired or disposed is presented in Note 52 ‘Companies and businesses acquired and divested’.
Included in cash and cash equivalents: – amounts due to banks –11,825 –11,451 –12,147 – amounts due from banks 9,789 12,466 16,780
Total as included in balance sheet: – amounts due to banks –29,999 –27,200 –38,704 – amounts due from banks 37,119 42,996 39,053
The following table specifies the segment and the main sources of income of each of the segments: Specification of the main sources of income of each of the segments Segment Main source of income
As of 1 January 2014, certain changes were made with regard to the allocation of costs to the various Banking segments. These changes were made to reflect reporting changes with respect to funding costs and Dutch banking tax. ING has transferred the results of treasury activities within Commercial Banking to Corporate Line Banking to isolate the costs for replacing short-term with long-term funding, which mainly consists of negative interest results. Additionally, in order to allocate the Dutch Banking tax, these costs will be transferred from Corporate Line Banking to the relevant business lines from 2014 onwards. The comparatives were adjusted to reflect the new segment structure.
As of 30 September 2014, Legacy Insurance consists of the intercompany eliminations between ING Bank and NN Group, the results from Insurance Other and the results from discontinued operations. Insurance Other reflects (former) insurance related activities that are not part of the discontinued operations of NN Group or Voya. In 2014, Insurance Other includes mainly the fair value movements of the Voya warrants and the net result from the sale of the remaining investment in SulAmérica S.A. In 2013, Insurance Other included mainly the net result from ING’s associate SulAmérica S.A., which was partly offset by certain expenses that were not allocated to the business units.
Net result IFRS-EU (continuing operations) 2,606 52 2,657 Total net result from discontinued operations NN Group 65 65 Total net result from discontinued operations Voya –1,471 –1,471 Net result IFRS-EU (continuing and discontinued operations) attributable to equity holder of the parent 2,606 –1,354 1,251
Special items in 2014 include the impact (after tax) of the charges for making the Dutch Defined Benefit pension fund financially independent, the levy related to the SNS Reaal nationalisation and additional charges related to the restructuring programmes in Retail Netherlands announced before 2013.
Underlying income – Net interest result - banking operations 11,804 11,804 – Commission income 2,244 2,244 – Total investment and other income 1,257 1,257 Total underlying income 15,305 15,305
Net result IFRS-EU (continuing operations) 3,031 20 3,050 Total net result from discontinued operations NN Group 455 455 Total net result from discontinued operations Voya 40 40 Net result IFRS-EU (continuing and discontinued operations) attributable to equity holder of the parent 3,031 515 3,545
IFRS-EU (continuing operations) 15,290 11,123 3,050 Total net result from discontinued operations 28,074 27,342 495 Net result IFRS-EU (continuing and discontinued operations) attributable to equity holder of the parent 43,364 38,465 3,545
Net result IFRS-EU (continuing operations) 3,134 –55 3,082 Total net result from discontinued operations NN Group 727 727 Total net result from discontinued operations Voya 553 553 Net result IFRS-EU (continuing and discontinued operations) attributable to equity holder of the parent 3,134 1,226 4,362
IFRS-EU (continuing operations) 16,010 11,769 3,082 Total net result from discontinued operations 35,646 34,205 1,280 Net result IFRS-EU (continuing and discontinued operations) attributable to equity holder of the parent 51,656 45,972 4,362
– Total investment and other income –36 139 –41 188 494 –113 630
ING Group maintains defined benefit retirement plans in some countries. These plans provide benefits that are related to the remuneration and service of employees upon retirement. The benefits in some of these plans are subject to various forms of indexation. The indexation is, in some cases, at the discretion of management; in other cases it is dependent upon the sufficiency of plan assets.
Changes in composition of the group and other changes In 2014, Changes in the composition of the group and other changes of the Defined benefit obligation include EUR -53 million related to the deconsolidation of ING Vysya and include EUR –119 million related to the classification of NN Group as held for sale. Changes in the composition of the group and other changes of Other post-employment benefits include EUR –41 million as a result of the classification of NN Group as held for sale. Reference is made to Note 12 ‘Assets and liabilities held for sale’ and Note 57 ‘Other events’.
Sensitivity analysis of key assumptions The sensitivity analysis of the most significant assumptions has been determined based on changes of the assumptions occurring at the end of the reporting period that are deemed reasonably possible.
Sensitivity analysis – financial impact of changes in significant actuarial assumptions on the defined benefit obligation Financial impact of increase Financial impact of decrease
Discount rates – increase/decrease of 1% –403 –1,207 500 1,334 Mortality – increase/decrease of 1 year 93 669 –93 –676 Expected rates of salary increases (excluding promotion increases) – increase/decrease of 0.25% 29 188 –27 –173 Indexation – increase/decrease 0.25% 93 871 –84 –821
Before 2014, the plan in the Netherlands typically exposed ING Group to risks such as: investment risk, interest rate risk and longevity risk. ING decided annually whether or not to grant a lump sum payment for indexation of the accrued pensions. When the coverage ratio (assets divided by liabilities) of the plan was lower than 105% at year-end, ING was required to pay the plan an additional contribution in order to increase the coverage ratio to 106.7%. When the coverage ratio of the plan was lower than 110% but higher than 105% at year-end, ING was required to pay the plan an additional lump sum contribution in accordance with a pre-defined formula. When the coverage ratio was higher than 140%, ING received a premium reduction in future periods.
Real estate investments 285 –2 –281 2 Financial assets and liabilities at fair value through profit and loss –812 –315 12 3 –1,112 Deferred acquisition costs and VOBA 312 20 10 –342 Depreciation 33 5 5 3 46 Insurance provisions –1,369 –685 39 1 2,014 Cash flow hedges 603 910 –5 –1,275 233 Pension and post-employment benefits 75 –137 –128 –7 –16 –213 Other provisions –1 –1 28 –4 –64 –42 Receivables –79 –201 –3 25 –258 Loans and advances to customers –243 5 333 41 136 Unused tax losses carried forward –637 –325 –9 641 –330
Presented in the balance sheet as: – deferred tax liabilities 998 860 – deferred tax assets –1,380 –1,145
Total unused tax losses carried forward 2,456 3,725 Unused tax losses carried forward not recognised as a deferred tax asset –1,127 –1,076 Unused tax losses carried forward recognised as a deferred tax asset 1,329 2,649
The table above includes a breakdown of certain net deferred tax asset positions by jurisdiction for which the utilisation is dependent on future taxable profits whilst the related entities have incurred losses in either the current or the preceding year. In 2014, the aggregate amount for the most significant entities is EUR 440 million (2013: EUR 501 million).
For the year 2014 the tax charge in the Netherlands decreased with EUR 218 million to negative EUR 185 million caused by lower results.
The effective tax rate in 2013 was lower than the weighted average statutory tax rate. This was mainly caused by non-taxable income and prior year adjustments which are only partly offset by non-deductible expenses and write-off of deferred tax assets.
The effective tax rate in 2012 was lower than the weighted average statutory tax rate. This was mainly caused by non-taxable income, which was partly offset by non-deductible expenses and write-offs of deferred tax assets.
In 2012, tax exempt profit on divestments included mainly the results on the following transactions: › ING Direct Canada (transaction gain EUR 1,124 million); and › ING Direct USA (transaction gain EUR 743 million) and the related sale of shares in Capital One (transaction gain EUR 323 million).
Financial assets Cash and balances with central banks 12,233 13,316 12,233 13,316 Amounts due from banks 37,220 43,157 37,119 42,996 Financial assets at fair value through profit and loss
Unrealised gains and losses recognised in Other comprehensive income that relate to Available-for-sale investments are included in the Revaluation reserve – Available-for-sale reserve and other. Unrealised gains and losses on Property in own use are also included in the Revaluation reserve – Property in own use reserve.
Transfers out of Level 3 –82 –55 –137 Changes in the composition of the group and other changes 7 1 8
Early repayment of liabilities –720 –452 –907 –8 –2,087 Maturity/settlement –276 –9 –420 –705
In 2013, EUR 3.7 billion of Financial liabilities designated as at fair value through profit and loss were transferred from level 3 to level 2 due to refinements in the methodology used to classify these liabilities. It was observed that the valuation techniques used for calculating the fair values, for the majority of the portfolio, are not significantly impacted by unobservable inputs. These liabilities are reported in level 2. Furthermore, EUR 0.9 billion of Assets Non-trading derivatives were also transferred from Level 3 to Level 2 as the valuation is now not significantly impacted by unobservable inputs.
Furthermore, Level 3 financial assets includes approximately EUR 0.1 billion which relates to financial assets that are part of structures that are designed to be fully neutral in terms of market risk. Such structures include various financial assets and liabilities for which the overall sensitivity to market risk is insignificant. Whereas the fair value of individual components of these structures may be determined using different techniques and the fair value of each of the components of these structures may be sensitive to unobservable inputs, the overall sensitivity is by design not significant.
Dividend yield Dividend yield is an important input for equity option pricing models showing how much dividends a company pays out each year relative to its share price. Dividend yields are generally expressed as an annualised percentage of share price.
Valuation uncertainty in practice is measured and managed per exposure to individual valuation inputs (i.e. risk factors) at portfolio level across different product categories. Where the disclosure looks at individual level 3 inputs the actual valuation adjustments may also reflect the benefits of portfolio offsets.
US Subprime RMBS 14 14 US Alt-A RMBS 45 45 CDO/CLOs 12 12
As at 31 December 2014, Customer deposits and other funds on deposit which are payable on demand are classified as level 1, as their fair value equals their carrying value. Certain comparative figures were adjusted from level 3 to level 1.
Methods applied in determining fair values of financial assets and liabilities (carried at amortised cost) 2013 Level 1 Level 2 Level 3 Total
Investment contracts (for contracts at amortised cost) 20 829 849 Amounts due to banks 5,126 20,712 1,837 27,675 Customer deposits and other funds on deposit 355,182 69,756 49,065 474,003
Methods applied in determining fair values of non-financial assets 2013 Level 1 Level 2 Level 3 Total
Amounts recognised in the profit and loss account during the year –5 –49 –54 Revaluation recognised in equity during the year –4 –4 Purchase of assets 200 39 239 Sale of assets –265 –34 –299 Reclassifications –61 –2 –63 Exchange rate differences –2 –26 –28 Changes in the composition of the group and other changes –11 –104 –115
ING Group applies fair value hedge accounting for portfolio hedges of interest rate risk (macro hedging) under the EU ‘carve out’ of IFRS-EU. The EU ‘carve-out’ for macro hedging enables a group of derivatives (or proportions) to be viewed in combination and jointly designated as the hedging instrument and removes some of the limitations in fair value hedge accounting relating to hedging core deposits and under-hedging strategies. Under the IFRS-EU ‘carve-out’, hedge accounting may be applied to core deposits and ineffectiveness only arises when the revised estimate of the amount of cash flows in scheduled time buckets falls below the designated amount of that bucket. ING Group applies the IFRS-EU ‘carve-out’ to its retail operations in which the net exposure of retail funding (savings and current accounts) and retail lending (mortgages) is hedged. The hedging activities are designated under a portfolio fair value hedge on the mortgages, using the IFRS-EU provisions.
For the year ended 31 December 2014, ING Group recognised EUR 2,001 million (2013: EUR –812 million) after tax in equity as effective fair value changes on derivatives under cash flow hedge accounting. As a consequence, the balance of the cash flow hedge reserve in equity as at 31 December 2014 was EUR 5,469 million (2013: EUR 2,448 million) gross and EUR 3,877 million (2013: EUR 1,879 million) after deferred tax. This cash flow hedge reserve will fluctuate with the fair value changes of the underlying derivatives and will be reflected in the profit and loss account under Interest income/expense over the remaining term of the underlying hedged items. The cash flow hedge reserve relates to a large number of derivatives and hedged items with varying maturities, up to 29 years, with the largest concentrations in the range of 3 to 9 years. Accounting ineffectiveness on derivatives designated under cash flow hedge accounting resulted in a gain of EUR 35 million (2013: EUR 4 million gain) which was recognised in the profit and loss account.
45 Assets by contractual maturity Amounts presented in these tables by contractual maturity are the amounts as presented in the balance sheet.
– designated as at fair value through profit and loss 655 580 736 449 336 2,756 Investments
(1) Includes liabilities on demand. (2) This column reconciles the contractual undiscounted cash flows on financial liabilities to the balance sheet values. The adjustments mainly relate to the impact of discounting, and for derivatives, to the fact the contractual cash flows are presented on a gross basis (unless the cash flows are actually settled net).
Transferred assets at carrying amount Amounts due from banks 345 Financial assets at fair value through profit and loss 1,238 102 3,087 315
The table above does not include assets transferred to consolidated securitisation entities as the related asset remain recognised in the consolidated balance sheet.
Impact of enforceable master netting arrangements or similar arrangements (1) Derivatives –7,656 2,838 4,818
(1) The line ‘Impact of enforceable master netting agreements or similar arrangements’ contains derivative positions under the same master netting arrangements being presented in different balance sheet line items.
Reverse repurchase, securities borrowing and similar agreements 43,080 –6,112 36,968 694 28,744 7,530
Impact of enforceable master netting arrangements or similar arrangements (1) Derivatives –9,553 10,060 –507
(1) Excludes commitments and contingent liabilities related to businesses classified as held for sale. In 2013 mainly Voya.
Since the end of 2006, unit-linked products (commonly referred to in Dutch as ‘beleggingsverzekeringen’) have received negative attention in the Dutch media, from the Dutch Parliament, the AFM and consumer protection organisations. Costs of unit-linked products sold in the past are perceived as too high and Dutch insurers are in general being accused of being less transparent in their offering of such unit-linked products. The criticism on unit-linked products led to the introduction of compensation schemes by Dutch insurance companies that have offered unit-linked products. In 2008, ING’s Dutch insurance subsidiaries reached an outline agreement with two main consumer protection organisations to offer compensation to their unit-linked policyholders where individual unit-linked policies had a cost charge in excess of an agreed maximum and to offer similar compensation for certain hybrid insurance products. At 31 December 2008, costs of the settlements were valued at EUR 365 million, for which adequate provisions have been established and of which a substantial portion has been paid out. The remaining unpaid part of the provision as per 31 December 2014 is solely available to cover costs relating to the settlements agreed in 2008. A full agreement on implementation was reached in 2010 with one of the two main consumer protection organisations, with the second main consumer protection organisation signing its agreement in June 2012.
In November 2013, the so-called ‘Vereniging Woekerpolis.nl’, an association representing the interests of policyholders, initiated a socalled ‘collective action’, requesting the District Court in Rotterdam to declare that ING’s Dutch insurance subsidiaries sold products in the market, which are defective in various respects (e.g. on transparency regarding cost charges and other product characteristics, and included risks for which the insurer failed to warn, such as considerable stock depreciations, the inability to realise the projected final policy value, unrealistic capital projections due to difference in geometric versus arithmetic returns). ING’s Dutch insurance subsidiaries have rejected these claims and will defend themselves in these proceedings.
Apart from the aforementioned ‘collective action’, several other claim organisations and initiatives were established on behalf of policyholders, such as the organisation Wakkerpolis. This organisation primarily concentrates on the recovery of initial costs for policyholders, based on an interim ruling of the KiFiD issued on 13 May 2013 in an individual case. In this case, the KiFiD concluded that there is no contractual basis for charging initial costs (which are costs charged to the policy during a limited period of time). Apart from the initial costs, it can be derived from the interim ruling – in accordance with past rulings of the KiFiD – that an insurer is obliged to warn against the leverage and capital consumption effect (which is the effect caused by the dependency of life insurance premium on the value of the policy; the lower the value of the policy, the higher the life insurance premium). NN Group and ING believe that this interim ruling is incorrect on several legal grounds.
In proceedings pending before the District Court in Rotterdam, the Court has, upon the request of the parties, including NN, submitted preliminary questions to the European Court of Justice to obtain clarity on principal legal questions with respect to cost transparency related to unit-linked policies. The main preliminary question being considered by the European Court of Justice is whether European law permits the application of information requirements based on general principles of Dutch law that extend beyond information requirements as explicitly prescribed by laws and regulations in force at the time the policy was written. Although the European Court does not decide on the applicable standards in specific cases and solely provides clarification on the interpretation of the applicable European directive, NN and ING believe the ruling of the European Court of Justice can give clarification on this question of legal principle which is also the subject of other legal proceedings in the Netherlands. It is up to the Dutch courts to take the interpretation of the European Court of Justice into account in relevant proceedings, insofar as this interpretation can be reconciled with Dutch legislation applicable at the time the unit-linked products were sold. On 12 June 2014, the Attorney General to the European Court of Justice gave its non-binding advisory opinion to the European Court of Justice. It is expected that the European Court of Justice will render its judgement in the second quarter of 2015.
ING’s Dutch insurance subsidiaries have issued, sold or advised on approximately one million individual unit-linked policies. There has been for some time, and there continues to be political, regulatory and public attention focused on the unit-linked issue in general. Elements of unit-linked policies are being challenged or may be challenged on multiple legal grounds in current and future legal proceedings. There is a risk that one or more of those legal challenges will succeed. The financial consequences of any of the aforementioned factors or a combination thereof can be substantial for the Dutch insurance business of ING and may affect ING, both financially and reputationally. However, these consequences cannot be reliably estimated or quantified at this point.
In January 2011, the Dutch Association of Stockholders (Vereniging van Effectenbezitters, ‘VEB’) issued a writ alleging that investors were misled by the prospectus that was issued with respect to the September 2007 rights issue of Fortis N.V. (now Ageas N.V.) against Ageas N.V., the underwriters of such rights issue, including ING Bank N.V., and former directors of Fortis N.V. According to the VEB the prospectus shows substantive incorrect and misleading information. The VEB states that the impact and the risks of the sub-prime crisis for Fortis and Fortis’ liquidity position were reflected incorrectly in the prospectus. The VEB requests a declaratory decision stating that the summoned parties acted wrongfully and are therefore responsible for the damages suffered by the investors in Fortis. The amount of damages of EUR 18 billion has yet to be substantiated. ING is defending itself against this claim; at this time ING is not able to assess the outcome of the court proceeding. Therefore, at this moment it is not practicable to provide an estimate of the (potential) financial effect of such action.
In July 2011, the Interest Group ING General Managers’ Pensions (Belangenvereniging ING Directiepensioenen), together with a number of individual retired Dutch General Managers of ING, instituted legal proceedings against ING’s decision not to provide funding for indexing Dutch General Managers’ pensions directly insured with Nationale-Nederlanden in 2010 and 2011. This claim was rejected by the District Court of Amsterdam on 22 October 2012. An appeal was lodged against this District Court decision. It is not feasible to predict the ultimate outcome of these legal proceedings. The ultimate outcome of these proceedings may result in liabilities and provisions for such liabilities which are different from the amounts recognised. At this moment it is not practicable to provide an estimate of the (potential) financial effect of such proceedings.
Following a broad industry review by the Dutch regulator DNB, in 2013, NN Group’s Netherlands Non-life was instructed to strengthen its policies and procedures in respect of sanctions related customer screening and related compliance matters. Netherlands Non-life implemented DNB’s recommendations.
Partial divestments effective in 2014 Voya In 2014, ING Group reduced its’ stake in Voya from 56.5% at 31 December 2013 to 18.9% at 31 December 2014 through a number of transactions during the year. Voya was deconsolidated at the end of March 2014 and is accounted for as an available-for-sale investment held for sale as at 31 December 2014. Reference is made to Note 5 Investments, Note 12 ‘Assets and liabilities held for sale’ and Note 57 ‘Other events’.
In addition to the above mentioned transactions, the interest in the joint venture ING Financial Services Private Limited was sold to Hathaway investments.
(2) Cash outflow/inflow on group companies in the cash flow statement includes, in addition to the cash amounts in this table, also cash outflows/inflows on individually insignificant disposals.
Divestments effective in 2013 Asia - Joint venture China Merchants Fund In October 2012, ING reached an agreement to sell its 33.3% stake in China Merchants Fund, an investment management joint venture, to its joint venture partners China Merchants Bank Co., Ltd., and China Merchants Securities Co., Ltd. Under the terms agreed, ING received a total cash consideration of EUR 98 million. The transaction realised a net gain of EUR 59 million which was recognised in 2013. The transaction closed on 3 December 2013.
NN Group N.V. (1) The Netherlands 68% 100% Nationale-Nederlanden Levensverzekering Maatschappij N.V. The Netherlands 68% 100% Nationale-Nederlanden Schadeverzekering Maatschappij N.V. The Netherlands 68% 100% Parcom Capital B.V. The Netherlands 68% 100% Nationale-Nederlanden Services N.V. The Netherlands 68% 100% Movir N.V. The Netherlands 68% 100% ING Re (Netherlands) N.V. The Netherlands 68% 100% Nationale-Nederlanden Bank N.V. The Netherlands 68% 100% ING Investment Management Holdings N.V. The Netherlands 68% 100% ING Pojistovna a.s. The Netherlands 68% 100% ING Životná poist'ovna a.s Slovakia 68% 100% ING Uslugi Finansowe S.A. Poland 68% 100% ING Powszechne Towarzystwo Emerytalne S.A. Poland 54% 80% ING Asigurari de Viata S.A. Romania 68% 100% ING Greek Life Insurance Company S.A. Greece 68% 100% ING Biztosító Zártkörûen Mûködõ Részvénytársaság Hungary 68% 100% ING Pensionno-Osigoritelno Druzestvo EAD Bulgaria 68% 100% ING Life Belgium N.V. Belgium 68% 100% ING Non Life Belgium N. V. Belgium 68% 100% ING Life Luxembourg S.A. Luxembourg 68% 100% Nationale-Nederlanden Vida, Compañia de Seguros y Reaseguros S.A. Spain 68% 100% Nationale-Nederlanden Generales, Compañia de Seguros y Reaseguros S.A. Spain 68% 100% ING Emeklilik A.S. Turkey 68% 100% ING Life Insurance Company Limited Japan 68% 100%
3. Consolidated ING originated Covered bond programme ING Group has entered into a covered bond programme. Under the covered bond programme ING issues bonds. The payment of interest and principal is guaranteed by an ING administered structured entity, Covered Bond Company B.V. (‘CBC’). In order for CBC to fulfil its guarantee, ING legally transfers mainly Dutch mortgage loans originated by ING to CBC. Furthermore ING offers CBC protection against deterioration of the mortgage loans. CBC is consolidated by ING Group.
4. Consolidated ING sponsored Securitisation programme (Mont Blanc) In the normal course of business, ING Group structures financing transactions for its clients by assisting them in obtaining sources of liquidity by selling (also referred to as ‘factoring’) the clients’ receivables or other financial assets to an ING sponsored SPE.
For the majority of these funds, NN Group also acts as the fund manager. NN Group considers both NN Group’s financial interests for own risk and its role as investment manager to establish whether control exists and whether the fund is consolidated. In general, NN Group maintains a minority interest in these funds and NN Group receives a fixed fee over assets under management, at arm’s length basis, for its asset management activities. These funds are therefore generally not included in the consolidated financial statements of NN Group.
Most of the debt investments relate to asset backed securities. Furthermore, ING has significant influence for some of its real estate investment funds.
As at 31 December 2014, Voya Financial Inc. is no longer a related party of ING Groep N.V.
In 2014, ‘Management Boards’ includes the Management Boards of ING Bank N.V. (‘ING Bank’) and NN Group N.V. (‘NN Group’). The members of these Management Boards are considered to be key management personnel and their compensation is therefore included in the table below.
The governance of the insurance operations has changed during 2013 and early 2014. In 2013, all members of the Management Board of ING Insurance Eurasia N.V. became members of the Management Board of ING Verzekeringen N.V. From 1 March 2014 onwards, due to the legal merger between ING Verzekeringen N.V. and ING Topholding N.V. and the subsequent change of the name of the entity to NN Group N.V., all members of the Management Board of ING Verzekeringen N.V. became members of the Management Board of NN Group. Following the IPO of NN Group N.V. in July 2014, three Members of the Executive Board of ING Groep N.V. became members of the Supervisory Board of NN Group N.V. and are no longer members of the Management Board of NN Group N.V.
– Severance benefits 765 765 Variable compensation – Upfront cash 544 557 1,101
(6) One of the Board members received an award in a deferred investment in funds that are managed by the respective business.
In 2013, ‘Management Boards’ included the Management Boards of ING Bank N.V. (‘ING Bank’), NN Group N.V. (‘NN Group’) and the Named Executive Officers of ING U.S., Inc. (‘ING U.S.’) The Named Executive Officers were in accordance with the requirements of the Securities Exchange Commission (SEC) the CEO, CFO and the three highest compensated Executive Officers. The members of the Management Boards were considered to be key management personnel and their compensation is therefore included in the table below.
In 2013, two members of the Executive Board of ING Groep N.V. were also members of the Board of ING U.S.
One-time incentive award (5) 8,368 8,368 Total compensation including one-time incentive award 3,858 6,499 6,837 24,530 41,724
Key management personnel compensation is generally included in Staff expenses in the profit and loss account, except for key management personnel employed by entities that are presented as held for sale and discontinued operations in which case their compensation is included in the Total net result from discontinued operations.
disclosed in the table above (for 2014: EUR 11.3 million) includes all variable remuneration related to the performance year 2014. Under IFRS, certain components of variable remuneration are not recognised in the profit and loss account directly, but are allocated over the vesting period of the award. The comparable amount recognised in Staff expenses in 2014 and included in Total expenses in 2014, relating to the fixed expenses of 2014 and the vesting of variable remuneration of earlier performance years, is EUR 10.4 million.
Relationship agreement and other agreements NN Group N.V. In connection with the initial public offering of NN Group N.V., ING Groep N.V. and NN Group N.V. entered into a Relationship Agreement. The Relationship Agreement contains certain arrangements regarding the continuing relationship between ING Groep N.V. and NN Group N.V.
Under the terms of the transaction as agreed on 26 January 2009, the overall sales proceeds amounted to EUR 22.4 billion at the transaction date. The amortised cost (after prior impairments) at the transaction date was also approximately EUR 22.4 billion. The transaction resulted in a loss in 2009 of EUR 109 million after tax (the difference between the sales proceeds and the amortised cost). The fair value under IFRS-EU at the date of the transaction was EUR 15.2 billion.
The valuation method of the 20% Alt-A securities in the IFRS-EU balance sheet is not impacted by the IABF. The methodology used to determine the fair value for these assets in the balance sheet under IFRS-EU is disclosed in Note 46 ‘Fair value of assets and liabilities’.
The first tranche of the divestment of securities was executed in December 2013. All the remaining securities held by the Dutch State as at 31 December 2013 were sold in January and early February 2014.
The Dutch State used all repayments and net fees received to repay the loan from ING. The loan was fully repaid in January 2014.
Non-voting equity securities (Core Tier 1 securities) On 12 November 2008, ING Groep N.V. issued one billion non-voting equity securities to the Dutch State at EUR 10 per non-voting equity security, resulting in an increase of ING Group’s core Tier 1 capital of EUR 10 billion. The nominal value of each security was EUR 0.24. The non-voting equity securities do not form part of ING Groep N.V.’s share capital; accordingly they did not carry voting rights in the General Meeting of Shareholders.
As of 12 November 2011, ING Groep N.V. had the right to repay all or some of the non-voting equity securities at EUR 15 per security at any time, together with the pro-rata coupon accrued to such date. ING Groep N.V. and the Dutch State agreed in October 2009 that up to EUR 5 billion of the EUR 10 billion core Tier 1 securities could have been repaid at any time until 31 January 2010 at the original issue price of EUR 10 per non-voting equity security, plus a repurchase premium and accrued interest.
Repayment non-voting equity shares On 7 November 2014, ING Group made the final repayment on the Core Tier 1 securities of EUR 1.025 billion to the Dutch State. Including this final payment, the total amount paid to the Dutch State is EUR 13.5 billion, giving the Dutch State and annualised return of 12.7%. Information on the repayments is included in the table below.
ING announced in November 2012 that, together with the Dutch State, it had submitted significant amendments to the 2009 Restructuring Plan to the EC. The EC approved these amendments by Decision of 16 November 2012.
The implementation of the commitments and obligations set out in the (amended) Restructuring Plan will be monitored by a monitoring trustee who is independent of ING until 31 December 2015.
› Divestment European and Japanese insurance and investment management activities (NN Group N.V.): ING Group needs to bring its current stake of 54.6% below 50% and deconsolidate NN Group before year-end 2015 and divest 100% of NN Group by year-end 2016.
› Creation and Divestment of Nationale-Nederlanden Bank (NN Bank): ING Group has committed to create NN Bank – as part of NN Group – as a viable, stand-alone and competitive business with a broad product portfolio and a growth path to become a mid-sized player in the Dutch market. Several detailed commitments need to be met, including targets for mortgage production and consumer credit production as well as the commitment that NN Bank should be sufficiently capitalised to execute its long-term growth plan and in any case to ensure growth to about 2016, which includes a commitment to make available to NN Bank additional capital up to an amount of EUR 120 million if and when needed but ultimately just before the date on which ING Group has deconsolidated NN Group (if the Basel III leverage ratio becomes mandatory or when NN Bank needs capital to execute its business plan).
In 2014, NN Group is classified as held for sale and discontinued operations. Upon classification, the carrying amount of the disposal group (or group of assets) was compared to NN Group’s fair value less cost to sell. The fair value less cost to sell was lower than the carrying value of the disposal group and as a result goodwill and certain other non-current non-financial assets totalling EUR 470 million were written-off in 2014 and recognised in the profit and loss account in the line ‘Net result from classification as discontinued
The table below provides a summary of the various Voya divestment transactions that occurred in 2013 and 2014.
Deconsolidation of ING Vysya Bank In 2014, changes to the governance structure of ING Vysya Bank Limited (‘ING Vysya’) were implemented in order to better align with prevailing regulations. The regulatory requirements necessitated some governance changes. As part of that, ING has reduced the number of directors appointed by ING in ING Vysya Bank’s Board of Directors to be proportionate to its shareholding. Although ING Bank’s economic interest of approximately 43% remains unchanged, as a result of these governance changes, ING Bank no longer has a majority representation in the Board of Directors and influence on ING Vysya’s operations are aligned with its shareholding interest. As a result, ING Bank no longer has effective control over ING Vysya and, therefore, as of 31 March 2014 ING Vysya was deconsolidated and accounted for as an associate under equity accounting. Before the changes in the governance structure ING Bank had substantial additional powers, including the majority in the Board of Directors and power over operational decision making; as a result, ING Vysya was consolidated by ING. After the deconsolidation, the investment in ING Vysya is recognised as an Investment in associates and joint ventures at its fair value at 31 March 2014 of EUR 617 million. The profit and loss account of 2014 includes the consolidated result of ING Vysya until the deconsolidation and the result upon deconsolidation of EUR 202 million. The result upon deconsolidation is recognised in Other income – Result on disposal of group companies.
58 Subsequent events Sale of NN Group shares In February 2015, ING sold 52 million ordinary shares of NN Group. As part of the transaction, NN Group repurchased 8.3 million ordinary shares. The gross proceeds to ING Group from the offering, including the repurchase by NN Group, amounted to EUR 1.2 billion. The transaction reduced the ownership of ING in NN Group from 68.1% to 54.6%. The transaction did not impact the profit and loss account of ING Group, and has a negative impact of approximately EUR 1.6 billion on the shareholders’ equity of ING Group, being the difference between the net proceeds of the transaction and the IFRS carrying value as at 31 December 2014 of the equity stake sold. The actual impact on equity may differ from this estimate due to changes in the IFRS carrying value between 31 December 2014 and the close of the transaction.
Mission 248 Risk governance 248 Business model and risk profile 251 Risk appetite 254 Stress testing 256 Economic capital 258 Ongoing changes in the regulatory environment 260 Risk developments in 2014 262 Credit risk 263 Market risk 298 Funding and Liquidity risk 310 Non-financial risk 314 Business risk 317
The remainder of this paragraph focusses on risk management topics related to the remaining Insurance exposures of ING Group. Risk management for ING Bank is discussed from page 246 onwards.
Governance 311 Liquidity risk management framework 311 Liquidity risk appetite 311 Funding 312 Liquidity buffers 312 404 Asset encumbrance 404 Liquidity risk transfer and pricing 313 Contingency funding plan 313 Regulatory developments 314
Mission The mission of ING Bank’s risk management function is to support the ambition of ING Bank to be the preferred bank for our customers, by safeguarding ING’s current and future financial strength. The following principles support this mission: › The risk management function is embedded in all levels of ING Bank’s organisation and is part of the daily business activities and strategic planning to align the risk profile with the defined strategy and risk appetite; › Products and portfolios are structured, underwritten, priced, approved and managed appropriately and compliance with internal and external rules and guidelines is monitored; › Delegated authorities are consistent with the overall Bank strategy and risk appetite; and › Transparent communication to internal and external stakeholders on risk management and value creation.
The internal audit function provides an on-going independent (i.e. outside of the risk organisation) and objective assessment of the effectiveness of internal controls of the first two lines, including financial and non-financial risk management and forms the third line of defence.
Bank Risk Management Function Regional and BU Risk Managers 1st line of defence
In addition, two staff departments report to the CRO: › Risk & Capital Integration (R&CI), which is responsible for inter-risk aggregation processes and for providing bank-wide risk information to the CRO and MBB, reports functionally to the CRO; and
› Model Validation (MV), which carries out periodic validations of all significant risk models used by ING Bank. To ensure independence from the business and other risk departments, the department head reports directly to the CRO.
The risk committees described below act within the overall risk policy and delegated authorities granted by the Management Board Bank: › ING Bank Credit Committee – Policy (GCC(P)): Discusses and approves policies, methodologies and procedures related to credit, country and reputation risks within ING Bank. The GCC(P) meets on a monthly basis; › ING Bank Credit Committee – Transaction Approval (GCC(TA)): Discusses and approves transactions which entail taking credit risk (including issuer investment risk). The GCC(TA) meets twice a week; › Asset and Liability Committee ING Bank (ALCO Bank): Discusses and approves on a monthly basis the overall risk profile of all ING Bank’s market risks that occur in its activities. ALCO Bank defines the policy regarding funding, liquidity, interest rate mismatch and solvency for ING Bank; and
Regional and business unit level ING Bank’s regional and business unit management have primary responsibility for the management of risks (credit, market, operational, legal and compliance risks) that arise in their daily operations. They are accountable, together with their employees, for the implementation and operation of appropriate risk frameworks affecting their businesses to ensure compliance with procedures and processes set by ING Bank. The local (regional and BU) risk manager is responsible for the analysis, control and management of risks across the whole value chain (from front to back office), based upon which a robust control structure should be maintained.
policies, procedures and standards are implemented and adhered to. Policies, procedures and standards are regularly reviewed and updated via the relevant risk committees to reflect changes in markets, products and emerging best practices.
Risk model governance and model validation All risk models are built according to the internal risk modelling methodology standards and model life cycle, in line with regulatory requirements. After thorough review of the documentation by model development departments and MV, specific model risk committees for each risk type approve the models. After approval by the dedicated risk committee, a risk model is implemented and entitled for usage. In addition, MV validates each model on a regular basis. The validation results and its capital impact are reported on a quarterly basis to senior management and to the supervisor.
Key risks ING Bank recognises the following key risks (financial as well as non-financial risks) that are associated with its business activities.
The risk management framework based on the three lines of defence governance model is effective when a strong risk culture is present on all levels. ING Bank promotes awareness of collectively shared values, ideas and goals but also of potential threats and it ensures alignment of individual performance objectives with the short- and long-term strategy. By making ING’s risk responsibilities more transparent within the different levels of the organisation and holding every employee accountable for his acts, the risk culture and awareness are embedded in the organisation, which leads to effective risk management.
– Savings, – Residential mortgages, – Payment accounts, – Investment products – Consumer lending – SME/business lending
– Savings, – Residential mortgages, – Payment accounts, – Investment products – Consumer lending
Total: EUR 86.3 Of which: Credit: EUR 76.6 Market: EUR 0.0 Operational: EUR 9.7
Total: EUR 68.1 Of which: Credit: EUR 61.7 Market: EUR 1.0 Operational: EUR 5.4
With the programme, ING Bank gains a sound risk culture and ensures that every employee in every part of the organisation understands how his actions and behaviour can help earn and retain customer and stakeholder trust. This programme is divided into several mandatory modules among others business principles, customer trust, fraud awareness, Financial Economic Crime and IT security. To enhance risk awareness, these topics are discussed between managers and employees through dialogue sessions that managers organise within their teams to create clear and consistent understanding. The endorsement from the executive level and the emphasis in the communication strengthen the culture.
Compensation Due to economic and financial turmoil, concerns were raised in different countries following the bailout of different financial and industrial companies. The link between risk taken and compensation policies was one of the major topics in the public and political spheres. Several public institutions and initiatives advocated aligning risk and reward in risk-based compensation policies. For further information with regards to ING’s compensation policies please refer to the remuneration report in the corporate governance section of the Annual Report and Pillar III remuneration details as published on the corporate website ing.com.
Risks can be controlled by mitigating measures that either lower the likelihood the risk occurs, or measures that lower the impact if they occur. The ultimate measure to lower risk is to stop the activity or service that causes the risk (risk avoidance). Risk controlling/mitigating measures are defined and maintained at both Bank wide and local level.
Process The ING Bank risk appetite framework consists of specific risk appetite statements, which are approved by the SB on an annual basis or more frequently if this is felt necessary, and reviewed quarterly in the MBB and the SB. The bank risk appetite process is focused on setting the appetite at the consolidated Bank level and across the different risk categories. It is therefore essentially a top-down process, which bases itself on the ambition of the Bank in terms of its risk profile and is a function of the capital and liquidity levels and ambitions, the regulatory environment and the economic context. The process is set up according to the following steps: ING Group Annual Report 2014
Liquidity and funding risk have two dimensions: where liquidity focuses on having a sufficient buffer to cope with the short-term situation, managing the funding profile ensures long-term compliance with both internal and external targets. Managing liquidity and funding risk focuses on both ‘business as usual’ (based on the run-off profile to show the stickiness of deposits combined with the runoff of assets without new production) and a stressed situation. There, we define liquidity risk as the time to survive a specific scenario, while for funding risk we focus on the maximum funding gap allowed.
Key Control testing scorecards form one of the inputs of the Non-Financial Risk Dashboard (NFRD), which is a report that is discussed each quarter in the MBB and the Risk Committee. NFRD provides management at all organisational levels with information on their key operational, compliance and legal risks. NFRD is based on their risk tolerance within their business and a clear description of the risks and responses enabling management to prioritise and to manage operational, compliance and legal risks.
Types of stress tests Within ING Bank, various different types of stress tests are performed. The most comprehensive type of stress tests are the firm-wide scenario analyses, which involve setting scenario assumptions for the relevant macro-economic and market variables in all countries where ING Bank is active. These assumptions are usually complemented by a narrative that provides background for the scenario. In addition to firm-wide scenario analyses, ING Bank also executes scenario analyses for a specific country or asset class. Furthermore, sensitivity analyses are performed, which focus on stressing one or more relevant risk drivers; usually without an underlying scenario narrative. The 1-in-10-year stress scenario used in the risk appetite framework is an example of a sensitivity analysis. Finally, ING Bank also performs reverse stress tests, which aim to determine the circumstances which would lead to a pre-defined severe adverse outcome.
Process The stress testing process of ING Bank consists of several stages, which are summarised in the diagram.
Step 4. Execution of mitigating actions After the MBB has approved the mitigating actions, they need to be executed. Mitigating actions may include sales or transfers of assets, reductions of risk limits, start-up or strengthening of marketing campaigns and lobbying campaigns with regulators or other authorities.
EC is defined as the amount of capital that a transaction or business unit requires in order to support the economic risks it takes. In general, EC is measured as the unexpected loss above the expected loss at a given confidence level. This economic capital definition is in line with the net market value (or surplus) definition. The process of EC modelling enables ING Bank to allocate economic capital to the business units and support risk-adjusted performance measurement via the Risk Adjusted Return on Capital (RAROC). The use of RAROC increases focus on risks versus rewards in the decision making process, and consequently stimulates the use of scarce capital in the most efficient way.
Economic capital and regulatory capital Main capital calculation and allocation tools for ING Bank are economic capital and regulatory capital (RC). Both of these capital metrics are used to determine the amount of capital that a transaction or business unit requires to support the economic and regulatory-based risks it faces. RC is driven by methodologies prescribed by regulators whereas EC is driven by internally developed models.
The tables below provide ING Bank’s EC and RC by risk type and business line. For 2014, the total RC increased compared to 2013, while the EC numbers decreased. Both are well below the total amounts of available capital of EUR 46,015 million based on CRD IV phased in rules. Details on the available capital can be found in the Capital Management paragraph, section ‘Capital Adequacy Assessment’.
› For operational risk, ING Bank obtained accreditation for the use of its enhanced Advanced Measurement Approach (AMA) in April 2013 and applies the model for regulatory reporting of capital requirements. The slight decrease in 2014 is mainly caused by deconsolidation. More information on the Operational Risk EC can be found in the ‘Advanced Measurement Approach (AMA)’ part of the Non-Financial Risk section.
› The credit risk EC is higher than RC due to the fact that EC is defined based on ING’s own methodology for credit risk. It is the amount of capital that is needed at a minimum to cover for unexpected losses within a certain confidence level and a certain time horizon. Furthermore, credit risk EC includes transfer risk while RC does not; › The market risk EC is higher than the RC primarily due to the inclusion of the interest rate risk in the banking books in EC. In RC, only market risk in trading books is in scope. Furthermore, for Equity Investments the EC figures are reported under market risk, while the RC figures are reported under credit risk; › The EC figures include business risk, while RC does not; › The operational risk EC is lower than the RC mainly due to the application of inter-risk diversification, whilst RC does not encompass inter-risk diversification; and › A 99.95% confidence level is used for EC, while the confidence level is 99.9% for RC.
The AQR phase had 10 blocks of activities and focused on three main streams covering a number of these blocks; Banking Book, Fair Value Exposure, and Process Policies and Accounting (PP&A) Review. The AQR looked at both Credit and Market risk - the overall scope providing coverage for at least 50% of the Bank’s risk-weighted assets and 40% of the balance sheet.
As the ECB assumes supervision of the consolidated ING Bank, including ING’s subsidiaries in the Eurozone, the assessment was executed at consolidated level. This means that for ING Bank N.V., DNB was in the lead and liaised with local regulators on cross-border work. As an example of geographical coverage, the ING in scope Banking Book portfolios included Corporate and Retail portfolios in countries such as for example The Netherlands, Belgium and Germany. Regulators in these markets were also deeply involved in the ING assessment.
The stress test phase, conducted in conjunction with the European Banking Authority (EBA), aimed to test the resilience of the participating banks to adverse macro-economic developments. In this exercise, the impact of both a baseline and adverse scenario for 2014-2016 on amongst others impairments, Net Interest Income and RWA had to be calculated. ING Bank used internal models for these estimations, which were checked and benchmarked by EBA and the ECB.
› ING Bank may not be able to fully track further declines in interest rates in savings rates. › Returns on new originated assets may decrease, which may for example be the consequence of increased competition.
In order to properly assess, monitor and manage the credit risks over such a broad spectrum of products, industries and geographies, Credit Risk Management (CRM) is organised both locally and centrally. The local risk management teams have knowledge of specific geographic markets and the products and their risk characteristics. The central risk team focuses on more global industries and customers. The central risk team is also responsible for setting the ING Bank credit risk policies and standards. The local and central credit risk teams strive to have a consistent risk appetite which is facilitated by a robust credit risk infrastructure that supports the entire credit lifecycle.
CRM has a responsibility to ensure a common understanding of the contribution of credit risk to ING Bank’s strategy and the diverse aspects of credit risk throughout ING Bank. To accommodate this CRM actively involves stakeholders from the business and other risk departments, but in addition CRM promotes assignments and exchange of employees to facilitate a shared understanding and create an environment of co-operation. CRM informs the ING Bank community about new developments and insights in multiple manners, ranging from presentations, workshops and news alerts.
Mortgages The total mortgage portfolio remained almost flat over the year. Growth was seen in Belgium, DiBa and Australian markets. In Australia, the FX impact of the Australian Dollar had a significant impact on the size of the portfolio and contributed to most of the growth seen.
In the Netherlands, concentration in the Dutch mortgage portfolio for ING Bank has reduced, mainly through a steady transfer of mortgages from WestlandUtrecht to Nationale-Nederlanden Bank. After years of continued weakness in the housing market, house prices in the Netherlands finally showed an uptick in 2014. This development improved the LTV and reduced RWA for the Dutch mortgages.