Our customers’ world isn’t standing still and neither is ours. Rapid technological advances and digitalisation are changing their behaviour. They now expect the same personal, instant, relevant and seamless experience from their bank that they get from other digital providers. To keep meeting their expectations, we’re speeding up our digital transformation. So we build a bank that will be relevant for our customers, now and in the future.
Challengers are our businesses in markets where we aim to build a full banking relationship digitally distributed at low cost via platforms like Model Bank, which we are developing for several European banking markets, and Welcome, in Germany. We are also using our direct banking experience to grow the lending business at low cost in areas like consumer and SME lending. And we are using our strong savings franchises to fund expansion of Wholesale Banking in these markets.
Growth Markets are businesses with a full range of retail and wholesale banking services in markets with expanding economies and strong growth potential. We’re investing to achieve sustainable franchises and will focus on digital leadership by converging to the direct-first model and prioritising innovation.
Consolidated result5 in EUR million 2017 2016 2015 Net result attributable to ING Group's shareholders 4,905 4,651 4,010 Underlying net result Banking 4,957 4,976 4,219 Underlying result before taxation Banking 7,199 7,028 5,959 of which underlying income 17,704 17,458 16,552 of which underlying operating expenses 9,829 9,456 9,246 of which underlying addition to loan loss provision 676 974 1,347
7 The comparable 2015 cash-pooling balances in Customer lending and Customer deposits are still presented on a net basis in order to provide consistent information to its users. 8 Customer lending is defined as: loans and advances to customers -/- securities at amortised costs -/- provision for loan losses. 9 The leverage ratio of ING Group according to the Delegated Act (including grandfathered securities) takes into account the impact of grossing up the notional cash pool activities.
ING Group’s underlying ROE was 10.2% in 2017, broadly in line with 2016. Although more clarity is now available following the agreement on Basel ‘IV’, it is still too early to announce a Group ROE target.
7 Top rankings out of 13 countries 25.4 mln customers felt financially empowered 14.6 bln Climate Finance 0.5 bln Social Impact Finance 99.7% Retail Banking in the Netherlands and Belgium 100% Wholesale Banking
Responsible finance In 2017, we matured and strengthened our approach by introducing a responsible finance portfolio, replacing our Sustainable Transitions Financed. At the end of 2017, Climate Finance amounted to EUR 14.6 billion and Social Impact Finance amounted to EUR 0.5 billion.
Since 2015, we have been measuring our efforts to improve the financial behaviour of our customers and society. In 2017, 25.4 million people felt financially empowered as a result of interactions with our financial empowerment initiatives.
Effective employer Human Capital ROI The Human Capital Return on Investment indicator helps us identify the influence of HR inputs on the organisation’s productivity. This ratio of profitability divided by employee costs was 2.51 in 2017 compared to 2.59 in 2016.
2017 results These strong relationships with customers helped to drive ING’s robust commercial growth and financial results in 2017. ING recorded a full-year 2017 net profit of EUR 4,905 million, an increase of 5.5 percent year-onyear. Our net core lending to customers grew by almost EUR 27 billion, or 4.8 percent, and net customer deposits rose by EUR 19 billion compared to year-end 2016. Lending growth came from all regions, except the Netherlands, which saw a decline in mortgages. The growth was well diversified, with strong growth in the retail activities in Belgium and the Challengers & Growth Markets, but also from Industry Lending and Working Capital Solutions within Wholesale Banking. Income increased, driven by resilient interest margins and higher fee income and despite lower one-off gains and volatile items. Risk costs declined further due to the benign credit environment in most markets where ING is active. Expenses rose mainly due to an acceleration in digital investments and higher costs to support business growth. Our capital base strengthened, with ING Group’s CET1 ratio improving to a robust 14.7 percent at year-end 2017. ING’s underlying return on equity was with 10.2 percent broadly in line with 2016.
Reflecting these strong results, the Board proposes to pay a total 2017 dividend of EUR 0.67 per ordinary share, subject to shareholder approval at the AGM in April 2018. This is in line with our goal of paying a progressive dividend over time, while maintaining healthy capital levels.
At the same time that we transform ING and prepare for the future, we must also ensure that our day-to-day operations meet the highest standards and that we continue to live up to the expectations of customers and society. This includes ensuring that critical nonfinancial risk areas, such as customer due diligence and anti-money laundering measures, stay top of mind and are supported by a structural approach and strong foundations.
Banks can’t create a sustainable world alone, but they can have a real impact. We decided in 2017 to focus our sustainability efforts on contributing to a low-carbon and self-reliant society. We think this will have the most impact both for our customers and society. This also supports our commitment to the UN Sustainable Development Goals, particularly on sustainable and inclusive economic progress (goal 8) and on sustainable consumption and production (goal 12).
These developments are an important opportunity for ING. This digital trend, with its direct interaction with customers in a personal, instant, relevant and seamless way based on standard products, plays more to ING’s strengths and experience than to that of any other incumbent. The fast growth ING is experiencing shows we’re succesfully applying our own two decades of experience as digital disruptors with ING Direct.
Continued delays around the Basel ‘IV’ discussions (i.e. the revisions to Basel III) addressing the variability of banks’ internal models, which weren’t finalised until December 2017, led to ongoing international uncertainty. This had an impact on strategic planning and business decisions for many banks.
ING will participate in a public/private sector partnership initiated by Europol and the Institute of International Finance. This high-level forum aims to find better ways to share information within existing laws.
Increased global economic momentum Economic momentum picked up further in 2017, outpacing the global economic growth seen in 2016.
Euro on the rise The euro rose against the US dollar in 2017, propelled by the strengthening economic outlook in the euro area, diminishing political uncertainty and expectations about the tapering of quantitative easing in the euro area.
Weaknesses • High interest-income dependency • Lower efficiency compared to disrupters
• Financial sector continues to have an unfavourable public image in many countries
With our long track record and strong brand, we believe we are well placed to seize these opportunities and become a better company for all of our stakeholders. We are a leader in digital banking, and we have scale combined with local market expertise. We are investing in building profitable, mutually beneficial relationships with our customers based on the quality of our service and the differentiating experience we offer them. We continue to work hard to win their hearts and minds, demonstrating our concern for them and all our stakeholders. We aim to be even clearer about the strategic choices we make.
The diagram at the bottom of this page shows what we perceive to be our strengths, weaknesses, opportunities and threats based on assessments by management.
Societal challenges In our view, both climate change and the so-called fourth industrial revolution can lead to societal changes.
The effects of climate change, including the growing scarcity of water, food, energy and other material resources, pose daunting social and environmental challenges. The causes and the solutions to these challenges are complex, but we already know that they will change traditional business models.
Customers expect targeted/personalised explanation of products and services based on their needs. They also expect ING advisors to have good knowledge of products and services and to explain them in an easy and transparent way.
Business models, but more importantly people’s lives, will also be influenced by the so-called fourth industrial revolution – fast-changing technology such as artificial intelligence that will cause many jobs to change, be relocated or eliminated altogether.
We conduct a materiality assessment every year, gathering input from stakeholders and ING’s management to assess what matters most to them and our business. We identify the issues with the highest priority for stakeholders and the biggest potential business impact. This guides us in our strategic decisionmaking, stakeholder engagement agenda and reporting framework.
Read more in the ‘Our strategy and how we create value’ chapter about innovation.
• Cybercrime, fraud and cyber-security risks arising due to growing digitalisation across banking.
In 2017, ING launched a EUR 300 million venture capital fund to deepen fintech partnerships and accelerate the pace of innovation.
Our duty to handle customers’ data with the utmost care and only process personal data for specific business purposes.
Securing the stability of ING’s IT systems and platforms, such as payment services, internet banking and apps.
Reliability and stability section in the ‘Improving the customer experience’ chapter.
Stand out by making banking personal, instant, seamless and relevant to our customers.
We continue to perform well against most of our Ambition 2020 targets, including those for capital, leverage ratio and dividend.
Responsible business practices Opportunities: • Growing market for sustainable finance, shift in financing towards a low-carbon economy and societal challenges.
Risks: • Banks should adequately consider environmental and social risks within their day-to-day business decisions.
• Financial sector continuous to have an unfavourable public image in many countries.
I Corruption prevention ING’s role and activities in preventing corruption practices.
Through e-learning modules, awareness sessions and reading materials, we train employees on non-financial risk topics, including money laundering, terrorist financing, sanction and export control compliance, conflicts of interests, miss-selling and corruption.
Clear policies and direction guiding our finances and investments towards societal challenges and low-carbon economy.
K Transparency Being transparent about our investments, products and services, and other topics.
Balancing our responsibilities section in the ‘The world around us’ chapter.
Opportunities & Risks Material topic Our approach and performance More information
Risks: Losing talented employees, or not having a diverse group of employees, could lead to sub-optimal financial performance as well as affect a company’s reputation.
The number of female managers and female managers of managers remained fairly stable. Of our managers, 39 percent are female (38 percent in 2016) while for managers of managers, 29 percent are female – the same as in 2016.
Managing risks is at the heart of what we do. Safe banking requires strong risk management, both financial and non-financial.
In 2017, we published a full breakdown of our entire portfolio as at year-end 2016, approximately EUR 775 billion, itemising amounts for the sectors we finance. This is in line with the Dutch Banking Association’s Transparency Protocol, which ING helped to create as part of a working group of banks. It tells a transparent story about how diverse and global we are.
The Paris Agreement commits nations to a scenario where the rise in global temperatures remains within 2 degrees, with an ambition to achieve a 1.5-degree scenario. Some are calling for action based on this 1.5-degree scenario.
On the one hand, the International Energy Association estimates in its 2017 Energy Outlook that in a 2-degree scenario, almost half of global energy demand will still be met by oil and gas in 2040. On the other hand, there is an ever-increasing pressure from civil society to immediately stop financing sectors affecting climate change. What position should ING take?
Balancing our responsibilities Different stakeholders may have competing concerns. Sometimes these are even contradictory. Here, we outline some of the dilemmas we face in balancing these different interests.
In today’s digital world, customers expect high-quality products and services that are easy to use, relevant to them, provide better insights, make their lives easier and reduce daily tasks. ING innovates continuously to meet these requirements.
Earning and keeping the trust of our customers is of paramount importance. Customers trust us to keep their – and our – data safe. We believe that data ethics should be an integral part of our culture, behaviour and decision-making processes.
ING believes that we can play a responsible role in enabling society’s orderly and affordable transition to a low-carbon economy by continuing to finance select projects in the oil and gas industry, alongside our increasing support for investment in renewable energy and energy efficiency.
The Payconiq app exemplifies the cooperation approach. This began as a fintech within ING, seeking to make payments easier for customers and retailers. We rapidly realised that this mission was only achievable with critical mass. We decided to partner with other banks and subsequently share ownership with them. While Payconiq partly disrupts our existing payments business, it also shows we proactively deal with changes affecting our markets. It also works, as the platform is
At ING, we believe banking products and services are becoming commodities. The only way to differentiate in the future will be through the customer experience. Customers’ expectations are being set by the personal, instant, relevant and seamless experience provided by digital platforms like Amazon, Apple, Facebook and Google. These leaders offer access to platforms where customers connect to one another and to businesses and where they spend more and more of their time.
At the heart of the Think Forward strategy is our purpose to empower people to stay a step ahead in life and in business and the Customer Promise to be clear and easy, available anytime and anywhere, to empower and to keep getting better.
Digitalisation is increasing, changing how people interact with service providers and their expectations as customers. Fintechs and other new entrants to the market are taking advantage of new regulations and the easy access and low-cost delivery available through the internet to compete for key parts of banks’ value chains.
In Retail Banking, we define the primary relationship as a payment account with recurrent income and at least one other product with ING. In Wholesale Banking, we aim to increase primary relationships by increasing our so-called ‘flow’ relationships (e.g. Transaction Services, Working Capital Solutions and Financial Markets) and the percentage of relationships where we are the client’s lead finance provider.
Material topics: financial performance, pricing of products and services, enhancing customer financial capabilities, transparency.
Material topics: financial performance, responsible finance and investment policies, enhancing customer financial capabilities.
teams that provide customer improvements from design to product delivery at lower cost and with shorter time to market than previously required. We have already introduced this in the Netherlands and will gradually implement it company-wide, initially focusing on all product and service delivery units by end-2018. We are also implementing target operating models (TOMs) to streamline our Finance, HR, IT, Procurement and Risk functions.
• Empowered adolescents through our Power for Youth programme with UNICEF.
• Increased financing for responsible companies, enabling them to get ready for tomorrow’s economy. • Reduced environmental impact by decreasing financing for carbon-intensive sectors. • Creating a platform and attention for sustainable business opportunities and the businessmodels of the future, including the circular economy.
• EUR 50.4 billion shareholders’ equity and EUR 148.9 billion debt securities in issue, bank deposits and subordinated loans
• ING is an RE100 member and a Circular Economy 100 (CE100) corporate member of the Ellen MacArthur Foundation
• Model Bank, harmonising retail banking in five European countries on one borderless, scalable platform.
Running a transformation of this scale is complex and involves many interdependencies. Our transformation management method helps us navigate through the complexity, remove impediments when they arise and re-plan, while minimising adverse impacts and keeping the bank safe and secure. Strong governance and twoway communication about the transformation build ownership across the bank and encourage employee engagement.
Platforms In many ways platform thinking is an extension of what we have always done: empower people to take control of their own situations. Like traditional marketplaces, platforms connect suppliers with consumers. The difference is that platforms are enabled by technology, which can be used to achieve huge scale at near-zero costs. And there’s a data layer that helps create scale and efficiencies, increasing the value created for all participants. The data itself has high value. Banks can use it to develop new products and services and personalise the user experience.
Customers are spending more time online and on their smartphones. They expect banking to be the same personal, instant, relevant, seamless and borderless experience that they have there. Recognising this, and inspired by a new breed of digital disruptors who are redefining financial services, ING is preparing for a future in the platform age.
Artificial intelligence (AI) in many forms will play an important part in ING’s future. From actual robots, like ING’s Ginger - here helping teach children about the value of money - to machine learning, predictive algorithms and more. This will boost the efficiency of our digital-first model, helping it to evolve into a true competitive advantage.
Data A digital bank is driven by data. We use it to improve processes and make better management decisions. Crucially data provides meaningful customer insights to better understand our customers and develop innovative data-driven products that personalise and improve their experience.
However, raw data in itself has little value. To be meaningful, it has to be sorted, harmonised and put into context. Global data management is therefore a key priority to ensure the availability, quality, integrity, usability and control and governance of our data. To standardise our data definitions and data models, we introduced a common data language called ING Esperanto in 2016. Our aim is for 95 percent of our data to be in ING Esperanto by end-2019.
Whenever we process data for services or offers we consider the wishes of our customers and corporate clients. In cases where we rely on consent, the customer can withdraw it at any time. All business units have adopted the global data protection policy (GDPP), which qualifies as binding corporate rules. This was revised in 2017 to meet new EU General Data Protection Regulation 2016/679 and will be effective from May 2018, once approved by the regulators. This regulation increases transparency requirements and enables our customers to be in control of their personal data. In each business unit and at bank level, a data protection executive is responsible for GDPP compliance and compliance with local privacy laws. Local data protection officers provide expertise and support.
Technology Information technology is crucial for ING’s platform ambitions. Without IT we cannot merge our systems and build one global platform, enable scalability and create value for the customer in an online digital world. It enables programmes such as ING Private Cloud, data lakes and TouchPoint Architecture and contributes to major strategic programmes such as Model Bank and Welcome.
TouchPoint Architecture (TPA) is a client-centred approach to streamlining ING’s global IT architecture. It moves away from focusing primarily on products to improving the customer experience. TPA helps simplify and standardise ING’s banking applications and supports the creation of a modular system with fewer constraints and limitations. This modularity is a big step towards a globally scalable banking platform that offers customers everywhere a consistent experience and a truly global proposition. TPA unlocks our global scalability, leverages innovation across the group and speeds up the time to market and to volume. The first TPA components were released for production in 2017.
ING Private Cloud (IPC) is ING’s global digital platform for storing and processing data and running IT services such as mobile phone apps. It’s the first step towards giving customers everywhere a consistent experience in a secure and reliable way. IPC standardises our IT infrastructure globally, simplifies and streamlines existing processes and centralises data storage in socalled data lakes so it is available to the right people at the right time. ING currently runs daily services on close to 4,000 virtual machines. The focus in 2017 was on improving operational stability and security. We also rolled out a number of new services to increase the scope of IPC within ING’s infrastructure landscape.
We continuously invest in our security organisation and systems to protect our data and that of our customers. We have created a cybercrime resilience control environment designed to predict, protect against, detect, respond to and mitigate e-banking fraud, distributed denial of service (DDoS) attacks and targeted attacks. We maintain strong global alliances with the financial industry, law enforcement authorities, governments and internet service providers to jointly fight cybercrime. In September 2017, ING set up a Financial Cybercrime Expertise & Response Team (FinancialCert) with two other Dutch banks to jointly tackle cybercrime in the Netherlands and share real time information for a faster response.
ING’s responsible disclosure programme encourages ethical hackers to report vulnerabilities they might discover in ING’s online services.
Other fintech partnerships include Kabbage for instant SME lending, Cobase, a multibank platform for corporates, Twisto for instant consumer finance and Scalable, a so-called robo-advisor for retail customers who want to make investments.
In the spirit of cooperation we shared a blockchain breakthrough with the developer community as an open source solution that others can contribute to. ING announced in November it had developed a new code, known as a ‘zero-knowledge range proof’ that adds a layer of cryptography to protect the privacy of blockchain users.
To speed up ING’s transformation into an innovation- enabled organisation, we set up the Global Innovation Council in early 2017. It replaces the Innovation Fund Steering Committee. The council defines and aligns our innovation priorities and measures our progress. In addition, there are six local innovation councils for our businesses in Australia, Belgium, Germany, Poland, Spain and Wholesale Banking.
To deepen fintech partnerships and accelerate the pace of innovation, we launched ING Ventures in October, a EUR 300 million venture capital fund. It will invest mainly in start-ups whose technologies and propositions we can adopt or embed to move even faster. In return, they benefit from our strong brand, extensive network and large customer base.
At the end of 2017, ING had 139 fintech partners, 21 of which we invested in. These include Spain’s Fintonic, a cross-bank aggregation app with 400,000 users in Spain and Latin America. Money management platform Yolt is ING’s own internal fintech. Launched for testing in 2016 and released in June 2017, Yolt now has over 100,000
Report of the Executive Board who can challenge them on their strategy and add real value to their business.
On top of that, heavier capital requirements under socalled Basel IV and ever increasing regulation are pushing down on returns. In 2017, regulatory costs were EUR 56 million higher year-on-year and made up 9.2 percent of ING’s total underlying expenses (8.9 percent in 2016).
Fair pricing With deposits at the European Central Bank already earning negative interest rates we have to continuously balance our customer expectations with the prices we offer to remain profitable. To address this trade-off we actively manage our exposure to interest rate risk and develop new offerings at fair prices that generate feebased income.
In most retail banking markets we offer a full range of banking products and services, covering payments, savings, investments and secured and unsecured lending.
Wholesale Banking is also looking to grow its primary clients. This means being their lender of choice and having an appropriate volume of flow products in Transaction Services, Working Capital Solutions and Financial Markets. Industry Lending teams took a leading role in 61 percent of transactions in 2017. While pursuing growth, we will maintain a prudent risk profile and diversified portfolio within our risk appetite.
We are also looking at services that go beyond banking and generate alternative sources of revenue. In Germany, for example, ING introduced Immowert2Go, a mobile app enabling potential homeowners to find a property’s value by submitting a photo and at the same time apply for a mortgage. And we partnered with online wealth manager Scalable Capital to offer retail customers digital investment management services, also known as robo-advice.
Knowing our customers Data is an important asset that helps us improve the customer experience and earn the strategically important primary relationship. We rely on data to understand what customers want and need. We use these insights to personalise our customer interactions and empower customers to make their own financial decisions. Our customer-facing platforms offer multiple touch points to interact with customers and collect data that we use to define customer journeys, for example when and where they choose to do their banking, the device they use and the services they prefer. We test our insights with feedback from customers to continuously improve our services.
Primary relationships In June 2017, ING reached its 10 millionth primary retail customer. Earning the primary relationship is a strategic priority and we value these relationships because they lead to customers who are more satisfied, more loyal and subsequently choose ING for more of their banking needs. And the more people do with us, the more data we can collect to understand their needs and the better the experience we can provide using these insights: a virtuous circle.
Turkey launched a YouTube channel in June called ‘Para Mevzuları’ (Money Stuff). Here ING shares videos that increase financial literacy by helping people understand more about money, saving and finances. It attracted 44,000 subscribers and 6.5 million views in its first month.
Meanwhile Twyp Cash, which allows customers in Spain to withdraw cash from supermarkets, petrol stations and other merchants, continues its growth and is now used by 275,000 customers. We extended the mobile payment app to non-ING customers in November, triggering approximately 20,000 downloads on the first day.
Digital first Customers are spending more time online and especially on their smartphones. In the Netherlands, ING welcomed its three millionth mobile app user in August 2017 and registered 18,000 new users in one week, the highest weekly inflow yet. This helped us exceed our initial 2017 target of 520,000 new mobile users in the Netherlands by 15.9 percent.
We introduced several new apps in 2017 that cater to the needs of mobile customers, who use their phones to shop, socialise and stream content instantly and seamlessly. In Germany, ‘Banking to go’ makes transfers easier and more personal using touch ID and the customer’s own five-digit pin. Developed by a GermanDutch team using existing components, the app was tested by around 5,000 customers before going live in May 2017. We also introduced an aggregation service in Germany that allows customers to see all their bank accounts on one app, also those with other banks.
In Belgium, we partnered with other banks and telecom companies to launch Itsme, an app offering users a digital ID that allows them to log in securely, share data or sign documents and transactions on their phones.
ING continued its partnership with UNICEF’s Power for Youth to reach 335,000 adolescents in six less-developed countries by 2018, equipping them with financial knowledge and skills to build a brighter future.
Financial empowerment interactions with customers and non-customers increased significantly again in 2017 and 25.4 million people said they felt financially empowered a (23.9 million in 2016). This means we achieved our 2020 target of reaching 25 million people. Our new ambition is to reach 34 million people by 2022.
ING has provided customers with sustainable investment solutions (SI) since 1999. These can be dedicated
Retail Belgium Retail Belgium includes Record Bank and ING in Luxembourg. The underlying result before tax of Retail Belgium fell 18.3 percent to EUR 785 million in 2017, compared with EUR 961 million in 2016. The decline mainly reflects lower net interest income and higher expenses, partly offset by lower risk costs and increased fee income.
Risk costs dropped by EUR 71 million to EUR 104 million, or 30 basis points of average risk-weighted assets. The decrease was fully in business lending, while risk costs for mortgages and consumer lending were broadly stable.
Retail Other Retail Other consists of the other Challenger countries & Growth Markets, including the stakes in Asia. The underlying result before tax decreased 3.8 percent to EUR 825 million in 2017, from EUR 858 million in 2016, which was supported by a EUR 109 million gain on the sale of Visa shares.
Operating expenses increased by EUR 196 million, or 11.4 percent, to EUR 1,919 million. This increase was mainly due to increased staff and marketing expenses in most countries to support business, as well as higher investments for strategic projects.
Wholesale Banking in 2017 The future of Wholesale Banking is about clients and their experience. It’s all about what they want: advice, data driven insights, sector knowledge. We already took steps in this direction in 2017 and will take it further in 2018 with a new organisational structure that supports a client-led approach, using data and technology to anticipate clients’ needs and move to seamless and fast processes for a truly differentiating experience.
Among other things, we will strengthen our sector focus and international network, putting more resources into Asia and the Americas. We are also strengthening our advisory functions including core banking services, such as Debt Capital Markets and Corporate Finance, and will enhance and further integrate our daily banking propositions, such as payments and cash management, trade finance, working capital solutions, overdraft and FX transactions.
Virtual cash management In the third quarter, ING introduced virtual bank accounts that allow treasurers to manage their cash across borders from a single bank account. Other virtual cash management products involve multiple virtual accounts. ING’s solution gives treasurers full insight, access and control of their company’s cash position and enhances strategic decision-making.
Blockchain Innovation is integral to ING’s ambitions and technological advances such as blockchain continue to lead to new products and product improvements. Being a big organisation, ING’s size can work against it when speed is of the essence. That’s why we also team up with others – start-ups and fintechs – to innovate from the outside in. These include collaborations with the banking consortium R3 and others to digitalise trade and commodity finance on a blockchain platform, as well as using blockchain to process foreign exchange trades and Trade Finance transactions. ING is also working with R3 and HQLAx on a digital assets exchange to manage liquidity more effectively and cost efficiently.
We aim to double our funding to companies and sectors that are helping to keep global warming below two degrees Celsius. We will do this by increasing our Climate Finance portfolio two-fold by 2022 compared to 2017. This includes funding projects that advance renewable energy, the circular economy and help combat climate change. We will also double our Social Impact finance by lending to projects that lead to, for example, affordable housing or basic infrastructure. And we will double lending to environmental, social and governance (ESG) industry leaders by 2022 compared to 2017.
EUR bln % of Total 2017 Social impact finance 0.5 0.3%
4 A list of sub-categories that are in scope of the methodology/ definition but that have zero-to-low exposure can be found in the non-financial appendix.
In 2017, ING joined the Madaster circular economy platform, which has a digital ‘materials passport’ to stimulate the use of recyclable materials and reduce waste.
Underlying operating expenses increased 8.6 percent to EUR 2,792 million, mainly due to higher headcount to support business growth, increased additions to litigation provisions and higher regulatory costs.
A worldwide survey conducted amongst ING colleagues in the third quarter showed that 100 percent of employees were aware of the Orange Code and 82 percent of employees felt equipped to live up to it.
Our Orange Code behaviours are included within the performance management process and discussed throughout the year. They are also linked to our Employee Value Proposition, which forms the basis of all people-related programmes. Through these activities, our aim is to develop a culture that is focused on longterm value creation.
Employees take personal responsibility for becoming the very best they can be. Our approach to performance management supports this. In 2017, 99 percent of employees took part in a formal performance management process.
The International Talent Programme (ITP) is designed to ensure the bank has the right talent in the right place to meet future needs. The programme selects and develops top graduates who are ambitious, international and have high growth potential. In 2017, ING recruited 135 ITP trainees from 14 countries.
Commitment to human rights ING upholds the rights proclaimed in the Universal Declaration of Human Rights and aims to respect human rights in all operations globally. We uphold freedom of association for all employees and recognise the right to collective bargaining as laid down by International Labour Organisation Convention numbers 87 and 98. Where countries have weaker labour laws, ING abides by its own human rights policy developed in accordance with this convention.
When I first looked to join ING in Spain I knew it was different from any other bank. It seemed to be driven by young people trying to challenge the status quo. That made me want to become part of it.
ING found me four years ago. I came to the interview heavily pregnant. Combining work with children is not easy but ING is flexible enough to help me make it work. I have Wednesday afternoons off and bring my kids to school four days a week. I make up the time in the evening, sometimes weekends.
I’ve always liked the atmosphere here. People are goalorientated, but in a good way. They strive to make a difference. So much work gets done.
Honesty and trust are very important in my job. I think it’s important to be authentic with a customer, especially when selling products. Obviously it’s the main role of my job, but I really do enjoy helping a customer. It’s a great feeling being able to fix something that somebody is stressed about. Conversely, it can be very frustrating when there are processes and procedures in place that a customer is not happy with, but policies and procedures are there for a reason and it’s not always something we can change.
Name: Simon Dispa Country: Belgium Joined ING: 2016 Role: Member of the Retail Transformation Programme.
ING offers much more than a job. It promotes diversity and gives us the opportunity to learn, develop our skills and challenge ourselves. Collaboration, openness and agility are at the heart of every project. Belgium is introducing the one Way of Working and I’ve attended several training days with people from many different departments.
What gives me the most satisfaction is how our economic analysis leads to decision-making for clients. Our challenge is to help customers make better decisions so that they can stay ahead in what they do.
What frustrates me is we’re a part of a big organisation. Sometimes it takes a great deal of time and internal processes to produce what we do. The end result is high quality and immediately has a big impact, but it does take a long time to get there.
My role and that of my team of data analysts is to turn data into tailored solutions for customers. This happens through analytics, modelling and smart data integration from various sources to sharpen the customer profile. We then know our customers better and provide them with the right products and services instantly at the right moment.
I believe there are two main changes impacting any business – digitalisation and agility. I’m happy both play a crucial role in ING’s strategy.
For more information on Internal control over financial reporting, please refer to the ‘Section 404 SarbanesOxley Act’ part of Corporate governance.
In the area of compliance risk, the Compliance Risk Management function has established a control framework based on laws and regulations, as well as on the standards for non-financial risks as set out in the ING’s internal control framework. To support management in mitigating compliance risks, it actively trains and advises the business in managing compliance risks. Topics include money laundering, terrorist financing, sanction and export control compliance, conflicts of interest, misselling, corruption, protection of customers’ interests, the Foreign Account Tax Compliance Act (FATCA), the Common Reporting Standard (CRS), and US withholding tax and information reporting regulations.
The overall amount of risk that ING is willing to take is set out in the Risk Appetite Framework and the NonFinancial Risk Framework. Within these frameworks, we monitor a range of risk metrics to make sure that our risk profile is in line with our appetite for risk. The Risk Appetite Framework, which is approved by the Executive Board, is designed to be able to withstand market volatility and stress, while meeting strategic goals and regulatory requirements. This framework is complemented with a Non-Financial Risk Framework that includes compliance risk and operational risk. Both frameworks combine various financial and non-financial risk disciplines into a single converged approach and provide the businesses with a clear and fair view on their risks and the way these are managed. This view allows
Risk and Capital Management focuses on managing our risks in line with our risk appetite, strengthening our capital base and supporting businesses as ING implements the Think Forward strategy. In a dynamic environment with changing customer behaviour, increasing regulatory requirements, emerging competitors and new technologies, ING needs to continuously develop its risk and capital management. Managing risks and capital effectively and efficiently is crucial to ING’s sustained profitability.
Risk and capital management – continued risks. An integrated top-down/bottom-up emerging risk assessment is performed to identify and monitor developments that may have an impact on ING’s strategy and risk profile, like changes in the global environment, customer needs and expectations, local/ global regulatory requirements and the effectiveness of our response to technological developments.
Regulation continues to broaden and deepen. As a result of the economic crisis, rules and regulations governing banks are developing rapidly. These are largely in response to public sentiment that’s ever less tolerant of bank failures and the use of public money to rescue banks. The additional prudential rules in the form of revisions to Basel III, announced in December 2017, consisting of among others a revision to the standardised approach to credit risk, the introduction of a capital floor based on standardised approaches and limits in the use of internal models, require banks to keep larger amounts of capital. These rules and regulations also require us to supply more detailed, bank-wide information to central banks and regulators.
Customer expectations are increasing in line with changing technology. Banks are responding through automation. This is allowing them, for example, to provide customers with instant retail and corporate credit offers, as well as a simple, rapid, online accountopening process. A large proportion of our customers already uses digital channels to communicate with us and for many it’s the only channel they use to contact ING.
The commercial departments of the various business lines, which have the primary responsibility for day-today risk management, form the first line of defence. They are accountable for identifying, recording, reporting and managing the risks that occur while conducting their activities, including originating loans and taking deposits, within applicable frameworks and the institution’s limits. They also ensure that the right controls and assessments are in place to mitigate them.
The independent risk management departments, headed by the Chief Risk Officer (CRO), act as a second line of defence. Their role is to make sure risk is properly identified, measured, managed and reported. In order to achieve that, they set policies and guidelines, implement and operate control frameworks, and decide on risk acceptance. They also aim to ensure compliance with internal and external requirements on an individual and consolidated basis. Furthermore, they support the commercial departments and act where necessary to keep the risk profile within the defined risk appetite. The CRO is a member of the Executive Board and the Management Board Banking, ensuring that risk remains a continuing topic for the leadership team.
Corruption prevention is high on ING’s agenda. The responsible behaviour embedded in our Orange Code values is the basis of our approach to Compliance Risk Management, which includes training of employees on integrity-related topics and compliant behaviour. ING has started a bank-wide enhancement programme for its financial and economic crime policy to address shortcomings identified in Know Your Customer (KYC) processes and to ensure a consistent approach and quality for business unit KYC processes.
As disclosed previously, ING is currently the subject of criminal investigations by Dutch authorities, as well as a related information request from US authorities, regarding various requirements related to client onboarding, money laundering and corrupt practices.
ING managed its liquidity position on a consolidated level well above minimum requirements. The total issuance of long-term debt amounted to EUR 10.5 billion, including EUR 7.6 billion of long-term senior unsecured debt and EUR 2.1 billion of CRD IV eligible Tier 2 securities. In 2017, ING started issuing Tier 2 and senior unsecured instruments at its resolution entity ING Groep N.V. in order to improve the loss absorbing capacity for the purposes of TLAC/MREL regulations. ING faced a further decline in interest rates, but was able to keep its net interest margin stable. ING’s loan-to-deposit ratio, excluding securities that are recorded at amortised costs, remained unchanged at 1.05.
All business units have adopted the global data protection policy (GDPP) that qualifies as binding corporate rules. In each business unit and at bank level, a data protection executive is responsible for GDPP compliance and compliance with local privacy laws. Local data protection officers provide expertise and support. The GDPP is currently being revised to comply with the new EU General Data Protection Regulation 2016/679, which must be adhered to by May 2018.
The ESR policy framework applies to all business conduct globally. The Wholesale Banking segment (approx. 35.7 percent of ING’s assets) is the initial focus of our assessments and is where we promote active ESR dialogue, since Wholesale clients run a more substantial risk of facing environmental and social issues. We have been working with Wholesale clients for more than 15 years to support them in understanding and managing their environmental and social impacts. A simplified version of the ESR policy framework, following the same rationale and principles, also applies to ING’s retail activities for mid-corporates and SMEs.
The ESR policy framework in action We screen all ING Wholesale Banking clients during the lifetime of our relationship. The ESR policy framework incorporates assessment tools that are used in ING’s mainstream processes and systems. It’s therefore fully integrated into regular client and transaction reviews. The ESR policy framework covers ESR-sensitive sectors and also includes explicit restrictions for activities not in line with ING Values (for example, companies involved in manufacturing cluster munitions), which we will not finance.
Overall ESR risk distribution of corporate client engagements Client Assessment (in%)
The ESR policy framework contributed to ING being ranked among leaders in the DJSI World Index and the DJSI Europe, key benchmarks for sustainable investors.
Requirement and Guidance for 2017 and 2018 Pillar 2 requirements One specific element of Basel III is the possible restriction on distributable items. This limits the ability of the bank to pay dividends, hybrid coupons and/or management remuneration if its capital drops below the sum of its Pillar 1 and Pillar 2 requirements and combined buffer requirements, often referred to as the Maximum Distributable Amount (MDA) trigger. The Pillar 2 requirement in the SREP 2017 decision is split into: • Pillar 2 requirements (P2R), which are binding and therefore breaches have direct legal consequences.
paper addressing the meaning and reach of UNGP 13b in a corporate and investment banking context, and providing additional guidance around Principle 17. ING’s leading role in human rights is reflected by our participation as a formal advisory member to the OECD on responsible business conduct in our sector.
• Responsible Ship Recycling Standards: in cooperation with other international ship financing banks, ING launched the Responsible Ship Recycling Standards. In doing so, the banks hope to raise awareness of the importance of improving the end-of-life stage of ships.
ING Group’s fully-loaded CET1 ratio was 14.7% at the end of 2017. The proposed dividend, to be paid in April 2018, has already been excluded from ING Group’s capital base, in line with regulatory requirements. The Group’s phased-in CET1 ratio at the end of the year increased by 0.6%-point from the previous year to 14.7%, as risk-weighted assets decreased slightly (mainly due to positive risk migration and FX impact) and available CET1 capital increased by EUR 1.1 billion compared with yearend 2016. This excludes a reserve of EUR 1.7 billion for the final dividend over 2017.
ING has set up a comprehensive recovery plan that it believes ensures the bank’s readiness and supports decisive action to tackle financial crises on its own. Effective since 2012, the plan is updated annually to make sure it stays fit for purpose. The completeness, quality and credibility of the updated plan is assessed annually by ING’s regulators.
At the end of January 2017, the Single Resolution Board (SRB) informed ING that it supports the designation of ING Group as the single point of entry for resolution purposes. Henceforth, ING Group will be the issuing entity for all TLAC/ MREL eligible debt consisting of additional Tier 1, Tier 2 and senior unsecured debt. The SRB has not yet set legally binding MREL requirements. Any potential (higher) shortfall related to legally binding
In addition to internal stress-test scenarios reflecting the outcomes of the annual risk assessment, ING also participates in regulatory stress-test exercises. ING participated in the 2017 EU-wide stress test that the ECB conducted in order to assess the sensitivity towards interest rate risk in the banking book. In addition, ING started preparing for the 2018 EU-wide stress test that will be conducted by the European Banking Authority (EBA) in cooperation with the ECB. This stress test will be based on the 2017 year-end financial position and will also reflect the impact of IFRS 9 for determining loan loss provisions in adverse circumstances.
R.A.J.G. (Ralph) Hamers (51) CEO ING Group and chairman of the Executive Board ING Group, CEO ING Bank and chairman of the Management Board Banking Ralph Hamers was appointed a member of the Executive Board of ING Group as of 13 May 2013. He was appointed chief executive officer (CEO) and chairman of the Executive Board and of the Management Board Banking on 1 October 2013 and was reappointed on 8 May 2017. His responsibilities include Innovation, Legal, Corporate Strategy, Corporate Human Resources, Corporate Communications, and Corporate Audit Services.
J.V. (Koos) Timmermans (57) CFO ING Group and member of the Executive Board ING Group, CFO and vice-chairman ING Bank and member of the Management Board Banking Koos Timmermans was appointed as chief financial officer (CFO) and member of the Executive Board of ING Group as of 8 May 2017. He also serves as vice-chairman ING Bank and member of the Management Board Banking, having been appointed to those roles as of 1 October 2011. He is responsible for ING’s finance departments, capital management, bank treasury, tax, investor relations, sustainability, and regulatory and international affairs.
S.J.A. (Steven) van Rijswijk (47) CRO ING Group and member of the Executive Board ING Group, CRO ING Bank and member of the Management Board Banking Steven van Rijswijk was appointed a member of the Executive Board of ING Group and as member of the Management Board Banking as of 8 May 2017 and chief risk officer (CRO) as of 1 August 2017. He is responsible for all of ING’s risk management departments.
M.I. (Isabel) Fernandez Niemann (49) Head of Wholesale Banking and member of the Management Board Banking Isabel Fernandez was appointed to the Management Board Banking as of 1 September 2016 and appointed head of Wholesale Banking as of 1 November 2016. She is responsible for ING’s wholesale banking activities globally and for the research department.
A. (Aris) Bogdaneris (54) Head of Challengers & Growth Markets and member of the Management Board Banking Aris Bogdaneris was appointed a member of the Management Board Banking as of 1 June 2015. He is also head of Challengers & Growth Markets, responsible for all markets where ING is active in both retail banking and wholesale banking outside the Benelux.
R.B. (Roland) Boekhout (54) Head of Market Leaders and member of the Management Board Banking Roland Boekhout was appointed to the Management Board Banking as of 8 May 2017. He is also head of Market Leaders, responsible for ING’s retail banking and wholesale banking in the Benelux and advanced analytics.
Ordinary shares 3,885.8 3,878.5 Own ordinary shares held by ING Group and its subsidiaries 0.9 0.6 Ordinary shares outstanding in the market 3,884.8 3,877.9
Prices of ordinary shares Euronext Amsterdam by NYSE Euronext in EUR 2017 2016 2015
Price – year-end 15.33 13.37 12.45 Price/earnings ratio1 12.1 11.1 12.00 Price/book value ratio 1.18 1.04 1.01 1 Based on the share price at year-end and the earnings per ordinary share for the financial year.
Share information The authorised share capital of ING Groep N.V. consists of ordinary shares and cumulative preference shares. Currently, only ordinary shares are issued, while a right to acquire cumulative preference shares has been granted to the ING Continuity Foundation. Each share in the capital of ING Groep N.V. gives entitlement to cast one vote.
Listings ING Group ordinary shares are listed on the stock exchanges of Amsterdam, Brussels and New York (NYSE). Options on ING Group ordinary shares or in the form of American depository receipts (ADRs) are traded on the Euronext Amsterdam Derivative Markets and the Chicago Board Options Exchange.
Shareholders and ADR holders with stakes of 3 percent or more Pursuant to the Dutch Financial Supervision Act, shareholders and holders of ADRs of ING Groep N.V. are required to provide updated information on their holdings once they cross threshold levels of 3%, 5%, 10%, 15%, 20%, 25%, 30%, 40%, 50%, 60%, 75% and 95%. As of the publication date of this report, ING Group is not aware of shareholders, potential shareholders or investors with an interest of three percent or more in ING Group other than BlackRock Inc. and Artisan Investments GP LLC.
Read more in the ‘Corporate governance’ chapter on the share capital of ING Group.
Main credit ratings of ING at 31 December 2017 Standard & Poor’s Moody’s Fitch Ratings Rating Outlook Rating Outlook Rating Outlook
Sustainability ratings ING Group’s approach to sustainability is shaped by our specific skills and expertise as a financial company, our vision of the future and the expectations of our stakeholders. Reviews of our performance by sustainability research and rating agencies help us to improve our strategy and policies. ING’s 2017 scores and rankings in key sustainability benchmarks show our progress and are as follows: Important dates in 20181 23 April 2018 Annual General Meeting 25 April² Ex-date for final dividend 2017 (Euronext Amsterdam) 26 April² Record date for final dividend 2017 entitlement (NYSE) 26 April² Record date for final dividend 2017 entitlement
(Euronext Amsterdam) 3 May² Payment date final dividend 2017 9 May Publication results 1Q2018
(Euronext Amsterdam) 7 August² Record date for interim dividend 2018 entitlement
Sustainability rating agencies and analysts can find data on non-financial key performance indicators in the ‘Non-financial appendix’.
Scope and boundaries Through our materiality assessment we ensure that all identified material economic, social and environmental topics are addressed in this report. The report covers the period 1 January to 31 December 2017 and is published on 8 March 2018. The data and content of this report and Non-financial Appendix aim to provide a concise, accurate and balanced account of ING’s economic, social and environmental performance in 2017. Depending on the topic, our approach and performance are explained either in text, by referring to our policies or by providing data and progress on targets.
The scope and data collection process of key performance indicators is detailed in ING’s non-financial data reporting protocol. See www.ing.com/17ar10
Our approach to integrated reporting In our view, a balanced integrated report contains information on our economic performance and also on the impact of our organisation on society and the environment. By disclosing our financial and non-financial results, strategy, governance, external developments and the risks and opportunities we face, we aim to enable our stakeholders to assess how we create value for the long term. Our ambition is to further integrate financial and non-financial information in a concise and connected report.
Governance and responsibility The contents of ING’s integrated annual reports are compiled with active input from business experts, vetted by senior managers, discussed and approved annually by members of the Management Board Banking, Executive Board and Supervisory Board. The final approval is given by the Supervisory Board.
We continually listen to key stakeholders and adapt our strategy and reporting to meet their evolving expectations. As part of our materiality analysis, we have consulted key stakeholder groups – retail and business clients, investors, employees, academia, civil society organisations, and financial regulators – in a structured stakeholder dialogue. The results of our materiality analysis are used to define the content of our reporting. The report including materiality disclosure is reviewed and approved by the Executive Board.
Assurance We value the accuracy and reliability of all information and data in this report, both financial and non-financial. Therefore assurance for this integrated report, including the accompanying Non-financial appendix, is provided by KPMG Accountants N.V. (KPMG).
KPMG has reviewed, and provided a limited level of assurance, on the non-financial information in the Report of the Executive Board as defined in the table on pages 12 and 13 and in the Non-financial appendix for the year 2017. The topics with asterisk (*) in this table are out of scope for non-financial assurance.
See the ‘Independent auditor’s assurance report’ on page 57. The chapters ‘Risk and capital management’ and ‘Remuneration report’ are an integral part of the audited consolidated annual accounts.
The ‘Corporate Governance’ chapter starting on page 70 and the ‘Dutch Corporate Governance Code Statement by the Executive Board’ on page 83 are incorporated by reference in this Report of the Executive Board.
Feedback This report aims to give all our stakeholders a balanced and complete overview of our activities and ability to create and sustain value. We welcome stakeholder reactions and views. Please send us your feedback via communication@ing.com.
To: the Annual General Meeting of Shareholders and the Supervisory Board of ING Groep N.V. Our conclusion and our opinion We have: • reviewed the non-financial information in the Report of the Executive Board as defined in the table on pages 12 to 13 and in the ‘Non-financial appendix’ (hereafter: the Non-financial Information); and • audited the ‘What matters most to our stakeholders’ section (pages 11 to 13) and the data for the Net
Our key assurance matters Key assurance matters are those matters that, in our professional judgement, were of most significance in our review of the Non-financial Information and our audit of the Four Specific Topics. We have communicated the key assurance matters to the Executive Board and the Supervisory Board. The key assurance matters are not a comprehensive reflection of all matters discussed.
These matters were addressed in the context of our review of the Non-financial Information and our audit of the Four Specific Topics as outlined above within the scope of our engagement as a whole and in forming our conclusion and opinion thereon, and we do not provide a separate conclusion or opinion on these matters.
Materiality Description The reporting criteria applied require to identify the material topics, which include financial and non-financial topics. Material topics are those topics for which both omission or information could influence stakeholders’ decisions. ING Group improved the materiality analysis process in 2017 by increasing the scope of their qualitative stakeholder sessions to define which Non-financial information to be included. The Materiality Analysis process is subject to significant management judgement and was therefore identified as a significant area for our procedures. Our response We obtained an understanding of the process that ING Group executed to identify and prioritize the topics, including the Non-financial Information, to be reported in the Report of the Executive Board. We evaluated the steps in the process, held interviews with key personnel and also conducted a media search and a peer benchmark to assess potential material other topics to be included and compared these with ING Group’s materiality assessment. We reviewed the results from ING Group’s materiality analysis against the information on this process reported. Our observation We found the materiality analysis process that ING Group executed during 2017 to be sufficiently solid to identify relevant material topics for inclusion. We also observed that the material topics as identified in the related process have been reflected in the Report of the Executive Board and the Non-financial appendix.
System Availability Description ING Group’s strategic focus includes improving the customer experience. ING has identified the stability and reliability of IT systems and platforms as a material topic. The related performance is monitored by the KPI ‘System Availability’. This KPI is reported for retail customers in the Netherlands and Belgium and wholesale customers globally. Considering the business importance of this indicator and the reliance on IT systems in place, we identified System Availability as an important indicator for our audit. Our response We obtained an understanding of the data collection process, evaluated the steps in the process and the tooling used for monitoring, tested the effectiveness of the relevant controls for the Netherlands and Belgium and wholesale customers globally. In addition, we assessed the applicability, clarity and consistency of the definitions applied and re-performed the internal process of aggregation and calculation of the reported indicator. Furthermore, we read the whole Report of the Executive Board to ensure it provides a clear, consistent and balanced reflection of ING Group’s progress regarding System Availability. Finally, we assessed the adequacy of disclosure in relation to System Availability as marked with the symbol Ⓐ in the Report of the Executive Board. Our observation We found the data collection process for the System Availability indicator for retail customers in the Netherlands and Belgium and wholesale customers globally to be sufficiently solid to enable accurate and complete reporting. We also found that the disclosure in relation to System Availability in the Report of the Executive Board is adequate.
Responsible Finance Description ING Group reports on Responsible Finance for the first time in 2017, replacing the indicator Sustainable Transitions Financed. Responsible Finance is defined by a set of three KPIs, being financing to Industry ESG leaders, climate finance and social finance. Responsible Finance was significant to our review since we identified that it serves as a material set of indicators for ING to monitor its performance and the impact of its lending activities and because the assessment is inherently subject to assumptions and judgement on the basis of the criteria and definitions. Our response We evaluated the reporting process and internal control framework, including the applicable definitions and criteria. We interviewed several staff members to understand the application of these definitions and criteria and we requested underlying evidence, such as extractions of systems and contracts for selected transactions classified as Responsible Finance. Finally, we reviewed whether the criteria, assumptions and limitations regarding Responsible Finance are sufficiently explained in the Non-financial Information. Our observation We observed that the definitions and criteria for Responsible Finance as described in the internally developed reporting framework are sufficiently applied and that the assumptions and limitations are adequately explained in the Nonfinancial Information.
Unexamined prospective information The Non-financial Information includes prospective information such as ambitions, strategy, plans, expectations and estimates. Inherently the actual future results are uncertain. We do not provide any assurance on the assumptions and achievability of prospective information in the Non-financial Information.
We apply the ‘Nadere voorschriften kwaliteitssystemen’ (Regulations on quality management systems) and accordingly maintain a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.
Our review and audit engagement included, among others, the following procedures: • Performing an analysis of the external environment, obtaining an understanding of relevant social themes and issues, and of the organization’s business; • Evaluating the appropriateness of the reporting criteria and its consistent application, including the evaluation of the reasonableness of management’s estimates; • Evaluating the design and implementation of the reporting systems and processes related to the Nonfinancial Information; • Interviewing management and relevant staff at corporate and business level responsible for the sustainability’s strategy and policy; • Interviewing relevant staff responsible for providing the Non-financial Information, carrying out internal control procedures on the data and consolidating the data as included in the Non-financial Information; • An analytical review of the trends and data submitted for consolidation at corporate level; • Reviewing relevant data and evaluating internal and external documentation, based on limited sampling, to assess the accuracy of the Non-financial Information in scope.
In addition our audit included, among others, the following procedures: • Evaluating the reliability of external experts in providing input data for the Net Promoter Score and the
It’s also important not to lose sight of the day-to-day business. Particularly in a time of change, ING needs to remain vigilant so that it continues to meet the expectations of customers and society. This includes ensuring that the business meets the highest standards in non-financial risk areas like customer due diligence and anti-money laundering measures.
Effective execution The world around us is in constant flux. Increasing digitalisation, disruption in banking, changing customer expectations and new regulation make it all the more important to renew the bank in all its aspects. The differentiator of the future in banking will not be products and services, but rather a superior customer experience.
Regulation The increase in regulation and the speed of regulatory change are both important topics for ING and were prominent on the agenda of the Supervisory Board in 2017. One of our concerns is that there still isn’t a level playing field, both between banks and between banks and new non-bank entrants to the market, particularly in Europe. With regard to the agreement on the new ‘Basel IV’ rules, we’re concerned about the reasonableness of some measures. Those include the application of standard capital floors for mortgages instead of default experience, which will make this form of lending that is so important to society more expensive.
Changing role Our role as Supervisory Board has changed in recent years. We see that committee meetings are becoming more important as more topics are being dealt with by the different committees, involving more in-depth discussions. This is due to the rapid pace of change in areas like digitalisation and customer behaviour. It also reflects the increase in regulation and the more frequent contact with regulators like the Dutch central bank (DNB) and the European Central Bank (ECB). But it is also because the Supervisory Board is even more closely involved, for example in monitoring risks.
Although we see that in recent years the tasks of the Supervisory Board and the Executive Board and Management Board are converging in some areas, we still believe that a two-tier board has the advantage of more clearly defining the supervisory and executive roles.
We strive for a Supervisory Board composition with two-thirds of members having financial experience and background and one-third being generalists. We aim to have 30% female membership within the Supervisory Board. We met those goals at the beginning of 2017. However, due to the unexpected departure of Ann Sherry we are now in the process of restoring the balance, which is regrettably taking more time than we expected.
The Executive Board has prepared the annual accounts and discussed these with the Supervisory Board. The annual accounts will be submitted for adoption at the 2018 Annual General Meeting as part of the 2017 Annual Report.
Wijers1 1/2 - 1/1 1/2 2/2 1 Balkenende’s and Wijer’s SB membership became effective as of 1 September 2017. 2 Castella stepped down immediately after the 8 May 2017 AGM. 3 Sherry stepped down as of 14 September 2017.
A number of other educational sessions on specific topics were organised for the Supervisory Board throughout the year, including on corporate governance, ING’s technology platforms, risk management (with a focus on the process of pricing assets and liabilities, and use of external ratings), non-financial risk including compliance, performance and recognition management, as well as on remuneration practices, ECB supervision, the (potential impact of) new regulation (such as ‘Basel IV’, IFRS 9/15/16 and the Payment Services Directive 2), non-financial risk, partnering with fintechs, transformation management, and sustainability focusing on how ING contributes to accelerating financial empowerment.
Strategy based on long-term value creation In 2017, ING continued to work on implementing its Think Forward strategy based on long-term value creation. In late 2016, ING announced it would accelerate the implementation of the strategy, focusing on investing in our digital transformation, creating a scalable banking platform and realising EUR 900 million of gross cost savings by 2021.
The Supervisory Board approved the annual review of the risk appetite framework that reflects recent regulatory changes. This included updates to the solvency risk appetite statements (RASs) taking into account the draft Supervisory Review and the draft ECB SREP decision. Also, the sector concentration RAS was added as this was a new boundary in the new system in which RASs are divided into boundaries and supporting instruments. The Supervisory Board was informed in detail throughout the year of the potential risks for ING, including those relating to Brexit and to political and economic developments in various countries and regions, and discussed how these could best be mitigated.
Throughout the year the Supervisory Board was updated on and discussed regulatory risk including the associated operational and anticipated financial impact. Since the start of ECB supervision the increase in regulatory reporting has been significant. Reporting timelines have become shorter and the granularity of the data being
Internal Supervisory Board meetings During the internal meetings of the Supervisory Board in 2017 (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. The variable remuneration proposals for the employees in scope were also discussed and decided on. Furthermore the Executive Board and Management Board Banking annual targets were reviewed and approved.
The Supervisory Board self-assessment was also on the agenda. The action points resulting from last year’s self-assessment were acted upon during the year. As in previous years, an independent external party facilitated the 2017 self-assessment process for the (members of the) Supervisory Board and its committees by drafting the questionnaires as well as the reports with the results. The questionnaires were based on those from the previous year and were designed in such a way that a comparison between two consecutive years could be made. As in 2016, input was also requested from several executives who regularly interact with the Supervisory Board and attend Supervisory Board meetings. Following completion of the questionnaires in December 2017, bilateral meetings were held in January 2018 between the chairman of the Supervisory Board and each member. For the chairman, the vice-chairman held a meeting with the other Supervisory Board members before a bilateral meeting was held between the vicechairman and the chairman. The respective committee results were then discussed in each committee meeting, with the overall results and conclusions being discussed in the internal Supervisory Board meeting (without the Executive Board and Management Board Banking members present). In general, the performance of the committees was rated highly and the performance of the Supervisory Board was considered to at least have been maintained and even improved in several areas since last year’s review. A number of suggestions were made as priorities for improving the performance of the Supervisory Board over the coming year, such as increasing the focus on business issues, having more indepth discussion time, and addressing the delegation of matters to be dealt with between the Supervisory Board and its committees. Additional key priorities identified were continued close monitoring and assessment of the developments in the regulatory and external supervision landscape as well as in the areas of non-financial risk, compliance and internal control. Attention will also continue to be paid to the Supervisory Board’s role as challenger and counterbalance to the Executive and Management Board.
In each Risk Committee meeting both the financial and non-financial risk reports were discussed, including the status of ING’s metrics with regard to solvency, liquidity, credit risk, country risk, market risk and non-financial/ compliance risk. Stress-testing scenarios, including the impact of Brexit and of a potential break-up of the eurozone were also discussed.
A wide range of other topics were discussed, such as the annual review of the risk appetite. In relation to the Risk Appetite Framework, the solvency risk appetite statements (RASs) were updated taking into account the draft ECB SREP decision. Also, the sector concentration RAS was added, as this was a new boundary in the new system in which RASs are divided into boundaries and supporting instruments. Other topics were leveraged finance, the bank-wide Know Your Customer programme, and the remuneration regulations framework (for the risk elements). Also, other future risks and various stresstest scenarios were examined, ranging from regulatory uncertainty to continued low interest rates.
As a standard practice, the annual risk appetite statements, now also including one for business risk, were reviewed and approved.
Read more in the ‘Risk and capital management’ chapter and the Risk section in the Annual Accounts.
The Nomination and Corporate Governance Committee discussed future succession scenarios in general terms for the Executive Board and the Management Board Banking, as well as the future composition of the Supervisory Board. Various diversity-related aspects were taken into account, such as the minimum and optimal size of a Supervisory Board combined with a sound and reasonable balance in representation of geographies, gender, and financial and generalist expertise. Several potential candidates were discussed for various positions, taking ING’s diversity policy into account. Following the unexpected early resignation of Ms Ann Sherry as Supervisory Board member from 14 September 2017 because of personal circumstances, the Nomination and Corporate Governance Committee started the process of finding a successor. In cooperation with an external agency, a short list of potential candidates was compiled. Finding a suitable candidate is challenging, as various requirements must be met in relation to the composition of the Supervisory Board, regulatory requirements, outside positions, independence, no conflicts of interest, availability, etc.
In addition, the outcomes of the Annual Talent Review were discussed. The approach for this year’s process was shared with the Supervisory Board and the 2016 results were discussed in January 2017. Both the process and reporting had improved, resulting in increased transparency. Improving diversity at the higher management levels, senior management succession planning and accelerating refreshment continued to be focus areas. Special attention was also paid to performance management and how to enhance the process and its effectiveness by fostering continuous conversations between managers and employees throughout the year. Attention was also paid specifically to regrettable losses among senior managers who left ING in 2017 for various reasons.
During the year the Committee also discussed the (implementation of the) new Dutch Corporate Governance Code. The final version of the revised code was published on 8 December 2016 and was embedded in Dutch law on 7 September 2017. The implications for ING were assessed in 2017 and have been embedded in ING’s governance to the extent needed and applicable.
The committee also discussed the results of the continuous dialogue between ING and external supervisors related to corporate governance, and in order to meet the requirements of various stakeholders a diversity and competence matrix was developed for members of the Executive Board, Management Board Banking and Supervisory Board to show the various elements in the composition of these boards (see page 69). Furthermore, an updated version of the ECB suitability matrix was assessed. This can be used when proposing new executive and non-executive board members for appointment.
Remuneration Committee meetings In 2017, the Remuneration Committee met six times. On average, 100 percent of the members were present at the scheduled meetings.
Governance Committee and remained in that position until her unexpected resignation as an ING Supervisory Board member per 14 September 2017 because of personal circumstances. A suitable replacement is (still) being searched for.
1 This represents the relative positioning of the individual board members in the context of the total board composition. 2 Ms Haase observer as of 1 October 2017; her SB membership will become effective per 1 May 2018. • Limited/some to average experience in the area. • • (Had been) accountable and (had) executed over several years.
Differences between Dutch and US corporate governance practices In accordance with the requirements of the US Securities and Exchange Commission, ING Group, as a foreign private issuer whose securities are listed on the New York Stock Exchange (‘NYSE’), must disclose in its Annual Report on Form 20-F any significant differences between its corporate governance practices and those applicable to US domestic companies under NYSE listing standards. ING Group believes the following to be the significant differences between its corporate governance practices and the NYSE corporate governance rules applicable to US companies: • ING Group has a two-tier board structure, in contrast to the one-tier board structure used by most US companies. In the Netherlands, a public limited liability company (‘naamloze vennootschap’) with a two-tier board structure has an executive board as its management body and a supervisory board that advises and supervises the executive board. Supervisory board members are often former state or business leaders and sometimes former members of the executive board. A member of the executive board or other officer or employee of the company cannot simultaneously be a member of the supervisory board. The supervisory board must approve specified decisions of the executive board. Under the Corporate Governance Code, all members of the supervisory board, with the exception of not more than one person, should be independent. The definition of independence under the Corporate Governance Code however differs in its details from the definitions of independence under the NYSE listing standards. In some cases, Dutch requirements are stricter; in other cases the NYSE listing standards are stricter. The Risk Committee, Audit Committee, Nomination and Corporate Governance Committee, and Remuneration Committee of ING Group are comprised of members of the Supervisory Board.
Shareholders’ structure Pursuant to the Dutch Financial Supervision Act (‘Wet op het financieel toezicht’), any person who, directly or indirectly, acquires or disposes of an interest in the voting rights and/or the capital of ING Group as a result of which acquisition or disposal the percentage of his voting rights or capital interest, whether through ownership of shares, American depositary shares (‘ADR’) or any other financial instrument, whether stock-settled or cash-settled, such as call or put options, warrants, swaps or any other similar contract, reaches, exceeds or falls below certain thresholds, is required to notify in writing the Dutch Authority for the Financial Markets (‘Autoriteit Financiële Markten’) immediately after the acquisition or disposal of the triggering interest in ING Group’s share capital. These thresholds are 3%, 5%, 10%, 15%, 20%, 25%, 30%, 40%, 50%, 60%, 75% or 95% of the issued share capital of ING Group. The notification will be recorded in a public register that is held by the Dutch Authority for the Financial Markets.
Investor Relations and bilateral contacts with investors ING Group encourages and recognises the importance of bilateral communication with the investment community. The Investor Relations department actively manages communications with current and potential shareholders, holders of ADRs, bondholders, industry analysts and rating agencies.
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 Annual General Meeting, 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.
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 2017, 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.
ING Group participated in 18 industry conferences during 2017. In total, there were approximately 800 meetings (including conference calls) with institutional investors and/or analysts during 2017. Conference presentations and face-to-face meetings with investors and/or analysts took place in 37 different cities across the globe.
The geographical distribution of ING Group’s investor base is diverse: an estimated 33% of our shares are held in the United States, 23% in the United Kingdom, 13% France, 10% Germany, 4% in the Netherlands, 1% Switzerland, 13% in Rest of Europe and 3% in Rest of the World. These figures are based year-end 2017 estimates of institutional share ownership provided by IPREO.
As provided in the Dutch Civil Code, implementing the BRRD, ING Group’s Articles of Association permit this convocation period to shorten to 10 days if (i) ING Group meets the criteria for early intervention measures, (ii) resolution can be avoided by means of a capital increase, and (iii) a general meeting would be required to enable ING Group to issue the required number of shares.
A resolution of the General Meeting to render this list non-binding, or to suspend or dismiss Executive Board members without this being proposed by the Supervisory Board, requires an absolute majority of the votes cast. Additionally, this majority must represent more than half of the issued share capital. The Articles of Association exclude the waiver of the latter requirement in a second General Meeting. Thus it is ensured that significant proposals of shareholders cannot be adopted in a General Meeting with a low attendance rate and can only be adopted with substantial support of ING Group’s shareholders.
Profile of members of the Executive Board The Supervisory Board has drawn up a profile to be used as a basis for selecting members of the Executive Board. It is available on the website of ING Group (www.ing. com).
ING Group aims to have an adequate and balanced composition of its Executive Board. The Supervisory Board annually assesses the composition of the Executive Board.
ING aims for the Executive Board of ING to consist of a diverse selection of persons with executive experience, preferably gained in the banking sector, experience in corporate governance of large stock-listed companies and experience in the political and social environment in which such companies operate. In addition, there should be a good balance in the experience and affinity with the desired nature and culture of the business of ING. ING strives to have at least 30% of the seats held by women, and at least 30% of the seats by men.
Details of the remuneration of members of the Executive Board, including shares granted to them, together with additional information, are provided in the ‘Remuneration report’.
Koos Timmermans has been a member of the Executive Board and CFO of ING Group since 8 May 2017. He also serves as a member and CFO on the Management Board Banking. He is responsible for ING’s financial strategy, including internal and external reporting, budgeting, procurement, forecasting, capital management, tax management, investor relations and business performance reporting and analysis, among which measuring adherence to financial targets. Furthermore he is responsible for Bank Treasury, Sustainability, and Regulatory & International Affairs. Before becoming CFO, he was head of Market Leaders, responsbile for ING’s operations in the Benelux, and between 2007 and 2011 he was CRO of ING Group. Before joining ING in 1996 he worked for IBM’s European treasury in Ireland and ABN AMRO Bank in the area of financial markets. Koos Timmermans graduated from Erasmus University Rotterdam (the Netherlands) in 1986 with a master’s degree in economics.
Other relevant ancillary positions: Vice-chairman of the Management Board of the Nederlandse Vereniging van Banken (NVB), member of the Supervisory Board Stadsherstel Amsterdam N.V. and member of the Supervisory Board of Amsterdam Institute of Finance.
Steven van Rijswijk has been a member of the Executive Board since 8 May 2017. He was appointed CRO on 1 August 2017. He is also a member and CRO of the Management Board Banking. Before becoming a member of the Executive Board, Steven van Rijswijk was global head of Client Coverage within ING Wholesale Banking. Steven van Rijswijk joined ING in 1995 in the Corporate Finance team holding various positions in the areas of Mergers & Acquisitions and Equity Markets. Steven van Rijswijk holds a master’s degree in business economics from Erasmus University Rotterdam (the Netherlands).
Changes in the composition On 8 May 2017, the General Meeting appointed Koos Timmermans and Steven van Rijswijk as members of the Executive Board of ING Group, succeeding Patrick Flynn and Wilfred Nagel respectively.
A resolution of the General Meeting to render this list non-binding, or to suspend or dismiss Supervisory Board members without this being proposed by the Supervisory Board, requires an absolute majority of the votes cast. Additionally, this majority must represent more than half of the issued share capital. The Articles of Association exclude the waiver of the latter requirement in a second General Meeting. Thus it is ensured that significant proposals of shareholders cannot be adopted in a General Meeting with a low attendance rate and can only be adopted with substantial support of ING Group’s shareholders.
ING Group indemnifies the members of the Supervisory Board against direct financial losses in connection with claims from third parties as far as permitted by law on the conditions laid down in the Articles of Association and an indemnity statement. ING Group has taken out liability insurance for the members of the Supervisory Board.
In view of their experience and the valuable contribution that former members of the Executive Board can make to the Supervisory Board, it has been decided, taking into account the size of the 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.
After a former member of the Executive Board has been appointed to the Supervisory Board, this member may also be appointed to one of the Supervisory Board’s committees. However, appointment to the Audit Committee is only possible if the individual in question resigned from the Executive Board at least three years prior to such appointment.
Any relation that a member of the Supervisory Board may have with ING Group subsidiaries as an ordinary, private individual, is not considered a significant conflict of interest. Such relationships are not reported, with the exception of any loans that may have been granted.
The Risk Committee assists and advises the Supervisory Board in monitoring the risk profile of ING as a whole as well as the structure and operation of the internal risk management and control systems. On 31 December 2017, the members of the Risk Committee were: Robert Reibestein (chairman), Jan Peter Balkenende, Eric Boyer de la Giroday, Mariana Gheorghe, Hermann-Josef Lamberti and Jeroen van der Veer.
The composition of the Supervisory Board Committees can be found on ING Group’s website www.ing.com/17ar13.
Remuneration and share ownership Remuneration of the members of the Supervisory Board is determined by the General Meeting and is
E.F.C.B. (Eric) Boyer de la Giroday (Born 1952, Belgian nationality, male: appointed in 2014, term expires in 2018) Former position: member of the Executive Board of ING Groep N.V. and ING Bank N.V.
Relevant positions pursuant to CRD IV: Member of the Supervisory Board of ING Groep N.V./ING Bank N.V., chief executive officer of OMV Petrom S.A., chairwoman of the Supervisory Board of OMV Petrom Marketing, chairwoman of the Supervisory Board of OMV Petrom Gas and member of the Supervisory Board of OMV Petrom Global Solutions.
Changes in the composition In May 2017, the General Meeting appointed Jan Peter Balkenende, Margarete Haase and Hans Wijers to the Supervisory Board. During 2017, Isabel Martin Castellá retired and Ann Sherry stepped down from the Supervisory Board.
Severance payments to members of the Executive Board The contracts entered into with the members of the Executive Board provide for severance payments, that become due upon termination of the applicable Executive Board member’s contract, including if termination occurs in connection with a public bid as defined in section 5:70 of the Dutch Financial Supervision Act. For purposes of calculating the amounts due, it is not relevant whether or not termination of the employment or commission contract is related to a public bid. Severance payments to the members of the Executive Board are limited to a maximum of one year’s fixed salary, in line with the Dutch Financial Supervision Act and the Corporate Governance Code.
External auditor At the Annual General Meeting held on 11 May 2015, KPMG was appointed as the external audit firm for ING Group for the financial years 2016 through 2019. This appointment includes the responsibility to audit the financial statements of ING Group for the financial year 2017, to audit the effectiveness of internal control over financial reporting on 31 December 2017, to report on the outcome of these audits to the Executive Board and the Supervisory Board and to provide an audit opinion on the financial statements of ING Group. Additionally KPMG performs a review of the sustainability information in the annual report to obtain limited assurance and for a number of non-financial KPI’s reasonable assurance, about whether this information is free from material misstatement. The sustainablility information is of strategic importance to ING.
ING Group provides the Audit Committee with a full overview of all services provided by the external auditor, including related fees, supported by detailed information. This overview is periodically evaluated by the Audit Committee throughout the year.
More information on ING Group’s policy on external auditor independence is available on the website of ING Group www.ing.com/17ar15.
Annual report 2017 provides sufficient insights into shortcomings in the effectiveness of the internal risk management and control systems; • those systems provide reasonable assurance that the ING Group Annual report 2017 does not contain material inaccuracies; • based on the current state of affairs, it is justified that the ING Group Annual report 2017 is prepared on a going concern basis; and
• the report of the Executive Board in the ING Group Annual Report 2017 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.
In 2017 the board of ING Continuity Foundation (the ‘Board’) held two meetings, on 25 April and 29 November.
The composition of the Board is currently as follows: Sebastian Kortmann, chairman of the Board, Rob van den Bergh, reappointed as of 2 February 2017, Allard Metzelaar, reappointed as of 10 May 2017 and Wim van Vonno.
• Provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the agree of compliance with the policies or procedures may deteriorate.
Attestation Report of the Registered Public Accounting Firm Our independent registered public accounting firm has audited and issued their report on ING’s internal control over financial reporting, which appears on the following page.
Due to the listing of ING shares on the New York Stock Exchange, ING Group is required to comply with the SEC regulations adopted pursuant to Section 404 of the SarbanesOxley Act (SOX 404).
Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
In 2017 approval was given at the Annual General Meeting of Shareholders (AGM) to continue with an increased maximum percentage of up to 200%, outside the EEA, for a period of five performance years, from 2017 to 2021. ING uses this facility very rarely and for no more than 1% of employees worldwide.
Long-term value creation ING’s remuneration policy contributes to long-term value creation of the company and supports a focus on the long-term interests of its stakeholders, including all staff, customers and shareholders.
The total amount of variable remuneration awarded to all employees over 2017 was EUR 403,1 million, compared to total staff expenses of EUR 5,202 million. Variable remuneration includes both individual and collective variable remuneration such as profit sharing arrangements agreed with relevant trade unions.
Performance Management Our remuneration approach is strongly linked to performance management.
We introduced the new performance management standard ‘Step Up’ which aims to improve the performance of the bank by moving us from a retrospective review process to a real-time improvement process. As of January 2018 this standard applies to all staff 1.
The main elements of the Step Up performance management framework are: • Stretch Ambitions: positive ‘stretch’ of job expectations and behaviours that are inspiring, stretch employees further than their daily job and contribute to the performance of ING.
Remuneration policy for the Executive Board The Executive Board’s remuneration policy is compliant with applicable laws and regulations and is in line with the remuneration principles that apply to all staff.
The policy provides for an at-target variable remuneration of 16% of base salary if performance criteria are met. If performance criteria are exceeded, the variable component can be increased by the Supervisory Board from target to maximum, but may not exceed 20% of base salary. If performance is below target, the variable component will be decreased, potentially to zero. The performance targets for the Executive Board are annually pre-determined by the Supervisory Board to ensure delivery of ING’s strategy. The Executive Board remuneration policy aims to support long-term value creation by means of deferral, retention, holdback and claw back mechanisms.
The legal, regulatory and market environment is continually changing and this may impact ING. In order to ensure that ING can adapt to these dynamic and uncertain factors, the Supervisory Board will continue to re-evaluate the Executive Board remuneration policy as and when required.
• Increasing ING’s social and environmental impact through our sustainability activities
Performance indicators2 1 Total direct compensation comprises fixed base salary and variable remuneration, excluding benefits such as pension arrangements, and allowances. Since both the CRO and CFO were appointed in 2017 variable remuneration has been calculated based on the at target percentage.
2017 Remuneration Executive Board In this section we have included the compensation details of the current and former Executive Board members relating to the period that they were members of the Executive Board.
The Executive Board’s remuneration for 2017 is in accordance with the Executive Board’s remuneration policy. The policy specifies that total direct compensation should be slightly below the median of comparable positions in the Euro Stoxx 50 peer group. For the CRO and CFO total direct compensation is in line with this ambition. For the CEO however, the total direct compensation is lagging behind and is significantly below the median of the CEO benchmark.
• Global roll-out of the Step Up Performance Management programme to strengthen ING’s performance culture (roll-out to be completed in 2018).
• Recognised for our continuous efforts to drive success through diversity and inclusion (e.g. financial services ranked number one in LGBT workplace inclusion at the Workplace Pride Awards and included in the Bloomberg Gender Equality Index).
Innovation • New initiatives developed and aligned with partners to improve the customer experience, including: • A digital money jar called Everyday Round Up by ING in Australia that rounds up card purchases and puts the difference straight into the customer’s savings account (40,000 activations within the first two weeks).
• Establishment of ING Ventures, a EUR 300 million fund that will invest in start-ups and companies that have already gained some market traction. ING Ventures will help accelerate the pace of innovation, one of our priorities.
• A couple of major milestones achieved in the blockchain area, including: • Development of a code known as ‘zero-knowledge range proof’ (ZKRP) that is ten times more efficient in keeping information private on a ledger.
• Together with other industry players started work on a new venture to create a real-time blockchainbased digital platform to manage physical energy commodities transactions from trade entry to final settlement.
• Demonstrated excellent performance on sustainability in the ratings (e.g. ING remained a sustainability leader in the banks industry group with a score of 85 out of 100 by sustainability research leader Sustainalytics and scored 89 out of 100 in the Dow Jones Sustainability Indices compared to an average industry score of 58).
• Increased number of new retail customers by 1.6 million to 37.4 million; number of primary relationships up by 0.9 million to 10.8 million.
• Achieved net profit of EUR 4,905 million, up 5.5% from 2016. Underlying net profit is EUR 4,957 million, broadly flat on 2016 (EUR 4,976 million), notwithstanding persistent pressures from the low interest rate environment.
Remuneration report – continued 2017 Executive Board variable remuneration The performance of the Executive Board is evaluated against financial and non-financial performance indicators. Variable remuneration in 2017 of the CFO and CRO was mainly based on non-financial performance indicators. The variable remuneration in 2017 for the CEO was based for more than 50% on non-financial performance indicators. As evidenced by the table above, the collective performance of the Executive Board members was broadly on target. There were minor differences in achievement of personal targets. This explains why variable remuneration for the CEO was calculated at 17% for the CFO at 13% and for the CRO at 13%.
Total direct compensation of the individual members of the Executive Board amounts in euros (rounded figures) amount number of shares amount number of shares amount number of shares Ralph Hamers (CEO)
Variable remuneration (fully in shares)1 293,000 18,547 316,000 23,092 293,000 28,404
Variable remuneration (fully in shares)1 104,000 6,612 - - - -
Variable remuneration (fully in shares)1 104,000 6,584 - - - -
Variable remuneration (fully in shares)1 63,000 4,010 217,000 15,838 153,000 14,850
Variable remuneration (fully in shares)1 - - 217,000 15,838 189,000 18,278 1 The number of shares is based on the average ING share price on the day on which the 2017 year-end results were published. The shares will be awarded in May 2018. 2 Koos Timmermans and Steven van Rijswijk were appointed to the Executive Board immediately following the 8 May 2017 AGM, while Patrick
Flynn and Wilfred Nagel left as per the end of the 8 May 2017 AGM and 1 August 2017 respectively. Thus the figures for Koos Timmermans, Steven van Rijswijk, Patrick Flynn and Wilfred Nagel reflect a partial year as an Executive Board member.
Pension costs Members of the Executive Board participate in the Collective Defined Contribution (CDC) pension plan as part of the Executive Board remuneration policy. In 2017 pension accrual only applies to salary up to an amount of EUR 103,317. The table below shows the pension costs of the individual members of the Executive Board in 2017, 2016 and 2015.
Steven van Rijswijk 1,640 0 1,640 0 € 24.72 22 Mar 2010 22 Mar 2017
LSPP Upfront 1 Shares granted to Ralph Hamers in March 2013 and in March 2014 and Koos Timmermans were awarded for their performance in positions prior to their appointments to the Executive Board.
3 Shares granted to Steven van Rijswijk and Patrick Flynn did not vest in 2017 in their capacity as an Executive Board Member. 4 Number of shares granted includes both deferred and upfront part awarded at the granting date.
Loans and advances to the individual members of the Executive Board amounts in thousands of euros 2017 2016 2015
For the Executive Board members the following shares vested during 2017: Loans and advances of former members of the Executive Board who are not included in the table above amounted to nil in 2017, EUR 350,000 in 2016 and EUR 500,000 in 2015.
ING shares held by members of the Executive Board number of shares 2017 2016 2015
In line with their responsibility to execute the Executive Board remuneration policy of compensating slightly below the median of the Euro Stoxx 50, the Supervisory Board undertook an annual review of Executive Board Remuneration levels against this policy that has been approved at the AGM in 2010. The remuneration levels of the members of the ING Executive Board are below the median of the Euro Stoxx 50 benchmark, and in the case of the CEO position, even significantly below. Data shows that the market median remuneration level of the Euro Stoxx 50 benchmark has further increased and, as a consequence, the gap with the remuneration of the CEO position has further widened. Over the past few years the Supervisory Board repeatedly expressed their concern about this as ING needs to be able to attract and retain the best (international) talent for its Executive Board. Based on the outcome of the annual review the Supervisory Board decided that it needs to act now . The Supervisory Board wants to ensure that the policy as approved by the AGM is lived up to both to the letter and to the spirit of it.
To determine the appropriate level of total remuneration (fixed + variable remuneration) for the CEO position, the Supervisory Board requested an external remuneration consultant to provide an update of the Euro Stoxx 50 benchmark. This showed median total remuneration of EUR 4,900,000, consisting of fixed remuneration of EUR 1,300,000 and variable remuneration of EUR 3,600,000. The Supervisory Board also requested a modified benchmark that would take into account the fact that ING’s fixed remuneration for Executive Board members is higher than the benchmark, whilst variable remuneration is significantly lower, due to the regulatory cap of 20% on variable remuneration. This modified benchmark takes into account that one Euro fixed remuneration is ‘worth’ more than one Euro of variable remuneration. This led to a modified median benchmark of EUR 3,255,000, representing a more prudent approach. The graphs on the following page show both benchmarks.
ING shares held by Executive Board members Executive Board members are encouraged to hold ING shares as a long-term investment to maintain alignment with ING. The table below shows an overview of the shares held by members of the Executive Board at 31 December 2017, 2016 and 2015.
• Subject to approval at the AGM of the amendment to the remuneration policy, fixed shares with a value equal to 50% of the gross cash base salary • Subject to approval at the AGM of the amendment to the remuneration policy, a mandatory minimum shareholding requirement will apply equal to one year gross cash base salary plus fixed shares. • No change in variable remuneration, which continues to be capped at 20% of fixed remuneration (gross cash base salary plus fixed shares) with a target of 16% and which remains for 100% awarded in ING shares, significantly beyond the 50% that is minimally required by regulations.
Remuneration Supervisory Board Supervisory Board remuneration policy The remuneration policy for the Supervisory Board, as approved at the AGM on 25 April 2016, aims to: • Provide a simple and transparent structure • Bring remuneration levels in line with peers and with levels adequate to attract qualified (international) Supervisory
Board members • Align remuneration with increased responsibilities and time spent.
2 Ann Sherry was a member of the Supervisory Board from 25 April 2016 up to 14 September 2017. The remuneration figures for 2016 and 2017 reflect a partial year as a member of the Supervisory Board.
Eric Boyer de la Giroday 113,385 113,479 226,864 92,984 319,848 69,542
ING shares and employee stock options held by Supervisory Board members Supervisory Board members are permitted to hold ING shares as a long-term investment. The table below shows the holdings by members of the Supervisory Board at 31 December 2017, 2016 and 2015.
ING shares held by the members of the Supervisory Board number of shares 2017 2016 2015 Jeroen van der Veer 119,469 119,469 119,469 Hermann-Josef Lamberti 5,700 5,700 5,700 Eric Boyer de la Giroday 47,565 47,565 47,565
Additional notes to the Consolidated annual accounts 35 Pension and other post-employment benefits 184 36 Taxation 187 37 Fair value of assets and liabilities 190 38 Derivatives and hedge accounting 202 39 Assets by contractual maturity 205 40 Liabilities by maturity 206 41 Assets not freely disposable 207 42 Transfer of financial assets 208 43 Offsetting financial assets and liabilities 208 44 Contingent liabilities and commitments 213 45 Legal proceedings 214 46 Consolidated companies and businesses acquired and divested 216 47 Principal subsidiaries 217 48 Structured entities 218 49 Related parties 220 50 ING’s Restructuring 222 51 Subsequent events 222 Risk management 223 Capital management 289
Additional information Risk factors 316 Non-financial appendix 337 Non-GAAP measures 354 General information 355
Consolidated statement of profit or loss of ING Group - continued
Basic earnings per ordinary share from continuing operations 1.26 1.09 1.16
Diluted earnings per ordinary share from continuing operations 1.26 1.09 1.15
Items that will not be reclassified to the statement of profit or loss: Realised and unrealised revaluations property in own use 26 5 35
Unrealised revaluations available-for-sale investments and other revaluations 80 80 –19 61
Changes in individual Reserve components are presented in Note 18 ‘Equity’.
Employee stock option and share plans 11 105 116 1 117
– deposits from banks, not payable on demand 6,320 –342 5,179
Investments and advances: – associates and joint ventures –79 –49 –40
Cash and cash equivalents at beginning of year 16,164 20,379 17,113
Basis of preparation of the Consolidated annual accounts The ING Group Consolidated annual accounts have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and the relevant articles of Part 9 of Book 2 of the Dutch Civil Code.
IFRS as adopted by the EU are IFRS Standards and IFRS Interpretations as issued by the International Accounting Standards Board (IASB) and the IFRS Interpretations Committee (IFRIC) with some limited modifications such as the temporary ‘carve-out’ from IAS 39 ‘Financial Instruments: Recognition and Measurement’ (herein, referred to as IFRS).
1 Accounting policies ING Group has consistently applied its accounting policies to all periods presented in these Consolidated annual accounts.
a) Changes in IFRS effective in 2017 ING Group has applied a number of amendments to standards for the first time during the year ended 31 December 2017. The implementation of these changes had an insignificant impact on the consolidated financial position, net result, other comprehensive income, cash flows, and related disclosures of ING Group. The amendment to IAS 7 now requires a disclosure of changes in liabilities arising from financing activities, reference is made to Note 31 ‘Changes in liabilities arising from financing activities’. ING Group has not early adopted any other standard, interpretation or amendment which has been issued, but is not yet effective.
‘Income Taxes’, IAS 23 ‘Borrowing Costs’; and • Amendments to IAS 19: ‘Employee Benefits’: Plan Amendment, Curtailment or Settlement.
Notes to the Consolidated annual accounts amounts in millions of euros, unless stated otherwise
Measurement purposes; • Implementing and testing system changes; • Updating the policies, governance, and control frameworks that are impacted by IFRS 9 and starting to embed these changes into everyday business and financial reporting cycles; • Preparing the IFRS 9 transition disclosure plan.
During 2017, the IFRS 9 program was subject to reviews by supervisors and audits by ING’s internal audit department.
• Approximately EUR 1.3 billion of debt securities and loans previously booked at AC or AFS will be measured at FVPL as the cash flows do not meet the SPPI test. This measurement change has a limited negative impact on equity at transition date.
• Certain reverse repurchase portfolios amounting to EUR 54.8 billion will be classified as financial assets ‘Mandatorily at FVPL’ instead of Held for trading. ING will use the fair value option for the related repurchase financial liabilities amounting to EUR 37.2 billion.
ING’s approach leveraged the existing regulatory capital models that use the Advanced Internal Ratings Based (AIRB) models for regulatory purposes. For other portfolios that use the Standardized Approach (SA) to calculate regulatory capital, ING developed new ECL models.
Three stage approach ING Group will apply the IFRS 9 three stage approach to measure expected credit losses: • Stage 1: 12 month ECL – No significantly increased credit risk
• Stage 3: Lifetime ECL – Defaulted Financial instruments that move into Stage 3 once credit impaired and purchases of credit impaired assets will require a lifetime provision.
To measure ECL, ING Group applies a PD x EAD x LGD approach incorporating the time value of money. For Stage 1 assets a forwardlooking approach on a 12 month horizon will be applied. For Stage 2 assets a lifetime view on the credit is applied. The Lifetime Expected Loss (LEL) is the discounted sum of the portions of lifetime losses related to default events within each time window of 12 months till maturity. For Stage 3 assets the PD equals 100% and the Loss Given Default (LGD) and Exposure At Default (EAD) represent a lifetime view of the losses based on characteristics of defaulted facilities.
Impact As a result of the new IFRS 9 impairment requirements, ING expects that the loan loss provisions (LLP) to increase by approximately EUR 0.6 billion (pre-tax). The split of the ECL to different stages of our portfolio is further detailed in the table below. The increase in the level of impairments due to the IFRS 9 transition is mainly the result of IFRS 9 Stage 2 loans for which lifetime expected credit losses need to be calculated.
IFRS 15 ‘Revenue from Contracts with Customers’ IFRS 15 ‘Revenue from Contracts with Customers’ is effective for annual periods beginning on or after 1 January 2018 and has been endorsed by the EU. IFRS 15 introduces a five-step approach for recognising revenue as and when the agreed performance obligations are satisfied. Agreed performance obligations are individual promises made to the customer that deliver benefit from the customer’s perspective. Revenue should either be recognised at a point-in-time or over-time depending on the service being delivered to the customer.
For further discussion of the significant judgements and critical accounting estimates and assumptions in these areas, reference is made to the relevant parts in section d) ‘Principles of valuation and determination of results’ and the applicable notes to the Consolidated annual accounts.
Estimated impact of adopting IFRS 9 on shareholders’ equity as at 1 January 2018
ING Group Annual Report 2017 118 d) Principles of valuation and determination of results Consolidation ING Group (the 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 • Power over more than half of the voting rights through an agreement with other investors.
Segment reporting A segment is a distinguishable component of the Group, engaged in providing products or services, subject to risks and returns that are different from those of other segments monitored by management. A geographical area is a distinguishable component of the Group engaged in providing products or services within a particular economic environment that is subject to risks and returns that are different from those of segments operating in other economic environments. The geographical analyses are based on the location of the office from which the transactions are originated.
Exchange rate differences in the statement of profit or loss are generally included in ‘Valuation results and net trading income’. Reference is made to Note 21 ‘Valuation results and net trading income’, which discloses the amounts included in the statement of profit or loss. Exchange rate differences relating to the disposal of available-for-sale debt and equity securities are considered to be an inherent part of the capital gains and losses recognised in Investment income. As mentioned below, in Group companies relating to the disposals of group companies, any exchange rate difference deferred in equity is recognised in the statement of profit or loss in ‘Result on disposal of group companies’. Reference is also made to Note 18 ‘Equity’, which discloses the amounts included in the statement of profit or loss.
• All resulting exchange rate differences are recognised in a separate component of equity.
Dividend income from equity instruments classified at fair value through profit or loss is generally recognised in Valuation results and net trading income in the statement of profit or loss when the dividend has been declared. For derivatives reference is made to the ‘Derivatives and hedge accounting’ section.
Investments Investments (including loans quoted in active markets) are classified either as held-to-maturity or available-for-sale. Investment debt securities and loans quoted in active markets with fixed maturity where management has both the intent and the ability to hold to maturity are classified as held-to-maturity. Investment securities and quoted loans intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices, are classified as available-for-sale financial assets.
Available-for-sale financial assets Available-for-sale financial assets include available-for-sale debt securities and available-for-sale equity securities. Available-for-sale financial assets are initially recognised at fair value plus transaction costs. For available-for-sale debt securities, the difference between cost and redemption value is amortised. Interest income is recognised using the effective interest method. Available-for-sale financial assets are subsequently measured at fair value. Interest income from debt securities classified as available-for-sale is recognised in Interest income in the statement of profit or loss. Dividend income from equity instruments classified as available-forsale is recognised in Investment income in the statement of profit or loss when the dividend has been declared. Unrealised gains and losses arising from changes in the fair value are recognised in equity and are recycled to the statement of profit or loss as Investment income when the asset is disposed. Investments in prepayment sensitive securities such as Interest-Only and Principal-Only strips are generally classified as available-for-sale.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It uses the 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 unadjusted quoted market prices where available. Such quoted market prices are primarily obtained from exchange prices for listed financial instruments. Where an exchange price is not available, quoted prices in an active market may be obtained from independent market vendors, brokers, or market makers. In general, positions are valued at the bid price for a long position and at the offer price for a short position or are valued at the price within the bid-offer spread that is most representative of fair value in the circumstances. In some cases where positions are marked at mid-market prices, a fair value adjustment is calculated.
When a group of financial assets and financial liabilities are managed on the basis of their net risk exposures, it measures the fair value of a group of financial assets and liabilities on net portfolio level.
To include credit risk in the fair value, ING applies both Credit and Debit Valuation Adjustments (CVA, DVA). Own issued debt and structured notes that are measured at fair value are adjusted for credit risk by means of a DVA. Additionally, derivatives valued at fair value are adjusted for credit risk by a CVA. The CVA is of a bilateral nature as both the credit risk on the counterparty as well as the credit risk on ING are included in the adjustment. All input data that is used in the determination of the CVA is based on market implied data. Additionally, wrong-way risk (when exposure to a counterparty is increasing and the credit quality of that counterparty deteriorates) and right-way risk (when exposure to a counterparty is increasing and the credit quality of that counterparty improves) are taken into account in the measurement of the valuation adjustment. ING applies an additional ‘Funding Valuation Adjustment’ (FVA) to the uncollateralised derivatives based on the market price of funding liquidity.
ING Group applies fair value hedge accounting to portfolio hedges of interest rate risk (macro hedging) under the EU carve-out. The EU carve-out 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 underhedging strategies. Under the EU carve-out, hedge accounting may be applied to core deposits and ineffectiveness only arises when the revised estimate of the amount of cash flows in scheduled time buckets falls below the designated amount of that bucket.
Offsetting of financial assets and financial liabilities Financial assets and financial liabilities are offset, and the net amount reported, in the statement of financial position when the Group has a current legally enforceable right to set off the recognised amounts and intends to either settle on a net basis or to realise the asset and settle the liability simultaneously. Offsetting is applied to certain interest rate swaps for which the services of a central clearing house are used. Offsetting is also applied to certain clients subject to cash pooling arrangements where the intention to settle net is demonstrated via a physical transfer of cash balances into a single netting account on a period end basis.
The 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 the 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.
If there is objective evidence that an impairment loss on an asset carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account (loan loss provision) and the amount of the loss is recognised in the statement of profit or loss under Addition to loan loss provision. If the asset has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract.
Impairment of available for sale financial assets At each balance sheet date, the Group assesses whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the specific case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the assets are impaired. Significant and prolonged are interpreted on a case-by-case basis for specific equity securities; generally 25% and six months are used as triggers. If any objective evidence exists for available-for-sale debt and equity investments, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in net result – is removed from equity and recognised in the statement of profit or loss. Impairment losses recognised on equity instruments can never be reversed. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in the statement of profit or loss, the impairment loss is reversed through the statement of profit or loss.
Deferred income tax Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax basis of assets and liabilities and their carrying amounts in the consolidated annual accounts. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets and liabilities are not discounted.
Fair value remeasurement of available-for-sale investments and cash flow hedges, are recognised directly in equity. Deferred tax related to this fair value remeasurement is also recognised directly in equity and is subsequently recognised in the statement of profit or loss together with the deferred gain or loss.
Key assumptions for the reorganisation provision are in estimating the amounts and timing of cash flows as the announced transformation initiatives are implemented over a period of several years. Reference is made to Note 14 ‘Provisions’.
Changes in plan assets that effect Shareholders’ equity and/or Net result, include mainly: • Return on plan assets using a high quality corporate bond rate at the start of the reporting period which are recognised as staff costs in the statement of profit or loss; and • Remeasurements which are recognised in Other comprehensive income (equity).
Income recognition Interest Interest income and expense are recognised in the statement of profit or loss using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. 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.
Share-based payments Share-based payment expenses are recognised as a staff expense over the vesting period. A corresponding increase in equity is recognised for equity-settled share-based payment transactions. A liability is recognised for cash-settled share-based payment transactions. The fair value of equity-settled share-based payment transactions are measured at the grant date, and the fair value of cash-settled share-based payment transactions are measured at each balance sheet date. Rights granted will remain valid until the expiry date, even if the share based payment scheme is discontinued. The rights are subject to certain conditions, including a predetermined continuous period of service.
The difference between the net cash flow in accordance with the statement of cash flows and the change in Cash and cash equivalents in the statement of financial position is due to exchange rate differences and is accounted for separately as part of the reconciliation of the net cash flow and the change in Cash and cash equivalents in the statement of financial position.
e) Parent company accounts The parent company accounts of ING Groep N.V. are prepared in accordance with the financial reporting requirements included in Part 9 of Book 2 of the Dutch Civil Code. In accordance with subsection 8 of section 362, Book 2 of the Dutch Civil Code, the recognition and measurement principles applied in the Parent company accounts are the same as those applied in the Consolidated annual accounts.
In 2017, the movement in Cash and balances with central banks reflects ING’s liquidity management.
As at 31 December 2017, the non-subordinated receivables amount to EUR 28,768 million (2016: EUR 28,790 million) and the subordinated receivables amount to EUR 43 million (2016: EUR 68 million).
As at 31 December 2017, Loans and receivables designated at fair value through profit or loss includes EUR 2,095 million (2016: EUR 3,001 million) with regard to reverse repurchase transactions.
− equity securities - shares in third party managed structured entities 168 170
Listed equity securities are primarily made up of Bank of Beijing and Mahindra Kotak Bank.
Designated as at fair value through profit or loss 1,739 1,669
ING Group’s total exposure to debt securities included in available-for-sale investments and assets at amortised cost of EUR 80,454 million (2016: EUR 96,062 million) is specified as follows by type of exposure: Available-for-sale investments Held-to-maturity investments Loans and advances to customers Loans and advances
Disposals and redemptions –79 –682 –32,709 –30,483 –2,675 –630 –35,463 –31,795
In 2017 ING participated in the private placement by Bank of Beijing (BoB). ING participated in the offering for an aggregate amount of around EUR 240 million representing 265 million shares.
Loans guaranteed by credit institutions 257 201 1,722 944 1,979 1,145
Corporate loans and Credit Facilities 1,268 1,738 1,602 1,617 2,870 3,355
− Loans and advances to banks 1 7 11 8 11
Other investments in associates and joint ventures are mainly investment property funds or vehicles operating predominantly in Europe.
Significant influence for associates in which the interest held is below 20%, is based on the combination of ING Group’s financial interest and other arrangements, such as participation in the Board of Directors.
The associates and joint ventures of ING are subject to legal and regulatory restrictions regarding the amount of dividends it can pay to ING. These restrictions are for example dependant on the laws in the country of incorporation for declaring dividends or as a result of minimum capital requirements that are imposed by industry regulators in the countries in which the associates and joint ventures operate. In addition, the associates and joint ventures also consider other factors in determining the appropriate levels of equity needed. These factors and limitations include, but are not limited to, rating agency and regulatory views, which can change over time.
In 2017, Transfers to and from Investments/Other assets and liabilities of EUR –1 million (2016: 75 million) included EUR 5 million reclassification from Available-for-sale equity securities to associates (2016: EUR 82 million) and EUR –6 million reclassification from/to other assets and other liabilities (2016: EUR –7 million).
In 2017, Share of results from associates and joint ventures of EUR 178 million as presented in the statement of profit or loss and the table above, is mainly attributable to results of TMB, EUR 67 million and a gain of EUR 97 million on the sale of shares in Appia Group Ltd UK.
Changes in the composition of the group and other changes 25 –47 1 26 –47
Gross carrying amount as at 31 December 816 903 1,902 1,756 30 29 2,748 2,688
Other Other assets - Other relates mainly to other receivables in the normal course of business. For 2017, this includes a receivable at the Dutch level (from NN Group) regarding tax due by ING Australia Holdings Ltd related to the years 2007-2013, for which a full reimbursement is expected to be received from NN Group. In 3Q 2017 a receivable was booked for the tax amount of EUR 121 million. In 4Q 2017 a cash payment was received and reduced this amount due from NN Group to EUR 70 million.
Designated as at fair value through profit or loss by type
Included in Other provisions – Litigation in 2017 and 2016, is a provision related to floating interest rate derivatives that were sold in the Netherlands. Also included in this line in 2017, is a provision recognised for reimbursement of expenses associated to the formalization of mortgages at ING Spain and a provision recognised for a discontinued business in ING Luxembourg. Reference is made to Note 26 ‘Other operating expenses’ and Note 45 ‘Legal proceedings’.
Disclosures in respect of Net defined benefit liabilities are provided in Note 35 ‘Pension and other post-employment benefits’.
More than 3 years but less than 4 years 8,369 7,893
More than 3 years but less than 4 years 278 793
More than 4 years but less than 5 years 3,673 320
As at 31 December 2017, ING Group has unused lines of credit available including the payment of commercial paper borrowings relating to debt securities in issue of EUR 5,750 million (2016: EUR 12,015 million).
Ordinary shares 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 as of 26 July 2016, the date of amendment of the Articles of Association of ING Groep N.V. (2015: EUR 0.24). The authorised ordinary share capital of ING Groep N.V. currently consists of 14,729 million ordinary shares. As at 31 December 2017, 3,886 million ordinary shares were issued and fully paid.
ING’s American Depositary Receipts (ADR’s), which are traded on the New York Stock Exchange, remain in place. Similarly, the separate arrangement with the ING Continuity Foundation, regarding its call option to acquire preference shares in ING Group under certain circumstances, remains in place.
Ordinary shares held by ING Group (Treasury shares) As at 31 December 2017, 0.9 million ordinary shares (2016: 0.6 million ordinary shares and 2015: 1.5 million - depositary receipts for ordinary shares) of ING Groep N.V. with a par value of EUR 0.01 (2015: EUR 0.24) are held by ING Groep N.V. or its subsidiaries. The obligations with regard to the existing stock option plan and the share plans will be funded either by cash or by newly issued shares at the discretion of ING Group.
In 2017, the available-for-sale revaluation reserve decreased by EUR 383 million mainly due to the revaluation of shares in Bank of Beijing EUR –479 million, partly offset by revaluation of shares in Kotak Mahindra Bank EUR 302 million.
The hedging strategy is to hedge the CET1 ratio. The net decrease in currency translation reserve of EUR 893 million is mainly caused by exchange rate differences in TRY, USD and AUD, which are not or only partly hedged.
Transfer to/from share of associates and joint ventures reserves –139 –265
In 2015, the coupon on Undated subordinated notes issued by NN Group comprised coupon payments for the five months, until deconsolidation of NN Group at the end of May 2015.
For further information, reference is made to Note 29 ‘Dividend per ordinary share’ and Note 27 ‘Discontinued Operations’.
As at 31 December 2017, an amount of EUR 1,478 million (2016: EUR 1,325 million; 2015: EUR 1,201 million) related to the former Stichting Regio Bank and the former Stichting Vakbondsspaarbank SPN is included.
ING Groep N.V.’s Articles of Association make provision for the cancellation of cumulative preference shares. Upon cancellation of cumulative preference shares and upon liquidation of ING Groep N.V., the amount paid up on the cumulative preference shares will be repaid together with the accrued dividend as well as any dividend shortfall in preceding years, insofar as this shortfall has not yet been made up.
Interest expense on non-trading derivatives (no hedge accounting) 895 652 652
In 2017, the modest increase in total average assets combined with an improvement of the net interest margin, lead to an increase of EUR 473 million in net interest income. The modest increase in total average assets was mainly attributable to an increase in customer lending and cash and balances with central banks, largely offset by a decline in investments.
Included in the Valuation results and net trading income are the fair value movements on derivatives used to economically hedge exposures, but for which no hedge accounting is applied. 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.
The Valuation results on assets and liabilities designated as at fair value through profit or loss includes 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 and changes in own credit risk as disclosed in Note 13 ‘Financial liabilities at fair value through profit or loss’. Market conditions include in particular credit spread developments.
In 2016 and 2015 the result on divestments of NN Group and the divestment of Voya was not included above but included in Net result from disposal of discontinued operations. Reference is made to Note 27 'Discontinued operations', and Note 46 ‘Consolidated companies and businesses acquired and divested’.
24 Other income In 2017, Other income of EUR 350 million (2016: EUR 173 million; 2015: EUR 66 million) includes EUR 121 million related to a tax charge at ING Australia Holdings Ltd, for which a full reimbursement is expected to be received from NN Group. Net operating lease income comprises income of EUR 24 million (2016: EUR 21 million; 2015: EUR 19 million) and depreciation of EUR 22 million (2016: EUR 19
Discontinued operations - average number of employees at full time equivalent basis 2,652 2,181 4,833
ING grants three types of share awards, deferred shares, performance shares and upfront shares, which form part of the variable remuneration offering via the Long term Sustainably Performance Plan (LSPP). The entitlement to the share awards is granted conditionally. If the participant remains in employment for an uninterrupted period between the grant date and the vesting date, the entitlement becomes unconditional, with the exception of the upfront shares which are immediately vested upon grant. In addition to the employment condition, the performance shares require a performance condition that needs to be satisfied before a vest can occur. The number of ING shares that would ultimately be vested at the end of a performance period is dependent on ING’s performance over that period. Upfront and deferred shares awarded to the Management Board members of ING Group (and NN Group in periods prior to 2015), as well as identified staff, have a retention obligation that must be adhered to upon vesting, a minimum retention of 12 months applies. ING has the authority to apply a hold back to awarded but unvested shares and a claw-back to vested shares.
Every year, the ING Group Executive Board decides whether the option and share schemes are to be continued and, if so, to what extent. In 2010, the Group Executive Board decided not to continue the option scheme as from 2011. The existing option schemes, up and until 2010, will be run off in the coming years.
The obligations with regard to the existing stock option plan and the share plans will be funded either by cash or by newly issued shares at the discretion of ING Group.
The weighted average share price at the date of exercise for options exercised during 2017 is EUR 13.81 (2016: EUR 10.43; 2015: 13.62). All option rights are vested.
Range of exercise price in euros 2017 2016 2015 2017 2016 2015 2017 2016 2015
All options outstanding are exercisable. As at 31 December 2017, the aggregate intrinsic value of options outstanding and exercisable is EUR 59 million (2016: EUR 64 million; 2015: EUR 68 million).
As at 31 December 2017 the share awards consists of 6,416,705 share awards (2016: 7,294,633; 2015: 7,485,634) relating to equitysettled share-based payment arrangements and 805,574 share awards (2016: 1,088,330; 2015: 1,251,380) relating to cash-settled share-based payment arrangements.
Audit and non-audit services Total audit and non-audit services include the following fees for services provided by the Group’s auditor.
Addition/(unused amounts reversed) of provision for reorganisations and relocations For Addition/(unused amounts reversed) on provision for reorganisations and relocations, reference is made to the disclosure on the reorganisation provision in Note 14 ‘Provisions’.
In 2016, ING Group sold its remaining shares in NN Group resulting in a net profit of EUR 448 million which is recognised in the statement of profit or loss in the line Net result from disposal of discontinued operations. Also included in this line, are deferred losses related to former insurance activities.
January 2016 – Loss of significant influence over NN Group On 5 January 2016, ING sold a further 33 million ordinary shares of NN Group. As part of the transaction, NN Group repurchased 8 million ordinary shares. The gross proceeds to ING Group from the offering, including the repurchase by NN Group, amounted to EUR 1 billion. The transaction reduced the ownership of ING in NN Group from 25.75% (as at 31 December 2015) to 16.22%. As a result of the transaction, together with ING Group no longer having any nominees on NN Group’s Supervisory Board as of 14 December 2015, ING Group no longer had significant influence over NN Group and accounted for its remaining stake in NN Group as an available-forsale investment. The sale transaction, together with the revaluation of the remaining stake, resulted in a net profit of EUR 522 million and is recognised in the statement of profit or loss in the line ‘Net result from disposal of discontinued operations’.
April 2016 – Divestment of remaining shareholding in NN Group On 14 April 2016, ING Group sold its remaining shares in NN Group. The transaction involved the sale of 45.7 million ordinary shares of NN Group at gross proceeds of EUR 1,406 million and resulted in a net loss of EUR 66 million which is recognised in the statement of profit or loss, in the line ‘Net result from disposal of discontinued operations’.
Net cash flows from discontinued operations The table below represents the net cash flows from businesses classified as discontinued operations, as included in the Consolidated statement of cash flows, until deconsolidation of the respective businesses: Operating cash flow –1,409
Basic earnings from continuing operations 4,905 4,210 4,466 1.26 1.09 1.16
Diluted earnings from continuing operations 4,905 4,210 4,466 1.26 1.09 1.15
– Final dividend, paid in cash in May 2016 0.41 1,590
– Interim dividend, paid in cash in August 2017 0.24 933
Net result IFRS attributable to equity holder of the parent 4,905
Net result IFRS from continuing operations 17,773 10,505 2,281 82 4,905
Net result IFRS (continuing operations) 5,019 –62 4,957 –52 4,905 Net result IFRS attributable to equity holder of the parent 5,019 –62 4,957 –52 4,905
Net result IFRS attributable to equity holder of the parent 4,651
Net result IFRS from continuing operations 17,491 11,588 1,618 75 4,210
Underlying result before taxation 2,243 785 869 825 2,846 –369 7,199 Taxation 566 296 241 188 881 –13 2,160
Underlying net result 1,678 491 625 569 1,950 –356 4,957 Special items 0 0
– Additions to loan loss provision 3 160 –15 201 241 85 1 676
Underlying result before taxation 2,920 876 1,285 437 760 1,192 –270 7,199 Taxation 708 369 407 145 151 379 –1 2,160
– Total investment and other income 367 559 75 133 460 202 –12 1,785
ING Group Annual Report 2017 177 34 Information on geographical areas ING Group’s business lines operate in seven main geographical areas: the Netherlands, Belgium, Rest of Europe, North America, Latin America, Asia and Australia. A geographical area is a distinguishable component of the Group engaged in providing products or services within a particular economic environment that is subject to risks and returns that are different from those of geographical areas operating in other economic environments. The geographical analyses are based on the location of the office from which the transactions are originated. The Netherlands is ING Group’s country of domicile.
France1 Branch of ING Bank N.V. Wholesale banking/Retail banking 591 310 10,678 93 32
Latin America Brazil Branch of ING Bank N.V. Wholesale banking 78 47 1,184 16 4
Hong Kong Branch of ING Bank N.V. Wholesale banking 108 94 7,850 55 7
South Korea Branch of ING Bank N.V. Wholesale banking 82 55 4,602 21 6
Italy Branch of ING Bank N.V. Wholesale banking/Retail banking 833 376 15,920 100 33
Austria Branch of ING DiBa A.G. Wholesale banking/Retail banking 196 86 360 37 –4
Hong Kong Branch of ING Bank N.V. Wholesale banking 106 80 5,964 40 7
South Korea Branch of ING Bank N.V. Wholesale banking 87 46 4,107 14 –1
Romania Branch of ING Bank N.V. Wholesale banking/Retail banking 1,596 221 4,685 78 13
Spain Branch of ING Bank N.V. Wholesale banking/Retail banking 1,076 423 24,457 144 52
Italy Branch of ING Bank N.V. Wholesale banking/Retail banking 824 202 15,828 –87 –15
South Korea Branch of ING Bank N.V. Wholesale banking 68 53 3,642 23 6
1 Public subsidies received, as defined in article 89 of the CRD IV, amounted to EUR 3 million in 2015. 2 Included in Total assets – the Netherlands, is EUR 2,153 million related to the Investment in associate held for sale, NN Group.
No plan assets are expected to be returned to ING Group during 2018.
Remeasurements: Actuarial gains and losses arising from changes in financial assumptions 71 498
In 2017, EUR 52 million Remeasurement of plan assets and EUR –71 million Actuarial gains and losses arising from changes in financial assumptions are mainly due to a decrease in discount rates.
Effect of curtailment or settlement –3 –2 –3 –9 –52 –3 –2 –64
The deferred tax balance recorded under ‘Unused tax losses carried forward' is the balance of recognised deferred assets (DTA) for unused tax losses carried forward and the deferred tax liability (DTL) recorded regarding previously deducted UK tax losses in the Netherlands. Due to increased profitability in the United Kingdom (UK) all UK carry forward losses have been recognised during 2017 and a corresponding DTL in the Netherlands has been taken up accordingly. The DTA and DTL amount to EUR 128 million and EUR –136 million respectively creating a net deferred tax liability of EUR –8 million.
More than 1 year but less than 5 years 350 383 38 56
More than 5 years but less than 10 years 31 30
More than 10 years but less than 20 years 18 18
Deferred tax assets are recognised for temporary deductible differences, for tax losses carried forward and unused tax credits only to the extent that realisation of the related tax benefit is probable.
Adjustment to prior periods 110 23 –30 1 ‘Other income not subject to tax’ and Expenses not deductible for tax purposes’ have been adjusted to reflect the impact of income taxes other than corporate (statutory) income tax on the line ‘State and local taxes’.
The weighted average statutory tax rate in 2017 does not significantly differ compared to 2016.
– designated as at fair value through profit or loss 11,215 12,266 11,215 12,266 1 Other assets do not include, among others: (deferred) tax assets, net defined benefit asset, inventory, property development and property obtained from foreclosures. 2016 figure has been changed to conform to the current year presentation.
When a group of financial assets and financial liabilities are managed on the basis of their net risk exposures, it measures the fair value of a group of financial assets or liabilities on net portfolio level.
• Model risk adjustments reduce the risk of possible financial losses resulting from the use of a mis-specified, misapplied, or incorrect implementation of a model.
a.3) Fair value hierarchy ING Group has categorised its financial instruments that are either measured in the statement of financial position at fair value or of which the fair value is disclosed, into a three level hierarchy based on the priority of the inputs to the valuation. The fair value hierarchy gives the highest priority to (unadjusted) quoted prices in active markets for identical assets or liabilities and the lowest priority to valuation techniques supported by unobservable inputs. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide reliable pricing information on an ongoing basis. The fair value hierarchy consists of three levels, depending upon whether fair values were determined based on (unadjusted) quoted prices in an active market (Level 1), valuation techniques with observable inputs (Level 2) or valuation techniques that incorporate inputs which are unobservable and which have a more than insignificant impact on the fair value of the instrument (Level 3). Financial assets in Level 3 include for example illiquid debt securities, complex derivatives, certain complex loans (for which current market information about similar assets to use as observable, corroborated data for all significant inputs into a valuation model is not available), and asset backed securities for which there is no active market and a wide dispersion in quoted prices.
Financial assets designated as at fair value through profit or loss 319 502 3,558 4,141 365 456 4,242 5,099
In 2017 and 2016, financial assets were transferred out of Level 3 on the basis that the valuation is not significantly impacted by unobservable inputs.
Realised gain/loss recognised in the statement of profit or loss during the period1,2 –105 277 44 12 –6 –3 –67 286
In 2017 and 2016, financial liabilities were transferred out of Level 3 mainly due to the valuation not being significantly impacted by unobservable inputs.
Financial assets designated as at fair value through profit or loss 4 76 4 76
Recognition of unrealised gains and losses in Level 3 Amounts recognised in the statement of profit or loss relating to unrealised gains and losses during the year that relates to Level 3 assets and liabilities are included in the statement of profit or loss as follows: • Results on trading assets and trading liabilities are included in Valuation results and net trading income; • Non-trading derivatives are included in Valuation results and net trading income; and • Financial assets and liabilities designated at fair value through profit or loss are included in Valuation results and net trading income - Valuation results on assets and liabilities designated at fair value through profit or loss (excluding trading).
Amounts recognised in the statement of profit or loss during the period (Level 3)
Of the total amount of financial assets classified as Level 3 as at 31 December 2017 of EUR 2.0 billion (31 December 2016: EUR 2.5 billion), an amount of EUR 1.0 billion (49%) (31 December 2016: EUR 1.0 billion, being 42%) is based on unadjusted quoted prices in inactive markets. As ING does not generally adjust quoted prices using its own inputs, there is no significant sensitivity to ING’s own unobservable inputs.
Of the total amount of financial liabilities classified as Level 3 as at 31 December 2017 of EUR 1.2 billion (31 December 2016: EUR 1.5 billion), an amount of EUR 0.8 billion (66%) (31 December 2016: EUR 0.9 billion, being 59%) is based on unadjusted quoted prices in inactive markets. As ING does not generally adjust quoted prices using its own inputs, there is no significant sensitivity to ING’s own unobservable inputs.
Loans and advances 20 326 3 Price based Price (%) 0% 60% 101% 101%
– Rates 490 486 485 457 Option pricing model Interest rate volatility (bps) 23 22 300 300
– Equity 467 466 Discounted cash flow Annual Accounts n.a n.a n.a n.a
As at 31 December 2017, the estimated fair value of Property in own use and Investment properties amounts to EUR 774 million (2016: EUR 881 million) and EUR 65 million (2016: EUR 65 million) respectively and is categorised as Level 3 (2016: Level 3) of the fair value hierarchy on the basis of methods applied in determining the fair values.
Cash flow hedge reserve as at 31 December, gross 335 1,015
Fair value changes on derivatives designated under fair value hedge accounting
Accounting ineffectiveness on derivatives designated under cash flow hedge accounting resulted in a gain of EUR 44 million (2016: EUR 16 million loss) which was recognised in the statement of profit or loss, in the line Valuation results and net trading income.
ING Group Annual Report 2017 205 39 Assets by contractual maturity Amounts presented in these tables by contractual maturity are the amounts as presented in the statement of financial position and are discounted cash flows. Reference is made to the section ‘Risk Management – Funding and liquidity risk’.
Coupon interest due on financial liabilities 1,109 1,035 2,852 9,591 8,686 23,273 1 Includes liabilities on demand. 2 This column reconciles the contractual undiscounted cash flows on financial liabilities to the statement of financial position values. The adjustments mainly relate to the impact of discounting, and for derivatives, to the fact that the contractual cash flows are presented on a gross basis (unless the cash flows are actually settled net).
Loans and advances to customers that have been pledged as collateral for Debt securities in issue and for liquidity purposes, amount in the Netherlands to EUR 50 billion (2016: EUR 49 billion), in Germany to EUR 12 billion (2016: EUR 12 billion), in Belgium EUR 10 billion (2016: EUR 5 billion), in Australia to EUR 2 billion (2016: EUR 2 billion) and in the United States to EUR 1 billion (2016: EUR 1 billion).
ING Group Annual Report 2017 208 42 Transfer of financial assets The majority of ING's financial assets that have been transferred, but do not qualify for derecognition are debt instruments used in securities lending or sale and repurchase transactions. Reference is made to Note 48 ‘Structured entities’.
The table above do not include assets transferred to consolidated securitisation entities as the related assets remain recognised in the consolidated statement of financial position.
Loans and advances to banks Reverse repurchase, securities borrowing and similar agreements 1,838 1,838 1,728 110 1,845 –7 1,838 – 1,728 110 Financial assets at fair value through profit or loss
Reverse repurchase, securities borrowing and similar agreements 68,050 –14,475 53,575 1,068 52,456 51
Loans and advances to banks Reverse repurchase, securities borrowing and similar agreements 173 –95 78 78 176 –98 78 – 78 – Financial assets at fair value through profit or loss
Impact of enforceable master netting arrangements or similar arrangements1 Derivatives –6,820 6,228 592 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.
Less than 1 month 1–3 months 3–12 months 1–5 years Over 5 years Maturity not applicable Total
VEB Fortis claim: In January 2011, the Dutch Association of Stockholders (Vereniging van Effectenbezitters, ‘VEB’) issued a writ alleging that investors were misled by the prospectus that was issued with respect to the September 2007 rights issue of Fortis N.V. (now Ageas N.V.) against Ageas N.V., the underwriters of such rights issue, including ING Bank, and former directors of Fortis N.V. According to the VEB the prospectus shows substantive incorrect and misleading information. The VEB stated that the impact and the risks of the sub-prime crisis for Fortis and Fortis’ liquidity position were reflected incorrectly in the prospectus. The VEB requested a declaratory decision stating that the summoned parties acted wrongfully and are therefore responsible for the damages suffered by the investors in Fortis. In March 2016, Ageas, VEB and certain other claimants announced that the claim in relation to Fortis has been settled. Ageas has agreed to pay EUR 1.2 billion to investors as compensation, provided that the Amsterdam Court of Appeal declares the settlement to be binding. According to the settlement documentation, as filed by Ageas with the Court of Appeal in May 2016, the settlement agreement contains a third-party clause by which the banks will also be released from the claims made by VEB and certain other claimants, if the settlement becomes unconditional. In June 2017, the Amsterdam Court of Appeal has given an interim ruling that the proposed settlement agreement between Ageas and the VEB cannot be declared binding upon all investors in its current form. The Court of Appeal requested in particular changes in relation to the level of compensation awarded to investors who are a member of the VEB and those who are not. In December 2017, Ageas and the VEB filed a revised settlement agreement with the Court of Appeal making amendments to the settlement agreement. In February 2018, the Court of Appeal requested further information on the level of compensation awarded to the VEB itself. The VEB have to file their reply before 6 March 2018. A court hearing has been scheduled for 16 March 2018 to discuss the merits of the settlement agreement, in particular the level of compensation, in more detail.
As requested by the AFM, ING has reviewed a significant part of the files of clients who bought interest rate derivatives. In December 2015, the AFM concluded that Dutch banks may have to re-assess certain client files, potentially including certain derivative contracts that were terminated prior to April 2014 or other client files. As advised by the AFM, the Minister of Finance appointed a Committee of independent experts (the ‘Committee’) which has established a uniform recovery framework for Dutch SME clients with interest rate derivatives. ING has adopted this recovery framework and will reassess individual files against this framework. ING has taken an additional provision for the financial consequences of the recovery framework. In 2017, ING has informed the majority of the relevant clients whether they are in scope of the recovery framework, and thus eligible for compensation, or not. Due to the fact that the execution of the framework encountered delay, ING has offered advance payments to customers out of the existing provision.
Imtech claim: In January 2018, ING Bank received a claim from Stichting ImtechClaim.nl and Imtech Shareholders Action Group B.V. on behalf of certain (former) shareholders of Imtech N.V. (‘Imtech’). The claimants allege inter alia that shareholders were misled by the prospectus of the rights issues of Imtech in July 2013 and October 2014. ING Bank, being one of the underwriters of the rights issues, is held liable by the claimants for the damages that investors in Imtech would have suffered. ING Bank responded to the claimants denying any and all responsibility in relation to the allegations made in the letter.
46 Consolidated companies and business acquired and divested Acquisitions There were no significant acquisitions in 2017, 2016 and 2015.
Loss on disposal3,4 –1,224 1 Cash outflow/inflow on group companies in the statement of cash flow included, in addition to the cash amounts in this table, also cash outflows/inflows on individually insignificant disposals. 2 IFRS required the derecognition of the subsidiary and the recognition of the respective retained investments in NN Group of 42.43% at the fair value on the date of disposal. 3 The loss on disposal only reflects the impact on the statement of profit or loss of the transaction that resulted in derecognition of the company and includes the sales proceeds, the net assets disposed, the expenses directly related to the disposal and the realisation of unrealised reserves. 4 The portion of the loss attributable to measuring the retained investment in NN Group at its fair value amounted to EUR –5,412 million.
For the principal investments in associates and joint ventures ING Group has significant influence but not control. Significant influence generally results from a shareholding of between 20% and 50% of the voting rights, but also the ability to participate in the financial and operating policies 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 • Interchange of managerial personnel.
The liquidity facilities, including programme wide enhancements, provided to Mont Blanc are EUR 1,139 million (2016: EUR 812 million). The drawn liquidity amount is nil as at 31 December 2017 (2016: nil).
50 ING’s Restructuring In the course of the 2008 financial crisis ING accepted State Aid, which required ING to restructure and divest its insurance and investment management businesses. With the listing of Voya Financial, on the New York Stock Exchange, ING divested its US insurance and investment management business by March 2015. The sale of the final shares in NN Group, ING’s former European/Japanese insurance and investment management business, completed the restructuring in 2016.
• The SB is responsible for supervising the policy of the EB and the MBB, the general course of affairs of ING Group, ING Bank and its business (including its financial policies and corporate structure). For risk management purposes the SB is advised by two of its sub-committees: • The Audit Committee, which assists the SB in monitoring the integrity of the financial statements of ING Group and ING Bank, in monitoring the compliance with legal and regulatory requirements, and in monitoring the independence and performance of ING's internal and external auditors; and
Executive level The key risk committees described below act within the overall risk policy and delegated authorities granted by the MBB: • Global Credit & Trading Policy Committee (GCTP) discusses and approves policies, methodologies and procedures related to credit, trading, country and reputation (Environmental and social risk or ESR) risks. The GCTP meets on a monthly basis. In addition, the Credit & Trading Risk Policy Committee (CTRC) is the highest level body, with the exception of ING Global Credit & Trading Policy Committee (GCTP) and the Management Board Banking, authorised to discuss and approve policies, methodologies and procedures related to Credit Risk; • Global Credit Committee – Transaction Approval (GCC(TA)) discusses and approves transactions which entail taking credit risk (including investment risk), country, legal and ESR risk. The GCC(TA) meets twice a week; • Asset and Liability Committee Bank (ALCO Bank) discusses and approves on a monthly basis the overall risk profile of all ING Bank’s balance sheet and capital management risks that occur as part of its activities. ALCO Bank defines the policy regarding funding, liquidity, interest rate mismatch and solvency for ING; and
The Finance and Risk Committee (F&RC) is a platform for the CRO and the Chief Financial Officer (CFO), along with their respective direct reports, to coordinate issues that relate to both the finance and risk domains. On reporting level, F&RC has the responsibility to coordinate finance and risk decisions that have an impact on internal and/or external reporting. This includes advising on and reviewing of issues that impact the financial condition of ING.
The chart below provides high level information on the risks arising from ING’s business activities.
• Savings • Residential mortgages • Payment accounts • Investment products • Consumer lending • SME/business lending
Risk identification Risk identification is a joint effort of the commercial business and the risk management functions. Its goal is to detect potential new risks and determine changes in known risks. Regular risk identification is essential for both the effectiveness and efficiency of risk management. Potential risks that are not identified, will not be controlled and monitored and may lead to surprises later. Known risks may have changed over time and as a consequence the existing mitigating measures and monitoring may be inadequate or obsolete.
Process The RAF is focused on setting the risk appetite at the consolidated level and across the different risk categories, and provides the principles for cascading this risk appetite down into the organisation. The RAF is approved by the SB on an annual basis, or more frequently if necessary based on their quarterly review in the EB and the MBB and in the SB. It is therefore essentially a top-down process, which bases itself on the ambition of the bank in terms of its risk profile and is a function of the capital and liquidity levels and ambitions, the regulatory environment and the economic context. The process is set up according to the following steps: Step 1. Identify & assess ING’s key risks Setting the RAF starts with a multi-dimensional step to identify and assess the risks ING is facing when executing its strategy. This step includes the following actions that are performed on an annual basis: • detect unidentified risks that are not yet controlled within ING’s risk management function & assess their potential impact; • benchmark current risk framework versus regulatory developments; • re-assess known risks to confirm risk level or detect potential changes; and • reflect on the current set of Risk Appetite Statements.
Step 4. Execution of mitigating actions After the EB and MBB has approved the mitigating actions, they need to be executed. Mitigating actions may include, but are not limited to, sales or transfers of assets, reductions of risk limits, intensification of our contacts with regulators or other authorities.
We can play a role in trying to find solutions. We have been climate neutral since 2007, adapting the organisation to the new world and taking effective measures to mitigate our impacts. We are aware that our greatest impact however, is through our financing portfolio. In addition to investing billions of euros in wind farms, solar energy and geothermal power production to support the energy transition, ING will not only stop providing lending services to new coal-fired power plants or coal mines but will also accelerate the reduction of financing to thermal-coal power generation to close to zero by 2025.
Governance Credit risk is a Tier 1 risk function within ING and is part of the second line of defence. It is managed within the CRO organisation by regional and/or business unit CROs focussing on specific risks in the geographical and/or business areas of their responsibilities. These are the CRO Wholesale Banking (WB), CRO Challengers & Growth Markets (C&G), CRO Netherlands and CRO Belgium. The Financial Risk department is a Tier 2 function, which ensures oversight at a consolidated level and is responsible for risk appetite setting, risk frameworks, model development and policies.
The following committees are in place to review and approve transactions and policies from a credit risk point of view: • The GCTP which is authorised to approve policies, methodologies and procedures related to credit, trading, country and reputation risks on a high level for ING. • The GCC(TA) is mandated to approve transactions with credit risks. • The CTRC is authorised to approve policies, models, methodologies and procedures related to credit & trading risk on more detailed and operational level (with the exception of issues which are mandated to GCTP). • The Model Development Committee (MDC) serves as a technical advisor to CTRC and is a planning body for future model development. The committee has a delegated mandate to approve credit risk models which cover smaller portfolios. • A steering committee has been established to align overall model strategy, model risk appetite, supporting model frameworks, policies and methodologies. • The ING Provisioning Committee (IPC) is the approval authority for loan loss provisions (LLP) for all entities.
• Money market (MM) risk: arises when ING places short-term deposits with a counterparty in order to manage excess liquidity. As such, money market deposits tend to be short-term in nature. In the event of a counterparty default, ING may lose the deposit placed. Money market risk is measured as the accounting value of the deposit, excluding any accrued and unpaid interest or the effect of any impairment.
• Settlement risk: is the risk that arises when there is an exchange of value (funds or instruments) for the same value date or different value dates and receipt is not verified or expected until after ING has given irrevocable instructions to pay or has paid or delivered its side of the trade. The risk is that ING delivers but does not receive delivery from its counterparty. ING manages settlement risk in the same way as other risks including a risk limit structure per borrower. Due to the short term nature (1 day), ING does not hold provisions or capital for specific settlement risk. Although a relatively low risk, ING increasingly uses DVP (Delivery versus Payment) and safe settlement payment techniques to reduce settlement risk.
Note 2 Cash and balances with central banks Note 3 Loans and advances to banks Note 6 Loans and advances to customers Note 44 Contingent liabilities and commitments
Money market (MM) risk -Cash and balances with central banks -Loans and advances to banks -Loans and advances to customers
Credit risk appetite statements Credit risk appetite is the maximum level of credit risk ING is willing to accept for growth and value creation. This credit risk appetite is linked to the overall bank-wide risk appetite framework. The credit risk appetite is expressed in quantitative and qualitative measures. Having a credit risk appetite achieves: • Clarity about the credit risks that ING is prepared to assume, target setting and prudent risk management; • Consistent communication to different stakeholders; • Guidelines how to align reporting and monitoring tools with the organisational structure and strategy; and • Alignment of business strategies and key performance indicators of business units with ING’s credit risk appetite by means of the
Credit risk appetite is present across different levels within ING, at portfolio level as well as transaction level. The various credit risk appetite components at portfolio and transaction level together result in the credit risk appetite framework.
Country risk concentration Country risk is the risk that arises due to events in a specific country (or group of countries). In order to manage the maximum country event loss ING is willing to accept, boundaries are approved by the SB that ensure ING’s consolidated 3-year average result before tax can absorb an estimated country event loss due to a country risk occurrence. The estimated level is correlated to the risk rating assigned to a given country.
Single name and industry sector concentration Using the very same concepts of boundaries and instruments mentioned earlier, ING has additionally established a concentration risk framework in order to identify, measure and monitor: • Single name concentration: losses due to the unexpected default of a single counterparty. These single name concentrations are capped both at individual single name level and aggregated top 5 single name level. The LGD of a single name concentration is measured against a maximum LGD amount. Large Exposures monitoring and reporting is one of the components of the single name framework.
Bank purchases insurance to protect itself against non-payment under primary exposures.
Economic capital Economic capital reflects ING’s own view on credit risk, which allows it to be used in decision-making processes (sub) portfolio level. Credit risk and transfer risk capital are calculated for all portfolios which contain credit or transfer risk, including investment portfolios. Economic capital is the minimum amount of capital required to cover unexpected losses within a 99.95% confidence level and a 12 months’ time horizon. It is used throughout ING in the decision-making process (mainly wholesale banking), in risk adjusted counterparty and portfolio profitability measurement tools (wholesale and retail banking), in investment and divestment decisions, in the country risk framework and in concentration risk management, including risk appetite statements (RAS).
Credit risk measurement There are two ways to measure credit risk within ING’s portfolio, depending on whether the exposure is booked under an ING office which is permitted by the ECB to use the advanced internal rating based (AIRB) approach, or if it falls under the standardised approach (SA).
The expected loss (EL) provides a measure of the value of the credit losses that ING may reasonably expect to incur on its portfolio. In its basic form, the expected loss can be represented as: EL = PD * EAD * LGD
Credit risk models Within ING internal Basel compliant models are used to determine the PD, EAD and LGD for regulatory and economic capital and for loan loss provisioning purposes. These credit risk models also form the basis for our IFRS9 provisioning framework. Bank wide, ING has implemented around 72 credit risk models, including various sub models that may be applicable for a specific portfolio. There are two main types of modelling which form the foundation of these PD, EAD and LGD models used throughout the Bank: • Statistical models are created where a large set of default or detailed loss data is available. They are characterised by a sufficient number of data points that facilitate meaningful statistical estimation of the model parameters. The model parameters are estimated with statistical techniques based on the data set available; • Hybrid models contain characteristics of statistical models combined with knowledge and experience of experts from both risk management and front office staff and literature from rating agencies, supervisors and academics. These models are especially appropriate for ‘Low Default Portfolios’, where limited historical defaults exist.
Next to the model choice, the definition of default is an important starting point for model building. ING uses a framework that integrates elements of the regulatory definition of default and the loan loss provisioning indicators under IAS 39. The rationale is that several indicators are very close to the indications of an obligor’s ‘unlikeliness to pay’ under European regulation (CRR/CRDIV) and similar regulations. Integration of both frameworks further enhances ING’s compliance with the CRR/CRDIV ‘use test’. Key differences between the parameters used for loan loss provisioning and regulatory capital calculations are that regulatory capital parameters are typically through the cycle while loan loss parameters are more at a point in time. Additionally, the LGD for regulatory capital calculations is based on a down-turn LGD and a Loss Emergence Period is applied for loan loss provisioning purposes on the 1 year Default Probability to obtain Incurred losses.
Credit risk model governance All PD, EAD and LGD models are built according to ING’s internal credit risk modelling methodology standards and model life cycle. After thorough review of the documentation by the Model Development Committee (MDC) and Model Risk Management (MRM), the Credit & Trading Risk Committee (CTRC) approves the models. For certain local models, the approval authority is delegated by the CTRC to the MDC. Each model has both a credit risk and a front office co-sponsor. Both the MDC and the CTRC have participation from senior credit risk management as well as the front office to ensure maximum acceptance by the organisation. The capital impact from the implementation of approved models is reported to the ECB in a quarterly report. In addition, MRM validates each model on an annual basis. During such periodical validation the model performance is analysed through back-testing and performance assessment. A fivegrade colour footprint is assigned to each model during this periodical validation. If a model is considered insufficiently robust or if the back-testing indicates insufficient performance, then the model is re-calibrated or re-developed.
• Loss – Distressed Restructuring: ING restructures the loan agreement so as to recover the exposure after allowing some discount. The relationship with the borrower continues after the restructuring. ING suffers (some) loss in the process.
LGD 1 The LGD model for Government related entities is a secured/unsecured recovery model built on assessment of stand-alone fundamentals as well as geography.
EAD 1 The Low Default EAD model is a hybrid model that pools default information from multiple low default portfolios, including government related entities.
EAD 1 The Low Default EAD model is a hybrid model used that pools default information from multiple low default portfolios, including financial institutions.
EAD 1 The Low Default EAD model is a hybrid model used that pools default information from multiple low default portfolios, including large corporates.
EAD 6 Local statistical models that use various data inputs, including product type and geography. >7 years
EAD 7 Local statistical models that use various data inputs, including product type and geography. >7 years
LGD 4 Local statistical models use various data inputs on cure behaviour as well as cost and recovery. >7 years EAD 4 Local statistical models that use various data inputs, including product type and geography. >7 years
The customer-centric approach ensures that ING can react quickly to changing regulations, business needs and best practices in our dealings with our clients and prospects.
• Data Definitions: this process step ensures that atomic and derived credit risk data terms have a single definition and definition owner throughout the organization. It also ensures that defined data is fit for the purpose it will be used for. • Capture: ensures that atomic data is captured by business units and is available for exchange according to pre-agreed standards and specifications. • Exchange: ensures data exchange is executed as agreed between data owner and data user. • Processing & Calculation: processes delivered atomic data and uses it to calculate credit risk derived data. The outcome of this stage is used as input for credit risk data aggregation in for example risk reporting. • Data Usage: ensures data aggregation and usage fit for multiple purposes for example modelling, regulatory and statutory reporting. Ensures that data usage or distribution is according to agreed purpose and data confidentiality, protection, security and retention rules.
In other retail, the concentration increased mostly driven by a higher volume of consumer loans in the retail portfolios in Retail Challengers and Growth Markets.
Risk rating buckets per line of business and credit risk types Risk rating buckets are defined based upon the quality of the exposures in terms of creditworthiness, varying from investment grade to non-performing loan expressed in S&P, Moody’s and Fitch rating equivalents.
Growth Markets Corporate Line Total 1 Based on credit risk measurement contained in lending, pre-settlement, money market and investment activities. 2 Covered bonds are presented on the basis of the external credit rating of the issuer in question. Covered bond issues generally possess a better external credit rating than the issuer standalone, given structural features of such covered bonds. 3 Outstandings (OS) split per business line: Wholesale Banking (EUR 335 billion OS), Retail Benelux (EUR 225 billion OS), Retail Challengers & Growth Markets (EUR 201 billion OS), Corporate Line (EUR 12 billion OS).
Lending Investment Money Market Pre-settlement Total 1 Based on credit risk measurement contained in lending, pre-settlement, money market and investment activities. 2 Covered bonds are presented on the basis of the external credit rating of the issuer in question. Covered bond issues generally possess a better external credit rating than the issuer standalone, given structural features of such covered bonds.
Country risk The country risk concentration changes for the Netherlands, Belgium and Germany were mainly related to the residential mortgage loans. Additionally, for the Netherlands exposures to the Dutch central bank shifted from Wholesale Banking to Corporate Line. The concentration in the Rest of Europe decreased in Retail Challengers & Growth Markets mainly due to reduction in bond investments in Spain and lending exposure in Turkey. In Asia, the concentration in Wholesale Banking increased mainly driven by higher exposures to financial institutions in China and corporates in Taiwan and United Arab Emirates. Further, the decrease in concentration in Asia for the Corporate Line was related to lower investment exposure.
Third party obligation Third party obligation, indemnification or undertaking (either by contract and/or by law) is a legally binding declaration by a third party that gives ING the right to expect and claim from that third party to pay an amount, if the customer fails on its obligations to ING. The most common examples are guarantees (such as parent guarantees and export credit insurances) and letters of comfort.
Over the year, the collateralisation level of the total portfolio improved. Excluding the pre-settlement portfolio, 53.6% of the total ING Bank’s outstandings were fully collateralised in 2017 (2016: 50.1%). Since investments traditionally do not require covers, the percentage for ‘no covers’ in this portfolio is close to 100%. However, 96% of the investment outstandings are investment grade. Improved economic conditions in ING’s main markets have led to improved collateral valuations resulting in an improved coverage ratio. The increase in business lending for ‘Other CRR/CRDIV eligible’ covers was mainly situated in the Americas region, while the decrease in ‘Guarantees’ was seen in the Americas and Asia regions.
Consumer lending portfolio The consumer lending portfolio accounts for 39.9% of ING Bank’s total outstandings. The consumer lending portfolio is comprised of residential mortgage loans (92.7%) and other consumer lending loans, which mainly comprise term loans, revolvers and personal loan to consumers. As a result, most of the collateral consists of mortgages. The mortgage values are collected in an internal central database and in most cases external data is used to index the market value (e.g. on a quarterly basis the mortgage values for the Netherlands are updated using the NVM house price index).
Cover values including guarantees received - Total ING Bank – 2017
Cover values including guarantees received - Total ING Bank – 2016
Dutch mortgages valuation When a mortgage loan is granted in the Netherlands, the policy dictates maximum loan to market value (LTMV) for an existing property and for construction property financing of 101% (in 2016: 102%). In 2018 the LTMV will reduce further to 100%. The cover values are captured in the local systems which are subsequently fed into a central data system. All valuations are performed by certified valuators that are registered at one of the organisations accepted by ING. In addition, the valuator must be a member of the NVM (Nederlandse Vereniging van Makelaars – Dutch Association of Real Estate Agents), VBO (Vereniging Bemiddeling Onroerend Goed – Association of Real Estate Brokers), VastgoedPRO (Association of Real Estate Professionals) or NVR (Nederlandse Vereniging van Rentmeesters).
1 In 2017 the sector ‘builders and constructors’ is shown seperately. 2 ‘Others’ comprises industries with outstandings below EUR 13 billion.
Similar to the retail lending portfolio, the risk profile of the business lending portfolio continued improving in 2017. Lower NPLs and increased levels of collateralisation contributed to this improvement. The cover values of Real Estate (traditionally a well collateralised sector) further improved during 2017. New transactions were done on more conservative collateral terms and improved values in real estate markets further helped to boost the total coverage in Real Estate. The major part of the overall decrease in non-performing outstandings was in the Real Estate and Telecom (part of Others) industries while an increase was observed in Natural Recourses.
Total Business Lending 310,395 128,578 17,004 89,204 98,559 132,672 33.6% 4.1% 5.9% 7.4% 10.7% 38.3% of which Non-performing 9,438 4,352 293 3,210 3,961 3,705 24.1% 4.4% 6.4% 14.2% 13.8% 37.1%
The two tables above provide the collateralisation of ING Bank’s business lending portfolio with a breakdown per geographical region or main market, which are defined based on the residence of the borrowers. The total increase in the business lending portfolio is in line with the increase in covers. Largest increases in outstandings were seen in Germany, Belgium Rest of Europe (mainly Poland and France) and Asia. The increase in Germany was due to a large increase in central bank deposits. As these deposits are not collateralised this increase had no influence on the total cover amounts. The Rest of Europe increase was mainly observed in Poland C&FI Lending, while the largest increases in France were observed in C&FI Lending and Real Estate. The increase in Asia was driven by trade related transactions in Wholesale Banking Transaction Services despite the decreasing impact from FX changes. The depreciation of the US Dollar impacted the Asian and American Structured Finance portfolios which are primarily denominated in US Dollars.
Pre-settlement portfolio ING uses various market pricing and measurement techniques to determine the amount of credit risk on pre-settlement activities. These techniques estimate ING’s potential future exposure on individual and portfolios of trades. Master agreements and collateral agreements are frequently entered into to reduce these credit risks.
ING matches trades with similar characteristics to determine their eligibility for offsetting. This offsetting effect is called ‘compensation’. Therefore, ING reduces the amount by any legal netting that may be permitted under various types of Master Agreements, such as ISDA Master Agreements, Global Master Repurchase Agreements (GMRA), Global Master Securities Lending Agreements (GMSLA), etc. Lastly, the amount is further reduced by any collateral that is held by ING under Credit Support Annexes (CSAs) or other similar agreements.
Total Pre-settlement 150,171 47,316 34,877 44,685 173,887 59,626 45,484 50,003 of which Non-performing 23 25 25 29 37 36 36 36
During 2017 the pre-settlement portfolio decreased when expressed in terms of outstandings. The pre-settlement portfolio was mainly concentrated in rest of Europe to a central counterparty clearinghouse and commercial banks in the UK, mostly consisting of interest rate derivatives. The decrease in gross MtM before netting and collateral was also observed in this derivatives portfolio.
Consumer lending past due but performing (1–90 days) 4,352 3,970 1 Based on lending and investment activities
The credit quality of the ING portfolio improved with non-performing outstandings which continued to decrease. The decrease was mainly observed in Retail Netherlands and the Real Estate Finance portfolio. The reduction in the non-performing portfolio was due to write-offs combined with positive rating migration to the performing portfolio. The increase in the past due but performing portfolio mainly resulted from a change in the days count methodology related to IFRS 9.
Past due obligations Retail Banking continuously measures its portfolio in terms of payment arrears and on a monthly basis it is determined if there are any significant changes in the level of arrears. This methodology is principally extended to loans to private individuals, such as residential mortgage loans, car loans, and other consumer loans. An obligation is considered ‘past due’ if a payment of interest or principal is more than one day late. ING aims to help its customers as soon as they are past due by communicating (e-mail, SMS, letter or outbound call) to remind them on their payment obligations. In its contacts with the customers, 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 not able or not willing 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 (no more cure) when the contract is terminated. The table below captures all past due exposures starting from day 1.
Belgium 1,123 547 1,671 1,444 Germany 407 89 497 251 Netherlands 1,028 35 1,062 947 Rest of Europe 411 455 866 783 1 Based on consumer lending. The amount of past due but performing financial assets in respect of non-lending activities was not significant.
• ING believes the borrower is unlikely to pay: the borrower has evidenced significant financial difficulty, to the extent that it will have a negative impact on the future cash flows of the financial asset. The following events could be seen as examples of financial difficulty indicators: (1) The borrower (or third party) has started insolvency proceedings. (2) NPL status of a group company/co-borrower. (3) Significant fraud (affecting the company’s ability to service its debt) (4) There is doubt as to the borrowers’ ability to generate stable and sufficient cash flows to service its debt. (5) Restructuring of debt
ING uses three distinct statuses in categorizing the management of clients with (perceived) deteriorating credit risk profile, i.e. there is doubt as to the performance and the collectability of the client’s contractual obligations: • Watch List: Usually, a client is first classified as Watch List when there are concerns of any (potential or material) deterioration in the credit risk profile that might affect the ability of the client to adhere to its debt service obligations or to refinance its existing loans. Watch List status requires more than usual attention, increased monitoring and quarterly reviews. Some clients with a Watch List status may develop into a Restructuring status or even a Recovery status.
Aging analysis (past due but performing): ING Bank consumer lending portfolio by geographic area, outstandings1
Opening Balance 2,147 2,371 1,884 2,199 1,277 1,216 5,308 5,786 Amounts written off -566 -625 -519 -681 -194 -188 -1,279 -1,494
Challenges continued in the shipping industries and oil & gas while on the other hand, improved risk profiles were witnessed in other portfolios of the bank such as the residential mortgages portfolio.
Large parts of the investment portfolio are not accounted for at amortised costs and therefore out of scope for LLP. Instead, these assets are evaluated for impairment. The ING Bank Impairment Meeting is held quarterly and reviews all assets that are subject to an IFRS-EU impairment test.
Forbearance Forbearance occurs when a client is considered to be unable to meet its financial commitments under the contract due to financial difficulties and ING decides to grant concessions towards the client. Forborne exposures are exposures in respect of which forbearance measures have been granted. Forbearance measures can be either modifications to existing contractual terms and conditions or total or partial refinancing. Within ING, forbearance is based on the European Implementing Technical Standards.
Due to further refinement of aforementioned policy, recognition of forborne assets has been changed from client level to facility level as a result of which forborne assets have substantially reduced.
Wholesale Banking forborne assets were mainly concentrated in Natural Resources, Real Estate and Transportation & Logistics. Together they accounted for 72% (2016: 70%) of the total Wholesale Banking forborne assets and 73% (2016: 67%) of the total Wholesale Banking non-performing forborne assets. Decreases in forborne assets were mainly in the Natural Resources (EUR 0.4 billion), Real Estate (EUR 0.3 billion) and Transportation & Logistics (EUR 0.3 billion) industries.
Securitisations ING primarily plays three roles in its exposure to securitisations programs which are: Wholesale Banking: Forborne assets by economic sector1
ING as Investor ING’s goal is to maintain a portfolio of high quality liquid assets that meets the regulatory requirements of CRR/CRD IV and the Delegated Act of October 2014 regarding liquidity. ING invests in high quality Asset Backed Securities (ABS) keeping close track of the securitisation investment positions via monthly monitoring reports and weekly update calls. Additionally, ING may invest in securitisation positions in order to facilitate client business from its Disintermediation & Asset Securitisation unit.
Market risk Introduction Market risk is the risk that movements in market variables, such as interest rates, equity prices, foreign exchange rates, credit spreads and real estate prices negatively impact the bank’s earnings, capital, market value or liquidity position. Market risk either arises through positions in banking books or trading books. The banking book positions are intended to be held for the long-term (or until maturity) or for the purpose of hedging other banking book positions. The trading book positions are typically held with a short-term trading intent or in order to hedge other positions in the trading book. This means that financial instruments in the trading books should be free of restrictions on their tradability. Policies and processes are in place to monitor inclusion of positions into either a trading or a banking book and transfer of risk from trading to banking book and vice versa.
Monitoring and control of market risk are within the responsibilities of FR and Financial Institutions – Financial Markets (FI-FM) Risk. FR and FI-FM Risk are the designated departments of the second line of defence, independent from the first line of defence (front office) that report to the CRO function and that are responsible for the design and execution of the bank’s market risk and counterparty credit risk management functions in support of the ALCO function. FR focuses on the market risks in the banking books, the Capital Management department and the Bank Treasury department, whereas FI-FM is responsible for counterparty credit risk and market risks resulting from the Financial Markets trading books. FR and FI-FM Risk are responsible for determining adequate policies and procedures for actively managing market risk in banking and trading books and for monitoring the compliance with these guidelines.
Risk transfer An important element of the management of market risks in the banking books is the process of risk transfer. In this process the interest rate, FX, funding and liquidity risks are transferred from the commercial books through matched funding to Bank Treasury, where it is centrally managed. The scheme below presents the transfer and management process of market risks in the banking books: In November 2017, it was approved to merge Bank Treasury and Capital Management into a new department named Group Treasury. This merge is expected to be completed by June 2018.
Model Risk (replication, prepayments)Model Risk (replication, prepayments) Model Risk (replication, prepayments)
ING distinguishes three types of activities that generate interest rate risk in the banking books: • Investment of own funds (by Capital Management) • Commercial business (e.g. Retail business) • The strategic interest rate position (Bank Treasury)