Event risk Event risk is a valuable risk management tool. Event risk evaluates the bank’s financial stability under severe but plausible stress scenarios and assists in decision-making that assures the bank to remain a financially healthy going concern institution after a severe event occurs. In addition to the bank-wide stress test framework as described in the ING Bank risk profile section, Credit & Trading Risk performs separate stressed scenario tests to monitor market risks under extreme market conditions. Since VaR in general does not produce an estimate of the potential losses that can occur as a result of extreme market movements, ING Bank uses structured stressed scenario tests for monitoring the market risk under these extreme conditions. 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 Bank. The event risk number for the ING Bank trading activity is generated on a weekly basis. Like VaR, event risk is limited by ALCO Bank.
Minimum Maximum Average Year end amounts in millions of euros 2015 2014 2015 2014 2015 2014 2015 2014 Interest rate 3 3 8 11 5 5 4 6 Equity 4 2 10 7 6 3 6 6 Foreign exchange 1 1 4 6 2 2 1 2 Credit spread 7 3 10 9 8 5 9 9 Diversification2 –9 –6 –6 –12 Total VaR 8 6 17 15 12 9 14 11
In 2015 the average VaR was higher than the previous year. This increase is notable in different risk types and can be explained both by increased risk positions as well as increased market volatility. The decrease in average IRC was largely driven by decreased debt exposures to a number of sovereigns.
Notes to the Consolidated annual accounts of ING Group - continued amounts in thousands of euros 2015 2014 Interest Rate (BPV1) Interest Rate (BPV1) Euro –414 Euro 231 South Korean Won –52 Taiwan Dollar 75 British Pound 45 Chinese Yuan –47 US Dollar 43 Polish Zloty 43 Japanese Yen 18 Japanese Yen 34
Credit Spread (CSO12) Credit Spread (CSO12) Netherlands –289 Netherlands –702 Germany –154 Germany 552 Norway –110 United States 115 United States 99 Russia 97 Spain –89 Italy –94 1 Basis Point Value (BPV) measures the impact on value of a 1 basis point increase in interest rates. 2 Credit Spread Sensitivity (CS01) measures the impact on value of a 1 basis point increase in credit spreads.
Funding and liquidity risk Introduction Funding and liquidity risk is the risk that ING Bank or one of its subsidiaries cannot meet its financial liabilities when they come due, at reasonable cost and in a timely manner.
Bank Treasury is a 1st line function. Its main funding and liquidity responsibilities are to manage ING’s funding gap and ING’s (regulatory) liquidity position. Bank Treasury is ING’s primary contact to the market for long and short term funding, with exception of capital transactions which are under the responsibility of the Capital Management function and the execution of some specific structured funding products which are executed by Financial Markets under a mandate that provides strict guidance around pricing, volumes, optionalities and tenors.
With respect to funding sources, ING Bank manages its balance sheet prudently, whereby short-term funding is primarily utilised for funding short-term assets. The bank aims to fund all longer term assets and investments by stable and longer term liabilities. Next to this, ING Bank monitors exposures in major currencies such as the USD. Monitoring and control of this funding is effectuated through a dedicated USD funding and liquidity risk framework.
Liquidity buffers The liquidity buffer ING Bank holds can be seen as the short-term part of the counterbalancing capacity, i.e. the total of available sources and measures within ING to generate liquidity, and serves as a cushion for liquidity needs under normal and stressed conditions.
Contingency funding plan In the contingency funding plan, contingency liquidity risk is addressed which specifically relates to the organisation and planning of liquidity management in time of stress. Within ING Bank, for contingency purposes, a specific crisis team – consisting of key Board Members, representatives from staff departments (e.g. Finance, Risk and Capital Management) and Bank Treasury – is responsible for liquidity management in times of crisis. Throughout the organisation contingency funding plans are in place to enable senior management to act effectively and efficiently in times of crisis. These contingency plans are tested on a regular basis, both centrally and at business unit level.
Funding and Liquidity profile Funding sources In 2015, ING Bank had readily access to a large variety of funding sources, both short term and long term. In the table below, the various funding sources are presented in the funding mix: 2015 2014 Funding type Retail deposits 48% 47% Corporate & other deposits 22% 22% Interbank (incl. central bank) 5% 6% Lending/repurchase agreement 5% 4% Public debt 18% 19% Subordinated debt 2% 2% Total 100% 100%
Asset encumbrance For quantitative details reference is made to the Pillar III report.
The Head of CORM provides management on country, divisional and bank level through the NFR Dashboard with an overview of key risks within the non-financial risk areas including compliance risks, information security risks, continuity risks, control risks, fraud and unauthorised activities risks and personal and physical security risks, enabling management to focus and set priorities.
Risk & Control Self-Assessment Identification and assessment of non-financial risks inherent to ING Bank products, activities, people, processes and systems provide management with an understanding of the operational risk profile. Based on the identification and assessment, internal controls are designed to support mitigation of risks to remain within the risk appetite.
ING Bank categorises non-financial risks in a number of risk areas. In addition to compliance risk, other risk areas include Information (Technology) risk, continuity risk, control risk, internal and external fraud risk, unauthorised activity risk, personal and physical security risk, processing risk and employment practice risk.
ING Bank categorises compliance risk into four conduct-related integrity risk areas: • Client conduct related integrity risk is the risk ING Bank is exposed to through our clients; • Personal conduct related integrity risk is the risk of compromising ING Bank through non-compliant employee behaviour, aiming to promote individual integrity of all employees and to create an overall culture that is led by integrity; • Financial Services conduct related integrity risk is the risk that business practices and systems compromise ING Bank as a participant in the financial services industry taking into account its high standards when carrying on business and at all times striving to observe the letter as well as the spirit of the law; and
Financial Economic Crime (‘FEC’) policy The ING Bank FEC Policy directly reflects relevant national and international laws, regulations and industry standards. The ING Bank FEC Policy is mandatory and applies to all ING banking entities, majority owned ING business, businesses under management control, staff departments, product lines and to all client engagements and transactions.
The ING Bank FEC Policy provides a clear statement of what is required by all ING Bank entities in order to guard against any involvement in criminal activity, and to participate in international efforts to combat money laundering and the funding of terrorist and criminal activities. The requirements in the ING Bank FEC Policy cover minimum standards and controls related to: money laundering, terrorist financing, export trade controls, proliferation financing, sanctions (economic, financial and trade) and countries designated by ING Bank as Ultra High Risk Countries (UHRC). The effectiveness of those controls is reviewed periodically.
Bribery and/or corruption risk ING Bank further enhanced its statutory framework in respect of sound and ethical operations, designed to prevent bribery and/or corruption in whatever way, e.g. in the form of conflicts of interest. Bad press related to client related corruption is an intrinsic part of ING Bank’s Customer Due Diligence/Know Your Customer process.
Review processes for setting benchmark rates In 2015 ING Bank has reviewed its internal processes for contributing to setting various benchmark rates. Possible irregularities have been investigated and remedial actions have been taken. ING Bank is cooperating with information requests and/or investigations of regulators and other authorities concerning ING Bank’s contribution to setting various benchmark rates. It is at this moment not possible to assess whether ING Bank will be subject to monetary or other penalties, or the amount and nature thereof if they should arise.
• Overall Capital Requirement (OCR) that is introduced in the Supervisory Review and Evaluation Process (SREP) guidelines. The OCR means that ING Bank’s own funds exceeds the sum of the total SREP capital requirement (wherein per risk type the maximum is taken of Regulatory and Economic Capital requirements), capital buffer requirements and macro-prudential requirements.
In January 2016 ING Group sold another tranche of NN Group shares, reducing ING Groups stake from 25.8 to 16.2%. In addition, ING settled the exchange of the third and final tranche of EUR 337.5 million mandatory exchangeable subordinated notes which were issued in 2014 as part of the anchor investment in NN Group. This transaction reduced ING’s remaining stake in NN Group from 16.2% to 14.1%. ING Group is well on track to sell NN Group by the end of 2016. We will divest our remaining stake in NN Group while maintaining an orderly market.
Processes for managing capital In addition to measure capital adequacy, Capital Management also ensures that sufficient capital is available through setting targets and limits relevant to the above mentioned metrics for ING Group and ING Bank and ensuring adherence to the set limits and targets through planning and executing capital management transactions. The ongoing assessment and monitoring of capital adequacy is embedded in Capital Management’s capital planning process. Following the annual budgeting process, each year a capital plan is prepared for the Group as a whole and each of its material businesses. This plan is updated on a quarterly basis and it is assessed to what extent additional management actions are required. At all times maintaining sufficient financial flexibility should be preserved to meet important financial objectives. At the foundation of the capital plan are ING’s risk appetite statements that determine target setting. These constraints are being cascaded to the different businesses in line with our risk management strategy.
Important inputs to the capital planning and management process are provided by stress testing that is performed on a regular basis. These stress tests focus on topical issues and the sensitivity of the Group’s capital position to certain risks. These analyses provide input that help to steer strategic direction. Setting policies for recovery planning and resolution are a natural extension of ING’s capital management policies and follow ING’s risk management framework seamlessly.
Capital adequacy assessment As at 1 January 2014, the CRR/CRD IV capital rules entered into force. The capital position table reflects own funds according to the Basel III rules as specified in the CRR/CRD IV. As CRD IV will be phased-in gradually until 2019, the table shows the CRD IV positions according to the 2019 end-state rules and the 2015 rules. This makes clear which items phase in directly and which phase in gradually in 2015. ING reports these metrics for ING Group and ING Bank. During 2015, ING Group and ING Bank were adequately capitalised.
Regulatory adjustments additional Tier 1 0 0 –1,281 –1,883 1 Of which EUR 3,531 million (2014: EUR 1,988 million) is CRR/CRD IV compliant and EUR 3,718 million (2014: EUR 3,739 million) to be replaced as capital recognition subject to CRR/CRDIV grandfathering rules. to be replaced as capital recognition is subject to CRR/CRD IV grandfathering rules. 2 Of which EUR 6,229 million (2014: EUR 5,778 million) is CRR/CRD IV-compliant and EUR 2,341 million (2014: EUR 3,593 million) to be replaced as capital recognition is subject to CRR/CRD IV grandfathering rules. 3 The fully-loaded RWA deviated from the phased-in RWA as a result of higher market values, the significant investments in Financial Institutions for the Bank exceeded 10% of CET1 capital. Only the amount up to this limit (which is lower phased-in than fully-loaded) is to be 250% risk weighted, while the excess is deducted.
ICAAP/SREP process On a yearly basis ING Bank N.V. submits extensive documentation on the Internal Capital Adequacy Assessment Process (ICAAP) to its regulator as prescribed in the CRD IV frameworks. This documentation includes a description of ING’s internal capital models, its risk appetite framework, an asset quality analysis and a capital planning, both under normal circumstances and in certain stressed scenarios. This documentation is an important input for the regulator’s Supervisory Review and Evaluation Process (SREP) resulting in a letter to ING Management. The SREP is conducted by the ECB and examines on a regular basis ING’s internal models and processes. The regulatory 2015 guidance indicated that the minimum capital ratios ECB considers adequate for ING Bank consolidated, ING Group consolidated are sufficiently covered by ING’s own capital standards. We understood that the regulatory guidance level for the Group for the phased-in common equity Tier 1 ratio was 10.5% in 2015. For 2016 this requirement is set 10.25%, which is the sum of (i) 9.5% being the ECB’s decision on the 2015 Supervisory Review and Evaluation Process (SREP), including the capital conservation buffer, and (ii) 0.75% for the Systemic Risk Buffer (SRB) which has been set separately for Dutch systemic banks by the Dutch Central Bank. The impact from countercyclical buffer requirements was insignificant at the start of 2016. The fully-loaded SRB requirement is currently set at 3% for ING Group and phases in over four years to 2019. With a 12.7% Group CET1 ratio as at 31 December 2015, ING is already in compliance with the current fully-loaded requirement of 12.5%.
Capital adequacy Group ING Group reports to the Dutch Central Bank as required under the Dutch implementation of the financial conglomerate directive (FICO). The directive covers risk concentrations in the group, intra-group transactions and an assessment of the capital adequacy of the Group. The Financial Conglomerates Directive aims at the supplementary supervision of regulated entities that form part of a financial conglomerate, i.e. groups with licenses in both the banking and the insurance sector, by focusing on potential risks of double gearing (multiple use of capital) and on ‘group risks’ (the risks of contagion, management complexity, risk concentration, and conflicts of interest). ING has been assigned the status of FICO since it was a group comprising of both Banking and Insurance activities. Through the divestment of our Insurance activities and the introduction of the CRR/CRDIV, the disclosure of the FICO ratio has become less relevant and to measure capital adequacy, we believe CRR/CRD IV is the more appropriate way to look at adequate capitalisation. Therefore, ING will no longer publish the FICO ratio externally.
Parent company balance sheet as at 31 December before appropriation of result
Realised gains/losses transferred to profit and loss account –77 –17 –94
Total amount recognised directly in equity –47 1,050 1,003 Net result 4,010 4,010
Changes in the composition of the group and other changes 222 –283 –61
Transfer to share of associates and joint ventures reserve –180 180
Reference is made to the ING Group Consolidated annual accounts, Note 1 ‘Accounting policies’ for information on the Change in acccounting approach NN Group Anchor investment transaction.
Changes in ING Groep N.V. shares held by group companies –28
In 2014, Disposal of group companies included the further divestment in Voya resulting in the loss of control over Voya. The 18.9% remaining interest in Voya was included in ‘Other assets’ as an available-for-sale equity investment. Reference is made to Note 3 ‘Other assets’.
As at 31 December 2015 an amount of EUR 9,495 million (2014: EUR 7,153 million) is expected to be settled after more than one year from the balance sheet date.
Notes to the parent company annual accounts - continued 2014 Retained earnings
Notes to the parent company annual accounts - continued 5 Subordinated loans
The interest rate on the Amounts owed to group companies as at 31 December 2015 is 0.0% (2014: 0.0%).
Guarantees ING Group has issued certain guarantees as participant in collective arrangements of national banking funds and as a participant in required collective guarantee schemes. For example, ING Groep N.V. provided a guarantee to the German Deposit Guarantee Fund (‘Einlagensicherungsfonds’ or ‘ESF’) under section 5 (10) of the by-laws of this fund, where ING Groep N.V. indemnifies the 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.
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 December 2015, USD 77 million was pledged to ING Groep N.V. as collateral.
Basis for our opinion We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities under those standards are further described in the section 'Our responsibilities for the audit of the annual accounts' of our report.
Scope of the group audit ING Group is head of a group of entities. The financial information of this group is included in the consolidated annual accounts of ING Group. ING Group is structured along the segments: Retail Netherlands, Retail Belgium, Retail Germany, Retail Other, Wholesale Banking and Corporate Line Banking, each comprising of multiple entities and covering different countries.
Divestments NN Group (see page 115) In 2015, ING Group further reduced its stake in NN Group NV (‘NN Group’) in multiple tranches to ultimately 25.8%. This led to the loss of control and deconsolidation of NN Group in May 2015. The deconsolidation resulted in an after tax loss of EUR 1.2 billion. As at 31 December 2015 the carrying value, after subsequent sales of shares in June and September 2015, was EUR 2.2 billion. The remaining investment is accounted for as an Held for Sale associate and Discontinued Operations.
Loan Loss Provisions (see page 143) The appropriateness of loan loss provisions is a key area of judgement for management. The identification of impairment and the determination of the recoverable amount are an inherently uncertain process involving various assumptions and factors including the financial condition of the counterparty, expected future cash flows, observable market prices and expected net selling prices. The use of different modelling techniques and assumptions could produce significantly different estimates of loan loss provisions. Associated risk management disclosure is complex and dependent on high quality data. Specific ING Group portfolios of focus included the SME lending portfolios in Belgium and the Netherlands and the lending portfolios with loans to large corporates in Russia and Ukraine.
Reliability and continuity of electronic data processing (see page 324) ING Group is dependent on the IT-infrastructure for the continuity of their business processes. In the last few years, investments were made in the improvement of IT- systems and processes. As part of our audit procedures we tested IT- security, change and application controls embedded in ING Group’s key processes. In addition we assessed the impact of changes during the year either from ongoing internal restructuring initiatives or from external factors such as regulatory developments.
We assessed the reliability and continuity of electronic data processing only to the extent necessary within the scope of the audit of the annual accounts. Our work consisted of assessing the developments in the IT infrastructure and analysing the impact on the ITorganisation.
We have exercised professional judgement and have maintained professional scepticism throughout the audit, in accordance with Dutch Standards on Auditing, ethical requirements and independence requirements. Our audit included e.g.: • Identifying and assessing the risks of material misstatement of the annual accounts, whether due to fraud or error, designing and performing audit procedures responsive to those risks, and obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtaining an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of ING Group’s internal control.
Proposed appropriation of result The result is appropriated pursuant to Article 37 of the Articles of Association of ING Groep N.V., the relevant stipulations of which state that the Executive Board, subject to the approval of the Supervisory Board, determines what part of the result is to be appropriated to reserves and that the remaining part of the result shall be at the disposal of the General Meeting of Shareholders.
At the disposal of the General Meeting of Shareholders pursuant to Article 37 (5) of the Articles of Association 2,515
Subsequent events There are no subsequent events to report. In Note 54 ‘Other events’ of the ING Group Consolidated annual accounts, some events of 2016 are included for information purposes.
Shareholders’ equity and our net result may be significantly impacted by turmoil and volatility in the worldwide financial markets. Negative developments in financial markets and/or economies may have a material adverse impact on shareholders’ equity and net result in future periods, including as a result of the potential consequences listed above. See ‘— Continued risk of resurgence of turbulence and ongoing volatility in the financial markets and the economy generally have adversely affected, and may continue to adversely affect, our business, financial condition and results of operations’ and ‘— We operate in highly regulated industries. Changes in laws and/ or regulations governing financial services or financial institutions or the application of such laws and/or regulations governing our business may reduce our profitability’ below.
The default of a major market participant could disrupt the markets. Within the financial services industry, the severe distress or default of any one institution (including sovereigns and central counterparties (CCPs)) could lead to defaults by, or the severe distress of, other market participants. Such distress of, or default by, an influential financial institution could disrupt markets or clearance and settlement systems and lead to a chain of defaults by other financial institutions because the commercial and financial soundness of many financial institutions may be closely related as a result of credit, trading, clearing or other relationships. Even the perceived lack of creditworthiness of a sovereign or financial institution (or a default by any such entity) may lead to market-wide liquidity problems and losses or defaults by us or by other institutions. This risk is sometimes referred to as ‘systemic risk’ and may adversely affect financial intermediaries, such as clearing agencies, clearing houses, banks, securities firms and exchanges with whom we interact on a daily basis and financial instruments of sovereigns in which we invest. Systemic risk could have a material adverse effect on our ability to raise new funding and on our business, financial condition, results of operations, liquidity, solvency position and/or prospects. In addition, such distress or failure could impact future product sales as a potential result of reduced confidence in the financial services industry.
Single Supervisory Mechanism In November 2014, the European Central Bank (‘ECB’) assumed responsibility for a significant part of the prudential supervision of banks in the Eurozone, including ING Bank, following a year-long preparatory phase which included an in-depth comprehensive assessment of the resilience and balance sheets of the biggest banks in the Eurozone. ING Bank was among the seven Dutch institutions covered by the assessment (out of 130 institutions overall). While the ECB has assumed the supervisory tasks conferred on it by the Single Supervisory Mechanism (‘SSM’) Regulation, the DNB will still continue to play a big role in the supervision of ING Group and ING Bank. The SSM has created a new system of financial supervision for countries within the Eurozone, with the possibility of nonEurozone Member States participating by means of close cooperation. The SSM has caused a significant change for ING Bank and ING Group. For example, in its first year, the SSM caused an increase in quantitative supervision. Finally, although the SSM has brought improvement, banks in the Eurozone could benefit from further alignment on an operational level.
The powers granted to resolution authorities under the BRRD include, among others, the introduction of a statutory ‘write-down and conversion’ power and a ‘bail-in’ power, which gives the relevant Dutch resolution authority the power to (i) cancel existing shares and/or dilute existing shareholders by converting relevant capital instruments or eligible liabilities into shares of the surviving entity, (ii) amend or alter the maturity date and interest payment date and interest amount of debt-instrument, including by suspending payment for a temporary period and (iii) cancel all or a portion of the principal amount of, or interest on, certain unsecured liabilities (which could include certain securities that have been or will be issued by ING) of a failing financial institution and/or to convert certain debt claims (which could include certain securities that have been or will be issued by ING) into another security, including ordinary shares of the surviving group entity, if any.
Finally, as part of the move towards a full banking union, on 19 August 2014, the Single Resolution Mechanism (‘SRM’) came into effect, with the aim to have a Single Resolution Board (‘SRB’) to be responsible for key decisions on how a bank subject to SSM supervision is to be resolved if a bank has irreversible financial difficulties and cannot be wound up under normal insolvency proceedings without destabilizing the financial system. The SRB is a key element of the SRM and will be the European resolution authority for the Banking Union and will be fully operational, with a complete set of resolution powers, from 1 January 2016 on. The SRB will work in close cooperation with the national resolution authorities such as the Dutch resolution authority. The SRB will also be in charge of the Single Resolution Fund, a pool of money financed by the banking sector which will be set up to ensure that medium-term funding support is available while a credit institution is being restructured.
Additional Governmental Measures Governments in the Netherlands and abroad have also intervened over the past few years on an unprecedented scale, responding to stresses experienced in the global financial markets. Some of the measures adopted subject us and other institutions for which they were designed to additional restrictions, oversight or costs. Restrictions related to the Core Tier 1 Securities and the Illiquid Asset Backup Facility (‘IABF’) (together, the ‘Dutch State Transactions’) and the Restructuring Plan are further described in Note 53 ‘Transactions with the Dutch State and the European Commission Restructuring Plan’ to the consolidated financial statements of ING Group.
The aforementioned impacts have arisen primarily as a result of valuation and impairment issues arising in connection with our investments in real estate (both in and outside the U.S.) and private equity, exposures to European sovereign debt and to U.S. mortgage-related structured investment products, including sub-prime and ‘Alt-A’ residential and commercial mortgage-backed securities, collateralised debt obligations and collateralised loan obligations, private equity and other investments. In many cases, the markets for investments and instruments have been and remain highly illiquid, and issues relating to counterparty credit ratings and other factors have exacerbated pricing and valuation uncertainties. Valuation of such investments and instruments is a complex process involving the consideration of market transactions, pricing models, management judgment and other factors, and is also impacted by external factors, such as underlying mortgage default rates, interest rates, rating agency actions and property valuations. Although we continue to monitor our exposures, there can be no assurance that we will not experience further negative impacts to our shareholders’ equity, solvency position, liquidity, financial condition or profit and loss accounts in future periods.
Interest rate volatility and other interest rate changes may adversely affect our profitability. Changes in prevailing interest rates may negatively affect our business, including the level of net interest revenue we earn, and the levels of deposits and the demand for loans. A sustained increase in the inflation rate in our principal markets may also negatively affect our business, financial condition and results of operations. For example, a sustained increase in the inflation rate may result in an increase in nominal market interest rates. A failure to accurately anticipate higher inflation and factor it into our product pricing assumptions may result in mispricing of our products, which could materially and adversely impact our results of operations. On the other hand, recent concerns regarding negative interest rates and the low level of interest rates generally may negatively impact our net interest income, which may have an adverse impact on our profitability.
Declining interest rates or a prolonged period of low interest rates may result in: • lower earnings over time on investments, as reinvestments will earn lower rates; • increased prepayment or redemption of mortgages and fixed maturity securities in our investment portfolios, as well as increased prepayments of corporate loans. This as borrowers seek to borrow at lower interest rates potentially combined with lower credit spreads. Consequently, we may be required to reinvest the proceeds into assets at lower interest rates; • lower profitability as the result of a decrease in the spread between client rates earned on assets and client rates paid on savings, current account and other liabilities; • higher costs for certain derivative instruments that may be used to hedge certain of our product risks; and/or • lower profitability since we may not be able to fully track the decline in interest rates in our savings rates; • lower profitability since we may not always be entitled to impose surcharges to customers to compensate for the decline in interest rates; • lower profitability since we may have to pay a higher premium for the defined contribution scheme in the Netherlands for which the premium paid is dependent on interest rate developments and DNB's methodology for determining the ultimate forward rate; • lower interest rates may cause asset margins to decrease thereby lowering our results of operations. This may for example be the consequence of increased competition for investments as result of the low rates, thereby driving margins down; and/or • (depending on the position) a significant collateral posting requirement associated with our interest rate hedge programs, which could materially and adversely affect liquidity and our profitability.
In January 2016 the Dutch Central Bank informed the Dutch banks that it decided to postpone the first contribution date for the exante Deposit Guarantee Scheme (‘ex-ante DGS’). The first ex-ante DGS contribution will be charged over the first quarter of 2016. The delay does not affect the target size of the ex-ante DGS fund, nor the date the target size should be reached (July 2024). This implies that the build-up of the ex-ante fund will not take place in the originally planned 35 quarters, but in 34 quarters instead. See also ‘— We operate in highly regulated industries. Changes in laws and/or regulations governing financial services or financial institutions or the application of such laws and/or regulations governing our business may reduce our profitability — Bank Recovery and Resolution Regimes’.
A significant and sustained increase in inflation has historically also been associated with decreased prices for equity securities and sluggish performance of equity markets generally. A sustained decline in equity markets may: 1 result in impairment charges to equity securities that we hold in our investment portfolios and reduced levels of unrealised capital gains available to us which would reduce our net income, 2 lower the value of our equity investments impacting our capital position.
We may incur further liabilities in respect of our defined benefit retirement plans if the value of plan assets is not sufficient to cover potential obligations, including as a result of differences between results and underlying actuarial assumptions and models. ING Group companies operate various defined benefit retirement plans covering a number of our employees. The liability recognised in our consolidated balance sheet in respect of our defined benefit plans is the present value of the defined benefit obligations at the balance sheet date, less the fair value of each plan’s assets, together with adjustments for unrecognised actuarial gains and losses and unrecognised past service costs. We determine our defined benefit plan obligations based on internal and external actuarial models and calculations using the projected unit credit method. Inherent in these actuarial models are assumptions, including discount rates, rates of increase in future salary and benefit levels, mortality rates, trend rates in health care costs, consumer price index, and the expected return on plan assets. These assumptions are based on available market data and the historical performance of plan assets, and are updated annually. Nevertheless, the actuarial assumptions may differ significantly from actual results due to changes in market conditions, economic and mortality trends and other assumptions. Any changes in these assumptions could have a significant impact on our present and future liabilities to and costs associated with our defined benefit retirement plans.
Products distributed through person-to-person sales forces have a higher exposure to such claims as the sales forces provide face-toface financial planning and advisory services. Complaints may also arise if customers feel that they have not been treated reasonably or fairly, or that the duty of care has not been complied with. While a considerable amount of time and resources have been invested in reviewing and assessing historical sales practices and products that were sold in the past, and in the maintenance of effective risk management, legal and compliance procedures to monitor current sales practices, there can be no assurance that all of the issues associated with current and historical sales practices have been or will be identified, nor that any issues already identified will not be more widespread than presently estimated.
There can be no assurance that we will be able to fully divest our remaining stake in NN Group, on favourable terms or at all, particularly in light of market developments in general as well as the fact that other financial institutions may place similar assets for sale during the same time period and may seek to dispose of assets in the same manner.
The Pillar III report is published on annual basis as part of the ING Group Annual Report. However, some capital requirements as laid down in Article 438 and information on risk exposure or other items prone to rapid change are disclosed on a quarterly basis.
The rules express the regulators’ and legislators’ opinions of how much capital a bank and other regulated credit institutions must retain in relation to the size and the type of risk taking expressed in the form of risk-weighted assets. The most important part of the capital base is the shareholders’ equity. In addition to equity, the institution may issue certain liabilities such as hybrid instruments to be included in the capital base. The legal minimum requirement stipulates that the capital base must correspond to at least 8% of the Risk-Weighted Assets (RWA).
Credit risk Portfolios subject to standardised approach 1,820 22,752 1,562 19,522
Credit Value Adjustment 400 5,005 513 6,412 Securitisation exposures 152 1,904 168 2,101 Equity portfolios in the banking book under the simple risk weight approach 1,227 15,339 1,006 12,575 Other Non-Credit Obligation Assets 1,712 21,395 1,356 16,947 Total Credit Risk 21,469 268,363 20,494 256,176
ING Group’s capital consists of Tier 1 capital and Tier 2 capital net after deductions. Tier 1 capital consists of both Common Equity Tier 1 capital and other Tier 1 capital, also referred to as hybrid capital. Tier 2 capital consists mostly of subordinated loans.
Additional Pillar III information - continued 2015 2014 2015 rules 2016 rules 2019 rules 2014 rules 2015 rules 2019 rules
grandfathering conditions. 4 Shareholders’ equity, as at 31 December 2014, is not adjusted as a result of the change in the accounting approach for the NN Group Anchor investment transaction.
EU-19b (Exposures exempted in accordance with Article 429 (14) of Regulation (EU) No 575/2013 (on and off balance sheet))
Capital and total exposures 20 Tier 1 capital1 46,412 47,362 21 Total leverage ratio exposures (sum of lines 3, 11, 16, 19, EU-19a and EU-19b) 1,071,518 1,073,174 Leverage ratio 22 Leverage ratio 4.3% 4.4% Choice on transitional arrangements and amount of derecognised fiduciary items
Unless stated otherwise, the tables included in this section focus on the measurement of Regulatory Exposure at Default (READ) and Credit Risk Weighted Assets (RWA) under the CRR/CRD IV definitions. READ is generally the sum of the on-balance and off-balance sheet: Lending, Investment, Money Market and Counterparty activities plus an estimated portion of the unused credit facilities extended to the obligor. The amounts associated with Investment and Lending activities are based on the original amount invested less repayments. Multiplying RWA by 8% will result in the level of Regulatory Capital (RC) for these portfolios (for the Credit Risk portion of the activities). This excludes all additional buffers.
CVA RWA movement –1.4 6.6 Total Credit RWA movement 4.9 4.5
Key changes In 2015, Credit RWA increased by EUR 4.9 billion to EUR 231.6 billion at the end of the year, including a decline in CVA RWA of EUR 1.4 billon.
• Model updates: driven by regulatory guidance were undertaken towards the end of the year and increased RWA by EUR 5.6 billion. The Leveraged Finance LGD model update was the main contributor increasing RWA by EUR 4.2 billion. The Commercial Property Finance LGD model update increased RWA by EUR 1.1 billion.
recognized Local / Regional Authorities and Public Sector entities as well as Supranational Organisations; • Institutions include all Commercial Banks and non-Bank Financial Institutions; • Corporates include all legal entities, that are not considered to be Governments, Institutions or Retail; and • Retail includes the following classes: • Retail – Secured by immovable property non-SME (hereafter Secured by Res. Mortgage) includes all retail loans which are covered by residential properties
AIRB Central governments and central banks Sovereigns Institutions Institutions Corporates – Specialised lending Corporates Corporates – SME Corporates Corporates – Other Corporates Retail – Secured by immovable property SME Other Retail Retail – Secured by immovable property non-SME Secured by Res. Mortgage Retail – Qualifying revolving Not applicable Retail – Other SME Other Retail Retail – Other non-SME Other Retail Securitisations Securitisations SA Central governments or central banks Sovereigns Regional governments or local authorities Sovereigns Public sector entities Sovereigns Multilateral development banks Sovereigns International organisations Sovereigns Institutions Institutions Corporates Corporates Retail Other Retail Exposures secured by mortgages on commercial immovable property Secured by commercial real estate Exposures secured by mortgages on residential property Secured by residential property Exposures in default All High risk items Not applicable Covered bonds Not applicable Claims to institutions and corporates with a short-term credit assessment Not applicable Claims in collective investment undertaking Not applicable Equity exposures Not applicable Other items Not applicable
SEC AIRB On-balance 6,854 1,780 6,756 1,991 Off balance 1,276 124 1,059 110 Total Sec IRB 8,130 1,904 7,815 2,101
Sovereigns Geography/business units 117,789 103,137 14.2% 8,297 7,926 5% Africa 313 229 36.8% 180 30 503% America 3,490 3,254 7.2% 18 19 –3% Asia 6,868 3,818 79.9% 428 228 88% Australia 3,061 4,433 –31.0% - Europe 104,057 91,402 13.8% 7,671 7,650 0%
Germany. The deterioration visible in the PD band 20 to 50% is related to the downgrade of Ukraine. Given that a major purpose of sovereign credit exposure is to support high quality liquid assets, it is consistent that most exposures are in the best quality risk bands.
Corporate credit risk disclosure This table presents the READ and RWA (excluding CVA RWA), segmented by relevant factors for the exposure class ‘Corporates’. The Industry breakdown for this table is based on the NAICS system (North American Industry Classification System).
Corporate Europe 198,284 175,581 12.9% 95,292 84,953 12% Netherlands 54,324 54,426 –0.2% 26,228 28,340 –7% Belgium 39,083 33,457 16.8% 15,476 13,564 14% Germany 8,284 6,601 25.5% 3,100 2,557 21% Rest of Europe 96,593 81,098 19.1% 50,488 40,493 25%
Corporate PD Bands 269,558 234,493 15.0% 125,091 108,413 15% <0.05% 9,058 7,198 25.8% 1,239 983 26% 0.05% to 0.5% 158,886 132,793 19.6% 49,792 41,577 20% 0.5% to 5% 83,802 74,172 13.0% 50,992 41,474 23% 5% to 10% 3,049 3,425 –11.0% 2,877 2,950 –2% 10% to 20% 3,176 4,131 –23.1% 4,335 5,464 –21% 20% to 50% 3,690 3,880 –4.9% 5,222 5,352 –2% more than 50% 7,897 8,893 –11.2% 10,634 10,612 0%
The Corporates portfolio increased by EUR 35.1 billion READ and EUR 16.7 bio RWA. The increase in READ is mainly attributable to the Structured Finance portfolio which showed healthy growth. In light of the political and economic turmoil, exposures to Russia were reduced in 2015, mainly visible in Natural Resources industry. Even though exposure to Ukraine remained relatively stable in 2015, the economic recession had its impact on the portfolio resulting in an increased non-performing portfolio increasing the RWA.
Additionally, the update of the Leveraged Finance and the Commercial Property Finance LGD models has also increased RWA, EUR 4.2 billion and EUR 1.1 billion respectively. Cures were also noticeable in the portfolio, of which the largest in READ was driven by a change in the rating for a client which was assessed as performing by its super preferential character. The risk profile of the Real Estate portfolio has also improved, decreasing its share in the non-performing loan book.
The economic environment and the housing market in the Netherlands continued to improve in 2015. The average Dutch house price increased from EUR 216k to EUR 227k from December 2014 to December 2015, which led to an improved LTV ratio through indexation.
Probability of Default (PD): The first element is the counterparty’s probability of default, which measures counterparty’s creditworthiness in terms of likelihood to go into default. The result of this calculation attempts to measure the senior, unsecured standalone creditworthiness of an organisation without consideration of structural elements of the underlying transactions, such as collateral, pricing or maturity. Each borrower should have a rating which translates into a PD.
Loss Given Default (LGD): The third element is the loss given default. These models are intended to estimate the amount ING Bank will lose when liquidating collateral pledged in association with a given loan or financial obligation, or alternatively, liquidating the company as a whole, as part of a workout process. LGD models are based on cover types, estimated recovery rates given orderly liquidation, and (in) direct cost of liquidation. For financial collateral for counterparty credit risk, ING Bank uses the Financial Collateral Comprehensive Method to allow for mitigation effects.
AIRB models per exposure class Within ING Bank internal Basel models are used to determine the PD, EAD and LGD for regulatory and economic capital. Bank wide, ING Bank has implemented around 90 models, including various sub models for specific portfolios. A model may be applicable for various exposure classes. In the table below, the number of significant PD, EAD, and LGD models per asset class are shown. Additionally a description of the model and methodology are provided per exposure class. The asset classes presented in this table do not align with the Basel Exposure classes as the scope has been redefined to better fit the scope of the model. SME exposure for example can be part of both Corporate exposures as Other Retail depending on the size of the SME.
PD 3 Expert based scorecards Models predict a rating for Commercial Property Finance, Project Finance, Trade and Commodity Finance.
LGD 3 Hybrid LGD Models predict loss given default for Commercial Property Finance, Project Finance, Trade and Commodity Finance.
EAD 4 Local statistical models that use various data inputs, including product type and geography.
The READ increase in the AIRB portfolio comes mainly from increased volume in the Corporates and Sovereigns portfolio. The overall improving risk profile of the portfolio, especially noticed in the reported PD values, resulted in a limited RWA increase, decreasing the RWA density.
Equivalent Performing 1 0.00 - 0.01% 53,867 0.01 31.02 31.786 407 0.01 1 AAA 2 0.01 - 0.03% 28,117 0.02 27.73 40.57 570 0.02 1 AA+ 3 0.03 - 0.04% 34,326 0.03 28.29 33.77 983 0.03 1 AA 4 0.04 - 0.05% 22,038 0.04 25.75 37.63 2,343 0.11 2 AA- 5 0.05 - 0.06% 37,457 0.05 31.03 36.31 3,326 0.09 6 A+ 6 0.06 - 0.08% 45,407 0.06 24.90 35.33 5,281 0.12 7 A 7 0.08 - 0.11% 42,815 0.09 28.43 39.62 6,990 0.16 11 A- 8 0.11 - 0.17% 62,962 0.14 21.21 44.19 8,959 0.14 19 BBB+ 9 0.17 - 0.26% 85,903 0.21 23.29 42.21 15,135 0.18 41 BBB
Non-performing 20 100% 8,297 100.00 31.34 36.42 12,933 1.56 2,202 Default 21 100% 3,353 100.00 22.64 52.61 3,909 1.17 484 Default 22 100% 2,971 100.00 37.84 28.01 1,998 0.67 1,745 Default
Exposures (READ) per internal rating grade and corresponding PD, LGD and RWA 2015
Back-testing observed default rates and observed losses for 2015 show observed results that are below predicted levels for all exposure classes. This can be explained by the improved economic conditions that were experienced in 2015 as well as conservative risk management. In 2015, no defaults were recorded for Sovereigns and institutions while default rates of corporates, residential mortgages and other retail loans have continued to improve compared to the previous year.
Standardised Approach A subset of the ING portfolio is treated with the Standardised Approach. The SA approach applies fixed risk weights to each exposure class, split into credit quality steps (based on external ratings) as dictated by the Capital Requirement Directive (CRD). The SA Approach is the least sophisticated of the CRR/CRD IV methodologies and is not as risk sensitive as the risk-based AIRB Approach.
Risk weights per exposure class The table below gives more insight in how the SA portfolio per exposure class is broken down into the regulatory risk weight buckets.
(a+b+c) Loans 14,891 557,115 –5,375 566,631 Debt securities 171 101,397 –59 101,509 Counterparties 29 61,953 0 61,982 Off-balance sheet exposure 263 33,624 –351 33,536 Total 2015 15,355 754,089 –5,786 763,658
Res. Mortgage Other retail Securitisation Total Total Netherlands 3 1,431 418 314 2,166 2,328 Belgium 1 361 81 211 654 691 Germany 42 281 250 573 609 Other Europe 8 11 1,447 121 519 34 2,140 2,151 Americas 1 138 2 10 151 116 Asia / Pacific 4 85 5 1 95 97 Rest of World 1 2 3 6 3 Total 9 22 3,507 906 1,297 44 5,786 5,995
Includes both AIRB and SA portfolios; excludes securitisations, equities and ONCOA. Excludes revaluations made directly through the equity account. 1 At the end of 2015, the stock of provisions included provisions for amounts due from banks: EUR 14 million (2014: EUR 6 million).
Aging Analysis The table below gives insight in the aging of the Consumer exposures and includes both the performing and non-performing portfolio, while the previous table only includes the past due performing exposures. The bucket 0-3 months comprises mainly of performing exposures.
Past due but not non-performing consumer loans by geographic area (based on outstandings)
From the total notional value of OTC derivatives transactions that are not cleared by a CCP, 82% has been documented under bilateral (92%) and unilateral (8%) CSA agreement. • The notional value of transactions that are done under bilateral CSA agreements relates for 69% to Interest Rate derivatives, for 25% to FX derivatives and for 6% to Credit, Equity and Commodity Derivatives. • Unilateral CSA agreements relate mainly to agreements that are unilateral against ING and mainly consist of Interest Rate
The table below presents the ING bank portfolio excluding equities per loan type. Exposures represent the outstandings and a loan is presented as secured by collateral or a guarantee if such a cover exists on a facility type. The secured amounts represent the part of the loan that is covered by the collateral. If a loan would have both collateral and a guarantee than these are both shown in the table below in the designated column.
Maximum exposure to credit risk The following table present our maximum exposure to Credit Risk in the AIRB and SA portfolios and associated collateral held and other credit enhancements (netting and collateral) that do not qualify for offsetting in our financial statements for the periods specified. The netting credit enhancement component includes the effects of legally enforceable netting agreement as well as the offset of negative mark-to-markets from derivatives against pledged cash collateral. The collateral credit enhancement component which is referred to as Cover Values mainly includes real estate, guarantees and collateral in the form of cash.
SA Sovereigns 39 39 39 15 2,882 Institutions 694 649 149 84 4,061 2 31 Corporates 32 20 20 36 9,686 3,784 123 134 4 Res. Mortgage secured 6,952 14,667 1 Other Retail 10 10 10 16 9,674 1,732 232 2 1 Total SA 775 718 218 151 33,255 20,183 358 167 5
Maturity profile Outstandings by tenor bucket The table below shows the outstanding of ING Bank by run-off profile. The figures assume that no new credit risks are introduced into the portfolio and that there are no delays in repayments associated with non-performing loans, nor are there write offs associated with provisions. The portfolio tenor is implied by the difference in the figures between two periods.
Credit derivatives used for hedging purposes – credit protection bought n.a 70 – credit protection sold
Includes AIRB portfolio only; excludes securitisations, equities and ONCOA. Non-performing loans (rating 20-22) are excluded in the figures above.
Regulatory capital method used and Rating Agencies ING Bank has implemented the AIRB approach for credit risk. As a consequence, ING Bank uses the Rating Based Approach (RBA) for investments in tranches of asset-backed securities (ABS) and mortgage-backed securities (MBS) which have been rated by external rating agencies. Rating agencies which are used by ING Bank under the RBA include Standard & Poor’s, Fitch, Moody’s. The securitisation exposure for which each rating agency is used is given in the following table.
Excludes equities and ONCOA. 1 These are structured financing transactions by ING for clients by assisting them in obtaining sources of liquidity by selling the clients’ receivables or other financial assets to an SPV. 2 Securitisation benefits are excluded. Own originated securitisations are explained in a separate section.
2015 2014 READ RWA READ RWA Risk weight band 1 ≤ 10% 5,493 421 4,037 325
Of which non-retail underlying Exposure values (by RW bands) <= 20% RW 5,835 5,639 196 5,835 5,605 >20% to 50% RW 237 223 14 237 72 >50% to 100% RW 288 236 52 288 604 >100% to <1250% RW 10 10 10 29 1250% RW 72 72 0 72 47 Total 6,442 6,180 262 6,442 6,357
Capital charge after cap IRB RBA (incl. IAA) 62 57 5 62 101 12.50 Risk Weight 72 72 0 72 47 Total 134 129 5 134 148
Sponsor securitisations In the normal course of business, ING Bank structures financing transactions for its clients by assisting them in obtaining sources of liquidity by selling the clients’ receivables or other financial assets to an ING originated Special Purpose Vehicle (SPV). The transactions are funded by the ING administered multi seller Asset Backed Commercial Paper (ABCP) conduit Mont Blanc Capital Corp. (rated A-1/P1 ). Mont Blanc Capital Corp. funds itself externally in the ABCP markets.
Originator securitisations ING Bank originates own securitisation transactions for economic and regulatory capital purposes, as well as liquidity and funding purposes. As of 31 December 2015, there were no synthetic transactions.
ING Bank has created a number of these securitisations with a 31 December 2015 position of approximately EUR 78 billion of AAA rated notes and unrated subordinated notes. The underlying exposures are residential mortgages in the Netherlands, Germany, Belgium, Spain, Italy and Australia and SME Loans in the Netherlands and Belgium.
Market risk Introduction After the turmoil in the financial markets and the consequent need for governments to provide aid to financial institutions, financial institutions have been under more scrutiny from the public, supervisors and regulators. This has resulted in more stringent regulations intended to avoid future crises in the financial system and taxpayers’ aid in the future. Reference is made to the section ‘Market and Regulatory environment’ in the Risk Management Paragraph.
Capital at Risk Capital at Risk measures the impact of predefined instant shocks of market risk factors such as interest rates, credit spreads, foreign exchange rates, equity prices and real estate prices on the volatility of IFRS-EU and common equity tier 1.
IFRS–EU CRR/CRD IV* +100bp +40bp –10% –10% +10% Capital elements Reserve Property revaluation reserve   –98 Cash flow hedge reserve  –2,054 Available-for-sale reserve – Debt securities   –553 –1,377 – Equity securities   –429 –390 Currency translations reserve   –619 P&L All items impacting P&L, excluding DVA   –29 –137 –498 –39 –145 DVA own issued debt/structured notes  181 DVA derivatives  3 40 –5
2015 2014 Cash and holdings at central bank 13,505 4,499 Securities issued or guaranteed by sovereigns, central banks and multilateral development bank 91,551 86,863 Liquid assets eligible at central banks (not included in above) 75,807 88,199 Other liquid assets 1,875 3,320 Total 182,738 182,880
As part of the liquidity buffer management, ING Group also monitors the existing asset encumbrance. Encumbered assets represent the on-balance sheet assets that are pledged or used as collateral for ING Group’s liabilities. The presented templates of ING Group’s encumbered and unencumbered assets are based on the CRR (Part Eight) and the related guidance from the European Banking Authority (EBA). Within the Pillar III section of the ING Bank N.V. Annual Report, the ING Bank encumbered and unencumbered assets are disclosed based on the same CRR requirements and EBA guidance.
Collateral received by ING Group 69,988 40,384 Equity instruments 16,076 5,891 Debt securities 53,911 34,033 Other collateral received 460 Own debt securities issued other than own covered bonds or ABSs 69,988 40,384 2014 in EUR million
Assets, collateral received and own debt securities issued other than covered bonds and ABSs encumbered Carrying amount of selected financial liabilities 108.536 146.697 2014 in EUR million
Sustainable assets under management: we aim to increase our sustainable assets under management
We will reduce our total global CO2e emissions by 18% by 2017 and 20% by 2020 (compared to 2014)
Sustainability governance Our global head of Sustainability reports directly to the Vice-Chairman of the Management Board Banking of ING Bank. Via the global sustainability department, responsibilities are cascaded through various business units to subject-matter experts who help develop ING’s policies and goals in response to sustainability-driven risks and opportunities, in line with our global sustainability direction. Progress on identified priorities is communicated regularly to the Management Board Banking and to external stakeholders through ING’s Quarterly Report.
– Natural resources 5.7 ● ● ● ● ● ● ●
– Transportation & logistics 3.6 ● ● ● ● ● ● ● ●
– Chemicals, health & pharmaceuticals 1.7 ● ● ● ● ● ● ●
– Media + telecom 1.1 ● ● ● ● ● ● ● ●
Applying the Equator Principles (EP) As an Equator Principles (EP) Financial Institution, we implement the EP in our internal environmental and social policies, procedures and standards. We do not provide project finance or project-related corporate loans to clients that are unable, or choose not, to comply with the principles. All EP transactions are reviewed at least annually, at which time covenant compliance is typically affirmed. The EP are embedded in ING’s ESR Framework, and require involvement of the following three banking areas: Front Office: departments originate transactions and have direct contact with the client or project sponsors.
As our risk assessment processes are decentralised, each front-office team must be highly familiar with ING’s Environmental and Social framework and in particular Equator Principles III (EPIII). Hence, ING makes significant investment in internal training programs to help front office and risk management staff in assessing the environmental and social risk under EPIII. In 2015, 479 colleagues have been specifically trained on the ESR Framework worldwide.
External Independent Review A B C Total A B C Total
EP Reviews A B C Total 1 Category A – Projects with potential significant adverse environmental and social risks and/or impacts that are diverse, irreversible or unprecedented; Category B –
Project Finance Advisory ING was mandated on one Project Finance Advisory service in the Sector ’Oil & Gas’ for a project located in the ’Europe Middle East & Africa’ region.
South- and Mid-America 64 64 62 in percentage of employees 2015 2014 2013
Community Investment The tables give an overview of charitable donations and volunteering of ING employees.
2 We achieved our target of reaching 1 million children through UNICEF education programmes in 2005-2015. We are now supporting a new UNICEF programme, Power for Youth, that aims to empower 335,000 adolescents by 2018. Progress on this is not included in this table and will be reported on our website.
Environment Our activities impact the environment we operate in - both directly, through the operations of our buildings, IT systems and business travel, but also indirectly, through our lending portfolio and through our procurement supply chains. We are committed to reducing this impact and will work closely with customers and suppliers to take advantage of opportunities within the low-carbon economy of the future. Our Environmental Approach ( Transitions.htm) describes how we are managing our direct and indirect environmental impacts as well as how we mitigate risks and create and seize opportunities. Our approach also outlines our 2020 targets for improving our operational eco-efficiency, namely: • We will reduce our CO2e emissions by 20% by 2020 (base year 2014). • We will reduce global residual waste by 20% by 2020 (base year 2014). • We will reduce our water footprint by 20% by 2020 (base year 2014). • We will remain carbon neutral by off-setting remaining carbon emissions.
Electronics, mining and urban mining report: In January FFG tried to measure to what extent a bank was involved with circular economy by comparing investments in recycling companies versus mining companies.
Stakeholder Topic of Discussion ING's point of view NGO – Milieudefensie Netherlands
In addition, ING took into consideration that the higher costs could lead to a burden for job agencies. To address this, ING has adjusted the way it compensates the agencies.
Basel II Regulatory requirements issued by the Basel Committee on Banking Supervision for the solvency calculation, which apply to ING from 2008. Basel II is an international standard for calculating the required capital, based on internal models that take into account financial and operational risks.
Basel III Regulatory requirements issued by the Basel Committee on Banking Supervision for solvency calculation and liquidity requirements, which superseded Basel II. Basel III was adopted in 2010 and consequently translated by the EU into the Capital Requirement Regulation (CRR) and the Capital Requirement Directive IV (CRD IV). The CRR is binding for all EU member states and became effective as at 1 January 2014, with the full requirements to take effect from 1 January 2018. The CRD IV directs all EU member states to implement certain components of Basel III in their own law; in the Netherlands in the ‘Wet Financieel Toezicht’ (Act on Financial Supervision). Although not all definitions and parameters of the CRR/CRD IV have been finalised, the key principles of Basel III have been included in ING’s solvency and liquidity risk appetite frameworks that are continuously monitored by senior management.
Capital Requirements Regulation (CRR) For European banks, the Basel III requirements are implemented through the Capital Requirement Regulation (CRR) and the Capital Requirement Directive IV (CRD IV). The CRR is binding for all EU member states and came into effect on 1 January 2014, taking into account transitional arrangements, with the full requirements to take effect on 1 January 2018.
Compliance risk Compliance risk is defined as the risk of impairment of ING Bank’s integrity as a result of failure (or perceived failure) to comply with applicable laws, regulations, ING Bank policies and minimum standards, and the ING Values as part of the Orange Code.
Credit rating Credit ratings, as assigned by rating agencies (such as Standard & Poor’s and Moody’s), are indicators of the likelihood of timely and complete repayment of interest and instalments of fixed-income securities.
Deferred tax assets arising from carryforward of tax losses The amount of income tax receivable in future periods arising from the utilisation of carryforward tax losses against future taxable profits.
Derivatives A derivative is a financial instrument or other contract with all three of the following characteristics: a. Its value changes in response to a change in any of the following: a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable (provided in the case of a non-financial variable that the variable is not specific to a party to the contract, sometimes called the ‘underlying’); b. It requires no initial net investment, or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors; and c. It is settled at a future date.
Expected loss (EL) The expected loss provides a measure of the value of the credit losses that ING Bank may reasonably expect to incur on its portfolio. ING Bank must hold a reserve (as part of its capital base) to cover the expected losses in its credit portfolio. EL is calculated as probability of default x loss given default x exposure at default. Collective provisions are taken to cover for expected losses.
Final dividend The final dividend is the total dividend for the year as proposed by the Board, less any interim dividend paid during the year. The dividend is subject to approval of shareholders at the Annual General Meeting.
Hybrid capital Tier 1 instruments issued by ING Group (e.g. perpetual debt securities and preference shares) . Hybrid capital securities are perpetual fixed income securities with an embedded call and coupon deferral feature. All hybrid capital securities rank senior to core tier 1 securities and ordinary shares of ING Group and they are structurally subordinated to the senior debt instruments issued by ING Groep N.V.
ING Continuity Foundation The role of the ING Continuity Foundation is to safeguard to the best of its ability the interests of ING, its enterprises, and its stakeholders; and to resist influences that might conflict with these interests by affecting the independence, continuity or identity of ING. This foundation may for that purpose exercise its call option right for as many cumulative preference shares as are necessary in order to hold up to onethird of the issued share capital.
Initial public offering (IPO) This is when a company publicly offers its shares for sale for the first time on a stock exchange. The most important goal of an IPO is to raise capital that the company can use to invest and expand.
Loan to value ratio (LtV ratio) This is defined as the amount of the mortgage divided by the value of the property and is one way to measure the risk of a mortgage. Typically, assessments with higher LtV ratios are considered riskier mortgages. This also affects how the mortgage is weighed for regulatory capital purposes.
Net asset value Used in the equity method of accounting. The initial net asset value of the investment is determined by the fair value of the assets and liabilities of the investee. After the initial valuation of assets and liabilities of the investee at fair value, the assets and liabilities of the investee are valued in accordance with the accounting policies of the investor. The profit and loss account reflects the investor’s share in the results of operations of the investee.
Pre-settlement risk Pre-settlement risk arises when a counterparty defaults on a transaction before settlement and ING Group has to replace the contract by making a trade with another counterparty at the then prevailing (possibly unfavourable) market price. The pre-settlement risk (potential or expected risk) is the cost of ING Group replacing a trade in the market.
Probability of default (PD) The likelihood that a customer or counterparty will default.
Risk Committee The Risk Committee, consisting of members of the Supervisory Board, assists the Supervisory Board in monitoring the risk profile of the company, as well as the structure and operation of the internal risk management and control systems.
Risk-weighted assets (RWA) under Basel I Assets that are weighted for credit risk according to a formula used by the Dutch Central Bank (De Nederlandsche Bank), which conforms to the capital adequacy guidelines of the BIS (Bank of International Settlements). On- and off-balancesheet items are weighted for risk, with off-balance-sheet items converted to balance-sheet equivalents (using credit conversion factors) before being allocated a risk weight.
Sustainable transitions financed Sustainable transitions financed describes all the business that we do with clients who are environmental outperformers in their sectors and projects that provide sustainable solutions.
Tier 1 ratio Reflecting the Tier 1 capital of ING Bank as a percentage of its total risk-weighted assets.
Underlying result Underlying result is a financial performance measure used by ING Group to evaluate the results of its banking segments and is derived by excluding the following from IFRS-EU: special items, the impact of divestments and Legacy Insurance.
Any forward-looking statements made by or on behalf of ING speak only as of the date they are made, and, ING assumes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or for any other reason. Reference is made to ‘Risk factors’ and ‘Risk management’ sections of this Annual Report. www.ing.com