Net Promoter Score Retail Banking1 (number of countries with number one ranking, rolling average)
Underlying result before taxation Banking3 of which underlying income3 €6,834 €18,306 billion billion million million million
Wholesale Banking system availability1 of which underlying operating expenses3 of which addition to loan loss provision
2 A description of ING’s Climate Finance and Social Impact Finance, see www.ing.com. 3 Underlying figures are non-GAAP measures. These are derived from figures according to IFRS-EU by excluding the impact from special items and Insurance Other. See page 446 for a reconciliation between GAAP and non-GAAP figures.
and a higher effective tax rate. This was partly offset by slightly higher income. Net core lending growth in 2019 was €17.2 billion, mainly realised in our retail markets. Net customer deposits grew by €23.4 billion.
Risk costs increased to €1,120 million in 2019, or 18 bps of average customer lending (which is below ING's through-the-cycle average of ~25 bps). The increase was mainly due to a number of large files in Wholesale Banking as well as higher, but still relatively low, risk costs in Retail Netherlands. Based on the Stage 3 ratio and the total outstandings earmarked as 'at risk', the quality of the loan book improved in 2019.
25.9 mln customers felt financially empowered 2.38 99.7% Retail Banking NL + Be 99.9% Wholesale Banking
Digitalisation is also increasingly an integral part of wholesale banking client service. In the
Winners will be those with a superior digital experience, a strong trusted brand, and the ability to leverage a large customer base to attract partners to their platforms. The successful platforms take the effort out of managing finances, offering personalised, real-time advice and a suite of products and services to cover all financial and other relevant needs.
At ING, our platform strategy starts with the ambition to create a uniform and borderless ING
enhancement programme. File enhancement and transaction monitoring look-back activities resulted in improved reporting of suspicious activities to authorities in various countries. Across ING
Along with the challenge of financial economic crime, increasing digitalisation presents many other challenges as well as opportunities in areas like digital identity, privacy, data exchange, code of conduct on data usage, and storage and protection of data. Many of these issues are addressed in various ways by regulators, governments and industry guidelines, but these are piecemeal measures and they struggle to keep up with the pace of developments. I see an increasing urgency to develop a data framework encompassing all these areas, particularly at the European level. At a time when digiitalisation is dissolving the boundaries between sectors, such a framework would promote innovation by establishing common standards that apply to all parties across industries.
We stand ready to play our part in the discussions to develop this framework, which we believe would contribute significantly to a competitive digital environment in Europe.
ING recorded a full-year 2019 net profit of €4,781 million, an increase of 1.7 percent year-on-year.
The issue of climate change acquired increased urgency in 2019. At ING we strongly believe that through our decisions in conjunction with customers about what we will or won’t finance, banks can play a role in influencing the direction and pace of society’s transition to a more sustainable, low-carbon economy.
It was therefore important for me on behalf of ING – as a founding signatory – to join more than 130 other banks from around the world in commiting to the Principles for Responsible Banking at the UN Climate Action Summit in New York. The principles encourage banks to align their strategies
Agreement’s goal to limit the rise of global temperatures to well below two degrees Celsius, with the ambition to strive for 1.5 degrees. In 2019 we published the first progress report on Terra. It details the sectors where we’re on track with the well under two-degree scenario, those where we’re not on track but are outperforming the market, and those where we’re both below the market and not meeting the target. With this first report we’re living up to our promise to transparently deliver results on measuring climate alignment and steering our portfolio, and we became the first international bank to publish any type of climate alignment disclosure. We continue to proactively share the Terra approach and to work with peers and sectors to develop sound methodology for climate alignment reporting.
Global economic growth slowed in 2019, with a decline in trade and industrial output as well as a weakening in the services sector. In the US, economic momentum slowed as the positive effects of 2018’s fiscal stimulus ebbed away and confidence slipped against the background of increased trade tariffs. Economic growth in Netherlands, Belgium and Luxembourg remained strong despite the weak global trade environment and remains above the eurozone average. In Germany, economic growth came to a near standstill during the year due to several factors combined with weak external demand. In Italy, economic growth was minimal as an uncertain fiscal outlook took its toll on domestic demand. Consistent with slowing economic growth, inflation slowed or remained low in major advanced economies.
Both the level of interest rates and the difference between short and long-term rates (the ‘slope’ of the yield curve) impact our net interest income. Given our geographical footprint, eurozone rate developments are more important for us than US ones.
Poland continued to be resilient to slowing growth in the eurozone and the economic slowdown in
In 2019, the financial sector, regulators and banks alike put tremendous effort into preparing for all
The proposed changes by no means dilute the importance of the UK as one of ING’s major
Along with financial economic crime (FEC), digitalisation presents challenges in areas like digital identity, privacy, data exchange, code of conduct on data usage, and storage and protection of data. While many of these are addressed in various ways by regulators, governments and industry guidelines, these measures don’t always keep up with developments. At ING, we see an increasing urgency to develop a data framework encompassing all these areas, particularly at European level.
Our digital-first approach means that the safeguards deployed around assets change in line with the evolving threat landscape. Safeguards include security and communication monitoring capabilities that use behavioural analysis, machine learning and rules engines. ING is also partnering with fintech companies to build a framework that supports security innovation within the bank.
ING’s ambition is to be a leader in terms of the digital banking experience, offering a single digital platform or ‘ecosystem’ where customers can find solutions to all of their financial and financerelated needs. This platform will provide a customer experience that is personal, instant, relevant and seamless across borders.
In Wholesale Banking, clients in Poland can now also sign credit documentation electronically, and in Belgium we enable our customers to start the mortgage process online. Our partnerships with fintechs also help ING offer more financial tools to customers.
Having a strong compliance culture and promoting integrity-led behaviour are key to reducing potential risks. ING’s Orange Code provides guidance, and living up to the Orange Code is a substantial part of performance management within ING.
ING. ING has also been working on a global code of conduct, which was introduced in the first quarter of 2020.
We now have around 4,000 FTEs working in KYC-related activities. File enhancement and transaction monitoring look-back activities resulted in improved reporting of suspicious activities to authorities in various countries. We’re also working on promising tools that use machine learning and artificial intelligence to increase the effectiveness of our KYC operations.
In 2019, the European Commission conducted an investigation into anti-money laundering (AML)
directives are not aligned and require improvement, possibly through a regulation instead of a directive. The European Commission is considering legislative proposals, which are expected before the summer of 2020.
For more on KYC and GDPR, read the ‘Developments in risk and capital management’, ‘Our people’
Multinational Enterprises throughout our operations. This includes the right to collective bargaining and freedom of association.
We are continuing to advance our understanding and approach to climate risks and opportunities.
Banking clients across all sectors to help them transition to the low-carbon economy of the future.
In lending, we pioneered the sustainability improvement loans approach back in 2017. We introduced another innovative product in 2019 – a sustainability improvement derivative. We’re also making progress in our circular economy programme with an increase in the number of circular deals in 2019. Added to this, we launched a sustainability improvement capital call facility for Singapore-based Quadria Capital Management, the first in the world to link the interest rate of a private equity fund to the sustainability performance of its portfolios.
Luxembourg to invest in sustainable projects. Companies selected for their sustainable impact will benefit from an interest rate discount of 0.3 percent because of the EIB’s backing.
It was marked as well by the growing threat of climate change.
clear and easy, anytime anywhere, empower, and keep getting better – forms the basis of the customer experience we aim for.
The competitive landscape that banks face is increasingly being shaped by Big Tech companies.
transformation programme is standardising our approach in four European markets - Czech
With the further digitalisation of banking, data is an important asset that helps us improve the customer experience and earn the strategically important primary relationship. We rely on data to
Read more in the ‘The world around us’, ‘Innovation and transformation’ and ‘Our business’
Material topics: customer privacy, business ethics and culture, digitalisation and interconnectivity, cyberresilience.
Innovation is at the heart of the Think Forward strategy and essential to develop the beyond banking and disruptive products, services and experiences that support our platform ambitions. We promote innovation internally through ING's own PACE innovation methodology and by earmarking funds to support businesses with innovative initiatives. To speed up the pace of innovation, we also partner with outside parties, including fintechs.
Material topics: innovation, digitalisation and interconnectivity, customer privacy, business ethics and culture.
Simplify and streamline refers to ING’s aim to become a more effective, cost-efficient and agile organisation with the flexibility to respond to fast-changing customer needs and low-cost competitors. To support our ambition to evolve into one, scalable, mobile-first digital platform that offers a uniform and superior customer experience we are building a global foundation with the same approach to data, IT infrastructure, and processes. This will feature simplified and standardised products and systems and by modular architecture, integrated and scalable IT
IT systems and platforms so we are there for our customers when they need us and to provide them with the highest standards of data security. As part of our know your customer (KYC)
ING’s Think Forward Leadership Programme (TFLP) aims to develop greater leaders and better managers who can engage staff and enhance team performance. Introduced for senior leaders in 2017, it was extended later that year to people managers globally as the TFL Experience (TFLE), a four-day programme with follow-up learning activities. The first phase of the programmes focused on the Orange Code, individual purpose and the Think Forward strategy. Phase 2, launched for TFLP
Challengers & Growth (C&G) Markets and in our sector lending franchises. ING is also considered one of the pioneers in sustainable finance, having introduced the first sustainability ESG-linked loan and a made-to-measure sustainability improvement loan. In 2019, ING continued to shape this sector and open up new markets by developing sustainability improvement concepts and financial products. In 2019, we continued to grow at resilient interest margins, with net core lending growth of €17.2 billion, or 2.9 percent, mainly realised in our Retail markets. Our ambition is to continue to grow profitably within our risk appetite, but given market dynamics we expect growth at Wholesale Banking to be slightly lower than in Retail Banking.
Our customers entrusted us with €744 billion of capital in subordinated loans, debt securities issued and customer deposits (including) from banks).
We innovate to think beyond banking and keep satisfying customers’ changing needs.
To counter financial economic crime, we are using technology and our innovation skills to make improvements
We retained our top NPS ranking in 7 out of 14 retail markets. We successfully implemented a KYC enhancement programme across all countries.
People are spending more and more time on platforms. To buy things, socialise, explore, learn, travel, entertain and be entertained. And to keep people there, platforms provide experiences that are personal, instant, relevant and seamless. Experiences that are the same everywhere, no matter where users are. With every subscriber, the value of the platform increases. More users attract more producers – and the other way around.
ING is also following this route combining these three different strategies. The first is to become a destination platform, the ‘go-to place’ for financial services and beyond, a place where consumers and producers interact. Here, we need to give them very good reasons to come to our platform, something very different from what they can get elsewhere. What is offered should not only be a perfect experience, but also be the best available product and service. Examples of ING doing this are DealWise, helping clients get the most relevant deals, CoorpID, which provides a centralised digital vault for corporate clients to store and share their KYC documentation and Invisible Tickets, a seamless ticketing solution for public transport using mobile phone sensors to automatically track and charge travellers.
Here, we can either provide ‘capability as a service’ to other platforms, such Yolt for Business and
Various business units and countries, such as Poland, also have their own innovation accelerators where they concentrate on improving current products and processes.
An innovation partnership could start with someone spotting a potential collaboration or improvement in a process that supports the bank's strategy and could create a differentiating customer experience. A common type of partnership at ING is starting a proof-of-concept or pilot with a fintech. Here, ING tests a solution for a limited time. If the proof-of-concept is successful,
To transform the bank into an innovation-enabled organisation, a customised methodology and a set of common processes, language and tools, called PACE – the ING way to innovate, are used.
Throughout 2019, there was outstanding progress in the adoption of PACE particularly in Australia,
Poland and Turkey. In 2019, more than 3,000 professionals increased their awareness and knowledge of PACE through PACE Fundamentals training, while more than 480 participants from 26
It's a set of standardised tools and processes that include: ▪ Strategic portfolio management, which forms the link between strategy and implementation.
Next to that, our one Way of Working also enables us to work globally and effectively, with agile working now in over 90 percent of our workforce in 15 ING Tech entities (up from 60 percent
Touchpoint is the foundation that enables producers to share services with ING entities, allowing them to create business-wide propositions across the bank and to third parties. Touchpoint reduces time to market and the volume of new ING propositions and services for customers. It also contributes to ING’s platform ambitions by providing solutions that are globally scalable.
During 2019, no major cyber security incidents occurred despite the increasing sophistication of attacks. The volume and duration of DDoS attacks is increasing, especially in Belgium, the
ING has been subject to the data protection requirements set out in the EU’s General Data
ING stays at the cutting edge of AI research, we also collaborate with various academic institutions, including Dutch-based university, TU Delft.
Analytics is organised globally into nine capability areas with CoEs in customer interactions, customer dialogue, risk and pricing, financial crime and regtech, intelligent operations, innovation and beyond banking, people and finance and wholesale banking.
processes in the Challengers & Growth Markets countries. ING has a mix of external and an internal
Tech services. IBSS branches are moving into the direction of multifunctional shared service centres providing services to both Retail and Wholesale Banking as well as to global functions. Manila now supports ING retail business in Australia and the Philippines. Katowice provides card processing services to ING in Poland and France. Bucharest hosts services for operational risk and compliance while Bratislava expanded its Pan-European Desk service for over 100 internal clients. In 2019, IBSS
October, Manila was awarded the Circle of Excellence Award for Technology Company of the Year and Executive Leadership Team of the Year at the Asia CEO Awards.
Uniting so many different cultures is a challenge that requires a behavioural shift, guided by our
“It’s bringing us closer to our ambition to create a banking platform that offers customers the same experience everywhere. The Touchpoint platform has all the tools and technologies our teams need to reach more customers faster, and in more countries, without having to reinvent the wheel each time. For example, in Manila, it was possible to build ING’s newest mobile Retail bank in just nine months using common security and authentication solutions.
“We need to use our industry knowledge and expertise to empower investors to make smart financial decisions”
Wholesale Banking is an important and integral contributor to ING's commercial performance.
Markets. In Wholesale Banking, the number of primary customers grew by three percent as we deepened our relationships, particularly in the daily banking space with existing lending-only clients in the US and EMEA.
We are driven by our purpose to empower people to stay a step ahead in life and in business. We do this by constantly innovating to deliver a differentiating customer experience that aims to be smart, personal and easy.
Across ING, digital channels are accounting for an increased number of contacts with retail customers. For example, a growing share of retail customers only interacts with ING on their mobile device, up from 12 percent in 2016 to 37 percent in 2019. The number of interactions grew by 80 percent since 2016, reaching 4.5 bln interactions in 2019, with mobile interactions increasing to 82 percent in 2019, versus 52 percent in 2016.
Given the rise of digitalisation, and growing competition from disruptive newcomers to our sector, we want to do more than just live up to our Customer Promise. We want to surpass people’s expectations.
Sunseap Group, a Singapore-based renewable energy company, with $37 million to build rooftop solar projects in Singapore.
In Transaction Services, we optimised our client-facing model, streamlining our products and services and increasing efficiency in sales support. We also brought together various client trading activities scattered across Financial Markets into one team and further embedded the FM business into our client organisation with a new sales model that is fully aligned with the rest of Wholesale
Thinking beyond traditional banking is crucial to find new ways to be relevant to customers. Here, open banking offers opportunities. By partnering with others or developing our own digital platforms, we can offer customers new and complementary services that go beyond banking – and create new revenue streams for ING.
This was the year that Unite be+nl became a reality for our customers in the Netherlands and
introduced the omnichannel (eCom + in-store) proposition for corporate clients. ING and Payvision combined commerce solutions proposition helps merchants offer our clients’ shoppers a seamless checkout experience across all channels.
In 2019, we introduced the first products resulting from our collaboration with insurer AXA, offering customers personalised insurance services in a clear and easy way via the ING mobile app.
Germany, ING customers can now secure the repayment of their mortgage in the event of death.
Understanding our customers better and meeting their changing needs is core to what we do. In 2019, we continued to innovate to improve the banking experience for our customers, while helping them transition to a more efficient and more sustainable economy. ING’s ambition is to be a leader in terms of the digital banking experience, offering our customers everywhere the same empowering and differentiating experience and making banking frictionless. In addition to uniting several of our retail businesses on digital platforms that will provide the same customer experience everywhere, for the first time we also have a shared brand direction and our first global tagline.
Launched in the Netherlands in January 2020, the new brand direction and tagline will be rolled out across ING during the year and used in all our business units to bring our customer experience to life.
ING in Romania introduced biometrics to authorise customers to do payments. Colleagues in Spain found a better way to track their customers' experience and also developed functionality on their banking app to allow them to easily schedule branch appointments. In the Netherlands and
We’re on the right track. Among other achievements, ING topped Forbes’ inaugural World’s Best
In Australia, new research in 2019 found ING had the highest customer satisfaction among retail banks, scoring well above the industry average. The 2019 Australia Retail Banking Satisfaction study by JD Power measured the satisfaction of nearly 5,000 banking customers.
Just as we need to know our customers better to deliver better products and services, we also need this knowledge to ensure we do not accept people or institutions who misuse the financial system.
In 2019, we continued to innovate to improve the banking experience for our customers, introducing several innovations that make banking faster and more secure for our clients.
Together with UniCredit, we invested in Axyon AI, an Italian company that helps banks offer better and faster advice to their clients by using artificial intelligence to, for example, identify investors most likely to participate in a syndicated loan.
Forbes ranked us fifth among global listed companies with high blockchain potential, recognising the pioneering work we’ve done in this area to improve our product offering and make banking even easier for our clients.
Komgo, which has evolved into a venture with 15 corporates and financial institutions. The deal was executed by the Commodity Trade Finance branch in Geneva with a letter of credit issued on behalf of Mercuria Energy Trading S.A.
And we joined forces with other global banks to create a digital coin that can be used to settle international money transfers instantly. This is a new step in the development of the Utility
Open Banking is a key enabler for new open business propositions and strategic platform strategies across all client segments. Since September 2019, all banks in Europe must implement PSD2. We have three PSD2 APIs available to external parties on our developer portal. These give customers the choice to use third-party apps to manage their money or make online payments. For business clients in the Netherlands we launched a payment request API that enables them to enhance their end-consumer experience by adding a convenient, simple payment functionality into their own app.
Partnerships are becoming more and more important to the delivery of optimal client experiences.
Digital banking, innovation and transformation are in our DNA. ING’s aim is to be the next generation digital bank, offering a single digital platform or ‘ecosystem’ where customers can find solutions to all of their financial and finance-related needs.
In 2019, we continued to innovate to improve the digital customer experience and to strengthen our mobile-first approach. The number of mobile card transactions increased six-fold in 2019 from 2018, boosted by the integration of third-party services like Apple Pay and Google Pay. The overall share of customers who only interact with us on their mobile device increased to 37 percent in 2019 from 26 percent in 2018. The adoption of mobile payments will grow exponentially in coming years, which is expected to boost mobile even further.
Another highlight was the launch of our mobile-only bank offering in the Philippines. ING has been operating in the Philippines for nearly 30 years, but only moved into retail banking with the official launch of our first all-digital savings product in November 2018. It is the first bank savings product that allows transactions to be conducted solely on ING’s mobile app. creating an account is free.
Users only have to download the ING app and make sure they meet a number of requirements, including being at least 18 years old and having one of three government-issued IDs. Since the launch, there have been around one million app installations, we have signed up more than 100,000 customers and the app scores an average 4.2 rating.
While banking is becoming increasingly digital, our branches still have an important role to play in providing more complex, personal advice to customers.
This is driving ING to change its branches, making them even more personal, while equipping them to meet today’s digital needs. The idea is to make customers feel at home. Some branches have a big table, where customers can settle down, have a cup of coffee or do some work. There are separate booths to get personal advice. There’s also a kid’s corner and a fully equipped ‘digi-corner’
In Poland, ING’s online banking platform for business customers was named by Global Finance
For more, see the Non-financial appendix or Developments in risk and capital management chapter.
Several governments recognised ING’s sustainability expertise in 2019, including: ▪ Austria, where we were part of a government working group on green finance; ▪ We received a Polish government mandate to originate euro-denominated green bonds; and
Management is the first in the world to link the interest rate of the private equity fund to the sustainability performance of its portfolios. The USD 65 million three-year revolving capital call facility is the first of its kind in the global fund finance industry, which is currently worth USD 400 billion.
We continued to deepen our market credentials with sustainable finance products that support our corporate clients in achieving better sustainability performance.
Besides these financial solutions, we also help to raise awareness on the topic. Consumers in the
ING offers sustainable investment (SI) services to its retail banking customers in the Netherlands,
▪ In Poland, our YouTube videos providing people with financial insights have had over 100 million views.
▪ We also partnered with others to accelerate innovation like Minna, which helps people keep track of and manage their subscriptions.
Association. This unique public-private collaboration aims to prevent and solve problematic debt.
Salary Finance, which partners with employers to offer their staff salary-linked financial well-being benefits that help them save regularly and avoid expensive debt.
Underlying income fell 5.1 percent to €4,505 million from €4,747 million previous year. The interest result was 5.5 percent lower, reflecting margin pressure on savings and current accounts due to lower reinvestment yields and lower revenues from Treasury. This was partly compensated by improved margins on mortgages. Net core lending (excluding the WUB run-off portfolio and
Investment and other income declined by €45 million, mainly attributable to lower results from financial markets-related products.
The underlying result before tax declined 1.5 percent to €957 million, compared with €972 million in 2018, mainly due to higher expenses, partly offset by slightly increased income and a higher net release in risk costs.
Underlying income increased 0.7 percent to €1,985 million in 2019 from €1,972 million a year ago.
Treasury and the lease run-off portfolio) grew by €1.1 billion. The inflow in net customer deposits
Daily Banking & Trade Finance, especially in Bank Mendes Gans and Payments & Cash
People are at the heart of our business strategy. In an industry that’s changing fast, ING’s workforce is evolving to keep pace with the skills and capabilities needed to embrace a digital future. To attract and retain talent we strive to offer our employees a differentiating experience and an inspiring workplace that encourages collaboration, innovation and personal growth.
our employees – who go the extra mile to make a difference.
ING’s business centres on people and trust. People trust us with their money and with their data.
At ING we manage our people’s performance on a continuous basis. Called Step Up, our global performance management practice includes ‘continuous conversations’ between employees and their managers with an emphasis on fewer, more challenging ‘stretch ambitions’ that encourage them to perform at their best. It also assesses employees against the Orange Code behaviours.
Our continuous listening approach currently comprises quarterly ‘pulse’ surveys among smaller employee groups (around 13,000 invited) and a more detailed all-employee survey in the second half of each year. These larger surveys alternate between employee engagement one year
Trainees follow one of eight tracks in areas such as Retail Banking, Wholesale Banking, IT, Analytics and Risk Management as part of ING’s long-term talent development strategy.
However, these skills are highly sought after and competition for this talent is fierce. Similarly, there
and have fun together while doing so. The programme focuses on improving employees’ physical and mental wellbeing. It comprises modules based on energy, recovery, eating, exercise, sleep, relaxation and an action plan. All participants receive an activity tracker to help monitor progress.
We also offer half-day training for employee health dialogues and half-day health check-ups, as well as a health budget they can use for their own preventative health activities. Employees also have access to resilience coaches, resilience workshops, sports and nutrition coaches, flu-jabs and sports groups in all locations (organised by employees themselves and sponsored by ING). In 2019, ING in Germany was awarded a Corporate Health Award in recognition of its initiatives.
▪ Various locations run relaxation and yoga classes and offer help for employees to stop smoking.
Inclusion is written in our Orange Code, which encourages us to help others to be successful.
▪ Certified by the Top Employers Insitute in Belgium, France, Italy, Luxembourg and Poland.
Digitalisation is making it easier for customers to manage their money, offering more convenience, financial insights and empowerment. But it also brings increased risks, such as data breaches or IT failures. Improving the way we manage such non-financial risks is integral to our digital ambitions and to protecting our customers, society and our bank against financial economic crime.
Some of these developments are highlighted in this chapter, particularly non-financial risks related to the rapid digitalisation of banking and financial economic crime.
Interest rates in the eurozone declined further to low and negative levels. These low interest rates led to margin pressure on replication income in connection with customer deposits. Financial risk developments are extensively covered in the Risk management section.
faces and how these are managed. The risk appetite is approved by both the Supervisory and
ING’s risk and control structure is based on the three lines of defence model, in which each line has its own distinct role, responsibilities and oversight. All employees are responsible for managing risk, with the Executive Board ultimately accountable.
The specialist functions Risk Management and Compliance are the second line of defence, who support, review and, where necessary, challenge the first line. They oversee risk management and are co-responsible for articulating and translating the risk appetite into methodologies and policies for the rest of ING to follow. The second line constantly monitors for strategy changes that will impact ING’s activities and evolves the risk appetite accordingly. They act to keep the risk profile within the defined risk appetite.
(TCFD) and we continue to work on the challenging exercise of translating potential climate risks and transition risks into financial risk for ING. Please see the Risk management section for more information on TCFD.
We have developed a new e-learning module for all employees underlining the importance of data, which was rolled out in early 2020.
Technology can help us deal with these risks by improving customer due diligence processes and the prevention, detection, quality and speed of response to financial economic crime. For example, we developed a virtual alert handler that uses artificial intelligence to better detect suspicious transactions and customer behaviours, allowing our employees to concentrate on those alerts that actually require attention. An AI solution detects instances of ‘smurfing’, which is where large fraudulent transactions are broken up into smaller ones that are not picked up by conventional monitoring systems. An AI-based anomaly detection tool went live in September, which is used to uncover suspicious transactions in the clearing and settlement process between banks. And in
In the fight against financial economic crime, customer due diligence and transaction monitoring are indispensable. To address shortcomings in the execution of these, ING continued to deliver on its global KYC enhancement programme in 2019. This includes in Italy, where Banca d’Italia had identified shortcomings in our anti-money laundering processes. The global programme consists of enhancing customer due diligence files (documentation, data and identity verification) and structural solutions to become sustainably better in the way we fight financial economic crime. We also assess past transactions and follow the applicable reporting process should we identify any unusual transactions. At year-end, we had around 4,000 FTEs working on KYC-related activities.
Wherever people work together they are influenced by group dynamics and beliefs that drive the way they make decisions, communicate with each other and take ownership. Behavioural risk management (BRM) is a new expertise to help us understand what drives the behaviours within our organisation, and identify high-risk behaviours that could negatively impact ING’s reputation and performance.
The outcomes of the first assessments, which were conducted in the Netherlands, US and
The BRM team works closely with other departments such as HR, Audit, Compliance and business units to align on and embed desired leadership and risk behaviours (i.e. speak up, psychological safety, communication, guiding leadership).
In 2019, we continued to support the business in the area of risk culture and monitoring compliance risk. This included training by compliance and data experts to enhance balanced decision-making that is in line with the Orange Code and consistent with compliance risk culture monitoring. It covered topics such as compliance risk awareness, group dynamics and tone from the top. We introduced a new global learning model in 2019 that aims to professionalise
In 2019, ING recorded 102 alleged irregularities as part of the Whistleblower process, including 52 reports of suspected breaches of Orange Code or unethical behaviour.
ING Group ordinary shares are listed on the stock exchanges of Amsterdam, Brussels and New York
6 August Publication results 2Q2020 10 August Ex-date for interim dividend 2020 (Euronext Amsterdam)*
An integrated report contains information on an organisation’s financial and non-financial capital inputs, outputs and impacts. By disclosing our financial and non-financial results, strategy and management approach in the context of external developments, risks and opportunities, we aim to enable our stakeholders to assess how we create value. Our ambition is to continue to improve the integration of our financial and non-financial disclosures year by year.
Management Board Banking, Executive Board and Supervisory Board. The final approval is given by the Supervisory Board.
Management Approach (DMA) for each material topic and the GRI indicators most relevant to our business. For some material topics, we have introduced new or additional indicators, as can be found in the GRI and SASB Index. This report follows the Sustainability Accounting Standards Board
Board, including the accompanying Non-financial Appendix, is provided by KPMG Accountants N.V.
Us chapter and in the Non-financial Appendix for the year 2019. KPMG also audited, and provided a reasonable level of assurance, on the ‘What matters most to our stakeholders’ section in the Nonfinancial appendix, the data for the Net Promoter Score for Retail Banking, the feeling of financial empowerment and system availability.
ING Group Annual Report 2019 KPMG Accountants N.V., registered with the trade register in the Netherlands under number 33263683, is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. 90
Specific Topics; • obtaining assurance information that the Non-Financial Information and the Four Specific
- Obtaining an understanding of internal control relevant to the examination in order to design assurance procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control.
- Testing the design, implementation and operating effectiveness of IT-relevant controls for the System Availability indicator.
At the same time, I want to stress the importance of a systemic approach to fight money laundering. There is a real urgency here to take big steps to come to that systemic approach.
In addition to our normal activities, we dedicated significant amounts of time to KYC and AML
priorities. We visited ING’s local and centralised compliance/KYC operations in Poland, Belgium,
Directive that took effect on 1 January 2020. Under the leadership of Mariana Gheorghe and later
Self-assessment is important to enhance our performance as a collective and as individual members and to determine where we can improve ourselves. Our 2018 annual self-assessment pointed out that we needed to improve our stakeholder management and dialogue and enhance
Departure CEO Ralph Hamers In late February 2020, ING’s CEO Ralph Hamers announced that he would be leaving ING as of 30
The Supervisory Board has full confidence in ING’s strong management team and the continuation of the execution of our strategy. We will continue to build on the foundations Ralph has laid and we believe in our strategic direction.
Supervisory Board are continuously engaged with ING and are able to devote sufficient time and attention to overseeing ING’s affairs. Since 2018, the Supervisory Board discusses and reconfirms all of its members’ outside positions on an annual basis and approves any intended outside positions when they occur, among other topics in order to safeguard this level of engagement.
structurally improves its gatekeeping function in the area of Customer Due Diligence (CDD) and
initiates each year ahead of its AGM—views were exchanged on topics including the 2019 shareholder resolutions, corporate governance matters, and the measures ING has in place to improve its management of non-financial risks.
In addition, ING has consistently provided regular updates on the progress of structural improvements to compliance policies, tooling, monitoring, governance, and knowledge and behaviour to bring ING’s gatekeeping function in the area of Customer Due Diligence and Anti-
Please refer to Note 46 to the consolidated financial statements of ING Group for more information.
Lamberti (vice-chairman) 9/10 7/8 4/5 - 1 This SB attendance overview shows the regular SB (committee) meetings that took place during the year.
Supervisory board has had periodic conversations with various internal and external stakeholders and it exercised its oversight role to ensure that necessary actions resulting from this cascaded down into the organisation and were followed up, including those actions related to culture and behaviour. In addition, in 2019 extensive stakeholder consultation took place with among others customer, employee and shareholder representatives, external supervisors, society at large and other stakeholders in light of the proposed updates to the Executive Board and Supervisory Board remuneration policies which will be put to the vote at ING’s 2020 Annual General Meeting.
Looking back at 2019 and given the ever increasing importance of what is happening in the world around us and the importance thereof to ING and its stakeholders, the Supervisory Board concluded that it would be beneficial to intensify the Supervisory Board’s in-depth discussions on increasingly complex matters. To support this, the Supervisory Board worked with an advanced delivery of its meeting materials as from 2H 2019 onwards and it will extend its quarterly meetings by at least 25 percent as from next year. Additional meetings of the Risk Committee and the Audit
Belgium, Slovakia and Romania in 2019, with additional visits in the pipeline for 2020. During these visits a dialogue takes place with the local teams, the results of which feed into the discussions at global level. The purpose of these local compliance/KYC visits was to provide the Supervisory Board members and the local organisation with a better mutual understanding of the importance of local initiatives and processes and how their results feed into the board discussions at the global level.
Executive Board and Management Board Banking of ING after the presentation of the 2018 fourth quarter and full year results on 6 February 2019. He was succeeded by Tanate Phutrakul, who was appointed as CFO and member of the Management Board Banking effective 7 February 2019. The
Driving and delivering commercial momentum is also dependent on how we fund and manage the transformation and manage (non-financial) risk. This is being discussed between the Supervisory
Supervisory Board, including the SOX 404 Report in relation to our Annual Report on Form 20-F.
In 2019, quarterly results, including the relevant auditor reports and press releases, were discussed and approved in January, May, July and October. The full-year 2018 financial results were discussed and approved in March 2019. Also discussed were the payment of an interim 2019 dividend of €0.24 per ordinary share, which was declared on 6 August 2019. In addition, elements of the draft agenda for the 2020 Annual General Meeting were discussed and approved.
KPMG was appointed as external auditor of ING Group for the financial years 2016 to 2019
During the internal meetings of the Supervisory Board in 2019 (with the CEO in attendance, except when the annual self-evaluation of the Supervisory Board or matters concerning the CEO were discussed), the Executive Board and Management Board Banking performance assessments were discussed and approved. Furthermore the Executive Board and Management Board Banking annual targets were reviewed and approved. The future composition of the Executive Board, the
(including on-site visits to ING’s local KYC/compliance operations) and other areas of importance; and (4) an enhanced meeting practice, with advanced delivery timelines and additional regular meetings.
The performance of the Supervisory Board and its committees was considered to have improved compared to previous year’s self-assessment, taking into account that the environment in which
The Supervisory Board’s spearhead objectives for 2020 will be to continue strengthening stakeholder dialogue and focusing on ING’s longer-term strategic ambition and how to make
AML/compliance an integral part of this. In this regard, the Supervisory Board will constructively
Audit Committee also reviewed the press releases related to the periodic results, the Annual Report, the 6-K and 20-F forms and the SOX 404 Report, and discussed and made recommendations for the approval of the internal audit plan.
Specific attention was paid to a variety of other, related topics. These included generic IFRS-related developments and their potential impact on our disclosures, legal proceedings, the impact of the transition from EONIA to €str, assessment of the internal audit function, the remediation of opencontrol deficiencies in areas including loan-loss provisioning and user access and change management. Also addressed were non-financial risks relevant for financial reporting. High and critical overdue issues, as reported by the internal audit function, were also discussed. The updated internal audit charter and the quarterly whistleblower report were also areas of attention. The
Audit Committee performed a thorough assessment of the functioning of the external auditor and the scope and materiality of the audit plan and the principal risks identified in the audit plan. All relevant items discussed by the Audit Committee were reported to the Supervisory Board, with the
Committee meeting financial and model risk as well as non-financial and compliance risk reports were discussed, including the status of ING’s accompanying metrics, with regard to solvency, liquidity and funding, credit, country, market, IT, non-financial and compliance risks. The nonfinancial and compliance risk discussions were supported by updates of the bank-wide know your customer enhancement programme, on IT and various compliance dashboards (on KYC,
Corporate Governance Committee also has a continuing conversation on Executive Board and
In terms of corporate governance, the committee discussed the agenda for the 2019 Annual
EBA guidelines on Internal Governance. During the year, the committee also discussed the 2019
Board member. Henk Breukink stepped down as Supervisory Board member and chairman of the
The Supervisory Board of ING Group is responsible for controlling management performance and advising, supervising and constructively challenging the Executive Board. All Supervisory Board members, with the exception of not more than one person, shall qualify as independent as defined in the best practice provision 2.1.8 of the Dutch Corporate Governance Code. Under this code, Eric
Boyer de la Giroday is considered not to be independent. The current members of the Supervisory
The Dutch Corporate Governance Code can be downloaded from the website of the Dutch
1 Dutch Bulletin of Acts (Staatsblad) 2004, 747, most recently amended with effect from 1 January 2018: Dutch Bulletin of Acts 2017, 332
‘independent’ as determined under the Corporate Governance Code. However, the definition of
‘independent’ under the Corporate Governance Code differs in its details from the definition of
▪ NYSE listing standards require a US company to have a compensation committee and a nominating/corporate governance committee, each composed entirely of independent directors.
The Nomination and Corporate Governance Committee and Remuneration Committee are composed entirely of members of the Supervisory Board who are independent as determined under the Corporate Governance Code.
▪ In contrast to the NYSE listing standards, the Corporate Governance Code contains an ‘apply-or explain’ principle, offering the possibility of deviating from the Corporate Governance Code. For any deviations by ING Group, please refer to the paragraph ‘Compliance with the Dutch
▪ The Articles of Association provide that there are no quorum requirements to hold a General
Meeting, although certain shareholder actions and certain resolutions may require a quorum.
Group (see Report of the ING Continuity Foundation chapter). The purpose of this call option is to protect the independence, continuity and identity of ING Group against influences that are contrary to the interests of ING Group, its enterprise and the enterprises of its subsidiaries and all stakeholders (including, but not limited to, hostile takeovers). However, the ordinary shares are not used for protective purposes.
The board of ING Continuity Foundation comprises four members who are independent of ING
Foundation. The board of the ING Continuity Foundation appoints its own members, after consultation with the Supervisory Board of ING Group, but without any requirement for approval by
Board is authorised to issue new ordinary shares without first having to obtain the consent of the
The share issue authorisation that will be proposed to the 2020 Annual General Meeting will be similar to the currently applicable authorisation described above.
Executive Board subject to the approval of the Supervisory Board, prior authorisation from the
Pursuant to this authorisation, no more than 10 percent of ING Group’s share capital may be held as treasury shares. When repurchasing shares, the Executive Board must observe the price ranges prescribed in the authorisation. For the ordinary shares, the authorisation currently in force stipulates a minimum price of one eurocent and a maximum price equal to the highest stock price on the Amsterdam stock exchange on the date on which the purchase agreement is concluded or on the preceding day of stock market trading.
A notification requirement also applies if a person’s capital interest or voting rights reaches, exceeds or falls below the above-mentioned thresholds as a result of a change in ING’s total issued share capital or voting rights. Such notification must be made no later than the fourth trading day after the Dutch Authority for the Financial Markets has published ING’s notification of the change in its issued share capital.
Each person holding a gross short position in relation to the issued share capital of ING that reaches, exceeds or falls below any one of the above-mentioned thresholds must immediately give written notice to the AFM. If a person’s gross short position reaches, exceeds or falls below one of the above-mentioned thresholds as a result of a change in ING’s issued share capital, such person must make a notification not later than the fourth trading day after the AFM has published the
ING Group strives to provide clear, accurate and timely financial information that is in strict compliance with applicable rules and regulations, in particular those concerning selective disclosure, inside information and equal treatment. In addition to the General Meetings, ING Group may communicate with its shareholders, the investment community and the general public through earnings announcements, presentations and meetings with analysts, investors and the press.
ING Group publishes a comprehensive quarterly disclosure package that includes extensive and detailed financial figures with relevant explanatory remarks. This information is discussed thoroughly on the day of the earnings release during media, analyst and investor conference calls.
Group may also participate in industry conferences. Investor Relations Days or conferences in which ING Group participates will not take place during the period immediately prior to the publication of quarterly financial results.
In the event that any inside information is inadvertently disclosed during any bilateral contacts, it is
ING Group’s policy, in accordance with applicable regulations, to publish such information as soon as possible.
Approximately 25 analysts actively cover and generally issue reports on ING Group. A list of these analysts can be found under ‘Analyst Coverage’ in the Investor Relations section of ING Group’s website. During 2019, ING Group did not provide any form of compensation to parties that are directly or indirectly involved in the production or publication of analysts’ reports, with the exception of credit-rating agencies.
During the event, CEO Ralph Hamers provided an update of ING’s Think Forward strategy, discussed compliance and shared his view on the future of banking. Members of ING’s Management Board
Banking and other senior leaders also presented at the Investor Day, offering insights into the bank’s financials, operations and business segments.
ING’s General Meeting is normally held each year in April or May to discuss the course of business in the preceding financial year on the basis of the reports prepared by the Executive Board and the
Proxy voting forms for shareholders are made available on the website of ING Group
Members of the Executive Board are appointed, suspended and dismissed by the General Meeting.
Additionally, this majority must represent more than half of the issued share capital. The Articles of
Candidates for appointment to the Executive Board are subject to a suitability and reliability assessment by DNB and ECB and must continue to meet these while in function.
Supervisory Board annually assesses the composition of the Executive Board on a continuous basis.
Executive Board. It is available on the website of ING Group (www.ing.com).
In 2018, ING introduced a new principle in a bid to bolster diversity within our organisation. The 70 percent principle gives managers a basis for building mixed teams around appropriate dimensions of diversity (with a focus on gender, nationality and age group) and strives for a 30 percent difference in team make-up. It is our ambition to adhere to this principle across the organisation within both local and global teams. This principle is incorporated into succession planning for the
The guidelines that relate to the composition of the Executive Board, are laid down in the Executive
As an example to demonstrate the aforementioned: with the unexpected departure of the previous
Executive Board in which there are significant conflicts of interest will be disclosed in the Annual
As announced on 20 February 2020, Ralph Hamers will step down from his position and leave ING
as of 30 June 2020. He will join UBS on 1 September 2020 and will become group chief executive officer per 1 November 2020. He will remain in his role as chief executive officer of ING Groep N.V.
Executive Board and the Management Board Banking to ensure a smooth transition of leadership.
Tanate Phutrakul is responsible for ING’s financial departments, Group Treasury (including capital management activities), Investor Relations, Group Research and Regulatory & International Affairs.
He holds a master’s degree in Engineering from Imperial College, University of London, and an MBA
Tanate Phutrakul was appointed as a member of the Executive Board of ING Groep N.V. at the
A resolution of the General Meeting to render this list non-binding, or to suspend or dismiss
The function of the Supervisory Board is to supervise the policy of the Executive Board and the general course of affairs of ING Group and its business, as well as to provide advice to the Executive
According to the Banker’s Oath that was taken by the members of the Supervisory Board, they must carefully consider the interests of all stakeholders of ING. In that consideration they must put the customer’s interests at the centre of all their activities. Certain resolutions of the Executive
Pursuant to the Articles of Association ING Group indemnifies the members of the Supervisory
Supervisory Board and ING’s wide range of activities, that such individuals may become members of the Supervisory Board of ING Group. Former Executive Board members must wait at least one year before becoming eligible for appointment to the Supervisory Board.
We believe that the Supervisory Board, diversity wise, is well balanced in terms of other relevant diversity aspects. Overall, the preferred emphasis on members with a financial or banking background has been maintained. In terms of nationality, the ratio between Dutch and non-Dutch nationalities in 2019 was 44 percent - 56 percent.
– without the member concerned taking part – then decides whether a conflict of interest exists.
Supervisory Board in which there are material conflicting interests are disclosed in the Annual
For an overview of loans granted to members of the Supervisory Board, see the ‘Remuneration report’ chapter.
The members of the Supervisory Board are requested to assess annually whether the criteria of dependence set out in the Dutch Corporate Governance Code do not apply to them and to confirm this in writing. On the basis of these criteria, all members of the Supervisory Board, with the exception of Eric Boyer de la Giroday, are to be regarded as independent on 31 December 2019.
The organisation, powers and conduct of the Supervisory Board are detailed in the Supervisory
The Risk Committee assists and advises the Supervisory Board in monitoring the risk profile of ING
Corporate Governance Code considering his academic background as well as his knowledge and experience in his previous role as board member and vice-chairman of ING Groep N.V. and
Supervisory Board on improvements. On 31 December 2019, the members of the Nomination and
Chairman of the Supervisory Board of Het Concertgebouw N.V. and member of the Temasek
(Born 1956, German nationality, male; appointed in 2013, term expires in 2021)
(Born 1956, Dutch nationality, male; appointed in 2017, term expires in 2021)
Member of the Supervisory Board of ING Groep N.V./ING Bank N.V. and non-executive chairman of the Board of Directors of ING Belgium SA/NV.
(Born 1956, Romanian nationality, female, appointed in 2015, term expires in 2023)
Relevant positions pursuant to CRD IV Member of the Supervisory Board of ING Groep N.V./ING Bank N.V., founder and consultant of
(Born 1956, Dutch nationality, male; appointed in 2012 as an observer, full member as of 2013, stepped down per 1 January 2020)
Former position: member of the Supervisory Board of SNS Reaal N.V. (now: SRH N.V.).
Member of the Supervisory Board, nomination committee and sponsoring committee of Het
Meeting of 2019. Robert Reibestein stepped down from the Supervisory Board as per 1 January 2020.
Our internal control over financial reporting includes those policies and procedures that: ▪ pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of ING; ▪ provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorisations of our management and directors; and
▪ 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.
Group are operating, permission from, or notification to, local regulatory authorities may be required for the acquisition of a substantial interest in ING Group.
The external auditor may be questioned at the Annual General Meeting in relation to its audit opinion on the financial statements. The external auditor will therefore attend and be entitled to address this meeting. The external auditor attended the meetings of the Risk Committee and of the
Audit Committee and attended and addressed the 2019 Annual General Meeting, at which the external auditor was questioned on the audit opinion.
ING Groep N.V. states that it is responsible for the design, implementation and functioning of ING’s internal risk management and control systems.
ING’s internal risk management and control is a process, effectuated by the Executive Board, senior management, and other personnel. It is designed to mitigate risks and provide reasonable assurance regarding the achievement of objectives in the following categories: ▪ Effectiveness and efficiency of operations; ▪ Reliability of financial and non-financial information; ▪ Compliance with laws, regulations and internal policies, and the ING Values as part of the Orange Code; ▪ Safeguarding of assets, identification and management of liabilities; and
The design and the operation of the internal risk management and control systems are discussed annually with the Risk Committee and the full Supervisory Board, whereas the design and the operation of internal control over financial reporting are discussed annually with the Audit
Your Customer enhancement programme were discussed with the Risk committee of the
▪ the report of the Executive Board in the ING Group Annual Report 2019 states those material risks and uncertainties that are relevant to the expectation of ING Groep N.V.’s continuity for the period of twelve months after the preparation of this report.
ING Continuity Foundation is entitled to acquire cumulative preference shares to be newly issued, on the understanding that, following the issue, the number of cumulative preference shares issued may be no more than one third of the total number of shares issued. This entitlement is vested in the Articles of Association of ING
If new shares other than cumulative preference shares are subsequently issued, ING
The composition of the Board is currently as follows: Sebastian Kortmann, chairman of the Board, Rob van den Bergh and Allard Metzelaar. Sebastian Kortmann was reappointed as of 13 May 2019 as chairman.
The Executive Board is required to prepare the financial statements and the Annual Report of ING Groep N.V. for each financial year in accordance with applicable Dutch law and those
Contents | Report of the Executive Board | Corporate governance | Risk Management | Consolidated financial statements | Parent company financial statements | Other information | Appendices > Remuneration report
KYC enhancement programme with strong governance from top management and further progress in sustainability. See page 141.
The Supervisory Board acknowledges that in the past it has not always got its stance on remuneration right. This was especially apparent in 2018, when a proposal to amend the remuneration policy of the Executive Board elicited much criticism. It was subsequently withdrawn and the Supervisory Board promised to carry out an extensive review of the remuneration policy.
On the subject of variable remuneration, stakeholders understood and supported the continuation of this within the limits of Dutch legislation (i.e. a maximum of 20% of base salary). There was a clear ask for more transparency about the metrics used to determine variable remuneration and how these are applied for the performance year.
To increase the relevancy of our peer group, the Supervisory Board is proposing to use a smaller one based on geography, relevant talent market, size and governance framework. We intend to include a balancing factor to ensure we also consider relevant peer companies that may not fulfil the other criteria. The proposed benchmark consists of eight comparable Dutch companies and eight relevant European financial services providers.
AGM on 23 April 2019. Tanate Phutrakul succeeded Koos Timmermans who, in consultation with the Supervisory Board, stepped down from his position as chief financial officer and member of the
The current Executive Board remuneration policy (hereafter called the 2019 EB Remuneration
on 27 April 2010. Subsequent amendments to this policy were adopted at AGMs on: ▪ 9 May 2011 in response to new regulatory requirements
▪ 12 May 2014 with respect to pensions for the Executive Board
Variable remuneration for Executive Board members is limited to a maximum of 20% of base salary. At least 50% of this is based on non-financial performance criteria. The 2019 EB
Remuneration Policy provides for an at-target variable remuneration of 16% of base salary. If performance criteria are exceeded, the Supervisory Board can increase the variable component to the maximum. If performance is below target, the variable component will be decreased, potentially to zero.
Members of the Executive Board are appointed by shareholders at the AGM for a maximum period of four years. They may be reappointed by the AGM in line with applicable rules and regulations.
limited to a maximum of one year of fixed base salary, under the condition that there should be no reward for failure).
Contents | Report of the Executive Board | Corporate governance | Risk Management | Consolidated financial statements | Parent company financial statements | Other information | Appendices > Remuneration report 2019 Remuneration Executive Board
With respect to the remuneration of the Supervisory Board, note that there is no link to company performance to emphasise their independent role.
Furthermore variable remuneration must be based on at least 50% non-financial targets.
3 The fixed remuneration for the Executive Board has not changed over 2019. Hence, the relative total compensation increase from 2018 to 2019 is fully attributed to the fact that no variable remuneration was awarded over performance year 2018. In addition, since Tanate Phutrakul has not been an Executive Board member for the full year and since Koos Timmermans left ING during the year, the comparison between 2018 and 2019 could not be made.
As announced in our 2018 Annual Report, the base salary of all Executive Board members remained the same in 2019 as it was in 2018.
▪ People: driving initiatives to continue to be a healthy organisation and great place to work.
Realised underlying return on equity (IFRS-EU) for ING Group of 9.4%, down
The underlying cost/income ratio decreased to 56.6% from 54.5% in 2018 driven by higher KYC, staff and regulatory costs (51% excluding regulatory costs).
Ranked number one in Net Promotor Score relative to competitors in six of the 14 retail markets.
In 2019 countering financial and economic crime remained a priority: ▪ The number of FTEs working globally on know your customer (KYC) related activities has increased to ~4,000.
▪ Further progress was made in the global roll-out of KYC tools to enable the onboarding of customers and monitor their transactions across ING’s global network in a more effective and consistent way.
that have been piloted with customers. Introduction of one platform for all customer-facing collegues to allow supporting customers faster and in a more uniform way.
▪ Maggie (former Model Bank): The digital platform has now over 450,000 active customers and the platform is ready to onboard customers from
▪ Yolt, ING’s personal finance aggregator, reached over one million users and was chosen as the best personal finance app at the International Payments
▪ In order to improve the credit decision process for Wholesale Banking clients, ING has invested in Flowcast. This is a start-up that uses machine learning algorithms to create predictive models that reduce risk and unlock credit to businesses.
ING’s portfolio that are most responsible for greenhouse gas emissions. In a
ING is recognised as an A-list company for leadership on climate action for the fifth year in a row by CDP, the leading global environmental disclosure platform.
In 2019 ING reinforced the commitment to help customers reach their sustainability goals by closing more than twice the amount of sustainable finance deals compared to 2018.
enhancement programme, with strong governance from top management, more FTEs working in
Tanate Phutrakul and Koos Timmermans. The 2018 figures reflect an entire year for all three active members of the Executive Board. The 2017 figures reflect a partial year as Executive Board members for Koos Timmermans and Steven van Rijswijk.
Members of the Executive Board participate in the Collective Defined Contribution (CDC) pension plan. In 2019, pension accrual only applied to salary up to an amount of €107,593. The table below shows the pension costs of the individual members of the Executive Board in 2019, 2018 and 2017.
Rijswijk 1 Other amounts contains the following elements: personnel facility (mortgage), tax and financial planning, one-off compensation for Steven van Rijswijk for retroactive tax impact of use of company car and temporary housing for Tanate
2 The 2019 emoluments reflect the partial year as an Executive Board member for Tanate Phutrakul.
Ralph Hamers 19,985 19,985 2.90 19 March 2009 19 March 2012 19 March 2019
Deferred shares are shares conditionally granted subject to a tiered vesting over a period of five years (for awards in 2019 and before), with the ultimate value of each deferred share based on ING’s share price on the vesting date. This is all conditional on there being no holdback.
Tanate Phutrakul1 LSPP Units 3 27 March 2015 27 March 2019 N/A 6,915 922 10.55 0
Koos Timmermans LSPP4 11 May 2016 11 May 2019 11 May 2021 18,278 0 - 0
Steven van Rijswijk1 LSPP 25 March 2016 27 March 2019 27 March 2020 19,362 3,227 10.55 0 1 Shares granted to Tanate Phutrakul (March 2015 to March 2019) and Steven van Rijswijk (March 2016 to March 2018) were awarded for their performance in positions prior to their Executive Board appointment.
2 All current Executive Board members participate in ING Group Long Term Sustainable Performance Plan (LSPP) under which plan rules they receive their shares.
The table below presents the loans and advances provided to Executive Board members that were outstanding on 31 December 2019, 2018 and 2017. These loans were provided on market conditions with due observance of the applicable policies within ING.
The current remuneration policy for the Supervisory Board, as approved at the AGM on 25 April 2016, aims to: ▪ Provide a simple and transparent structure 4 The collective salary increase based on the Collective Labour Agreement in the Netherlands (agreed for the period from 1 January 2019 – 31 December 2020), per 1 September 2019 was 3% for all employees in the Netherlands. In addition, per 1 September 2020 another collective salary increase of 3% will take place.
Furthermore, Supervisory Board members are not eligible for any variable remuneration. In addition, members of the Supervisory Board are reimbursed for their travel and ING-related business expenses.
All fees for the Supervisory Board are paid directly by ING, in other words no payments have been made by any of our subsidiaries.
The following table contains information on employee stock options outstanding and awards vested for Supervisory Board members.
Employee stock options on ING Groep N.V. shares held by members of the Supervisory Board on
Regulations Framework (IRRF). The IRRF complies with relevant international and local legislation and regulations.
Step Up Performance Management does not prescribe the targets employees should set. However, the following regulatory requirements apply to specific groups: ▪ For employees eligible for variable remuneration, a minimum of 50% non-financial priorities.
The awarding of variable remuneration, where applicable, is based on individual, business line and bank-wide performance criteria unless local legislation prescribes otherwise. In all ING countries, we adhere to the applicable variable remuneration caps. In the Netherlands, for example, we apply a variable remuneration cap of 20% with limited exceptions in line with the Dutch Remuneration
In determining the overall size of the variable remuneration pool, a multi-layered, consistent and bank-wide approach to risk tests and adjustments is applied to the process, based on an assessment by the chief risk officer.
To establish appropriate ex ante risk adjustments, there are measures to assess the bank’s current and future risks and whether performance sufficiently aligns with risk appetite levels. The risk adjustment assessment includes measurements on ‘forward looking’ capital, liquidity and nonfinancial risk, where adjustments are made on deviation from risk appetite.
Finally, a post-award risk assessment can be applied. This assessment analyses whether any events or findings occurred that should lead to a downward adjustment of variable remuneration of previous years by applying a holdback (i.e., forfeiture of up to 100% of the awarded, but unvested, variable remuneration) or clawback (surrender of up to 100% of the paid or vested variable remuneration).
ING’s remuneration policies comply with international and local legislation and regulations. Under the WBFO (which sets various requirements on remuneration), financial institutions are permitted to set a variable remuneration cap higher than 100% of fixed remuneration for employees outside of the European Economic Area (EEA), provided that the higher cap is approved by shareholders and does not conflict with ING’s capital adequacy requirements.
ING's 2019 EB Remuneration Policy has been in place since 2010, with legal amendments adopted in 2011, 2014, 2015 and 2017, as described above. In line with the Dutch Act on Implementation of
In line with various regulations, in the course of formulating this policy, the Supervisory Board consulted various stakeholders in meetings, conference calls and through online surveys. Such stakeholders included Retail and Wholesale Banking customers, investors, analysts, rating agencies, shareholder advisory firms, trade unions, employee representatives, regulators, politicians and the current members of the Executive Board.
has used as a peer group since 2010. This type of benchmark is also unusual compared to the approach taken by peers. As a result, the Supervisory Board has chosen to change the benchmark for ING's proposed new Executive Board remuneration policy to a smaller peer group based on five guiding principles: (i) geography, (ii) relevant talent market, (iii) size, (iv) governance framework and
The applicable governance framework for the company is also seen as a relevant factor. ING is a stock listed company subject to the Dutch financial services regulatory framework, operating within the Dutch stakeholder environment. Therefore the peer group selection is aligned with the Dutch stakeholder environment and/or a financial services regulatory framework.
As a final factor, the Supervisory Board looks at the balance of the peer group, ensuring it keeps sight of relevant peer companies that do not sufficiently match other criteria. This resulted in the inclusion of a number of relevant Dutch peer companies.
To mitigate risk relating to variable remuneration, the Risk Committee carries out pre-award and post-award risk assessments of variable remuneration, which may result in a downward adjustment of the variable remuneration at the discretion of the Supervisory Board.
scale ranging from threshold, target to maximum. The outcomes for qualitative performance measures are assessed using a standard 1-3 rating scale.
Board member is also eligible for severance payment. The arrangements are subject to legal requirements, including being limited to a maximum of one year of fixed base salary and under the condition that there should be no reward for failure.
The Supervisory Board will propose a Supervisory Board remuneration policy to shareholders at the 2020 AGM, where it will be subject to a binding approval vote. Compared to the existing policy, which was approved at the AGM on 25 April 2016, there are no significant changes other than that the Supervisory Board remuneration will be benchmarked against a new reference market and that the policy is extended to include all relevant requirements of the Dutch Act implementing SRD II.
As often as appropriate, but at least every four years, the total fees for Supervisory Board members are reviewed against comparable positions in the market. Under the proposed new Supervisory
Supervisory Board and based on the following peer group guiding principles: (i) geography, (ii)
relevant talent market, (iii) size, (iv) governance framework and (v) a balancing factor. In the benchmark exercise ING’s position is for Supervisory Board member’s fees to be below the median.
Contents | Report of the Executive Board | Corporate governance | Risk Management | Consolidated financial statements | Parent company financial statements | Other information | Appendices > Works Councils
'Financial Instruments: Disclosures'. These disclosures are an integral part of ING Group
Effective risk management requires firm-wide risk governance. ING’s risk and control structure is based on the ‘three lines of defence’ governance model, whereby each line has a specific role and defined responsibilities in such a way that the execution of tasks is separated from the control of these same tasks. At the same time, they have to work closely together to identify, assess, and mitigate risks. This governance framework is designed such that risk is managed in line with the risk appetite as approved by the Management Board Banking (MBB), the Executive Board (EB) and the
Board of ING Group,the heads of the business lines and the chief operating officer.
ING Bank and its business (including its financial policies and corporate structure). For risk management purposes the SB is advised mainly by the Risk Committee, which assists and advises in monitoring the risk profile and approving the overarching risk appetite of the company
Trading Risk Committee (CTRC) is the highest level body authorised to discuss and approve policies, methodologies, and procedures related to credit risk; ▪ Global Credit Committee – Transaction Approval (GCC(TA)) discusses and approves transactions that entail taking credit risk (including investment risk), country, legal, and ESR risk. The GCC(TA)
developments and challenges effectively, ING regularly reviews the set-up of its risk-management organisation. This allows for better support of the Bank’s Think Forward strategy and enhances the interconnectedness of the risk oversight responsibilities in business units with global risk functions.
ING has organised its Internal Control Framework (ICF) with the objective to translate policies and control objectives into consistent standards and controls in the business lines and as such support and promote an effective risk and control environment. The framework includes binding principles, definitions, process steps and roles and responsibilities to create consistent bank-wide policies and standards.
Contents | Report of the Executive Board | Corporate governance | Risk Management | Consolidated financial statements | Parent company financial statements | Other information | Appendices > Risk Management and process-related control standards. These global documents are designed by head office functions and are to be adhered to by entities and support functions. Domain ownership of policies and minimum standards is with the 2nd Line of Defence, whereas product and support control frameworks are owned by the 1st Line of Defence and are approved by 2nd line of Defence. Process control standards can be owned by both 1st and 2nd Line of Defence, related to the underlying processes involved.
The process of developing internal control documents is standardised for each type of internal control document. Domain owners should adhere to the standardised process that includes the following steps: domain owner identification, risk-based approach, impact assessment, approval body and involvement of local entities for sounding on key and expected controls. The gatekeeper oversees the steps above.
Model Risk Management (MoRM) departments, dedicated risk committees approve new and changed models. After approval by the applicable risk committee, and where necessary by the regulator, the risk model is implemented. MoRM re-validates models on a regular basis. Validation results and capital impacts are reported on a quarterly basis to senior management, the risk committees and the supervisor.
The model is already embedded in some decision-making processes (such as the data ethics governance process) and we are exploring how to embed it in other decisive governance processes within the bank. During early 2019 around 30 compliance officers were trained globally to support the organisation in properly applying the model in practice in their respective countries.
and risk training. It introduces governance, a board to approve trainings based on business needs, global planning and greater cooperation between content owners, learning experts and corporate communications teams to ensure the best fit for the training need. In addition, a Risk Academy was set up for people working in risk, with the aim of eventually bringing Risk training to a broader audience if necessary.
ING aims to align its remuneration policy with its risk profile and the interests of all stakeholders.
The global BRM Centre of Expertise, set up in 2018, not only assesses behavioural risk in the organisation, but also has the mandate to direct, challenge and support business owners to intervene on high-risk behaviours and their underlying drivers.
In 2019, the outcomes of the first behavioural risk assessments were shared with senior leaders at
Effective mitigation requires a deep understanding of what drives undesired behaviours. Theory and evidence-based techniques and tools developed in behavioural science play an important role in designing and evaluating interventions. These interventions impact all levels of the organisation.
The BRM team works closely with the business units and departments such as HR, Audit, and
The importance of a risk is based on the likelihood that the risk materialises and the subsequent financial or reputational impact that may occur should the risk arise. Unlikely risks with a potentially high impact need to be controlled. A risk that is likely to happen regularly but expected to have a modest financial impact may not need to be mitigated if the consequences are accepted by management.
The Risk Appetite Framework (RAF) is one of the pillars of the Enterprise Risk Management (ERM)
Framework. Its objective is to set the appropriate risk appetite at the consolidated level across the different risk categories and to allocate the risk appetite throughout the organisation.
The bank-wide risk appetite is translated per risk type, which is further cascaded into the organisation to the lowest level. Risk appetite statements are then translated into dedicated underlying risk limits that are used for the day-to-day monitoring and management of ING’s risks.
Stress testing is an important risk management tool that provides input for strategic decisions and capital planning. The purpose of stress testing is to assess the impact of plausible but severe stress scenarios on ING’s capital and liquidity position. Stress tests provide insights into the vulnerabilities of certain portfolios, with regards to adverse macroeconomic circumstances, stressed financial markets, and changes in the (geo)political climate.
Contents | Report of the Executive Board | Corporate governance | Risk Management | Consolidated financial statements | Parent company financial statements | Other information | Appendices > Risk Management
On 16 April 2019, the European Parliament (EP) approved the final agreement on a package of reforms proposed by EC to strengthen the resilience and resolvability of European banks. The package of reforms comprises two regulations and two directives, namely amendments to the
The risks listed below are defined as material existing and emerging risks that may have a potentially significant impact on our financial position or our business model. They may have a material impact on the reputation of the company, introduce volatility in future operation results, or impact ING’s medium and long-term strategy including the ability to pay dividends, maintain appropriate levels of capital or meet liquidity and funding targets. An emerging risk is defined as a risk that has the potential to have a significant negative effect on our performance, but whose impact on the organisation is currently more difficult to assess than other risk factors that are not identified as emerging risks.
security and fraud teams. In addition, ING continues to strengthen its global cybercrime and fraud resilience through extensive collaboration with financial industry peers, law enforcement authorities, government (e.g. National Cybersecurity Center) and internet service providers (ISPs).
Forum’s global ranking in terms of likelihood and impact. The potential financial impacts of extreme weather events such as hurricanes, floods and heatwaves are elevating the risks associated with climate change. With more than 38 million customers in over 40 countries, our business activities can both significantly influence communities and the environment and be impacted by climate risks. As such, we take our responsibility to help mitigate this risk seriously.
ING endorses the Financial Stability Board’s (FSB) Task Force on Climate-Related Financial
ING’s Climate Change Committee (CCC) is mandated to oversee and set priorities for the implementation of the TCFD recommendations and other strategic climate-related topics that impact the group. For details please refer to our approach to climate governance.
In 2018, ING started measuring and steering our lending portfolio towards the Paris Agreement’s well-below two degree goal by 2040 – our Terra approach (Report of the Executive Board). For instance, our automotive, real estate and power portfolio have been assessed. For an overview of how we capitalise on climate-related opportunities, please refer to Responsible finance (Report of the Executive Board).
& Growth Markets (C&G), CRO Netherlands and CRO Belux focus on specific risks in the geographical and/or business areas of their responsibilities. The Financial Risk department is a Tier 2 level risk function, which is responsible for the consolidated risk appetite setting, risk frameworks, model development and policies.
Contents | Report of the Executive Board | Corporate governance | Risk Management | Consolidated financial statements | Parent company financial statements | Other information | Appendices > Credit risk relatively low risk, ING increasingly uses DVP (delivery versus payment) and safe settlement payment techniques to reduce settlement risk.
Investment risk -Debt securities Note 4 Financial assets at fair value through profit or loss -Equity securities Note 5 Financial assets at fair value through other comprehensive income
▪ Scenarios and stress tests: Stress testing evaluates ING’s financial stability under severe, but plausible stress scenarios, and supports decision-making that assures ING remains a financially going concern even after a severe event occurs. In addition to the bank-wide stress testing framework as described above, ING performs regularly sensitivity analysis to assess portfolio risks and concentrations. These sensitivity analyses are consistent with the stress scenario established in the Group-wide credit risk appetite framework.
▪ Sector policies: These are detailed analyses of defined products and/or industries. They identify the major risk drivers and mitigants, the internal business mandate, and propose the risk
(benchmark) exposure at the concentration risk level, which corresponds to (maximum) internal
Given the nature of the retail business, roles and responsibilities of the local credit risk policy are delegated to local retail credit risk management. However, the global retail risk policy prescribes no-go criteria and minimum standards for underwriting. Lending standards, including material changes to those standards, are approved by the global head of retail risk.
Contents | Report of the Executive Board | Corporate governance | Risk Management | Consolidated financial statements | Parent company financial statements | Other information | Appendices > Credit risk in percentage outstandi ngs IN G
G e n e ri c e n g in e e ri n g *
Of all WB engagements in scope of the ESR policy framework in 2019, 85 percent were considered
ESR low risk, 9 percent ESR medium risk and 6 percent ESR high risk. ESR high-risk cases require specialised advice from the global ESR team. The team now consists of 13 dedicated ESR advisors, 11 of them are in Amsterdam and two are located in Geneva and New York. Whereas we have a strong ESR policy framework, we acknowledge that we need to further improve our processes in order to ensure accuracy and completeness of the data. The ESR advice assesses the specific product offered and impacts associated with it, the sector, operating context and geography of the engagement and other relevant factors. Based on this in-depth research, a binding advice is given that can only be overruled at Board level. Of the 304 ESR advices given in 2019, 45 percent were positive, 25 percent positive subject to conditions and 30 percent negative. Conditions can play an
The ESR team’s main focus is on its policy development and transaction advisory roles. However the team also provides training (both in-person and via webinars) to hundreds of colleagues around the world every year in risk, front-office, KYC and compliance teams, so that ESR knowledge is built on and spread.
▪ Thun Group: In the international arena, ING actively participates in the Thun Group, an informal group of bank representatives sharing expertise and experience to support the integration of the
Underwriting report, that provides a global environmental and social risk framework for financial institutions. We participate in the annual meetings for practitioners from financial institutions
Risk ratings assigned to clients are reviewed at least annually, with the performance of the underlying models monitored regularly. Over 90 percent of ING’s credit exposures have been rated using one of the in-house developed PD rating models. Some of these models are global in nature, such as models for large corporates, commercial banks, insurance companies, central governments, local governments, funds, fund managers, project finance and leveraged companies.
Enterprise (SME) companies in Central Europe, the Netherlands, Belgium, Luxembourg, as well as residential mortgage and consumer loan models in the various retail markets.
Europe 1 Based on credit risk measurement contained in lending, pre-settlement, money market and investment activities.
Commercial Banks decreased mainly due to reduced pre-settlement and lending exposures within
Korea. Australia reported a growth in outstanding which was mainly driven by trade related transactions with Commercial Banks and mortgage lending to Private Individuals.
The top 5 countries within Rest of Europe based on outstanding were: Italy (EUR 16,781 million),
Kingdom Luxemburg France Rest of Europe America Asia Australia Africa 2019 2018
Rating class 1 Geographic areas are based on country of residence, except for private individuals for which the geographic areas are based on the primary country of risk.
This section provides insight into the types of covers and the extent to which exposures benefit from collateral or guarantees. The disclosure differentiates between risk categories (lending, investment, money market and pre-settlement). The most relevant types of cover include mortgages, financial collateral (cash and securities) and guarantees. ING obtains cover that is eligible for credit risk mitigation under CRR/CRDIV, as well as cover that is not eligible. Collateral covering financial market transactions is valued on a daily basis, and as such not included in the following tables. To mitigate the credit risk arising from Financial Markets transactions, the bank enters into legal agreements governing the exchange of financial collateral (high-quality government bonds and cash).
ING’s residential mortgage outstanding increased mainly in Germany (3.1%), Spain (14.8%) and
The tables above describe the collateralisation of ING’s business lending portfolio. Breakdowns are provided by industry as well as by geographical region or market, based on the residence of the borrowers.
Consumer lending past due but performing (1–90 days) 3,367 4,440 1 For 2018 the business lending amount past due but performing could not be isolated.
ING aims to solve the (potential) financial difficulties by offering a range of measures (e.g. payment arrangements, restructuring). If the issues cannot be cured, for example because the customer is unable or unwilling to pay, the contract is sent to the recovery unit. The facility is downgraded to risk rating 20 (non-performing) when arrears exceed 90 days past due and to risk rating 21 or 22 when the contract is terminated. The table below captures all past due exposures starting from day
▪ ING has granted concessions relating to the borrower’s financial difficulty, the effect of which is a reduction in expected future cash flows of the financial asset below current carrying amount.
Forbearance occurs when a client is unable to meet their financial commitments due to financial difficulties it faces or is about to face and ING grants concessions towards this client. Forborne assets are assets in respect of which forbearance measures have been granted.
The prior period outstandings and performing/ non-performing amounts in the tables Summary
Forborne assets have been updated by EUR 46 million to improve consistency and comparability to the current year presentation. This is also applicable to the other tables in this section Forbearance.
As per December 2019, Wholesale Banking forborne assets amounted to EUR 4.6 billion, which represented 1.7% of the total Wholesale Banking portfolio.
The main concentration of forborne assets in a single country was in the Netherlands with 18%
Transportation & Logistics, with 65% of the total WB forborne. A significant decrease in forborne assets was visible in the Real Estate industry (EUR 0.6 billion) during 2019, followed by the
Transportation & Logistics (-EUR 0.2 billion), partly offset by the Food, Beverages & Personal Care and the Natural Resources (+EUR 0.1 billion each).
The main concentration of forborne assets in a single country was in the Netherlands with 46%
Since 1 January 2018, ING has recognised loss allowances based on the expected credit loss model
3 At the end of December 2019, the stock of provisions included provisions for loans and advances to central banks (EUR 1 million), loans and advances to banks (EUR 9 million), financial assets at FVOCI (EUR 10 million), securities at amortised cost (EUR 10 million), provisions for loans and advances to customers (EUR 4,590 million) and provisions for contingent liabilities (credit replacements) recorded under Provisions (EUR 25 million).
- Financial assets that were reclassified to stage 1 during the period.
probability weighting. Please note that, given their technical nature, the downside scenario and upside scenario are not explicitly based on a specific narrative.
Contents | Report of the Executive Board | Corporate governance | Risk Management | Consolidated financial statements | Parent company financial statements | Other information | Appendices > Credit risk analysis was run on all collectively-assessed assets, which assumed all assets were below the threshold, and apportioned a 12 month ECL. On the same asset base, analysis was run which assumed all performing assets were above the threshold, and apportioned a lifetime ECL. This gave rise to a hypothetical collective-assessment ECLs of EUR 866 million (2018: EUR 888 million) and
EUR 2,665 million (2018: EUR 3,333 million) respectively. Please note that in this analysis all other
It should be noted that the lifetime PD thresholds are not the only drivers of stage allocation. An asset can change stages by virtue of being in arrears, on a Watch List, being forborne etc. Refer to section 1.6.8 of Note 1 ‘Accounting Policies’ for an exhaustive list. Furthermore, this analysis is rudimentary in that other parameters would change when an asset changes stages.
▪ Risk identification is a joint effort of the first and second lines of defence out of the three lines of the defence. The goal of risk identification is to detect potential new risks and any changes in known risks. See the Risk Governance paragraph under the Group risk Management section for more on our ‘three lines of defence’ governance model; ▪ Identified risks are assessed and measured by means of various risk metrics to determine the importance of the risk to ING and subsequently to identify the control measures needed; ▪ Risk control measures used by ING include policies, procedures, minimum standards, limit frameworks, buffers and stress tests; ▪ Risk monitoring occurs to check if the implemented risk controls are executed, complied with across the organisation, and are effective; and
ING implements hedging and risk mitigation strategies that range from the use of traditional market instruments, such as interest rate swaps, to more sophisticated hedging strategies to address a combination of risk factors arising at the portfolio level.
Risk departments provide systematic risk reporting to the EB and MBB, the senior executive management of the CRO function and the senior executive management of related business functions.
Economic capital for market risk is calculated for exposures both in trading portfolios and banking portfolios and includes interest rate risk, credit spread risk, equity price risk, foreign exchange rate risk, real estate risk, model risks and pension risk. Economic capital for market risk is calculated using internally developed methodologies with a 99.9% confidence level and a horizon of one year.
For the trading books and the linear interest rate risk and equity investments in the banking books, the Value at Risk (VaR) is taken as a starting point for the economic capital calculations for market risk. The VaR is measured at a 99% confidence level, a one day holding period.
ING distinguishes between three types of activities that generate interest rate risk in the banking book: ▪ Investment of own funds (by Group Treasury); ▪ Commercial business (e.g. Retail business); and
In the following sections, the interest rate risk exposures in the banking books are presented. ING
NPV-at-Risk measures the impact of changing interest rates on value. The NPV-at-Risk is defined as the outcome of an instantaneous increase and decrease in interest rates from applying currency specific scenarios. The NPV-at-Risk asymmetry between the downward and upward shock is primarily caused by convexity risk in the mortgage and savings portfolio. The NPV-at-Risk figures are also calculated using the updated interest rate scenarios.
benchmarks the reform will include replacing interest rate benchmarks with alternative, nearly riskfree rates. This process is at different stages, and is progressing at different speeds, across several major currencies.
(refer to section 1.6.5 of Note 1 of the financial statements). Refer to Note 39 ‘Derivatives and hedge accounting’ for the disclosure requirements relating to the application of the amendments as part of Phase 1. Phase 2 of the project is still ongoing and focuses on, amongst others, accounting for changes to contracts due to the IBOR reform and impact on hedge accounting. ING
continues to monitor the progress of Phase 2 of the project and will assess the impact as more information becomes available.
(including realised net profit and loss), and strategic equity stakes in foreign currencies. The policy regarding these exposures is briefly explained below.
For a selection of emerging market currencies ING decided not to enter into foreign currency hedges as allowed under the policy.
In order to measure the sensitivity of the target CET1 ratio against FX rate fluctuations, the
The USD net exposure increased due to optimization of the capitalization and funding of the NY
The revaluation reserve relating to equity securities at FVOCI moved from EUR 1,914 million per year end 2018 to EUR 1,580 million per year end 2019. In 2019, the securities at FVOCI decreased by EUR 334 million following the full disposal of Kotak in the same year.
With respect to the trading portfolios, FI-FM Risk focuses on the management of market risks of
HVaR for market risk quantifies, with a one-sided confidence level of 99%, the maximum overnight loss that could occur in the trading portfolio of ING due to changes in risk factors (e.g. interest rates, equity prices, foreign exchange rates, credit spreads, implied volatilities) if positions remain unchanged for a time period of one day. Next to general market movements in these risk factors,
The liquidity horizon has been set to the regulatory minimum of three months for all positions in scope. ING reviews the liquidity horizons regularly based on a structured assessment of the time it takes to liquidate the positions in the trading portfolio.
Stress Testing and Event Risk are valuable risk management tools. In addition to the bank-wide stress test framework as described in the stress testing section, FI-FM Risk performs structured stressed scenario tests under the Event Risk framework to monitor market risks under extreme market conditions. Event Risk is calculated because HVaR in general does not produce an estimate of the potential losses that can occur as a result of extreme market movements, i.e. beyond the confidence level. Event Risk evaluates the bank’s financial stability under severe but plausible stress scenarios and assists in decision-making aimed at maintaining a financially healthy going-concern institution after a severe event occurs. Event Risk is based on historical as well as hypothetical extreme scenarios. The result is an estimate of the profit and loss caused by a potential event and its world-wide impact for ING. The Event Risk number for ING trading activity is generated on a weekly basis. Like for HVaR, risk appetite for Event Risk is limited by ALCO Bank.
The risk figures in the backtesting graph above and in the table below relate to all trading books for which the internal model approach is applied, i.e. all trading books, including Credit Exposure
Contents | Report of the Executive Board | Corporate governance | Risk Management | Consolidated financial statements | Parent company financial statements | Other information | Appendices > Market risk
Outright products 1 Interest rate risk (general and specific) 14 1 2 Equity risk (general and specific)
The MRWA under Standardised Approach decreased significantly compared to 4Q2018. At the beginning of 2019 an important FX position in the banking book was closed causing the FX exposure to decrease below the 2% own funds threshold. According to Art. 351 CRR, in such a case, the calculation of Market Risk regulatory capital is not required. As of 3Q2019, CIU exposures in trading books are capitalised in Market risk under Standardised Approach under interest rate specific risk and foreign exchange risk categories.
Market risk Regulatory Capital increased during the 2019 compared to 2018. The increase is driven by an increase in IRC, while VaR and SVaR slightly decreased. IRC capital increased as a result of changes in the portfolio in combination with credit spread movements.
2 Credit Spread Sensitivity (CS01) measures the impact on value of a portfolio due to a 1 basis point increase in credit spreads.
Contents | Report of the Executive Board | Corporate governance | Risk Management | Consolidated financial statements | Parent company financial statements | Other information | Appendices > Market risk amounts in EUR thousands Corporate
Capital & Liquidity Adequacy Assessment Process (ICLAAP) Committee. Therefore, it focuses on technical liquidity documents and oversees business processes and deliverables concerning ILAAP.
Contents | Report of the Executive Board | Corporate governance | Risk Management | Consolidated financial statements | Parent company financial statements | Other information | Appendices > Funding and liquidity risk and managing the liquidity buffer. Business lines are responsible for managing the funding and liquidity positions from the originated business. A large part of this is replicated with Group
(i) Through the Stress lens ING evaluates its ability to withstand a period of prolonged F&L stress
Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR) regulatory metrics are monitored in terms of both ING’s risk appetite and regulatory requirements.
Contents | Report of the Executive Board | Corporate governance | Risk Management | Consolidated financial statements | Parent company financial statements | Other information | Appendices > Funding and liquidity risk part of the counterbalancing capacity which serves as a liquidity cushion under normal and stressed conditions.
The liquidity buffer consists mainly of Level 1 assets which are represented by government and central bank assets and are of the highest liquidity quality. Only assets that are freely available (not pledged under existing contracts) for liquidity purposes are included in the buffer. The size and composition of the Liquidity buffer are driven by ING’s risk appetite as well as by regulatory requirements.
The macroeconomic environment comprises various exogenous factors over which ING has no control but which may have a material impact on ING’s F&L position. The main macroeconomic factors analysed on a regular basis include: ▪ Global and local economic performance: e.g. shifts in GDP, inflation rate, unemployment rates and public deficit/surplus; ▪ Changing geopolitical trends; ▪ Monetary policy with special focus on the impact of the eventual reversal of unconventional monetary measures employed by central banks in recent years; and
Funding and liquidity stress testing forms part of the overall F&L framework. It allows ING to examine the effects of exceptional but plausible future events on ING’s liquidity position and provides insight into which entities, business lines or portfolios are vulnerable to which types of risk and under which scenarios.
Contents | Report of the Executive Board | Corporate governance | Risk Management | Consolidated financial statements | Parent company financial statements | Other information | Appendices > Funding and liquidity risk internal stress scenarios are monitored and assessed on a regular basis. They also serve as input in the decision on additional contingency measures.
function encompasses Operational Risk Management (ORM), Information Risk Management (IRM), the Independent Validation Unit (IVU) and Corporate Security & Investigations (CSI).
processing (input, execution, output) or failing process management; monitoring and enforcement of risk mitigating measures; and risk culture; ▪ Internal fraud risk is the risk of financial loss, regulatory sanctions or reputational damage due to deliberate abuse of procedures, systems, assets, products and/or services of ING by employees
ING event locations, or might have an impact on ING organisation's confidentiality, integrity or availability; and
▪ Employment practice risk is the risk of financial loss, regulatory sanctions or reputational damage due to acts that are inconsistent with employment, health and/or safety laws, regulations or agreements, from payment of personal injury claims, or from diversity/discrimination events.
In 2019, a professional practice unit (PPU) has been set up to establish an Enterprise Risk
In 2019, a renewed Sourcing Policy became effective, outlining the inherent critical and high risks that can materialise during the sourcing life-cycle. In addition, a Sourcing Guideline was issued to support updated requirements, issued by EBA in 1Q 2019. Support Control Framework (SCF)
The Compliance Risk Management function is organised via countries and business lines. The heads of Financial Crime Compliance, Regulatory & Conduct Compliance, Strategy & Transformation
Office at the head office, as well as the heads of compliance in the Netherlands and Belux and the business lines Challenge & Growth and Wholesale Banking report to the chief compliance officer
The know your customer (KYC) policy and related control standards (‘KYC policy framework’) sets the minimum requirements and control objectives for all ING entities to guard against involvement in financial crime activity. The KYC policy framework reflects relevant national and international laws, regulations and industry standards related to financial economic crime (money laundering, terrorist financing), export trade controls, proliferation financing, sanctions (economic, financial and trade), countries designated by ING as ultra high-risk countries (UHRC), CTI, FATCA, CRS, and (parts of) ESR. The KYC policy framework is mandatory and applies to all ING entities, majority-owned ING
business, businesses under management control, staff departments, product lines and to all customer engagements and transactions. The KYC Policy Framework reflects relevant national and international laws, regulations and industry standards related to business partners and overarching requirements with regards to record retention, training and awareness. The management of ING
Driven by data, the SIRA provides guidance on KYC integrity risks and helps determine which customers to accept/continue and the type and frequency of monitoring. It takes into account elements such as where the customer is located and the type of product and sector they are active in. The KYC integrity risks are reviewed each year.
▪ The increased focus on KYC and our efforts to streamline our operations led to an increased number of accounts being closed. This includes inactive accounts and accounts of customers who do not respond adequately to our requests for information. We are also re-evaluating certain client and business relationships.
▪ We set up a global KYC Academy to coordinate a global learning curriculum and provide expert training for specialist KYC staff and new joiners as well as awareness training for all ING
Compliance with applicable laws and regulations is resource-intensive. Banks continue to be faced with new and increasingly onerous regulatory requirements. Generally, we expect the scope and extent of regulations in the jurisdictions in which we operate to continue to increase.
Many countries, including the Netherlands, have entered into agreements (intergovernmental agreements or IGAs) with the US to facilitate the type of information reporting required under
FATCA. While the existence of IGAs will not eliminate the risk of the withholding tax described above, these agreements are expected to reduce that risk for financial institutions and investors in countries that have entered into IGAs. IGAs often require financial institutions in those countries to report information on their US account holders to the taxing authorities of those countries, who then pass the information to the IRS.
(CCN) between the member states which will be set-up by the EU. Although DAC6 is not effective until 1 July 2020, taxpayers and intermediaries have been required to monitor cross-border arrangements since 25 June 2018.
Regulatory guidance around MiFID II/MiFIR continues to evolve and key requirements are currently under review. As a result, ING will ensure that the organisation has continuous access to central guidance giving a clear steer on expected conduct and processes. A network of experts has been set up to ensure timely implementation of any regulatory changes.
In 2019 we continued to develop our approach to learning on compliance and risk culture (and e.g.
established the KYC Academy). Supporting staff to deliver a sound and consistent risk culture is a focus for our learning. We emphasise a standard and streamlined approach that facilitates consistent messaging and learning across the bank, as appropriate. More focus is being given to role of specific training in ensuring staff continue to extend knowledge, skills and behaviours for their particular roles and responsibilities.
▪ it processes the data input with a quantitative method or approach that applies statistical, economic, financial, or mathematical theories, techniques and / or assumptions.
The growing complexity and number of models created and utilised every year for decision-making makes it important to manage and control the associated model risk accordingly. Within ING this overarching responsibility for this risk type lies within Model Risk Management. The department, in addition to its traditional function of model validation, is also responsible for global model risk oversight. It sets and maintains a model risk management framework containing: (1) the governance, (2) the model risk appetite, (3) model risk management policies and standards and (4)
ING’s model risk and control structure is based on the three model lines of defence (MLoD)
approach. This approach aims to provide a sound governance framework for model risk management by defining and implementing three different management layers with distinct roles and oversight responsibilities.
Pre-approval validation is the independent confirmation that the model is valid for its intended use, before the new or changed model is submitted for use approval. To ensure objectivity and effective challenge, the model validator is independent from other model parties such as the model developer, model owner or model approver. Model validation applies equally to in-house developed and third-party models.
The objective of model performance monitoring is to regularly check if the model is performing as intended, also after possible changes in the commercial, organisational or legal environment.
A model that is / will no longer be used must be decommissioned. Decommissioning disables the model. It can, for example, be triggered because (1) the product, organisation or risk the model is made for has changed considerably or no longer exists, (2) the model is outdated, underperforming or better alternatives are available, (3i) the model became obsolete due to standardisation or (4)
– Mandatorily at fair value through profit or loss 41,600 64,783 Current tax liabilities 554 822
Other assets 11 7,018 8,433 Share capital and share premium 17,117 17,088
Share of other comprehensive income of associates and joint ventures and other income – 14 –5
Comprehensive income attributable to: Equity holders of the parent 5,422 4,206 3,106 1 The amounts for the period ended 31 December 2019 and 2018 have been prepared in accordance with IFRS 9. The adoption of IFRS 9 led to new presentation requirements. 2017 period amounts have not been restated.
For the disclosure on the income tax effects on each component of the other comprehensive income reference is made to Note 37 ‘Taxation’.
Realised gains/losses on debt instruments at fair value through other comprehensive income reclassified to the statement of profit or loss –33 –33 –1 –34
Change in fair value of own credit risk of financial liabilities at fair value through profit or loss –123 6 –116 –116
Consolidated statement of changes in equity For the years ended 31 December
Change in fair value of own credit risk of financial liabilities at fair value through profit or loss 199 199 199
Net result from continuing and discontinued operations 153 4,752 4,905 82 4,987
Cash flows from operating activities 31 Disposals and redemptions: Result before tax 6,834 6,838 7,268 – Associates and joint ventures 67 116 245
– Other non cash items included in Result before tax 32 –1,763 703 – Financial assets at FVOCI 13,390 15,657 n/a
– Customer deposits 18,040 19,753 18,223 Net cash flow from/(used in) investing activities –2,495 5,451 11,754
Cash flows from investing activities Repayments of debt securities –94,497 –131,170 –96,837
Investments and advances: Proceeds from issuance of subordinated loans 3,429 1,859 2,331
– Acquisition of subsidiaries, net of cash acquired –17 –111 Repayments of subordinated loans –933 –4,646 –2,343
2 The amount for the period ended 31 December 2019 has been prepared in accordance with IFRS 16. Previous period amounts have not been restated.
As at 31 December 2019, Cash and cash equivalents includes cash and balances with central banks of EUR 53,202 million (2018: EUR 49,987 million; 2017: EUR 21,989 million). The increase in cash and balances with central banks reflects ING’s liquidity management. Reference is made to Note 33
Amsterdam, number 33231073. These Consolidated financial statements, as at and for the year ended 31 December 2019, comprise ING Groep N.V. (the Parent company) and its subsidiaries, together referred to as ING Group. ING Group is a global financial institution with a strong European base, offering a wide range of retail and wholesale banking services to customers in over 40 countries.
The ING Group Consolidated financial statements, as at and for the year ended 31 December 2019, were authorised for issue in accordance with a resolution of the Executive Board on 2 March 2020.
The consolidated financial statements are presented in euros and rounded to the nearest million, unless stated otherwise. Amounts may not add up due to rounding.
These disclosures are an integral part of ING Group Consolidated financial statements and are indicated in the ‘Risk management’ section by orange brackets.
Consolidated financial statements, except for changes due to the introduction of IFRS 16 in 2019 and IFRS 9 in 2018. Comparatives were not restated when applying these Standards.
Contents | Report of the Executive Board | Corporate governance | Risk Management | Consolidated financial statements | Parent company financial statements | Other information | Appendices > Basis of preparation and accounting policies > 1 1.4.1 Changes in IFRS effective in 2019
Benchmark Reform as issued by the IASB in September 2019 (endorsed by the EU in January 2020).
ING Group has not early adopted any other standard, interpretation or amendment in 2019 which has been issued, but is not yet effective.
The list of upcoming changes to IFRS, which are applicable for ING Group: Effective in 2020 (* - endorsed by the EU, the rest not yet endorsed by the EU): ▪ Amendments to IFRS 3 ‘Business Combinations’: Definition of a Business (issued on 22 October 2018); ▪ Amendments to IAS 1 and IAS 8: ‘Definition of Material’ (issued on 31 October 2018)*; and
SIC-15 ‘Operating Leases- Incentives’ and SIC-27 ‘Evaluating the Substance of Transactions Involving the Legal Form of a Lease’. ING Group has adopted IFRS 16 retrospectively from 1 January 2019, but has not restated comparatives for the 2018 and 2017 reporting periods, as permitted under the specific transitional provisions in the Standard, the so-called ‘modified retrospective approach'. The reclassifications and the adjustments arising from the new leasing rules are therefore recognised in the opening statement of financial position on 1 January 2019.
IAS 17 to the lease liability under IFRS 16 on transition to IFRS 16 as of 1 January 2019: Future rental commitments for operating lease contract disclosed under IAS 17 as at 31
(Less) variable lease payments based on an index or a rate -15
In applying IFRS 16 for the first time, ING Group has used the following practical expedients permitted by the Standard: ▪ Reliance on previous assessments whether a contract is, or contains a lease at the date of initial application; ▪ The use of a single discount rate to a portfolio of leases with reasonably similar characteristics; ▪ Reliance on previous assessments on whether leases are onerous; ▪ The accounting for operating leases with a remaining lease term of less than 12 months as at 1
Right-of-use assets are measured at cost comprising the amount of the initial measurement of the lease liability, any lease payments made at or before the commencement date less any lease incentives received and any initial direct costs and restoration costs.
Operating leases for lessees prior to 1 January 2019 under IAS 17
Debt instruments that are held for collection of contractual cash flows and for selling the financial assets under a HtC&S business model, where the assets’ cash flows represent SPPI, are measured at FVOCI. Movements in the carrying amount are recognised in OCI, except for the recognition of impairment gains or losses, interest revenue and foreign exchange gains and losses which are recognised in profit or loss. When the financial asset is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from equity to profit or loss and presented in Investment income or Other income, based on the specific characteristics of the business model. Interest income from these financial assets is included in Interest income using the EIR method. Impairment losses are presented as a separate line item in the Consolidated statement of profit or loss.
▪ FVPL: Debt instruments that do not meet the criteria for AC or FVOCI are measured at FVPL. This includes debt instruments that are held-for-trading (presented separately as Trading assets) and all other debt instruments that do not meet the criteria for AC or FVOCI (presented separately as
If an embedded derivative is separated, the host contract is accounted for as a similar freestanding contract.
Hedges of net investments in foreign operations are accounted for in a similar way to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in the Other Comprehensive Income and the gain or loss relating to the ineffective portion is recognised immediately in the statement of profit or loss. Gains and losses accumulated in the Other Comprehensive Income are included in the statement of profit or loss when the foreign operation is disposed.
no Stage 2 or 3 triggers apply). Assets are classified as stage 1 upon initial recognition (with the exception of purchased or originated credit impaired (POCI) assets) and have a provision for ECL
associated with the probability of default (PD) events occurring with the next 12 months (12 months ECL). For those financial assets with a remaining maturity of less than 12 months, a PD is used that corresponds to the remaining maturity; ▪ Stage 2: Lifetime ECL not credit impaired
ING Group has aligned the definition of credit impaired under IFRS 9 (Stage 3) with the definition of default for prudential purposes. This is also the definition used for internal risk management purposes.
This is a model-based approach that calculates ECL in a formula that is expressed simplistically as
ING Group estimates individual impairment provisions for individually significant credit impaired financial assets within Stage 3. Individual provisions are calculated using the discounted expected future cash flow method. To determine expected future cash flows, one or more scenarios are used. Each scenario is analysed based on the probability of occurrence and including forward looking information.
Finance. The use of alternate forward-looking macroeconomic scenarios can produce significantly different estimates of ECL. This is demonstrated in the sensitivity analysis in the ‘Risk Management’
The probability weights applied to each of the three scenarios. This is a management judgement that ultimately requires estimation and consideration of the range of possibilities. This ensures consensus view on the likelihood of each scenario materializing is appropriately reflected in the weights applied by the Group for collective assessment ECL calculations. The sensitivity analysis in the ‘Risk Management’ section of the Annual Report discloses these weights used.
The definition of default. Judgement is exercised in management’s evaluation of whether there is objective evidence of impairment loss has been incurred for larger exposures. Management judgement is required in assessing evidence of credit-impairment.
The following is applicable to periods prior to 1 January 2018 for financial instruments accounted for under IAS 39, to the extent not already discussed earlier in this section. The 2017 comparative period was not restated for the adoption of IFRS 9.
Investments in prepayment sensitive securities such as Interest-Only and Principal-Only strips are generally classified as available-for-sale.
Subsequently, they are carried at AC using the effective interest method less any impairment losses. Loans and receivables include Cash and balances with central banks, Loans and advances to banks, Loans and advances to customers, and some categories of Other assets and are reflected in these line items in the statement of financial position. Interest income from loans and receivables is recognised in Interest income in the statement of profit or loss using the effective interest method.
▪ Historical experience, updated for current events where necessary, provides evidence that a proportion of a group of assets is impaired although the related events that represent impairment triggers are not yet captured by ING Group’s credit risk systems.
ING Group first assesses whether objective evidence of impairment (a loss event/trigger) exists individually for financial assets that are individually significant, and then individually or collectively for financial assets that are not individually significant. If ING Group determines that no objective evidence of impairment (a loss event/trigger) exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.
Contents | Report of the Executive Board | Corporate governance | Risk Management | Consolidated financial statements | Parent company financial statements | Other information | Appendices > Basis of preparation and accounting policies > 1 1.8 Consolidation ING Group comprises ING Groep N.V. (the Parent Company) , ING Bank N.V. and all other subsidiaries.
Subsidiaries are entities controlled by ING Groep N.V. Control exists if ING Groep N.V. is exposed or has rights to variable returns and has the ability to affect those returns through the power over the investee. Control is usually achieved through situations including, but not limited to: ▪ Ownership, directly or indirectly, of more than half of the voting power; ▪ Ability to appoint or remove the majority of the board of directors; ▪ Power to govern operating and financial policies under statute or agreement; and
The results of the operations and the net assets of subsidiaries are included in the statement of profit or loss and the statement of financial position from the date control is obtained until the date control is lost. On disposal, the difference between the sales proceeds, net of directly attributable transaction costs, and the net assets is included in net result.
ING Groep N.V. and its Dutch group companies are subject to legal restrictions regarding the amount of dividends they can pay to their shareholders. The Dutch Civil Code contains the restriction that dividends can only be paid up to an amount equal to the excess of the company’s own funds over the sum of the paid-up capital and reserves required by law. Additionally, certain
Contents | Report of the Executive Board | Corporate governance | Risk Management | Consolidated financial statements | Parent company financial statements | Other information | Appendices > Basis of preparation and accounting policies > 1 1.11 Investments in associates and joint ventures
Associates are all entities over which the Group has significant influence but not control. Significant influence is the ability to participate in the financial and operating policies of the investee. It generally results from a shareholding of between 20% and 50% of the voting rights or through situations including, but not limited to one or more of the following: ▪ Representation on the board of directors; ▪ Participation in the policymaking process; and
Joint ventures are entities over which the Group has joint control. Joint control is the contractually agreed sharing of control over an arrangement or entity, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. Joint control means that no party to the agreement is able to act unilaterally to control the activity of the entity.
Investments in associates and joint ventures are initially recognised at cost and subsequently accounted for using the equity method of accounting.
Disposal groups (and groups of non-current assets) are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use.
This is only the case when the sale is highly probable and the disposal group (or group of assets) is available for immediate sale in its present condition; management must be committed to the sale, which is expected to occur within one year from the date of classification as held for sale.
Upon classification as held for sale, the disposal group is measured at the lower of its carrying amount and fair value less costs to sell, except where specifically exempt from IFRS 5. An impairment loss is recognised for any initial or subsequent write-down of the disposal group to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of the disposal group, but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the disposal group is recognised at the date of derecognition. Assets within the disposal group are not depreciated or amortised while they are classified as held for sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale continue to be recognised. The assets of the disposal group classified as held for sale are presented separately from the other assets in the balance sheet. The liabilities of a disposal group classified as held for sale are presented separately from other liabilities in the balance sheet.
A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of ING Group. Contingent assets are recognised in the statement of financial position only when realisation of the income that arises from such an asset is virtually certain. Contingent assets are disclosed in the notes when an inflow of economic benefits is probable.
Significant judgements and critical accounting estimates and assumptions: The recognition and measurement of provisions is an inherently uncertain process involving using judgement to determine when a present obligation exists and estimates regarding probability, amounts and timing of cash flows.
Legal cases are usually one of a kind. Judgement is required to estimate the probability of an unfavourable outcome and the amount of potential loss. For the assessment of litigation provisions
Some group companies provide other post-employment 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.
The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.
Interest results on instruments classified at Amortised Cost, assets measured at FVOCI and derivatives in a formal hedge accounting relationship is presented in ‘Interest income (expense)
Earnings per ordinary share is calculated on the basis of the weighted average number of ordinary shares outstanding. In calculating the weighted average number of ordinary shares outstanding: ▪ Own shares held by group companies are deducted from the total number of ordinary shares in issue; ▪ The computation is based on daily averages; and
(especially with regard to coupons and voting rights) are significantly different. Therefore, the weighted average number of ordinary shares outstanding during the period is not impacted by the non-voting equity securities.
Contents | Report of the Executive Board | Corporate governance | Risk Management | Consolidated financial statements | Parent company financial statements | Other information | Appendices > Basis of preparation and accounting policies > 1 assumed proceeds thus received to buy its own shares against the average market price in the financial year. The net increase in the number of shares resulting from the exercise is added to the average number of shares used to calculate diluted earnings per share.
Contents | Report of the Executive Board | Corporate governance | Risk Management | Consolidated financial statements | Parent company financial statements | Other information | Appendices > Financial assets at fair value through profit or loss > 4
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 statement of financial position since IFRS does not always allow netting of these positions in the statement of financial position.
‘Financial assets designated at fair value through profit or loss’ includes a portfolio of loans and receivables which is economically hedged by credit derivatives. The hedges do not meet the criteria for hedge accounting and the loans are recorded at fair value to avoid an accounting mismatch.
The maximum credit exposure of the loans and receivables included in ‘Financial assets designated at fair value through profit or loss’ approximates its carrying value. The cumulative change in fair value of the loans attributable to changes in credit risk is not significant.
The notional value of the related credit derivatives is EUR 1,672 million (2018: EUR 1,364 million).
The change in fair value of the credit derivatives attributable to changes in credit risk since the
Effect of change in accounting policy due to the implementation of IFRS 9 –184 –31,945 –32,129
India’s Kotak Mahindra Bank (Kotak) in the first quarter of 2019 for EUR 880 million. The transaction, for a stake of 3.07%, concluded the divestment process and was the main driver for the increase in the ‘disposal’ line.
ING Group’s total exposure to debt securities is included in the following lines in the statement of financial position: Debt securities at fair value through other comprehensive income 30,483 25,616
Total debt securities at fair value through profit or loss 9,323 8,431
Approximately 90% (2018: 99%) of the exposure in the ABS portfolio is externally rated AAA, AA or
No individual loan or advance has terms and conditions that significantly affect the amount, timing or certainty of the consolidated cash flows of the Group.
The finance lease receivables mainly relate to the financing of equipment and to a lesser extent real estate for third parties, where ING is the lessor. The finance lease receivables are part of corporate loans. Interest income in 2019 on Finance lease receivables amounts to EUR 251 million
Contents | Report of the Executive Board | Corporate governance | Risk Management | Consolidated financial statements | Parent company financial statements | Other information | Appendices > Investments in associates and joint ventures > 8 8 Investments in associates and joint ventures
The reporting dates of certain associates and joint ventures can differ from the reporting date of the Group, but by no more than three months.
Contents | Report of the Executive Board | Corporate governance | Risk Management | Consolidated financial statements | Parent company financial statements | Other information | Appendices > Property and equipment > 9
The cost or the purchase price amounted to EUR 940 million (2018: EUR 1,040 million). Cost or the purchase price less accumulated depreciation and impairments would have been EUR 417 million
Accumulated depreciation as at 31 December –1,171 –1,055 –1,774 –1,716 –2,946 –2,771
Accumulated amortisation as at 31 December –1,641 –1,487 –7 –5 –1,648 –1,492
‘Consolidated companies and businesses acquired and divested’ for further information on the acquisitions that took place in 2018 and the assets and liabilities recognised.
The carrying value of CGU Wholesale Banking includes EUR 20 million of intangibles with indefinite life which relates to acquired trade names in the payments and cash management business. The asset is deemed to have indefinite life because there is no foreseeable limit to the cash flows generated by those intangible assets.
Assets and liabilities held for sale includes disposal groups whose carrying amount will be recovered principally through a sale transaction rather than through continuing operations.
774 million Senior Loan facility for the portfolio of lease receivables. The deferred purchase price is linked to the performance of the sold portfolio and is reported under the financial assets mandatorily measured at fair value through profit and loss. The additional loss in 2019 amounted to EUR -2 million (2018: EUR -123 million).
Reference is made to Note 25 ‘Result on disposal of group companies’ and to Note 47 ‘Consolidated companies and businesses acquired and divested’.
Contents | Report of the Executive Board | Corporate governance | Risk Management | Consolidated financial statements | Parent company financial statements | Other information | Appendices > Financial liabilities at fair value through profit or loss > 15
As at 31 December 2019, Trading liabilities include funds on deposit of EUR 4,556 million (2018: EUR
The amount that ING Group is contractually required to pay at maturity to the holders of financial liabilities designated at fair value through profit or loss excluding repurchase agreements is EUR
In 2019, Other provisions – other includes provisions of EUR 25 million (2018: EUR 42 million) that relate to credit replacement facilities and EUR 93 million (2018: EUR 80 million) that relate to noncredit replacement, off-balance facilities.
As at 31 December 2019 amounts expected to be settled within twelve months, amount to EUR
Contents | Report of the Executive Board | Corporate governance | Risk Management | Consolidated financial statements | Parent company financial statements | Other information | Appendices > Debt securities in issue > 18
The total cash outflow for leases in 2019 was EUR 271 million.
Securities of USD 1.25 billion with first call date on 16 April 2024 and USD 1.5 billion with first call date on 16 November 2026. In addition, subordinated Tier 2 notes of EUR 1 billion have been issued
All ordinary shares are in registered form. No share certificates have been issued. Ordinary shares may be transferred by means of a deed of transfer. A transfer of ordinary shares requires written acknowledgement by ING Groep N.V. Ordinary shares are listed on various stock exchanges. The par value of ordinary shares is EUR 0.01. The authorised ordinary share capital of ING Groep N.V.
Realised revaluations transferred to retained earnings –472 –56 –6 –9 –2 –26
As from 2018, due to implementation of IFRS 9, the revaluation results of Available-for-sale and other are reported in the FVOCI reserve.
The dividend on the cumulative preference shares will be equal to a percentage, calculated on the amount compulsorily paid up or yet to be paid up. This percentage shall be equal to the average of the Euro OverNight Index Average (EONIA) as calculated by the European Central Bank during the financial year for which the distribution is made; this percentage being weighted on the basis of the number of days for which it applies, and increased by 2.5 percentage points.
Interest income on loans 19,318 18,985 1 18,406 Interest expense on deposits from banks 361 362 301
Interest income on financial assets at fair value through OCI 615 554 n/a Interest expense on customer deposits 2,957 2,671 2,665
Interest income on non-trading derivatives (no hedge accounting) 1,181 1,059 1 700 1 Interest expense on non-trading derivatives (no hedge accounting) 1,311 1,387 1 1,001 1
‘Valuation results and net trading income’. The change in presentation is in line with the changed presentation of accrued interest in the balance sheet that is no longer separately presented, but included in the corresponding balance sheet item of the host contract.
The fair value movements on the derivatives are influenced by changes in the market conditions, such as stock prices, interest rates and currency exchange rates. In addition, ‘Valuation results and net trading income’ include the results on assets and liabilities designated at fair value through profit or loss.
The Valuation results on assets and liabilities designated at fair value through profit or loss include fair value changes on certain issued debt securities. Valuation results on assets and liabilities designated at fair value through profit or loss were mainly due to changes in the fair value of financial liabilities driven by changes in market conditions as disclosed in Note 15 ‘Financial liabilities at fair value through profit or loss’.
In 2019, Valuation results on assets and liabilities designated at fair value through profit or loss
Compared to previous years, in 2019 Valuation results and net trading income do not include results on non-trading derivatives related to warrants on the shares of Voya and NN Group (2018: EUR 90 million; 2017: EUR -52 million). As at 31 December 2018 ING no longer holds any warrants on the shares of Voya and NN Group.
‘Valuation results and net trading income’ are reflected in the Consolidated statement of cash flows in the line Result before tax - Adjusted for: other.
Income from and fair value gains/losses on investment properties 27 4 3 1 The adoption of IFRS 9 led to new presentation requirements for 2019 and 2018; 2017 period amounts have not been restated.
69 million) relating to equity-settled share-based payment arrangements and EUR 3 million (2018: EUR 3 million; 2017: EUR 5 million) relating to cash-settled share-based payment arrangements.
ING grants four types of share awards, deferred shares, performance shares and upfront shares, which form part of the variable remuneration offering via the Long term Sustainable Performance
(2018: 31,743; 2017: 54,768) were granted to the members of the Executive Board of ING Groep
Board Banking (related to pre-board service period). To senior management and other employees 2,167,817 share awards (2018: 3,989,214; 2017: 4,846,903) were granted.
All options outstanding are exercisable. As at 31 December 2019, the aggregate intrinsic value of options outstanding and exercisable is EUR 8 million (2018: EUR 19 million; 2017: EUR 59 million).
As at 31 December 2019 the share awards consists of 3,346,004 share awards (2018: 5,211,339; 2017: 6,416,705) relating to equity-settled share-based payment arrangements and 511,044 share awards (2018: 643,660; 2017: 805,574) relating to cash-settled share-based payment arrangements.
As at 31 December 2019, total unrecognised compensation costs related to share awards amount to EUR 15 million (2018: EUR 29 million; 2017: EUR 37 million). These costs are expected to be recognised over a weighted average period of 1.4 years (2018: 1.4 years; 2017: 1.4 years).
Impairments and reversals on property and equipment and intangibles 59 19 18
Addition/(unused amounts reversed) of other provisions 29 –13 167 1 Includes depreciation expenses of right-of use assets as recognised under IFRS 16.
SRF and local resolution funds of EUR 239 million (2018: EUR 208 million; 2017: EUR 179 million). In 2019 local bank taxes increased by EUR 45 million from EUR 375 million in 2018 to EUR 420 million
Value in Use, related to the acceleration of the Think Forward Strategy.
Effect of dilutive instruments: Stock option and share plans 0.5 1.5 2.8
Dividends on ordinary shares: In respect of 2017 - Interim dividend, paid in cash in August 2017 0.24 933 - Final dividend, paid in cash in May 2018 0.43 1,670
The Executive Board of ING Group and the Management Board Banking set the performance targets, approve and monitor the budgets prepared by the business lines. Business lines formulate strategic, commercial, and financial plans in conformity with the strategy and performance targets set by the Executive Board of ING Group and the Management Board Banking.
Recognition and measurement of segment results are in line with the accounting policies as described in Note 1 ‘Accounting policies’. Corporate expenses are allocated to business lines based on time spent by head office personnel, the relative number of staff, or on the basis of income, expenses and/or assets of the segment.
Retail Germany Income from retail and private banking activities in Germany (including
As of 1 January 2019, the Real Estate Finance portfolio related to Dutch domestic mid-corporates, which was included under Wholesale Banking, has been transferred to Retail Netherlands in order to define clearer roles and responsibilities. The presentation of previously reported underlying profit and loss amounts has been adjusted to reflect this change.
Contents | Report of the Executive Board | Corporate governance | Risk Management | Consolidated financial statements | Parent company financial statements | Other information | Appendices refund in 2019 as well as a EUR 119 million gain from the release of a currency translation reserve following the sale of ING’s stake in Kotak Mahindra Bank and the recognition of a EUR 79 million receivable related to the insolvency of a financial institution (both recorded under income).
Special items in 2017 comprised a tax charge at ING Australia Holdings Ltd related to the years 2013-2017, for which a full reimbursement is expected to be received from NN Group.
3 Insurance Other comprises the net result relating to warrants on the shares of Voya Financial and NN Group. In March 2018 ING sold it's remaining part of warrants on the shares of Voya Financial. In November 2018 the warrant agreement between NN Group and ING was terminated.
Net fee and commission income 2,868 –0 2,868 2,868 2,803 –0 2,803 2,803 2,714 2,714 2,714
Underlying result before 1 As from 2019, financials of Nordics locations (which are managed from Brussels) transferred from ‘Wholesale Banking Rest of World’ to ‘Belgium’. Comparative figures have been adjusted.
Luxemburg ING Luxembourg S.A. Wholesale / Retail 841 791 777 322 315 298 16,634 13,313 14,748 153 198 68 37 50 27
Rest of Europe Poland ING Bank Slaski S.A Wholesale / Retail 8,968 8,829 8,664 1,344 1,229 1,119 37,220 33,040 29,976 533 525 444 141 128 112
Romania Branch of ING Bank N.V. Wholesale / Retail 2,575 2,269 1,968 457 403 314 7,424 7,112 5,940 221 183 135 34 25 23
UK Branch of ING Bank N.V. Wholesale 692 672 603 594 505 550 61,088 64,016 78,573 214 180 324 52 44 76
France1 Branch of ING Bank N.V. Wholesale / Retail 659 620 591 302 323 310 12,053 12,063 10,678 63 111 93 33 45 32
Ukraine PJSC ING Bank Ukraine Wholesale 111 109 106 43 36 30 481 368 321 31 22 9 9 3 2
Austria Branch of ING DiBa A.G. Wholesale / Retail 279 235 225 80 85 80 1,441 753 682 0 18 25 1 6 –1
Switzerland Branch of ING België N.V. Wholesale 257 244 204 234 257 224 8,577 8,266 9,737 126 169 145 –36 35 38
USA ING Financial Holdings Corp. Wholesale 626 617 564 813 736 724 45,521 61,440 42,873 366 343 371 118 61 134
Hong Kong Branch of ING Bank N.V. Wholesale 128 122 108 96 110 94 7,350 6,975 7,850 38 52 55 7 8 7
Philippines Branch of ING Bank N.V. Wholesale/ Retail 1,420 878 604 25 17 18 412 395 322 –11 0 6 –5 3 2
Indonesia PT ING Securities Indonesia Wholesale 0 3 5 0 0 1 6 6 6 –0 –0
Malaysia Branch of ING Bank N.V. Wholesale 5 5 5 1 1 166 139 29 0 0 –1 0 0
Emirates Branch of ING Bank N.V. Wholesale 11 11 10 –1 –0 0 0 –2 –1 –2
Australia Australia ING Bank (Australia) Ltd. Wholesale / Retail 1,319 1,234 1,143 701 647 577 43,482 39,673 37,982 400 389 330 121 118 235
The relatively low tax charge in Switzerland is caused by a deferred tax benefit following a tax rate reduction in 2019.
Funded status (Net defined benefit asset/liability) 3,377 3,019 3,151 2,913 226 106
As at 31 December 2019 the various defined benefit plans did not hold any direct investments in
ING Groep N.V. (2018: nil). During 2019 and 2018 there were no purchases or sales of assets between ING and the pension funds.
Actuarial gains and losses arising from changes in demographic assumptions 6 –2
Amounts recognised in the statement of profit or loss related to pension and other staff related benefits are as follows: Net defined benefit asset/liability
Market yields of high quality corporate bonds reflect the yield on corporate bonds with an AA rating for durations where such yields are available. An extrapolation is applied in order to determine the yield to the longer durations for which no AA-rated corporate bonds are available. As a result of the limited availability of long-duration AA-rated corporate bonds, extrapolation is an important element of the determination of the discount rate. The weighted average discount rate applied for net defined benefit asset/liability for 2019 was 1.5% (2018: 2.3%) based on the pension plan in the
The sensitivity analysis calculates the financial impact on the defined benefit obligation of an increase or decrease of the weighted averages of each significant actuarial assumption, all other assumptions held constant. In practice, this is unlikely to occur, and some changes of the assumptions may be correlated. Changes to mortality, expected rate of salary increase, and indexation would have no material impact on the defined benefit obligation. The most significant impact would be from a change in the discount rate. An increase or decrease in the discount rate of 1% creates an impact on the defined benefit obligation of EUR -443 million and EUR 561 million, respectively.
The benefit payments for defined benefit and other post-employment benefits expected to be made by the plan between 2020-2024 are estimated to be between EUR 100 million and EUR 135 million per annum. From 2025 to 2029 the total payments made by the plan are expected to be
The effective tax rate of 29.6% in 2018 is significantly higher than the weighted average statutory tax rate. This is mainly caused by a high amount of expenses non-deductible for tax purposes (tax amount: EUR 346 million).
Changes in fair value of own credit risk of financial liabilities at fair value through profit or loss 7 –33
Total income tax related to components of other comprehensive income –181 –29 253 1 The prior period has been updated to improve consistency and comparability.
38 Fair value of assets and liabilities a) Financial assets and liabilities
It is a market-based measurement, which is based on assumptions that market participants would use and takes into account the characteristics of the asset or liability that market participants would take into account when pricing the asset or liability. Fair values of financial assets and liabilities are based on quoted prices in active market where available. When such quoted prices are not available, the fair value is determined by using valuation techniques.
For certain financial assets and liabilities quoted market prices are not available. For these financial assets and liabilities, fair value is determined using valuation techniques. These valuation techniques range from discounting of cash flows to various valuation models, where relevant pricing factors including the market price of underlying reference instruments, market parameters
▪ Model risk adjustments reduce the risk of possible financial losses resulting from the use of a misspecified, misapplied, or incorrect implementation of a model.
▪ Collateral Valuation Adjustment (CollVA) is a derivative valuation adjustment capturing specific features of CSA (Credit Support Annex) with a counterparty that the regular valuation framework does not capture. Non-standard CSA features may include deviations in relation to the currency in which ING posts or receives collateral, deviations in remuneration rate on collateral which may pay lower or higher rate than overnight rate or even no interest at all. Other deviations can be posting securities rather than cash as collateral.
▪ Exceptional Valuation Adjustments – Exceptional valuation adjustments are valuation adjustments of temporary nature and are subject to approval of GP&IC.
The following methods and assumptions were used by ING Group to estimate the fair value of the financial instruments: a.1) Financial assets
Derivatives contracts can either be exchange-traded or over the counter (OTC). The fair value of exchange-traded derivatives is determined using quoted market prices in an active market and those derivatives are classified in Level 1 of the fair value hierarchy. For those instruments not actively traded, fair values are estimated based on valuation techniques. OTC derivatives and derivatives trading in an inactive market are valued using valuation techniques because quoted market prices in an active market are not available for such instruments. The valuation techniques and inputs depend on the type of derivative and the nature of the underlying instruments. The principal techniques used to value these instruments are based on (amongst others) discounted cash flows option pricing models and Monte Carlo simulation. These valuation models calculate the present value of expected future cash flows, based on ‘no-arbitrage’ principles. These models are commonly used in the financial industry. Inputs to valuation models are determined from observable market data where possible. Certain inputs may not be observable in the market, but can be determined from observable prices via valuation model calibration procedures. The inputs used include for example prices available from exchanges, dealers, brokers or providers of pricing, yield curves, credit spreads, default rates, recovery rates, dividend rates, volatility of underlying interest rates, equity prices, and foreign currency exchange rates. These inputs are determined with reference to quoted prices, recently executed trades, independent market quotes and consensus data, where available.
Fair values for debt securities are based on quoted market prices, where available. Quoted market prices may be obtained from an exchange, dealer, broker, industry group, pricing service, or regulatory service. The quoted prices from non-exchange sources are assessed to determine if they are tradable prices. This distinction determines where it falls in the fair value hierarchy.
The fair values of securities in the trading portfolio and other liabilities at fair value through profit or loss are based on quoted market prices, where available. For those securities not actively traded, fair values are estimated based on internal discounted cash flow valuation techniques using interest rates and credit spreads that apply to similar instruments. Reference is made to Financial assets at fair value through profit or loss above.
The fair value of publicly traded subordinated loans are based on quoted market prices when available. Where no quoted market prices are available, fair value of the subordinated loans is estimated using discounted cash flows based on interest rates and credit spreads that apply to similar instruments.
Observable inputs reflect market data obtained from independent sources. Unobservable inputs are inputs which are based on the Group’s own assumptions about the factors that market participants would use in pricing an asset or liability, developed based on the best information available in the market. Unobservable inputs may include volatility, correlation, spreads to discount rates, default rates and recovery rates, prepayment rates, and certain credit spreads. Transfers into and transfers out of fair value hierarchy levels are made on a quarterly basis.
Maturity/settlement3 –11 –42 – –461 –78 –35 – –212 –330 –719 –450
3 Prior period of Financial assets at FVOCI has been updated to improve consistency and comparability.
In 2019 and 2018, financial liabilities mainly repo’s were transferred out of Level 3 mainly due to the valuation not being significantly impacted by unobservable inputs.
In 2018, financial liabilities transferred out of Level 3 mainly relate to swap positions revised to
ING does not generally adjust quoted prices using its own inputs, there is no significant sensitivity to ING’s own unobservable inputs.
The remaining EUR 1.0 billion (31 December 2018: EUR 0.8 billion) of the fair value classified in
Furthermore, Level 3 financial liabilities includes approximately EUR 0.1 billion (31 December 2018: EUR 0.1 billion) which relates to financial liabilities that are part of structures that are designed to be fully neutral in terms of market risk. As explained above, the fair value of each of the
Structured notes 184 284 Price based Price (%) 83% 77% 124% 108%
– Rates 13 57 68 39 Option pricing model Interest rate volatility (bps) 17 23 137 300
– Other 3 2 3 5 Option pricing model Commodity volatility (%) 11% 12% 53% 79%
(statistical) relationship between underlyings, implying they typically move in the same direction.
As at 31 December 2019, ING Group has no non-financial liabilities measured at fair value (2018: none).
Contents | Report of the Executive Board | Corporate governance | Risk Management | Consolidated financial statements | Parent company financial statements | Other information | Appendices > Derivatives and hedge accounting > 39 39 Derivatives and hedge accounting
Use of derivatives ING Group uses derivatives for economic hedging purposes to manage its asset and liability portfolios and structural risk positions. The primary objective of ING Group’s hedging activities is to manage the risks which arises from structural imbalances in the duration and other profiles of its assets and liabilities. The objective of economic hedging is to enter into positions with an opposite risk profile to an identified risk exposure to reduce that exposure. The main risks which are being hedged are interest rate risk and foreign currency exchange rate risk. These risks are primarily hedged with interest rate swaps, cross-currency swaps and foreign exchange forwards/swaps.
ING Group uses credit derivatives to manage its economic exposure to credit risk, including total return swaps and credit default swaps, to sell or buy protection for credit risk exposures in the loan, investment, and trading portfolios. Hedge accounting is not applied in relation to these credit derivatives.
Derivatives that qualify for hedge accounting under IFRS are classified and accounted for in accordance with the nature of the instrument hedged and the type of IFRS hedge model that is applicable. The three models applicable under IFRS are: fair value hedge accounting, cash flow hedge accounting, and hedge accounting of a net investment in a foreign operation. How and to what extent these models are applied are described under the relevant headings below. The company’s detailed accounting policies for these three hedge models are set out in paragraph 1.6
Reference is made to note Risk management/ IBOR Transition for more information on to what rates ING is exposed and on how ING is managing the transition to alternative benchmark rates.
For these affected fair value and cash flow hedge relationships ING Group assumes that the LIBOR
IBOR reform still meet the highly probable requirement assuming the respective LIBOR benchmark on which the hedged cash flows are based are not altered as a result of the reform.
The following table contains details of the gross notional amounts of hedging instruments as at 31
Group also exposes itself to credit risk of the derivative counterparty, which is not offset by the hedged item. ING Group minimises counterparty credit risk in derivative instruments by clearing most of the derivatives through Central Clearing Counterparties. In addition ING Group only enters into transactions with high-quality counterparties and requires posting collateral.
ING Group applies fair value hedge accounting on micro level in which one hedged item is hedged with one or multiple hedging instruments as well as on macro level whereby a portfolio of items is hedged with multiple hedging instruments. For these macro hedges of interest rate risk ING applies the EU carve-out. 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. In retail operations, exposure on retail funding (savings and current accounts) and retail lending (mortgages) is initially offset. The remaining exposure is hedged in a portfolio hedge, using the EU carve-out, in which a portion of the retail lending portfolio and core deposits are designated as a hedged item for hedge accounting purposes.
Group evaluates whether the fair value of the hedged item and the hedging instrument respond similarly to similar risks. In addition ING is mainly using regression analysis to assess whether the hedging instrument is expected to be and has been highly effective in offsetting changes in the fair value of the hedged item.
For our main currencies the average fixed rate for interest rate swaps used in fair value hedge accounting are 0.93% (2018: 1.14%) for EUR and 3.55% (2018: 3.38%) for USD.
As at 31 December 2019 Less month months months year years years years >5 years Total
Gains and losses on derivatives designated under fair value hedge accounting are recognised in the statement of profit or loss. The effective portion of the fair value change on the hedged item is also recognised in the statement of profit or loss. As a result, only the net accounting ineffectiveness has an impact on the net result.
Fair value hedging – impact on the statement of profit or loss and other comprehensive income
The average currency exchange rate for cross-currency swaps used in cash flow hedge accounting is for EUR/USD 1.11 (2018: 1.14) and for EUR/AUD 1.55 (2018: 1.52).
The following table shows the cash flow hedge accounting impact on profit or loss and comprehensive income: Change in value used for calculating hedge ineffectiveness for the period
The main sources of ineffectiveness for cash flow hedges are: ▪ differences in timing of cash flows of the hedged item(s) and hedging instrument(s); ▪ mismatches in reset frequency between hedged item and hedging instrument.
ING Group has the following derivative financial instruments used for net investment hedging; Assets Liabilities Assets Liabilities
The following table shows the notional amount of derivatives designated in net investment hedging split into the maturity of the instruments.
– FX forwards and futures –3,444 –853 –54 –4,351 1 The prior period has been updated to improve consistency and comparability.
Net investments hedge - Discontinued hedges –210 40 Assets by contractual maturity
– Mandatorily at fair value through profit or loss 22,645 13,784 2,357 1,010 1,645 159 41,600
– Designated as at fair value through profit or loss 259 126 1,004 442 1,245 3,076
Contents | Report of the Executive Board | Corporate governance | Risk Management | Consolidated financial statements | Parent company financial statements | Other information | Appendices > Liabilities by maturity > 41 2019 Less than 1 month 1 1–3 months 3–12 months 1–5 years Over 5 years
Financial assets at fair value through profit or loss 614 449 1
Loans and advances to customers Debit balances on customer accounts 169,313 –166,624 2,689 1,422 813 454
Impact of enforceable master netting arrangements or similar arrangements1 Derivatives – – – –4,380 3,965 415 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 statement of financial position line items.
Impact of enforceable master netting arrangements or similar arrangements1 Derivatives – – – –5,041 3,518 1,523 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 statement of financial position line items.
Other items where offsetting is applied in the statement of financial position
Contents | Report of the Executive Board | Corporate governance | Risk Management | Consolidated financial statements | Parent company financial statements | Other information | Appendices > Contingent liabilities and commitments > 45 45 Contingent liabilities and commitments
2 ING in the Netherlands offers credit facilities to clients, linked to ING current accounts. After a review of the product conditions in 2019, it has been concluded that these facilities are irrevocable and therefore reported as such above. The prior period has been updated to improve consistency and comparability.
Estate business including obligations under development and construction contracts. Furthermore other contingent liabilities include a contingent liability in connection with a possible Dutch tax obligation that relates to the deduction from Dutch taxable profit for losses incurred by ING Bank in the United Kingdom in previous years. The existence of this obligation will be confirmed only by the occurrence of future profits in the United Kingdom.
Settlement Agreement: On 4 September 2018, ING announced that it had entered into a settlement agreement with the Dutch Public Prosecution Service relating to previously disclosed investigations regarding various requirements for client on-boarding and the prevention of money laundering and corrupt practices. Under the terms of the settlement agreement ING paid a fine of €675 million and €100 million for disgorgement. In connection with the investigations, ING had also received information requests from the US Securities and Exchange Commission (SEC). As ING
enforcement action against ING. Following the entry into the settlement agreement, ING has experienced heightened scrutiny from authorities in various countries. ING is also aware, including as a result of media reports, that other parties may, among other things, seek to commence legal proceedings against ING in connection with the subject matter of the settlement, have filed or may file requests to reconsider the prosecutor’s decision to enter into the settlement agreement with
ING and not to prosecute ING or (former) ING employees in court, or have filed or may file requests for disciplinary proceedings against ING employees based on the Dutch Banker’s oath.
Contents | Report of the Executive Board | Corporate governance | Risk Management | Consolidated financial statements | Parent company financial statements | Other information | Appendices > Legal proceedings > 46 findings, or other conclusions which may require appropriate remedial actions by ING, or may have other consequences. ING intends to continue to work in close cooperation with authorities as it seeks to improve its management of non-financial risks in terms of policies, tooling, monitoring, governance, knowledge and behaviour.
In line with the enhancement programme announced in 2018, ING Italy is taking steps intended to improve processes and management of compliance risks as required by the Banca d’Italia. In consultation and in agreement with the Banca d’Italia, ING Italy has agreed that it will refrain from taking on new customers during further discussions on the enhancement plans with the Banca d’Italia. ING Italy will continue to fully serve existing clients in Italy and is working hard to address the shortcomings and resolve the issues identified.
Bank (or any other ING entity), effectively dismissing ING Bank from the case. In December 2018, plaintiffs sought permission from the Court to file a further amended complaint that names ING
Bank as a defendant. In July 2019, the New York District Court granted the defendants’ motion to dismiss and denied leave to further amend the complaint, effectively dismissing all remaining claims against ING Bank. In November 2019, plaintiffs filed an appeal against this judgment.
Contents | Report of the Executive Board | Corporate governance | Risk Management | Consolidated financial statements | Parent company financial statements | Other information | Appendices > Legal proceedings > 46 respect to amounts paid out to offshore account holders so far. At this moment it is not possible to assess the outcome of these procedures nor to provide an estimate of the (potential) financial effect of these claims.
As of 1 July 2019, the required process under the uniform recovery framework had been completed for approximately 99% of all customers in scope.
ING is awaiting feedback from the independent dispute committee on one file for which the relevant client opted for a 'binding advice' procedure. Hearings with the independent dispute committee took place in November and December 2019. It is not clear when the committee will present its verdict.
January 2019, the Spanish Supreme Court issued several decisions that stated that the client and the bank each have to bear half of the notary and management company costs and that registry costs have to be borne in full by the bank. Allocation of valuation costs between the bank and the customer were not addressed by the Spanish Supreme Court decisions and remain uncertain.
Imtech claimed from various financing parties, including ING, payment of what the security agent has collected following bankruptcy or intends to collect, repayment of all that was repaid to the financing parties, as well as compensation for the repayment of the bridge financing. At this moment it is not possible to assess the outcome of these claims nor to provide an estimate of the
In May 2019 ING acquired 80% of the shares of Intersoftware Group B.V., Findata Access B.V. and
In 2018 ING Bank obtained control over Payvision Holding B.V. (Payvision) by acquiring 75% of its shares. The share purchase agreement included a put option exercisable by the original shareholders and a call option exercisable by ING for the remaining 25% shares. The put and call option led to the recognition of a financial liability with initial recognition through shareholders’
shares in three tranches between November 2019 and April 2020 for a total consideration of EUR
In 2019, there are no non-controlling interests as part of the securitisation structured entities that are significant to ING Group. ING Group for the majority of the securitisation vehicles provides the funding for the entity except for EUR 4 billion (2018: EUR 5 billion).
In addition ING Group originated various securitisations for liquidity management optimisation purposes. As at 31 December 2019, these consisted of approximately EUR 2 billion (2018: EUR 4 billion) of senior secured portfolio loans, which have been issued to ING subsidiaries in Germany.
issues bonds. The payment of interest and principal is guaranteed by the ING administered structured entities, ING Covered Bond Company B.V., and ING SB Covered Bond Company B.V. In order for these entities to fulfil their guarantee, ING legally transfers mainly Dutch mortgage loans originated by ING. Furthermore ING offers protection against deterioration of the mortgage loans.
ING Group supports the commercial paper programmes by providing Mont Blanc Capital Corp. with short-term liquidity facilities. Once drawn these facilities bear normal credit risk.
Transactions between ING Groep N.V. and its subsidiaries are eliminated on consolidation.
Reference is made to Note 48 ‘Principal subsidiaries’ for a list of principal subsidiaries and their statutory place of incorporation.
Executive Board of ING Groep N.V. were also members of the Management Board Banking. The members of the Management Board Banking are considered to be key management personnel and their compensation is therefore included in the tables below.
– Other 1 Excluding members that are also members of the Executive Board of ING Groep N.V. One Management Board Banking member was appointed to the Executive Board during the year.
2 The collective fixed allowances consist of two savings allowances applicable to employees in the Netherlands; an individual savings allowance of 3.5% and a collective savings allowance to compensate for loss of pension benefits with respect to salary in excess of EUR 107,539.
▪ Common Equity Tier 1 ratio ambition – is built on potential impact of a standardised and predetermined 1-in-10-year stress event (i.e. at a 90% confidence level with a 1-year horizon).
The capital position remained robust in 2019 reflecting strong profitability with a lower risk weight and complemented with the optimisation of the capital structure. At both the consolidated and entity level, ING has sufficient buffers to withstand certain adverse scenarios without breaching currently applicable and likely future requirements.
ING continues to maintain a strong and high quality capital level. ING Groep N.V. has a Common
Equity Tier 1 ratio of 14.6% as at 31 December 2019 versus a current CRR/CRD IV solvency requirement of 11.83%.
ING Bank N.V. has a CET1 ratio of 13.1%, thereby complying with CRR/CRD IV solvency requirements. ING Bank N.V. paid EUR 2,819 million of dividend to ING Group in 2019. The Tier 1 ratio (including grandfathered securities) increased from 14.5% to 15.1%, primarily reflecting developments in ING Bank’s CET1 ratio. The Banks’s total capital ratio (including grandfathered securities) increased from 17.2% to 17.9%.
In accordance with the applicable regulation, credit and operational risk models used in the capital ratios calculations are not audited.
Contents | Report of the Executive Board | Corporate governance | Risk Management | Consolidated financial statements | Parent company financial statements | Other information | Appendices in EUR million 2019 2018 1 in EUR million 2019 2018 1
Total assets 91,411 79,354 Total equity and liabilities 91,411 79,354 1 As at 31 December 2019 liabilities are presented based on their outstanding maturities. The prior period was updated to improve consistency and comparability resulting in a shift from current to non-current liabilities of EUR 296 million.
Change in fair value of own credit risk of financial liabilities at fair value through profit or loss –123 6 –116
Currency translation reserve in the consolidated accounts, is presented in the Share of participating interests reserve in the parent company accounts.
As at 31 December 2019, the Share of participating interests reserve includes an amount of EUR
Changes in the composition of the group and other changes 441 441
The Share of participating interests reserve cannot be freely distributed. Retained earnings can be freely distributed, except for an amount equal to the negative balance in each of the components of the Share of participating interests reserve. Unrealised gains and losses on derivatives, other than those used in cash flow hedges, are presented in the statement of profit or loss and are therefore part of Retained earnings and are not included in Share of participating interests reserve.
Contents | Report of the Executive Board | Corporate governance | Risk Management | Consolidated financial statements | Parent company financial statements | Other information | Appendices > Subordinated loans > 4 4 Subordinated loans
Contents | Report of the Executive Board | Corporate governance | Risk Management | Consolidated financial statements | Parent company financial statements | Other information | Appendices > Other liabilities > 5 5 Other liabilities
As at 31 December 2019 liabilities are presented based on their outstanding maturities. The prior period was updated to improve consistency and comparability resulting in a shift from current to non-current liabilities of EUR 296 million.
The 2018 negative staff expenses relate to a release of provision for cash-settled employee share bases payments.
Reference is made to the ING Group Consolidated financial statements, Note 28 ‘Other operating expenses’ for disclosures related to fees for audit and non-audit services.
Bank N.V. provided a guarantee to the German Deposit Guarantee Fund (‘Einlagensicherungsfonds’
Association of German Banks Berlin against any losses it might incur as result of actions taken with respect to ING Germany. The ESF is a voluntary collective guarantee scheme for retail savings and deposits in excess of EUR 100,000.
Shareholder’s agreement between ING Groep N.V. and Voya Financial Inc. it is agreed that the aggregate outstanding principal amount of the debentures will be reduced to nil as at 31 December
Per the Shareholder’s agreement, the decrease in the aggregate outstanding principal shall be deemed to have been reduced to the extent of collateral deposited by Voya Financial Inc. As at 31
In our opinion: — the accompanying consolidated financial statements give a true and fair view of the financial position of ING Groep N.V. as at 31 December 2019 and of its result and its cash flows for the year then ended, in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS-EU) and with Part 9 of Book 2 of the Dutch Civil Code; — the accompanying parent company financial statements give a true and fair view of the financial position of ING Groep N.V. as at 31 December 2019 and of its result for the year then ended in accordance with Part 9 of Book 2 of the Dutch Civil Code.
Based on our professional judgement, we determined the materiality for the financial statements as a whole at EUR 300 million (2018: EUR 300 million) which represents 4.4% (2018: 4.4%) of profit before taxation from continuing operations. The materiality is determined with reference to the profit before taxation from continuing operations.
Credit Loss provisioning process, and analytical procedures in order to corroborate our assessment that the risk of material misstatement in the residual population is less than reasonable possible and scoping remained appropriate throughout the audit.
We do note that our audit is based on the procedures described in line with applicable auditing standards and are not primarily designed to detect fraud.
We have evaluated facts and circumstances in order to assess laws and regulations relevant to the Company. In this evaluation we made use of our own forensic specialists.
We identified laws and regulations that could reasonably be expected to have a material effect on the financial statements based on our general understanding and sector experience, through discussion with relevant management and evaluating the policies and procedures regarding compliance with laws and regulations.
We identified the following areas as those most likely to have such an indirect effect: — Anti-money laundering laws and regulations. — Sanctions laws.
We do note that our audit is not primarily designed to detect non-compliance with laws and regulations and that management is responsible for such internal control as management determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to errors or fraud, including compliance with laws and regulations.
Our areas of focus related to the change management, logical user access management, cyber security, security event monitoring and segregation of duties controls. Management has put efforts to remediate identified control deficiencies. We tested the design and operating effectiveness of user access and change management controls of the IT systems relevant for financial reporting. For those control deficiencies that were not remediated, we tested compensating controls that were not impacted by ineffective controls. For certain deficiencies during the period of remediation, we substantively assessed the access to determine whether inappropriate access occurred and whether changes made were appropriate.
The combination of the tests of the controls and the substantive tests performed, provided sufficient evidence to enable us to rely on the adequate and continued operation of the IT systems for the purposes of our audit.
Contents | Report of the Executive Board | Corporate governance | Risk Management | Consolidated financial statements | Parent company financial statements | Other information | Appendices > Independent auditor’s report
In addition to the financial statements and our auditor’s report thereon, the annual report contains other information.
Our audit has been performed with a high, but not absolute, level of assurance, which means we may not detect all material errors and fraud during our audit.
We are solely responsible for the opinion and therefore responsible to obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the financial statements. In this respect, we are also responsible for directing, supervising and performing the group audit.
COVID-19) or other widespread health emergencies all impact the business and economic environment and, ultimately, our solvency, liquidity and the amount and profitability of business we conduct in a specific geographic region. Certain of these risks are often experienced globally as well as in specific geographic regions and are described in greater detail below under the headings
In particular, we are exposed to financial, economic, market and political conditions in the Benelux countries and Germany, from which we derive a significant portion of our revenues in both Retail
Banking and Wholesale Banking, and which present risks of economic downturn. Though less material, we also derive substantial revenues in the following geographic regions: Turkey, Eastern
We also offer a number of financial products that expose us to risks associated with fluctuations in interest rates, securities prices, corporate and private default rates, the value of real estate assets, exchange rates and credit spreads.
For further information on ING’s exposure to particular geographic areas, see Note 35 ‘Information on geographic areas’ to the consolidated financial statements.
Interest rate volatility and other interest rate changes may adversely affect our business, results and financial condition.
Alternatively, any period of rapidly increasing interest rates may result in: ▪ a decrease in the demand for loans; ▪ higher interest rates to be paid on debt securities that we have issued or may issue on the financial markets from time to time to finance our operations and on savings, which would increase our interest expenses and reduce our results; ▪ higher interest rates can lead to lower investments prices reduce the revaluation reserves, thereby lowering IFRS equity and the capital ratios. Also the lower securities value leads to a loss of liquidity generating capacity which needs to be compensated by attracting new liquidity generating capacity which reduces our results; ▪ prepayment losses if prepayment rates are lower than expected or if interest rates increase too rapidly to adjust the accompanying hedges; and/or
may lead to market-wide liquidity problems and losses or defaults by us or by other institutions.
Systemic risk could impact ING directly, by exposing it to material credit losses on transactions with defaulting counterparties or indirectly by significantly reducing the available market liquidity on which ING and its lending customers depend to fund their operations and/or leading to a write down of loans or securities held by ING. Systemic risk could have a material adverse effect on our ability to raise new funding and on our business, results and financial condition. In addition, such distress or failure could impact future product sales as a potential result of reduced confidence in the financial services industry.
Our global business and results are materially affected by conditions in the global capital markets and the economy generally. In Europe, there are continuing concerns over weaker economic conditions, as well as concerns in relation to European sovereign debt, the uncertain outcome of
(commonly referred to as ‘Brexit’) remains a major political and economic event whose consequences are not fully known or understood and may further destabilize the Eurozone. The UK
remains uncertain during the ongoing transition period, which largely maintains current arrangements and provides time for the UK and the EU to negotiate the details of their future relationship. The transition period is currently expected to end on December 31, 2020, and, if no
Member States, and the UK as part of no-deal contingency efforts and those conferred by mutual membership of the World Trade Organization. Accordingly, there continues to be uncertainty with respect to the process surrounding Brexit and the outcome of the ongoing Brexit negotiations, including any related regulatory changes, and over the future economic relationship between the
UK and the rest of the world (including the EU). Any of these developments could have an adverse effect on economic and financial conditions in the UK, the EU or globally. Although ING has continued to take further steps throughout 2019 to prepare for known risks related to Brexit, such as substantially progressing applications for a Third Country Branch banking licence in the UK, taking actions for contract continuity and working to establish alternatives in the EU for those euro clearing activities that may be expected to move from London following Brexit, the possible economic and operational impacts of Brexit on the Group and its counterparties remain uncertain.
Discontinuation of or changes to ‘benchmark’ indices may negatively affect our business, results and financial condition.
Interbank Offered Rate (‘EURIBOR’) and other interest rates or other types of rates and indices which are deemed to be ‘benchmarks’ are the subject of ongoing national and international regulatory reform. Following the implementation of any such potential reforms, the manner of administration of benchmarks may change, with the result that they may perform or be calculated differently than in the past, or benchmarks could cease to exist entirely, or there could be other consequences which cannot be predicted. Although the UK Financial Conduct Authority (‘FCA’) has authorized ICE Benchmark Administration as administrator of LIBOR, on 27 July 2017 the FCA
Contents | Report of the Executive Board | Corporate governance | Risk Management | Consolidated financial statements | Parent company financial statements | Other information | Appendices > Risk factors infrastructure and operational processes, or in relation to communications with clients or other parties and engagement during the transition period.
Except for EONIA, the replacement of benchmarks together with the timetable and mechanisms for implementation have not yet been confirmed by central banks. Accordingly, it is not currently possible to determine whether, or to what extent, any such changes would affect the Group.
However, the implementation of alternative benchmark rates may have a material adverse effect on our business, results and financial condition.
▪ result in increased withdrawal of certain savings products, particularly those with fixed rates below market rates,
In addition, a failure to accurately anticipate higher inflation and factor it into our product pricing may result in a systemic mispricing of our products, which would negatively impact our results.
ING. Such costs and the associated costs to be borne by us may have a material adverse effect on our results and financial condition. On the basis of the EU Directive on deposit guarantee schemes,
Changes in laws and/or regulations governing financial services or financial institutions or the application of such laws and/or regulations may increase our operating costs and limit our activities.
Capital, liquidity and leverage requirements and their application and interpretation may change.
Financial Supervision Act). The aim of the BRRD is to provide supervisory authorities and resolution authorities with common tools and powers to address banking crises pre-emptively in order to safeguard financial stability and minimise taxpayers’ exposure to losses.
In addition to the ‘write-down and conversion power’ and the ‘bail-in’ power, the powers granted to the resolution authority include the power to (i) sell and transfer a banking group or all or part of its business on commercial terms without requiring the consent of the shareholders or complying with the procedural requirements that would otherwise apply, (ii) transfer a banking group or all or part of its business to a ‘bridge institution’ (a publicly controlled entity) and (iii) separate and transfer all or part of a banking group’s business to an asset management vehicle (a publicly controlled entity)
In addition, among the broader powers granted to the resolution authority, the BRRD provides powers to the resolution authority to amend the maturity date and/or any interest payment date of, or the interest amount payable under, debt instruments or other bail-inable liabilities, including by suspending payment for a temporary period.
We may be subject to litigation, enforcement proceedings, investigations or other regulatory actions, and adverse publicity.
We are involved in governmental, regulatory, arbitration and legal proceedings and investigations involving claims by and against us which arise in the ordinary course of our businesses, including in connection with our activities as financial services provider, employer, investor and taxpayer. As a financial institution, we are subject to specific laws and regulations governing financial services or financial institutions. See ‘– Changes in laws and/or regulations governing financial services or financial institutions or the application of such laws and/or regulations may increase our operating costs and limit our activities’ above. Financial reporting irregularities involving other large and wellknown companies, possible findings of government authorities in various jurisdictions which are investigating several rate-setting processes, notifications made by whistleblowers, increasing regulatory and law enforcement scrutiny of ‘know your customer’ anti-money laundering, tax evasion, prohibited transactions with countries or persons subject to sanctions, and bribery or other anti-corruption measures and anti-terrorist-financing procedures and their effectiveness, regulatory investigations of the banking industry, and litigation that arises from the failure or perceived failure by us to comply with legal, regulatory, tax and compliance requirements could result in adverse publicity and reputational harm, lead to increased regulatory supervision, affect our ability to attract and retain customers and maintain access to the capital markets, result in cease and desist orders, claims, enforcement actions, fines and civil and criminal penalties, other disciplinary action or have other material adverse effects on us in ways that are not predictable.
Increased bank taxes in countries where the Group is active result in increased taxes on ING’s banking operations, which could negatively impact our operations, financial condition and liquidity.
Widespread outbreaks of communicable diseases may impact the health of our employees, increasing absenteeism, or may cause a significant increase in the utilisation of health benefits offered to our employees, either or both of which could adversely impact our business. We also face physical risks, including as a direct result of climate change, such as extreme weather events or rising water levels, which could have a material adverse effect on our operations, particularly where our headquarters may be impacted. In addition, other events including unforeseeable and/or catastrophic events can lead to an abrupt interruption of activities, and our operations may be subject to losses resulting from such disruptions. Losses can result from destruction or impairment of property, financial assets, trading positions, and the loss of key personnel. If our business continuity plans are not able to be implemented, are not effective or do not sufficiently take such events into account, losses may increase further.
Cybersecurity, customer data and data privacy have become the subject of increasing legislative and regulatory focus. The EU’s second Payment Services Directive (‘PSD2’), implemented in 2019, and GDPR are examples of such regulations. In certain locations where ING is active, there are additional local regulatory requirements and legislation on top of EU regulations that must be followed for business conducted in that jurisdiction. Some of these legislations and regulations may be conflicting due to local regulatory interpretations. We may become subject to new EU and local legislation or regulation concerning cybersecurity, security of customer data in general or the privacy of information we may store or maintain. Compliance with such new legislation or regulation could increase the Group’s compliance cost. Failure to comply with new and existing legislation or regulation could harm our reputation and could subject the Group to enforcement actions, fines and penalties.
Central and Eastern Europe, has also increased as large financial services companies from more developed countries have sought to establish themselves in markets which are perceived to offer higher growth potential, and as local institutions have become more sophisticated and competitive and proceeded to form alliances, mergers or strategic relationships with our competitors. The
Contents | Report of the Executive Board | Corporate governance | Risk Management | Consolidated financial statements | Parent company financial statements | Other information | Appendices > Risk factors payments, consumer and commercial lending (such as peer-to-peer lending), foreign exchange and low-cost investment advisory services. In particular, the emergence of disintermediation in the financial sector resulting from new banking, lending and payment solutions offered by rapidly evolving incumbents, challengers and new entrants, in particular with respect to payment services and products, and the introduction of disruptive technology may impede our ability to grow or retain our market share and impact our revenues and profitability.
Contents | Report of the Executive Board | Corporate governance | Risk Management | Consolidated financial statements | Parent company financial statements | Other information | Appendices > Risk factors liquidity. Given the high level of interdependence between financial institutions, we are and will continue to be subject to the risk of deterioration of the commercial and financial soundness, or perceived soundness, of sovereigns and other financial services institutions. This is particularly relevant to our franchise as an important and large counterparty in equity, fixed income and foreign exchange markets, including related derivatives.
has indicated that, in certain circumstances, it may require these financial institutions to cancel payment. If this were to happen, we expect that such instruments may experience ratings downgrades and/or a drop in value and we may have to treat them as impaired, which could result in significant losses. There is no assurance that losses on, or impairments to the carrying value of, these assets would not materially and adversely affect our business, results or financial condition.
Credit ratings represent the opinions of rating agencies regarding an entity’s ability to repay its indebtedness. Our credit ratings are important to our ability to raise capital and funding through the issuance of debt and to the cost of such financing. In the event of a downgrade, the cost of issuing debt will increase, having an adverse effect on our net results. Certain institutional investors may also be obliged to withdraw their deposits from ING following a downgrade, which could have
Furthermore, ING Bank’s assets are risk-weighted. Downgrades of these assets could result in a higher risk-weighting, which may result in higher capital requirements. This may impact net earnings and the return on capital, and may have an adverse impact on our competitive position.
As rating agencies continue to evaluate the financial services industry, it is possible that rating agencies will heighten the level of scrutiny that they apply to financial institutions, increase the frequency and scope of their credit reviews, request additional information from the companies that they rate and potentially adjust upward the capital and other requirements employed in the rating agency models for maintenance of certain ratings levels. It is possible that the outcome of any such review of us would have additional adverse ratings consequences, which could have a material adverse effect on our results and financial condition. We may need to take actions in response to changing standards or capital requirements set by any of the rating agencies, which could cause our business and operations to suffer. We cannot predict what additional actions rating agencies may take, or what actions we may take in response to the actions of rating agencies.
For a description of the physical risks to our business resulting from climate change, see ‘–