One-year price development of ING depositary receipts for shares Our share price increased by 15% in 2015, outperforming all three bank indices
• On track to deliver on Ambition 2017 financial targets. • Core lending recorded net growth of EUR 21.7 billion; robust net customer deposit inflow of EUR 25.1 billion. • ING’s sustainability ratings rose further in 2015. The Dow Jones
Where we operate We operate in more than 40 countries in Europe, North America, South America, the Middle East, Asia and Australia
Financial highlights Banking 1 Source: Brand Finance plc, February 2016. The valuation date is each year on the 1st of January.
Strong performance Our strong customer relationships were reflected in ING’s commercial and financial performance in 2015. Full-year 2015 underlying net profit of EUR 4,219 million was 23.2% higher than in 2014. Net growth in our core lending book was EUR 21.7 billion, or 4.2%, as we continued to support our clients’ financing needs. Net customer deposits grew by EUR 25.1 billion, or 5.1%. We made good progress growing lending, particularly in Industry Lending and Transaction Services in Challenger & Growth Markets, which supported balanced growth in these countries with their strong savings franchises. We also further diversified lending to reduce dependency on mortgages, including in Germany where we booked strong growth in consumer lending. We experienced a further decline in risk costs in 2015 to normal levels. And we are already meeting many Ambition 2017 targets, including in the areas of capital, return on equity, leverage ratio and dividend.
At the heart of that is our Customer Promise to be clear and easy, to excel in making financial services available anywhere and anytime, to empower with insights to make smarter financial decisions and to keep getting better for customers every day.
We welcomed 1.4 million new retail customers in 2015. And customers demonstrated that we are meeting their needs as seen in the growing number of retail primary relationships – customers with a salary account and at least one additional product – which rose almost seven percent to 8.9 million, on track to reach our goal of 10 million primary relationships by 2017. Our Net Promoter Scores showed that we continued to differentiate in our delivery, with number one positions in seven of our major markets.
Our purpose of empowerment includes helping people improve their lives with tools to make better informed financial decisions. In Spain, a financial management service is a key part of our online and mobile banking solution, and highly appreciated by customers. The online Financially Fit Test in the Netherlands promotes financial awareness in an increasingly digital environment. Both are now rolling out to ING retail businesses in other countries.
Fostering a performance culture How we act and behave is the basis of the relationship of trust we have with customers and of our responsible engagement in society. Following extensive consultation with thousands of staff members in the more than 40 countries where we operate, we clearly defined our values and behaviours in the Orange Code that we launched in 2015. That process ensured that the code is not abstract but a true reflection of who we are and what we believe. Inspired by the aim to put “integrity above all”, it forms the basis of our culture and will also be reflected in our performance management for leaders and for all staff. The Orange Code builds on the Banker’s Oath, a set of principles that reconfirms the Dutch banking industry’s commitment to ethical behaviour. ING employees in the Netherlands took the Banker’s Oath in 2015.
Finalising the restructuring In 2015, we took additional important steps to finalise the restructuring mandated by the European Commission. This included the divestment of our remaining stake in Voya Financial Inc. We also reduced
I am pleased that we were able to resume regular dividend payments in 2015, supported by these strong results. We are committed to returning capital to our shareholders and aim to pay a progressive dividend over time, while maintaining healthy capital levels.
These developments confirm the assumptions that underpin our Think Forward strategy. We aim to achieve a differentiating customer experience by pursuing four strategic priorities: earning the primary relationship, understanding customers better via data analytics, increasing the pace of innovation to serve changing customer needs and thinking beyond traditional banking.
I am confident that at ING we have the vision and the strength to fulfil our purpose to empower customers to stay a step ahead in life and in business, now and in the future.
Committed to remaining a step ahead I am pleased with ING’s achievements in 2015, which position us well for the future. Our customer relationships, financial performance and strong capital rank us among the leaders in eurozone banking. This was confirmed by the many awards ING received in 2015. These included Euromoney’s award as Best Bank in Western Europe and Best Bank in the Netherlands and Belgium and awards from the Banker as Best Bank in the Netherlands, Belgium and Poland.
Intellectual The rapid pace of global technological developments is undeniable. We place a high priority on innovation within ING to keep pace with the change around us and meet changing customer needs. We are experimenting with agile working to increase the pace of innovation. We also create intellectual capital through the expertise we are developing in areas like environmental and social risk management, sustainable finance and data analytics. We aim to share knowledge via different networks and, for example, our ING Economics Department publications.
3. Banks issue loans to both people and companies and in so doing play a key role in helping people buy a home, start a business or invest to grow their companies.
In addition, banks support the economy by taking on risks. Without the bank as intermediary, savers run a big risk: if the borrower cannot repay, the saver can lose all their savings. A bank lends money to a lot of people and companies. If some are unable to repay their loans, the bank absorbs these losses so that savers are not affected. Banks also create value by making savings, which are of a short-term nature, available as loans, which are of a longer-term nature, and managing the associated risk.
How we create value for society The value creation model below illustrates what we do and how we create value with our stakeholders through our unique Customer Promise to be clear and easy, to make financial services available anytime-anywhere, to empower and to keep getting better for customers. The framework of the International Integrated Reporting Council serves as a basis for this model.
Our Services & Products • Our number of primary customers increased by almost 7% • EUR 279 billion outstanding in mortgages for our customers • System reliability in Belgium and the Netherlands improved to 99.6% in the second half of 2015
Financial • Over 34 million customers trust us with payments and deposits • EUR 47.8 billion shareholders’ equity and EUR 171.5 billion bonds, loans and other borrowed funds
Our value creation model As a global bank we bring more to society than just our financial value. Our value creation model shows in a simplified way how we create value for and with our stakeholders. As a financial institution, our input is mainly in the areas of financial, intellectual and human capital, whereas we impact society across all the capital outputs defined in the International Integrated Reporting Council (IIRC) value creation framework. More information and context to the numbers below can be found throughout this report.
The pace of disruption affecting the banking industry further accelerated in 2015. There are an increasing number of new entrants in many areas traditionally serviced by banks, including payments, lending, investment services and foreign exchange. New business models based on easily accessible, digital services are challenging bank revenue streams. They are focusing not on price leadership but on offering a superior customer experience, confirming that this is the area banks will need to focus on to succeed.
We see sustainability as a source of competitive advantage for companies. The sustainable transitions financed by ING amounted to EUR 23.8 billion at end2015. We also broadened our sustainability approach in Industry Lending and in General Lending and extended it to other parts of Wholesale Banking.
To make this happen, an international Advanced Analytics team based in Frankfurt and Amsterdam acts as a centre of excellence and supports all business units. At the same time, local advanced analytics teams have been established in the Netherlands, Belgium, Spain, Poland and in Wholesale Banking.
3. Increase the pace of innovation to serve changing customer needs Customer expectations, new technologies and new competitors are transforming the banking industry faster than anticipated. To address that, we need to increase the pace of innovation. We promote an internal culture of innovation and also partner with external parties with specialised knowledge to accelerate the pace of innovation.
In 2015, the number of retail primary relationships grew by almost 7% to 8.9 million, putting us well on track to reach our goal of 10 million primary retail customers in 2017.
2. Develop data analytics The relationship between banks and their customers, as in other industries, is increasingly a digital one. Digitalisation challenges banks to maintain intimacy with a customer who they rarely meet face to face. But the digital interface also provides a wealth of data on customers’ preferences and needs that gives banks important insights to provide the kind of experience customers now expect from businesses they interact with online. Developing analytic skills is essential to serving customers in a digital world. This is not only important for improving customer services, but also for preventing fraud, improving operational processes, reducing risks and generating services that go beyond traditional banking so we can stay relevant for customers.
Market Leaders These are our businesses in mature markets in the Benelux where we have leading positions in retail and wholesale banking. Our strategy is to grow in selected segments, continue to invest in digital leadership with a digital-first model, deliver on operational excellence programmes and create greater cost efficiency in order to fund business expansion in growth markets.
Challengers These are markets where we offer both retail and wholesale banking services. Our retail activities are mainly direct-banking offered online with a significant cost advantage over traditional banks. Our strategy is to leverage our strong savings franchises in these markets to expand into payments accounts and increase the number of primary customer relationships. 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 businesses to fund expansion of Wholesale Banking, particularly to support clients in Industry Lending and working capital solutions.
Growth Markets These are markets with a full range of retail and wholesale banking services in markets with expanding economies and strong growth potential. We are investing to achieve sustainable franchises and will focus on digital leadership by converging to the direct-first model and by prioritising innovation.
Macroeconomic developments Several interrelated themes stood out in 2015: the price of oil and other commodities, the resilience of the Chinese economy, and the timing and content of monetary policy measures in the US and the eurozone. The oil price seemed to have reached a low early in the year and soon started to climb. But it resumed its slide in the second half of the year. This coincided with turmoil on Chinese stock markets and worldwide concerns about Chinese economic growth. These worries spread to other emerging markets. While several emerging markets did indeed see economic growth decelerate, a sharp growth slowdown in China did not materialise in 2015, thanks in part to government stimulus measures.
In addition to more traditional financial-sector regulation, we notice increasing regulatory interest in environmental and human rights impacts associated with our business activities. The Dutch Government initiative to come to a Banking Sector Agreement on international responsible business conduct, building on the OECD Guidelines for Multinational Enterprises. There is a call on the part of the public for increased transparency and continuous debate on the matter in the EU Parliament. Regulators are also looking at the potential link between sustainability and financial risk. An example is the Financial Stability Board looking into potential financial risks of climate change regulation.
As well as the SSM, 2015 saw preparations for the Single Resolution Mechanism (SRM). The SRM came into force on 1 January 2016. This aims to ensure an orderly resolution process for failing banks.
Strengths • Presence in Challengers & Growth Markets with moderate to strong economic growth.
to banks opens the door to more targeted, tailor-made services and to more relevant advice to help customers make smart financial decisions.
We intend to continue working hard to win customers’ hearts and minds, demonstrating our concern for customers and all other stakeholders, and be even clearer about the strategic choices we make. The diagram below shows what we perceive to be our strengths, weaknesses, opportunities and threats.
We take a closer look at these issues in the table in this chapter and report on them in greater depth throughout this report.
We strive to respond to our stakeholders’ views and concerns. Their input helps us balance competing expectations, address issues in an informed way and improve. Issues that are important to them are therefore a priority in our daily business and receive attention in this Annual Report.
Different stakeholders may have competing concerns. Sometimes these are even contradictory. In this chapter we also outline some of the dilemmas we face in balancing these different interests.
Finding out what matters most To improve as an organisation, we need to identify and understand the most important issues for our stakeholders and how these relate to the actions and decisions that we take. Our regular materiality assessment results guide us in our strategic decision-making, stakeholder engagement agenda and reporting framework.
In total, over 1,500 respondents from the Netherlands, Poland, Germany, Spain and Turkey provided us with insights into the issues that matter most to them, resulting in the materiality matrix in this chapter.
From customers to business partners, shareholders, employees, non-governmental organisations (NGOs), regulators, governments, and society at large – different groups expect different things from us. We continually listen to and engage with these groups in various ways, including through customer surveys and panels, roundtables, and one-on-one meetings.
Economic contribution A Financial performance B Pricing of products and services C Managing risks
Regulatory developments Regulatory developments are important to stakeholders, as seen in the materiality survey results. Regulation around banks continues to develop quickly. For example, 2015 was the first full year of the Single Supervisory Mechanism, and preparations have begun for the Single Resolution Mechanism. You can read more about this in the “Market and regulatory context” chapter.
Still, there is controversy about the use of “big data”. We strive to comply strictly with all data protection laws and regulations, both in the letter and spirit of the law. We aim to maintain strong safeguards around our customers’ privacy and only analyse their payment data to provide better product offers and services where they give us explicit permission, allowing them to withdraw that permission at any time if they choose.
One of the steps ING took was to appoint a chief data management officer in October 2015. He reports directly to the Management Board Banking and his role is to guard ING’s data and manage it in a way that supports our strategy of becoming a next-generation digital bank. Coordinating data management on an ING-wide level will help create transparency, align local and central capabilities, and facilitate best practice sharing and efficiency.
We have increased the strength of our capital base to protect customers and contribute to a sustainable financial environment. At the same time, innovative business developments are also important to stakeholders. This is in line with our Customer Promise to “keep getting better”. We aim to be a leader in transforming banking, staying at the forefront of digital developments.
Data analysis also helps us protect customers. We use analysis of erratic or unusual activity to identify potential bank-card fraud. Improved insight into consumer payment patterns allows us to warn customers sooner if they risk defaulting on monthly mortgage obligations.
Remuneration and regaining trust Remuneration of bank employees remains a sensitive topic as a result of the financial crisis and the support many banks received from taxpayers. New compensation legislation for banks has been introduced in the Netherlands. ING meanwhile repaid the Dutch State in full in 2014, plus EUR 3.5 billion in interest and premiums, and is now profitable and well capitalised.
Still, we keep striving to do better. Examples in 2015 include strengthening our coal policy by deciding to end our financing of new coal-fired plants and thermal coal mines worldwide, and tightening our defence policy.
We share the concerns that civil-society organisations have about climate change, human rights, animal welfare, and environmental damage, and we support their request for us to develop policies that take these concerns seriously.
Still, we cannot go as far as some would like. For example, withdrawing completely from financing activities such as oil, gas and uranium mining would affect important linked sectors: the transport industry including freight transport, shipping and aviation (oil); electricity production and heating (gas); cancer treatment with medical isotopes (uranium).
We choose to pursue a different way of addressing sustainability. One of the core objectives of our sustainability strategy is to facilitate more sustainable transitions. Sustainable transitions financed describes all the business that we do with clients that are environmental trendsetters in their sectors, and projects that supply sustainable solutions. At the end of 2015, this amounted to EUR 23.8 billion. Among other things, we invested in sustainable energy projects, CO2 and waste reduction, sustainable real estate and public transport.
We will continue to look for effective ways to progressively tighten our ESR policies and will redouble our efforts to support customers in transitioning to more sustainable practices.
C Managing risks Managing risks is at the heart of what we do and can have a material impact on our business and society. Safe banking requires strong risk management, both financial and non-financial, which is part of our daily business.
“Operational excellence and innovation” chapter – intro and Providing a differentiating customer experience section in “Retail Banking”chapter.
Anti-competitive behaviour undermines ING’s values and vision to see customers empowered as it limits choices and restricts the market. Therefore, ING strives for strict adherence to the ING Global Competition Law Policy. It is ING’s policy to fully comply with all competition laws applicable to its entire range of activities.
Our Environmental and Social Risk (ESR) framework helps prevent us from causing harm through our financing activities. We aim to promote activities that have a positive impact on society through financing sustainable transitions. In 2015, we financed EUR 23.8 billion sustainable transitions and successfully issued our first green bond.
It is our intention to establish a responsible approach to the wages and benefits of employees and senior management. We strive for a sustainable balance between short-term and long-term value creation, building on our long-term responsibility towards our clients, society and all other stakeholders.
2 Customer lending is defined as: loans & advances to customers -/- securities at amortised costs and IABF -/- provision for loan losses. 3 Our Net Promoter Score (NPS) rankings are based on a rolling average of NPS results calculated over the four quarters of 2015. 4 As at 31 December 2015. 5 2014 data has been restated to reflect improvements in data-gathering and measurement in Belgium, the Netherlands, Romania and Luxembourg during 2015, and to ensure accurate historical comparison.
Underlying net result Banking Net result ING Group ING Bank’s underlying return on equity
The RoE is within the Ambition 2017 target range of 10-13% and improved from 9.9% in 2014, reflecting a higher underlying net result, partly offset by a higher average equity base. ING Bank’s equity rose due to retained earnings and higher revaluation reserves, and despite dividend payments to ING Group.
The CET1 ratio improved strongly from 10.5% in 2014. Strong capital generation from net profit was largely offset by RWA growth and proposed dividend payment. CET1 capital mainly increased following the deconsolidation and further divestment of NN Group in 2015.
This includes CVA/DVA impacts and the redundancy costs in 2014 and 4Q2015. Excluding these, the cost/income ratio rose to 55.9% in 2015 from 55.1% in 2014, mainly due to higher regulatory costs.
The environmental performance of our own organisation improved as a result of an increase in renewable electricity consumption. The total extrapolated amount of carbon emissions decreased from 102 to 96 kilotonnes CO2e.
In early 2015, an initiative was launched to find a permanent solution for system reliability issues we experienced in the Netherlands and Belgium with our online payments channels. Six months after its launch, and with one additional channel measured, systems reliability improved to 99.6 percent 2015 from a low of 99.3 percent in 2014.
20.5 mln customers felt financially empowered > 90 mln interactions through our financial empowerment initiatives 99.6% in the Netherlands and Belgium
The extended low interest-rate environment adversely affects our interest income-generating capability. Margins on customer deposits are coming under increasing pressure as rates approach zero. This underlines the need for ING to diversify and expand its revenue-generating capabilities with alternative sources of income from both within and beyond traditional banking.
Financial empowerment We believe that financially empowered people make smarter financial decisions that positively influence their day-to-day finances. This drives social progress and contributes to a healthy economy. We strive to empower people to make better financial decisions by providing the right information and tools at the right time, supported by clear and easy products and services that are available anytime, anywhere.
ING Retail Banking serves more than thirty-four million customers in a variety of markets that we have designated as Market Leaders, Challengers and Growth Markets. In all markets we pursue a digital-first approach, complemented by advice when needed, with omnichannel contact and distribution possibilities. Market Leaders are our businesses in the Netherlands, Belgium and Luxembourg. In our Challengers countries – Australia, Austria, the Czech Republic, France, Germany, Italy and Spain – we combine strong deposit-gathering capabilities with low-cost digital distribution. Growth Markets are expanding economies that offer good opportunities for achieving sustainable share: Poland, Romania and Turkey, our stakes in Bank of Beijing (China) and TMB (Thailand) and our investment in Kotak Mahindra Bank (India). In most of our markets we offer a full range of retail banking products and services, covering payments, savings, investments and secured and unsecured lending.
Regulation and the operating environment New European Union (EU) legislation will have an impact on the retail banking operating environment in European countries where we are active. Proposals for additional regulation following on Basel III/CRD IV will likely impact capital requirements and therefore lending levels. The Payment Services Directive-II (PSD-II), to be implemented in 2017, will allow non-bank competitors to offer thirdparty payment services to consumers. The EU is also preparing legislation for a Digital Single Market enabling the free flow of digital products and services across Europe. This will help digital service providers to quickly achieve scale across borders.
Retail Banking performed well in 2015, despite difficult operating conditions in the eurozone. Our digital-first operating model continued to deliver a clear and easy, anytime-anywhere experience for our customers, supported by tools and advice that empower them to make smart financial decisions. Customers expressed their satisfaction by ranking us #1 for NPS in seven of our retail banking markets.
Retail Banking – continued striving for continuous improvement. We use the Net Promoter Score (NPS) to measure our progress in offering a differentiating customer experience, with the aim of achieving the number one NPS ranking compared to our main competitors in each of our retail banking markets. Based on a rolling average of NPS scores over the full year, we were ranked number one in seven of our markets: Australia, France, Germany, Italy, Poland, Romania and Spain.
We regularly add new functionality to our mobile apps to improve the digital experience. Belgian customers can now make mobile payments and open a pension account from the Smart Banking app, which has been downloaded more than 1.1 million times. The “Inge” digital voice assistant in the Netherlands can now also be used to manage savings accounts, and Dutch customers with compatible smartphones can make contactless mobile payments. In Australia, the Netherlands, Belgium and Poland, smartwatch apps offer extra convenience to customers using the latest wearable technology. Users of the Polish ING BankMobile app are now able to send money using only the recipient’s phone number, and functionality has been added to Turkey’s ParaMara digital wallet making it possible for a customer to convert credit cards into contactless cards for the convenience of making contactless payments with a suitable smartphone.
Based on this 2015 performance – which established our zero measurement – we aim to publish a Financial Empowerment ambition.
Providing a differentiating customer experience In this increasingly digitalised world, customer expectations are shaped by their interactions with digital service providers such as Google, Facebook, Apple and Amazon. These “tech giants”, along with newer disruptors like Netflix, Airbnb and Uber, compete by offering a differentiating and superior customer experience. Customers now expect a similar experience from their bank. A significant segment of customers are self-directed, and expect to be able to choose from clear and easy products and services that are available to them when and where they want them. 69 percent of Retail Banking customers contact us exclusively via digital channels. We therefore pursue a digital-first approach, but continue to modernise our contact centres and branch networks.
Numerous studies show that behavioural and sociological factors often hinder smart financial decisions. Improved financial decision-making is an essential step towards financial empowerment. It is an urgent challenge and responsibility for all.
Read more in the “Operational excellence and innovation” chapter on ING’s approach to innovation.
Thinking beyond traditional banking With new regulation opening up financial services to outof -sector competition and low economic growth putting pressure on traditional sources of income, it is important that we develop new products and services beyond those traditionally offered by banks.
Banks usually play a role in the consumer’s shopping experience only at the moment of payment. We aim to empower customers by also supporting them in the pre- and post-purchase phases of the shopping process. This can take the form of information and discount offers to help in the purchase decision-making process.
Romania’s “Bazar” app was launched to customers following a successful pilot. Brands such as adidas, Lego and MOL offer special promotions to users paying with their ING card or Bazar’s digital wallet. At the end of 2015 we had 26,000 ING users who had received 146,000 promotional offers, enrolled 17,000 loyalty cards and generated more than EUR 5 million in sales. In Belgium we purchased loyalty platform Qustomer, which we plan to combine with innovative new ways to pay so that users can easily collect and redeem loyalty points from shops.
Thinking beyond traditional banking also involves a fresh approach to customer care. In the Netherlands, we have partnered with the country’s largest employment agency, Randstad, to offer job coaching to mortgage customers who have lost their jobs, helping them to find new employment and remain “financially fit”.
Enabling Think Forward Achieving our strategic goals depends on progress on several fronts. Our organisation requires further simplification and streamlining to be flexible enough to respond to fast-changing customer needs and expectations. (see box “Organising for Agility” for the case of ING Netherlands). Operational excellence is necessary to deliver a digital-first, omnichannel experience to customers. This encompasses processes, information technology, bank-wide data management and standardised systems and platforms.
Read more in the “Operational excellence and innovation” chapter on our operational excellence initiatives.
We prioritise increasing payment account customers in our Challengers & Growth Markets. Cross-buy and activation initiatives in Germany have improved the quality of the customer base, with more than 53 percent of payment account customers depositing their salary in the account. Australia introduced the Primary Bank Bonus for current account customers and mortgage customers, rewarding the loyalty of primary bank customers. In Romania, a redesign of the payments account to encourage customers to deposit their salaries with ING has led to a 24 percent volume increase compared to 2014.
A Centre of Excellence in Advanced Analytics has been set up in Frankfurt and Amsterdam to support all business units in developing predictive models and advanced algorithms that contribute to a differentiating customer experience, increased lending capabilities and improved practices in the areas of risk, fraud, marketing and operations. Local advanced analytics teams are now established in the Netherlands, Belgium, Germany, Spain and Poland, and all business units now have roadmaps in place for attaining an agreed minimum standard in customer intelligence capabilities. Starting in 2015, an advanced analytics project in Poland has been using data mining to offer retail and small business customers pre-approved loans. By the end of the year, these included pre-approved loans for 94,000 entrepreneurs to help them grow their businesses.
In 2015, we introduced a number of innovative products and services that support the different elements of our Customer Promise. Following the introduction of fingerprint authentication for the mobile app in Belgium at the end of 2014, we now also offer fingerprint-based security features in the Netherlands, Germany, Turkey, Poland and Thailand. This gives customers a secure and easy-to-use alternative to conventional password-based access and authentication methods. Germany’s “videoidentification ” service enables new customers to identify
Socially responsible investment We have been including governance, environmental and social topics in our socially responsible investment (SRI) strategies for customers in the Netherlands since 1999. SRI strategies consist of dedicated portfolios of sustainable investment funds, as well as portfolios of bonds and equity of individual sustainable companies. In selecting sustainable investment opportunities, we apply best-in-class assessment and exclude companies in specific sectors, such as controversial weapons producers, and companies that exhibit controversial behaviour, such as violations of human rights.
Sustainable assets under management in EUR million at year-end 2015 1 2014 2013 2
Correction to eliminate double counting 3 - 86 74 Total sustainable assets under management 2,573 1,538 886 1 The methodology for calculating sustainable assets in 2015 has been changed for the Netherlands. We decided to align the calculation methodology with that of Belgium and Luxembourg. We still calculate the assets in the sustainable strategies and in structured products, and we add to this all the assets in investment products labeled as sustainable outside our sustainable investment portfolios. This change added approximately € 190 million to sustainable investment funds this year and would have added almost € 180 million in 2014 for the Netherlands. As a result of this change, we no longer need to make a correction for double counting. The remaining asset growth comes from price changes and new invested capital. Besides the ING Liric SRI top 50, other sustainable guaranteed notes have been issued this year and are categorised under the heading Sustainable structured products.
Read more in the “People” chapter on how ING is building a performance culture.
Retail Banking – continued accreditation. This helps ING Groenbank accurately quantify the sustainable impact of its investments. In 2015, the volume of green loans increased for clients in both the small business and corporate clients market segments. This seems to indicate both a growing focus on sustainability when new investments are considered and the improving economic situation in the Netherlands. Over the next few years, a considerable number of sustainable projects are expected to materialise in the Netherlands as a result of various factors, such as the “SER Energieakkoord” (Energy agreement by the SER, the Dutch Social and Economic Council) and the continuation of the domestic economic recovery. ING Groenbank aims to play a role by providing an extra stimulus via its green loans.
Key challenges and dilemmas The challenges of the business, market and regulatory environment in which we operate are addressed at the beginning of this chapter (“Regulation and the operating environment”). In particular, European Union regulation and the extended low interest rate environment affect our retail banking activities.
Another ongoing challenge we face is the stability of IT systems, particularly in our Benelux markets. Meeting our customer promise to provide anytime, anywhere access requires our digital services to always be available and accessible. The Focused Reliability Initiative launched at the beginning of 2015 improved the reliability of online payment services in the Netherlands and Belgium to 99.6 percent in the second half of 2015.
Risk costs declined 20.4 percent to EUR 870 million in 2015, mainly due to lower risk costs in the Netherlands and Germany.
Market Leaders Retail Netherlands The underlying result before tax of Retail Netherlands rose to EUR 1,495 million from EUR 938 million in 2014, mainly due to lower risk costs and lower expenses. Operating expenses declined by EUR 203 million, predominantly due to EUR 349 million of redundancy provisions taken in 2014. Excluding these provisions, the underlying result before tax rose 16.2 percent year-on-year.
Retail Germany’s underlying result before tax increased 31.3 percent to EUR 1,012 million compared with EUR 771 million in 2014, driven by strong income growth.
Retail Banking – continued in most countries, partly offset by the aforementioned non-recurring charges in Italy. The net inflow of customer deposits, adjusted for currency effects and Bank Treasury, was EUR 8.0 billion, with growth mainly in Spain, Poland, Turkey and Romania. Net customer lending (also adjusted for the sale of mortgage portfolios in Australia) rose by EUR 7.8 billion, mainly due to growth in Australia, Poland and Spain.
• Germany was rated “Best Online Broker” by Börse-Online for the sixth consecutive time.
Read more in the “Our strategy and progress” chapter and for the Environmental and Social Risk framework read the “Risk and capital management” chapter.
Wholesale Banking delivered good results in 2015, supported by healthy income growth, an improved cost/income ratio and lower risk costs. Our key business units performed well, contributing to ING’s Think Forward strategy. We continued to deliver on our client promise to be clear and easy, anytime-anywhere and to invest in our client relationships. We expanded our network to better support our clients and to seize growth opportunities. Sustainability was further embedded in our business. We also sealed several landmark deals that helped our clients in their sustainable transitions.
In 2015, we added Chicago to our existing US locations in Los Angeles, Atlanta, New York, Houston and Dallas. And we initiated trade commodity finance services from our New York office – a business we have extensive experience in. We see exciting opportunities in the US and are growing our business there.
Accelerating sustainable transitions At year-end 2015, our total sustainable transitions financed was EUR 23.8 billion, covering business areas such as renewable energy, sustainable real estate, public transport and other best practices relative to their sector. This is an increase of 22 percent on the previous year’s performance, driven partly by new transactions and partly by better sustainability assessments of our business activities.
Wholesale Banking – continued finance in a circular economy” and “Too little, too much: the diverse sectoral challenges of water”.
Read more in “Too little, too much: the diverse sectoral challenges of water”. www.ing.com/15ar7
ING Corporate Investments made a 20 percent equity investment in Van Scherpenzeel, in line with ING’s sustainability strategy. Van Scherpenzeel is a pioneer in the circular economy, and recycles waste for reuse as raw materials for sectors including the paper and plastics industries. Van Scherpenzeel is a good example of ING’s commitment to work with clients to develop financial solutions that support the growth of the circular economy.
Industry Lending Our Industry Lending teams provide financing to clients in selected markets based on specialist industry knowledge. Within Industry Lending, our activities are grouped into Structured Finance and Real Estate Finance.
International Trade and Export Finance (ITEF) supports international trade in basic commodities such as oil, oil products, metals, grain, sugar and cotton. In 2015, we extended our activity by creating a sector team to cover the food and agriculture sector. We also finance the export of capital goods and offer services to clients with long-term financing supported by export credit agencies. Our global team provides over 1,000 clients worldwide with highly competitive products. We are recognised
3 As of year-end 2015, ING reports separately on sustainable real estate, which used to be reported under Loans to other projects.
4 Includes projects involving energy efficiency, greenhouse gas reduction, climate change and mitigation, waste-to-energy, public transport, waste reduction, social welfare.
In 2015, our sustainability approach was deepened in our lending sectors, and broadened to other areas of Wholesale Banking. You can read more about this in the relevant areas in this chapter.
Read more in “Too little, too much: the diverse sectoral challenges of water” (www.ing.com/15ar7).
Sustainable impact In 2015, each sector in Industry Lending prepared a detailed strategy that aims to increase the proportion of lending to more sustainable projects. This sector approach also gave rise to initiatives such as the app created by the Dutch Real Estate Finance business together with an energy advisory company, which helps clients benchmark the environmental performance of ING-financed buildings. The app shows how clients can save money by taking specific measures to improve the environmental footprint of their building. Real estate is one of the sectors where such improvements can have a large impact on lowering CO2 emissions. At year-end, Sustainable Real Estate Finance totalled EUR 998 million, up 157% compared with 2014.
worldwide as one of the top three banks in commodity finance by relationship penetration.
Real Estate Finance Real Estate Finance (REF) primarily lends to investors in income-producing real estate backed by first mortgages. In 2015, REF benefited from a continued recovery in the markets, with increased income, profitability and asset growth. In the Europe, Middle East and Africa region, we are a leading bookrunner in syndicated real estate finance loans.
In 2015, FM began implementing the initiatives embedded in its new strategic plan. This will influence all three drivers of return on equity: revenue, cost and capital deployed. Implementation of the plan is expected to continue into 2016 and beyond. FM also continued to invest to satisfy the evolving EMIR (European Markets and Infrastructure Regulation) and MiFID2 (Markets in Financial Instruments Directive) requirements impacting the European derivative trading markets.
• Best Bank CEE for Payments & Collections • Best Bank Europe for Financial Supply
Finally, while we are committed to financing sustainable transactions, it remains challenging to strike a balance between supporting innovative technologies which are often in a start-up phase and lending our depositors’ money wisely with acceptable levels of risk. New business models that aim to foster the circular economy are also challenging because they require completely new approaches to risk that need to be further developed. We are taking a prudent approach. We engage responsibly with these types of clients to understand new technologies and align with market developments, as well as help them make their business propositions more bankable.
Business, market and regulatory environment Oil prices continued their downward trend in the second half of 2015 and early 2016. At the end of 2015, ING’s lending credit outstandings to the broader oil and gas industry amounted to EUR 29 billion. The portfolio is well diversified and in general we structure transactions such that we do not face direct oil/gas price risk. Around 85 percent of our lending credit outstandings is not directly exposed to oil price risk. The remaining 15 percent, which includes reserve-based lending and offshore drilling companies, is exposed to oil price risk to some degree. Although there are many mitigants in place, the oil price risk in these segments has somewhat increased. If oil prices were to stay at around USD 30 per barrel or below and remain there for an extended period of time, risk costs may increase.
The ongoing low-interest rate environment continued to put pressure on margins. One of the ways we are responding to this is by emphasising growth in feegenerating flow capabilities, such as in Transaction Services.
Conclusion In 2015, we proved again to be a consistently profitable wholesale bank. We continued to show solid results on the back of a consistent strategy and client-focused franchise. We believe that our economic return sets us apart from many competitors and demonstrates the strength of our business model and strategic direction.
We have brought our strategic priorities a step ahead. We have made good progress in driving structural change and improving the client experience. With our InsideBusiness, for example, we aim to give clients clear and easy access to banking anytime, anywhere and deliver a seamless client experience. As our service model gets more usable and predictable across our network, our clients are better able to bank more easily with us across borders.
ING’s approach and performance in sustainability were recognised by leading research firms and rating agencies.
Financial results Wholesale Banking posted a good set of results on the back of continued strong Industry Lending performance, good volume growth and improved Financial Markets results. The latter was supported by positive credit and debt valuation adjustments (CVA/DVA), which added EUR 181 million to the pre-tax result in 2015 compared with EUR -216 million in 2014. The underlying result before tax was EUR 2,560 million, up 28.9% from 2014. Excluding CVA/DVA impacts, the increase was 8.0%.
Underlying income rose 14.6% on 2014, mainly in Financial Markets and Industry Lending. The net production of customer lending (excluding Bank Treasury and currency impacts) was EUR 11.6 billion in 2015. Wholesale Banking grew the net core lending book, also adjusted for the Lease run-off, by EUR 13.0 billion in 2015, due to strong growth in Structured Finance and – to a lesser extent – Real Estate Finance and Transaction Services. Customer deposits (excluding currency impacts and Bank Treasury) remained flat compared with a year ago. Operating expenses increased 6.8% to EUR 2,571 million, mainly due to higher FTEs to support business growth, increased regulatory expenses and positive currency impacts. The previously announced restructuring programmes are on track to realise EUR 340 million of annual cost savings by 2017; of this amount EUR 260 million of cost savings had been realised so far.
Risk costs declined to EUR 478 million, or 33 basis points of average risk-weighted assets (RWA), from EUR 500 million, or 37 basis points, in 2014. Lower risk costs were mainly visible in Real Estate Finance and the lease runoff business, while risk costs in Structured Finance and General Lending were up in absolute terms, but declined as a percentage of average RWA.
Report of the Executive Board it was included in the performance management of all employees globally.
ING’s attractiveness as an employer was widely recognised in 2015. Top Employer certification was given to ING’s businesses in Belgium, France, Italy and Poland. The Top Employers Institute assesses employment policies on the criteria talent development, development and training, remuneration and benefits, diversity management, leadership development and corporate culture. For Belgium this was the 10th time they have received the recognition and for Poland the sixth time. In addition, ING Germany ranked third on Germany’s Great Place to Work list of 100 top companies and Luxembourg and Austria were also recognised.
Developing our leaders Creating stronger leaders and better managers is core to our HR strategy. We need effective leaders to engage our employees and empower them to deliver on our promises to customers. We manage the performance of senior managers centrally, ensuring that all performance management activities are fully coordinated and executed to the highest standards.
Development is an important part of this. In 2015, ING launched a new banking training platform for senior leaders, the Think Forward Simulation. The training simulates operations at a bank that is fully aligned with the priorities of our Think Forward strategy.
We are getting new insights on strategic priorities, trends and risks in our leadership and succession pipeline, the reasons for gender imbalance throughout our management pipeline, the efficiency of reward instruments and the right segments for an employee value proposition. With more fact-based insights at hand, we aim to make better human capital decisions, benefitting both employees and customers.
We are committed to a positive employee experience for our staff from the moment they apply to work at ING until the moment they leave. We aim to equip employees to make the most of their talents so they can make a valuable contribution inside or outside of ING.
The labour market has become a global marketplace. With recruitment challenges in specific areas of expertise, we need to be able to tap cross-border markets to locate talent. We are now developing a global Employer Value Proposition to attract and hire the right employees. This will be implemented in 2016.
Employee engagement There is a direct link between employee engagement and business performance and our ability to service our customers. ING regularly measures employee engagement and is committed to taking the actions identified to improve engagement. Our Winning Performance Culture (WPC) survey focuses on employee engagement, looking at how engaged, enabled and energised our employees feel. We conducted a WPC in 2014 and the next survey will take place in 2016. Our target for this survey is a sustainable engagement score of 70 percent.
ING’s new Think Forward Simulation banking training for senior leaders is a bank simulation fully aligned with the priorities of our Think Forward strategy. The objective is to strengthen alignment, develop the mindset and capabilities needed to implement the Think Forward strategy and promote the application of the Orange Code.
The target group is mainly the management layer reporting directly to the Management Board Banking and the two levels under that, with some senior talents also included. While the programme is aimed at this entire group, those who have not attended a senior banking programme before have priority. Around 380 delegates from 23 countries attended the training in 2015.
To keep diversity high on the agenda, early in 2016 we published a Diversity Manifesto (see www.ing.com). This sets out clear standards and ensures all managers understand what we expect and require of them.
• Ring – a community focusing on creating networking opportunities for young employees. Membership is open to employees up to 35 years of age.
As part of our focus on a healthy work-life balance, we also encourage our employees to contribute to positive change in society and the communities where they live. A wide of range of local programmes give employees opportunities to contribute their time or to make a financial contribution to worthy causes such as UNICEF.
• An apprenticeship for parents with young children to prepare them for part-time roles, particularly in the area of business communication.
ING Turkey’s new flexible working programme, FlexING, is the first of its kind in the Turkish financial sector. All employees can make flexible arrangements for their working lives, including hours and their place of work. FlexING allows for new working arrangements in four areas: time, place, career and benefits. We believe flexible working methods will increase productivity, improve work/life balance, prevent business disruption and reduce costs.
Report of the Executive Board necessary changes bank-wide we have prioritised the areas of cloud computing, a common API and data infrastructure. We are selecting specific process improvements and IT projects in these areas to focus on and execute flawlessly, thereby strengthening the case for further standardisation in the future.
Excellent service delivery Staying true to our Customer Promise and delivering a differentiating customer experience requires that we are operationally excellent. We aim to be a nextgeneration digital bank by focusing on availability (anytime and anywhere), consistency and quality. Our approach to operational excellence encompasses processes, information technology, bank-wide data management and standardised systems and platforms, all underpinned by a collaborative performance culture. In 2015, we introduced the Operational Dashboard to provide a detailed view on how our processes are impacting the end-to-end customer journey. This dashboard allows us to consistently measure our progress in living up to the different elements of our Customer Promise and contributes to building a culture of continuous improvement.
Excellent delivery requires our services to be available to customers when and where they need them. In past years we have been addressing our system reliability issues in the Benelux, which have been mainly due to aging and complex legacy IT systems. To find a permanent solution, we launched the Focused Reliability Initiative at the beginning of 2015. Sixty operational development teams are working exclusively on improving the bank’s systems reliability, with the goal of ensuring that ING’s online payment services in the Netherlands and Belgium are always available, whenever and wherever our customers need them. Six months after launch, system reliability had improved to 99.6 percent from a low of 99.3 percent in the previous year. The 2015 data gathering process was slightly changed compared to 2014 and included measurement of an additional channel.
Standardising to win The lack of standardisation across ING is hampering our efforts to achieve our strategic goals. Increased standardisation will allow us to adapt more quickly to the changing needs of our customers. Standardised systems, processes and IT architectures promote collaboration and co-creation, prevent “re-invention of the wheel” and support an increased pace of innovation through common programming interfaces and working methods. Increased standardisation will also allow us to more easily build scale and structurally lower our cost base. Our Wholesale Banking Target Operating Model transformation programme is bringing the benefits of standardisation to our corporate clients, but to make the
Data is an essential part of successfully enhancing the customer experience and providing accurate internal and external reporting (e.g. to regulators). Good management of data also helps lower costs and improves the way we manage credit, market and operational risk.
Implementing our ideas We source innovative ideas directly from our employees through regular “Innovation Bootcamps” and hackathons. In 2015, 3,000 ideas were submitted by engaged employees, with seed funding provided to the best ideas that emerged from a rigorous selection process. Winning ideas from the Innovation Bootcamp that concluded in late 2014 included Orange Assistant, a service that automates day-to-day banking based on customer-set rules and triggers, and Direct Lease, an online leasing platform for small and medium-sized enterprises. These are now available to customers in Turkey and the Netherlands respectively.
ING Belgium is leading the way in partnering with and investing in innovative financial technology companies and platforms. In February 2015 we partnered with SmartFin Capital, a EUR 75 million investment vehicle, to invest in groundbreaking technologies. In July we became the first bank in Belgium to launch an accelerator specifically dedicated to fintech with the ING Fintech Village, where we support and foster existing start-ups with the aim that they develop solutions which further enhance our customer experience, products and services. In September we purchased Qustomer, a loyalty platform where users can collect and redeem loyalty points from shops. We plan to combine Qustomer’s platform with the innovative payment services we are developing to provide our customers with an integrated shopping experience. We are also contributing financial and business coaching support to iMinds, a digital research and entrepreneurial hub that connects researchers at Flemish universities to promising start-ups.
Risk and capital management stake in NN Group also reduced ING’s exposure to the insurance industry and corresponding insurance risks.
Identifying, monitoring and managing risks is at the heart of the risk management function. Strong and integrated risk management is essential for sustainable value creation in day-to-day business activities, as well as for longer-term strategic planning.
ING prioritises capital adequacy at all levels of the organisation. It is a key driver of sustainable value creation. Although the regulatory environment remains uncertain, we are confident that ING Group’s strong capital base will allow us to deliver shareholder returns while investing in products and services that empower our customers to stay a step ahead.
Corporate Audit is the bank’s third line of defence. It provides an independent and objective assessment of the functional effectiveness of the first two lines.
The ESR Framework is applied by well-trained and empowered employees. In 2015, 479 risk, front office and compliance colleagues participated in quarterly global webinars and classroom sessions in Amsterdam, Bratislava, Brussels, London, Warsaw and New York. The ESR Framework also applies to ING’s retail activities for mid-corporates and SMEs. The approach and scope of application differs based on the nature, location and risks identified in ING Retail portfolios. This approach is often more simplified than the one for corporate clients but follows the framework’s rationale and principles.
Prices of depositary receipts for ordinary shares Euronext Amsterdam by NYSE Euronext in EUR 2015 2014 2013
ING Groep N.V. A- Stable Baa1 Stable A Stable ING Bank N.V. A Stable A1 Stable A Stable – Short term A-1 P-1 F1
Score: not disclosed Position: Included 1 Some benchmarks we reported on in previous years are not included as they are not relevant any more given our new status as a standalone bank.
P.G. (Patrick) Flynn (55) member and CFO Executive Board ING Group and member and CFO Management Board Banking Patrick Flynn was appointed a member of the Executive Board of ING Group on 27 April 2009. He is responsible for ING’s finance departments, including ING Tax, Capital Management, Investor Relations and Group Acquisitions & Divestments.
A. (Aris) Bogdaneris (52) member Management Board Banking and head of Challengers & Growth Markets Aris Bogdaneris was appointed a member of the Management Board Banking on 1 June 2015. He is also head of Challengers & Growth Markets, responsible for all of the markets where ING is active in both retail banking and wholesale banking outside the Benelux. Prior to this appointment, Aris Bogdaneris was a member of the Management Board responsible for Retail Banking at Raiffeisen Bank International as well as Chief Operating Officer overseeing Information Technology and Operations/Shared Service centre.
Report of the Executive Board quality criteria specified by the guidelines (for example: sustainability context, stakeholder inclusiveness, materiality, completeness, balance, comparability, accuracy and reliability) are integral to our reporting process. The Framework of the International Integrated Reporting Council served as a reference in drawing up the content for this report.
Data compilation and boundaries All financial data in this integrated report is extracted or derived from, and in line with, our annual accounts. The non-financial performance data published in this report covers five topics: sustainable business, customers, HR, environment and community investment. We extract or derive data on sustainability-related business activities, customers and HR from our regular business systems, in line with the data in our annual accounts. Data on environment and community investment is gathered through a online data management system. The centralised data processing team at ING Group is assisted by an independent external agency that helps to validate and process the large amount of environmental data gathered from our operations worldwide.
EY has reviewed and provided a limited level of assurance on the sustainability information in the chapters “ING at a glance”, “CEO statement”, “How we create value”, “Our strategy and progress”, “Market and regulatory context”, “What matters most to our stakeholders”, “Key figures”, “Retail Banking”, “Wholesale Banking”, “People”, “Operational excellence and innovation”, “ING Shares”, “Composition of the Executive Board and Management Board Banking” , “About this report” and the Nonfinancial Appendix to the integrated annual report.
Furthermore, EY audited ING Group’s internal control over financial reporting as of 31 December 2015, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).
To: the Stakeholders, the Supervisory Board and the Executive Board of ING Groep N.V. We have reviewed the sustainability information in the chapters “ING at a glance”, “CEO statement”, “How we create value”, “Our strategy and progress”, “Market and regulatory context”, “What matters most to our stakeholders”, “Key figures”, “Retail Banking”, “Wholesale Banking”, “People”, “Operational excellence and innovation”, “ING shares”, “Composition of the Executive Board and Management Board Banking”, “About this report” and the “Non-financial appendix” in the Annual Report for the year 2015 (hereafter: the Report) of ING Groep N.V., Amsterdam (hereafter: ING). The Report comprises a description of the policy, the activities, events and performance of ING relating to sustainability during the reporting year 2015.
Uncertain external environment ING performed well in 2015 despite the uncertainty in the external environment. Continued low interest rates put pressure on banks’ income, the debt crisis in Greece caused concerns and the second half of the year was overshadowed by signs of faltering economic growth in China, which resulted in turbulence on global stock markets.
I am hopeful that we have entered more stable economic times, but we need to take a realistic view and remain vigilant.
Companies are increasingly looking at the entire lifecycle of their products and the resources used in them in order to decouple growth from resource use. Supporting this ”circular thinking”, which promotes responsible use of scarce resources through zero-waste business models based on recycled inputs, is an important pillar of ING’s sustainability approach. I see this as an opportunity for ING to serve its customers better and at the same time contribute to a more sustainable society.
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 2016 Annual General Meeting as part of the Annual Report.
Report of the Supervisory Board – continued the Supervisory Board agreed to increase transparency on these as from the 2015 Annual Report onwards.
In addition a wide range of other topics were discussed, such as the situation in Russia, Ukraine and Greece and the potential related risks for ING. Also other future risks and various stress test scenarios were looked into, ranging from regulatory uncertainty to continued low interest rates.
The Audit Committee discussed the quarterly results, the interim accounts and the annual accounts. Key audit matters, as included in the auditors’ reports, were also a topic of discussion. In addition to the financial results and accounts, the subjects of the Audit Committee’s regular deliberations also included financial reporting, auditor’s independence and fees, the overall internal control environment in general, the internal controls over financial reporting, the external auditor reports and management letters, and capital management related matters. The Audit Committee also reviewed the quarterly press releases related to the results, the Annual Report, the 20-F form and the SOX404 year-end sign-off report.
The Audit Committee advised positively on the proposal to resume regular dividend payments to shareholders and to advance the publication dates for the ING Group 2015 Annual Report and the quarterly results from 2016 onwards.
In addition to the Audit Committee meetings, the chairman of the Audit Committee regularly held separate sessions with the independent external auditor, the head of the Corporate Audit Services department and the CFO.
The Committee discussed the agenda for the 2015 Annual General Meeting, including the publication on the application of the Dutch Banking Code 2014.
Composition of the Executive and the Management Board At the Annual General Meeting of Shareholders in May 2015, no changes to the Executive Board were proposed.
The Nomination Committee also discussed the ECB request, stemming from the ECB’s enhanced role as supervisor, for access to information on ING candidates for board positions in the context of discussions on succession and contingency planning.
Remuneration Committee meetings In 2015, the Remuneration Committee met eight times with no absentees.
At the start of 2015 proposed amendments to the existing remuneration policy for the members of the Executive Board and a variable remuneration cap for select global staff were on the agenda. These were approved during ING’s 2015 Annual General Meeting.
The ING Bank remuneration framework and policies were reviewed and updated to reflect changes, including the new legislation on “Remuneration Policies of Financial Institutions” (“Wet Beloningsbeleid Financiële Ondernemingen”, WBFO) with which ING complies. The Remuneration Committee discussed how to ensure that ING continues to be an attractive employer for talents and maintains a level playing field with peers given the new Dutch remuneration-related legislation. The Chairman of the Supervisory Board informed the Remuneration Committee of the meetings he had with various Dutch politicians and labour unions to discuss remuneration of Dutch companies in general.
and purpose through the Think Forward strategy is something to be proud of. The Supervisory Board would like to thank all ING employees for their efforts in realising this and for continuing to serve the interests of customers, shareholders and other stakeholders of ING.
“Corporate governance” chapter, pages 70-82 and the “Remuneration report” chapter, pages 91-101 for more information, which are deemed to be incorporated by reference here.
Compliance with the Corporate Governance Code ING Group uses the Corporate Governance Code as reference for its corporate governance structure and practices. The Corporate Governance Code can be downloaded from the website of the Dutch Corporate Governance Code Monitoring Committee (www.commissiecorporategovernance.nl).
The application of the Corporate Governance Code by ING is described in the 2010 publication “ING’s implementation of the Dutch Corporate Governance Code”, which is available on the website of ING Group (www.ing.com). This is to be read in conjunction with this section and is deemed to be incorporated into this section.
Corporate governance review As announced in the 2014 Annual Report, the Executive Board and Supervisory Board, assisted by its Corporate Governance Committee, have reviewed ING Group’s corporate governance, including the depositary receipts structure, in 2015. An external law firm and a proxy advisory firm have advised ING in this review. As part of this review ING has also reached out to investors, proxy advisors and other stakeholders to seek their view on key elements of the corporate governance. The outcome of the review will be submitted to the 2016 Annual General Meeting. Also the board structure and the interaction between the Supervisory Board and the ING organisation were reviewed. For more information, please refer to the Supervisory Board Report on page 65.
Legislative and regulatory developments The Bank Resolution and Recovery Directive (“BRRD”) was implemented in Dutch law in 2015. Although banks in distress are the focal point of the BRRD, certain provisions must be applied outside situations of distress. One of these requires companies subject to the BRRD, including ING Group, at all times to maintain sufficient authorised share capital to permit the issue of as many ordinary shares as required for a potential future bail-in. The BRRD also permits, subject to certain conditions, a reduction in the convocation period for shareholders meetings from 42 days (the Dutch standard) to 10 days. Proposals related to the implementation of the foregoing will be included in the proxy materials for the 2016 Annual General Meeting.
Capital structure, shares The authorised capital of ING Group consists of ordinary shares and cumulative preference shares. Currently, only ordinary shares are issued, while a call option to acquire cumulative preference shares has been granted to ING Continuity Foundation (Stichting Continuïteit ING). The acquisition of cumulative preference shares pursuant to the call option is subject to the restriction that, immediately after the issuance of cumulative preference shares, the total amount of cumulative preference shares outstanding may not exceed onethird of the total issued share capital of ING Group (see page 86). The purpose of this call option is to protect the independence, the continuity and the identity of ING Group against influences that are contrary to the interests of ING Group, its enterprise and the enterprises of its subsidiaries and all stakeholders (including, but not limited to, hostile takeovers).
The Board of ING Continuity Foundation currently comprises of four members who are independent of ING Group. No Executive Board member or former Executive Board member, Supervisory Board member or former Supervisory Board member, ING Group employee or former ING Group employee or permanent adviser or former permanent adviser to ING Group is on the Board of ING Continuity Foundation. The Board of ING Continuity Foundation appoints its own members, after consultation with the Supervisory Board of ING Group, but without any requirement for approval by ING Group.
• In contrast to the Sarbanes-Oxley Act of 2002, the Corporate Governance Code contains a “comply-or- explain” principle, offering the possibility of deviating from the Corporate Governance Code as long as any such deviations are explained. To the extent that such deviations are approved by the General Meeting, the company is deemed to be in full compliance with the Corporate Governance Code.
• Dutch law requires that ING Group’s external auditors be appointed at the General Meeting and not by the Audit Committee.
The size and structure of this delegation were included in the corporate governance review, conducted in 2016. For more information please refer to the proxy materials for the 2016 Annual General Meeting.
Transfer of shares and depositary receipts and transfer restrictions Shares are transferred by means of a deed of transfer between the transferor and the transferee. To become effective, ING Group has to acknowledge the transfer, unless ING Group itself is a party to the transfer. The Articles of Association do not restrict the transfer of ordinary shares, whereas the transfer of cumulative preference shares is subject to prior approval of the Executive Board. The Articles of Association and the trust conditions for registered shares in the share capital of ING Group (“Trust Conditions”) do not restrict the transfer of depositary receipts for shares. ING Group is not aware of the existence of any agreement pursuant to which the transfer of ordinary shares or depositary receipts for such shares is restricted.
Repurchase of shares ING Group may repurchase outstanding shares and depositary receipts for such shares. Although the power to repurchase shares and depositary receipts for shares is vested in the Executive Board subject to the approval of the Supervisory Board, prior authorisation from the General Meeting is required for these repurchases. Under Dutch law, this authorisation lapses after 18 months. Each year, the General Meeting has been asked to approve the repurchase of shares by the Executive Board by means of a bipartite authorisation.
When repurchasing shares, the Executive Board must observe the price ranges prescribed in the authorisation. For the ordinary shares and depositary receipts for such
The Board of ING Trust Office reports on its activities through an annual report, which has been included on pages 83–85.
Special rights of control No special rights of control referred to in Article 10 of the directive of the European Parliament and the Council on takeover bids (2004/25/EC) are attached to any share.
ING Group is not aware of any investors (or potential shareholders) with an interest of 3 percent or more in ING Group other than those shown on page 56 as per year-end 2015.
Voting on the ordinary shares by ING Trust Office ING Trust Office has discretion to vote in respect of shares for which it has not issued voting proxies to holders of depositary receipts and has not received any voting instructions.
ING Trust Office promotes the solicitation of specific proxies or voting instructions by holders of depositary receipts. ING Trust Office encourages the greatest possible participation of holders of depositary receipts and promotes the execution of voting rights in a transparent way. At the same time it prevents a minority of shareholders and holders of depositary receipts from using a chance majority of votes to the disadvantage of the shareholders and holders of depositary receipts neither present nor represented at a General Meeting of ING Group.
Proxy voting facilities ING Group provides proxy voting facilities to its investors via its website and solicits proxies from its ADS holders in line with common practice in the US.
In order to encourage the participation at the Annual General Meeting, ING introduced the EVO Platform for the first time in the Annual General Meeting of 2014. The EVO Platform provides holders of depositary receipts an online facility to register for the meeting, to appoint a proxy or to issue voting instructions to the ING Trust Office.
Members of the Executive Board may be suspended or dismissed at any time by a majority resolution of the General Meeting.
Function of the Executive Board The Executive Board is charged with the management of ING Group, which means, among other things, that it is responsible for setting and achieving ING Group’s objectives, strategy and policies, as well as the ensuing delivery of results. It also includes the day-to-day management of ING Group. The Executive Board is accountable for the performance of these duties to the Supervisory Board and the General Meeting. The responsibility for the management of ING Group is vested in the Executive Board collectively. The organisation, powers and modus operandi of the Executive Board are detailed in the Executive Board Charter, which was approved by the Supervisory Board. The Executive Board Charter is available on the website of ING Group (www.ing.com).
Reporting Resolutions adopted at a General Meeting are generally published on the website of ING Group (www.ing.com) following the meeting, within one week. The draft minutes of the General Meeting are, in accordance with the Corporate Governance Code, made available to shareholders and holders of depositary receipts on the website of ING Group (www.ing.com) no later than three months after the meeting. Shareholders and holders of depositary receipts may react to the draft minutes in the following three months, after which the final minutes will be adopted by the chairman of the meeting in question and by a shareholder or holder of depositary receipts appointed by that meeting. The final minutes are made available on the website of ING Group (www.ing.com). In a deviation from the provisions of the Corporate Governance Code, shareholders and holders of depositary receipts will not have the opportunity to react to the minutes of a General Meeting if a notarial report of the meeting is made, as this would be in conflict with the laws applicable to such notarial report.
W.F. (Wilfred) Nagel, chief risk officer (Born 1956, Dutch nationality, male; appointed in 2012, term expires in 2016) Wilfred Nagel is a member of the Executive Board of ING Group since 14 May 2012. He also serves as a member and CRO on the Management Board Banking. He is responsible for ING’s risk management departments, including Compliance Risk Management. He was CEO of ING Bank Turkey until 5 October 2011, when he was appointed as a member of the Management Board Banking. He joined ING in 1991 and held various positions including Global Head Credit Risk Management from 2002 to 2005 and CEO Wholesale Banking in Asia from 2005 to 2010. He holds a Master’s degree in Economics from VU University Amsterdam.
Transactions involving actual or potential conflicts of interest In accordance with the Corporate Governance Code, transactions with members of the Executive Board in which there are significant conflicting interests will be disclosed in the Annual Report. In deviation from the Corporate Governance Code, however, this does not apply if (i) such disclosure would be against the law; (ii) the confidential, share-price sensitive or competition-sensitive character of the transaction prevents disclosure; and/or (iii) the information is so competition-sensitive that the disclosure could damage the competitive position of ING Group.
Significant conflicting interests are considered to be absent and are not reported if a member of the Executive Board obtains financial products and services, other than loans, which are provided by ING Group subsidiaries in the ordinary course of their business on terms that apply to all employees. In connection with the aforementioned, “loans” does not include financial products in which the granting of credit is of a subordinated nature, e.g. credit cards and overdrafts in current account, because of a lack of materiality.
Term of appointment of members of the Supervisory Board A member of the Supervisory Board retires no later than at the end of the first General Meeting held four years after his or her last appointment or reappointment. In accordance with the Corporate Governance Code, members of the Supervisory Board may, as a general rule, be reappointed for two additional four-year terms.
Members of the Supervisory Board may be suspended or dismissed at any time by a majority resolution of the General Meeting.
Function of the Supervisory Board The function of the Supervisory Board is to supervise the policy of the Executive Board and the general course of events of ING Group and its business, as well as to provide advice to the Executive Board. In line with Dutch company law, the Articles of Association, the Corporate Governance Code as well as the Supervisory Board Charter, all members of the Supervisory Board are required to: • Act in accordance with the interests of ING Group and the business connected with it, taking into account the relevant interests of all stakeholders of ING Group; • Perform their duties without mandate and independent of any interest in the business of ING Group; and
According to the Banker’s Oath that was taken by the members of the Supervisory Board, they must carefully consider the interests of all stakeholders of ING. In that consideration they must give paramount importance to the interests of the clients.
For an overview of loans granted to members of the Supervisory Board, see page 99.
Members of the Supervisory Board are to disclose material conflicts of interest and potential conflicts of interest and to provide all relevant information relating to them. The Supervisory Board – without the member concerned taking part – then decides whether a conflict of interest exists.
Ancillary positions pursuant to CRD IV: Chairman of the Supervisory Board of ING Groep N.V., Chairman of the Supervisory Board of ING Bank N.V., Chairman of the Supervisory Board of Koninklijke Philips Electronics N.V., member of the Supervisory Board of Koninklijke Boskalis Westminster N.V.
H.J.M. (Hermann-Josef) Lamberti (vice-chairman) (Born 1956, German nationality, male; appointed in 2013, term expires in 2017) Former chief operating officer of Deutsche Bank AG.
The Corporate Governance Committee assists the Supervisory Board in monitoring and evaluating the corporate governance of ING as a whole and reporting on this in the Annual Report and to the General Meeting. It also advises the Supervisory Board on improvements.
Ancillary positions pursuant to CRD IV: member of the Supervisory Board of ING Groep N.V., member of the Supervisory Board of ING Bank N.V., Chief Executive Officer of OMV Petrom S.A., Chairwoman of the Supervisory Board of OMV Petrom Marketing SRL, Chairwoman of the Supervisory Board of OMV Petrom Gas SRL, member of the Supervisory Board of OMV Petrom Global Solutions SRL.
J.C.L. (Joost) Kuiper (Born 1947, Dutch nationality, male; appointed in 2011, term expires in 2017) Former member of the Executive Board of ABN AMRO Bank N.V.
Ancillary positions pursuant to CRD IV: member of the Supervisory Board of ING Groep N.V., member of the Supervisory Board of ING Bank N.V., Chairman of the Supervisory Board of IMC B.V.
Other relevant ancillary positions: member of the advisory Board Boelens & De Gruyter B.V., member of the Advisory Board of Boron, Chairman of the Supervisory Council of Stichting Stadsschouwburg Amsterdam, Chairman of the Board of Stichting Ooglijders Rotterdam, Chairman of Stichting Administratiekantoor Koninklijke Brill.
H.W. (Henk) Breukink (Born 1950, Dutch nationality, male; appointed in 2007, term expires in 2019) Former managing director of F&C and country head for F&C Netherlands (asset management firm).
Other relevant ancillary positions: Chairman of the Supervisory Board of Stichting Hoger Onderwijs Nederland, non-Executive Director of Gemeente Museum Den Haag.
Object The Stichting ING Aandelen (“ING Trust Office”), a foundation organised under the laws of the Netherlands, was incorporated on 22 January 1991. The articles of association were most recently amended on 7 October 2010 (the “Articles of Association”). The most recent amendments of the trust conditions for registered shares in the share capital of ING Groep N.V. (“Trust Conditions”) date from 2 September 2011. The object of the Trust Office, as described in the Articles of Association, is as follows: a. to acquire and administer against assignment of depositary receipts, registered shares in the capital of ING Groep N.V., a public limited company with its registered office in Amsterdam and any bonus shares which may be distributed thereon or shares acquired as stock dividend or by the exercise of subscription rights and to issue exchangeable depositary receipts for these shares, to exercise voting rights and all other rights attaching to the shares, to exercise subscription rights and to receive dividends and other distributions, including proceeds of liquidation, subject to the obligation to distribute the income to the holders of depositary receipts, save that depositary receipts shall be issued for bonus shares, shares acquired as stock dividend and shares acquired on behalf of holders of depositary receipts by virtue of the exercise of subscription rights; b. to foster the exchange of information between ING Group on the one hand and the holders of depositary receipts and shareholders in ING Group on the other; c. to promote the solicitation of proxies of shareholders other than the foundation itself and of specific proxies and/or voting instructions of holders of depositary receipts, and further to engage in any activity which may be related to the foregoing in the widest sense, whereby all activities which entail commercial risk shall be excluded from the foundation’s object.
Board meetings During the 2015 reporting year, the board of ING Trust Office (the “Board”) held six meetings. The topics discussed in these meetings included: • The Annual General Meeting of ING Group (“AGM”) of 11 May 2015, the items on the agenda of the AGM, the proxy voting results and the voting by ING Trust Office during the AGM 2015; • the annual report and the annual accounts of ING Trust Office, the results of the audit concerning the book year 2014 and the applicable accountancy rules; The following report is issued in compliance with the provisions of article 14 of the trust conditions for registered shares in the share capital of ING Groep N.V. (“ING Group”) and best-practice provision IV.2.6 of the Dutch Corporate Governance Code.
Votes cast During the AGM 2015, holders of around 57 percent of the outstanding depository receipts used their voting right, either by means of binding voting instructions to ING Trust Office (around 56 percent of the outstanding depository receipts) or by attending the meeting in person or represented by a third party (around 1 percent of the outstanding depository receipts). A more detailed overview of these voting results can be found on the website of ING Group (www.ing.com).
The annual remuneration for the chairman of the Board amounts EUR 25,000.00 and for the other members of the Board EUR 20,000.00.
Other The activities involved in the administration of shares are performed by Administratiekantoor van het Algemeen Administratie- en Trustkantoor B.V., Amsterdam.
As required by section 5:25c paragraph 2(c) of the Dutch Financial Supervision Act, each of the signatories hereby confirms that to the best of his or her knowledge: • the ING Groep N.V. 2015 Annual Accounts give a true and fair view of the assets, liabilities, financial position and profit or loss of ING Groep N.V. and the enterprises included in the consolidation taken as a whole; and
The Executive Board assessed the effectiveness of our internal control over financial reporting as of 31 December 2015. In making this assessment, the Executive Board performed tests based on the criteria of the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013 framework). Based on the Executive Board’s assessment of those criteria, the Executive Board has concluded that the Company’s internal control over financial reporting was not effective as of 31 December 2015 due to the existence of a material weakness in the internal controls related to the determination of specific accounting policies for material transactions with a high degree of accounting complexity, including divestitures. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness identified relates to the accounting for certain aspects of the “anchor investment transaction” undertaken in connection with the July, 2014 IPO of NN Group, and arose in connection with the preparation of our 2014 financial statements. The amended accounting for this transaction is reflected in the consolidated financial statements, including comparative 2014 figures, as described in Note 1 to our Consolidated Financial Statements.
Remuneration policy for the Executive Board The current remuneration policy for the Executive Board was adopted by the Annual General Meeting (AGM) on 27 April 2010. Amendments to this policy were adopted by the AGM on 9 May 2011 in response to new regulatory requirements, on 12 May 2014 with respect to pensions for the Executive Board and on 11 May 2015 in order to lower the maximum variable remuneration and to specify that variable remuneration for the Executive Board be paid fully in shares.
The Executive Board remuneration policy provides that remuneration of Executive Board members consists of a combination of fixed compensation (base salary) and variable remuneration (together “total direct compensation”), pension arrangements and benefits as described below.
Total direct compensation The Executive Board remuneration policy aims to deliver total direct compensation slightly below the median of comparable positions in the chosen peer group (consisting of financial and non-financial companies) and provides for a balanced mix of fixed and variable remuneration. Total compensation will be determined in line with the relevant market environment and will be reviewed from time-to-time by the Supervisory Board. ING’s Executive Board remuneration policy is in accordance with applicable laws and regulations, including the Wbfo, the Dutch Banking Code and the Dutch Corporate Governance Code.
Increased focus on risk and non-financial performance Variable remuneration is linked to performance and takes into consideration individual, business line and company performance criteria. The performance targets used for the allocation of variable remuneration are annually predetermined by the Supervisory Board.
Performance will be assessed on the basis of financial and non-financial targets, with variable remuneration being based for at least 50% on non-financial targets. Non-financial targets include f.i. economic, environmental, customer satisfaction and social criteria.
In line with applicable regulations, a maximum of 40% of total variable remuneration is awarded “upfront” in the year following the performance year. The remaining part of the total variable remuneration (a minimum of 60%), is deferred. It is subject to a tiered vesting on the first, second and third anniversary of the grant date (one-third per annum). The entire long-term component is subject to an ex-post performance assessment by the Supervisory Board. The ex-post performance assessment cannot lead to an upward adjustment of the deferred variable remuneration.
Both the upfront part of the variable remuneration and all deferred parts are fully awarded in shares. A retention period of five years from the date of grant applies to all share awards granted to Executive Board members in their capacity as Board member. However, they are allowed to sell part of their shares on the date of vesting to pay tax on the vested share award.
It is the responsibility of ING’s Supervisory Board to take into account the interests of all stakeholders, including shareholders and employees, as well as business continuity and sustainable growth, when determining the Executive Board’s remuneration.
The legal and regulatory environment is still undergoing changes and this may result in further impact on ING. In order to ensure that ING can adapt to these uncertain factors, the Supervisory Board will re-evaluate the Executive Board remuneration policy as and when required.
Special employment conditions Special employment conditions, such as commitments made to secure the recruitment of new executives, may be used in exceptional circumstances subject to approval by the Supervisory Board.
2015 Executive Board base salary In 2015 the Supervisory Board assessed that applying the 20% bonus cap as stated in the Wbfo to the then applicable Executive Board remuneration policy would further increase the pay gap with the median total direct compensation in ING’s peer group. To partly mitigate this increased gap, the Supervisory Board decided to increase the base salary of all Executive Board members in 2015, whilst reducing the bonus cap from 100% to 20%.
• Completed a full review of underlying trends, which have led to the Think Forward strategy, and reconfirmed the overall direction, whilst identifying new priorities for innovation and operations.
• A new performance management programme called Step Up has been developed and is currently being implemented at the MBB-1 and -2 levels as well as in Spain, Belgium and Financial Markets, ahead of a global roll-out in 2017; this will lay the foundation for a high performance culture.
• Further investments have been made in leadership development through the development of our Leadership that Matters program, ready for roll-out in 2016.
• A Digital Financial Advisor, co-developed by three countries to help savings customers assess whether or not they need to shift to investment products.
• First ever, EUR 1 bln green bond issue launched with proceeds going to projects in renewable energy, green buildings and water/energy efficiency.
• Discontinued financing of new coal exploration and are actively reducing existing coal financing.
• Core lending growth of EUR 21.7 bln; customer deposits increasing by EUR 25.1 bln.
Remuneration report – continued 2015 Executive Board variable remuneration The performance of the Executive Board is evaluated against financial and non-financial performance indicators. Variable remuneration in 2015 of the CFO and CRO was based for 75% on non-financial performance indicators. The variable remuneration in 2015 for the CEO was based for 55% 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 set at 18% for the CFO at 13% and for the CRO at 16%.
Pension costs In 2015, members of the Executive Board participated in the Collective Defined Contribution (CDC) pension plan as part of the Executive Board remuneration policy. In 2013 and 2014 the Executive Board participated in the Dutch Defined Contribution Pension Plan. The disclosed costs under this heading has gone down as a result of the loss of pension accrual for salary above EUR 100,000. Same as other employees in the Netherlands, the Executive Board members are compensated for this loss by means of a savings allowance (see Benefits on page 96).
Patrick Flynn Base salary 1,180 772 750 Variable remuneration in cash - - -
Pension costs of the individual members of the Executive Board in thousands of euros 2015 2014 2013 1 Ralph Hamers was appointed to the Executive Board on 13 May 2013. The 2013 pension costs for him reflect the partial year as an Executive Board member.
Deferred shares are shares conditionally granted, with the final shares awarded in three years (tiered) of which the ultimate value of each deferred share will be based on ING Group’s share price on the vesting date.
Other emoluments in thousands of euros 2015 2014 2013 1 Ralph Hamers was appointed to the Executive Board on 13 May 2013. The 2013 emoluments for him reflect the partial year as an Executive Board member.
For the Executive Board members the following shares vested during 2015: Loans and advances to Executive Board members The table below presents the loans and advances provided to Executive Board members and outstanding on 31 December 2015, 2014 and 2013.
Number of shares vested Vesting price Ralph Hamers 1 LSPP Upfront share units 2 27 Mar 2014 27 Mar 2015 3,729 3,729 € 13,50
Remuneration report – continued 2015 Remuneration Supervisory Board The table below shows the remuneration, expense allowances and attendance fees per Supervisory Board member.
Compensation of former members of the Supervisory Board who are not included in the above table amounted to nil in 2015, EUR 220,000 in 2014 and EUR 90,000 in 2013.
Herman-Josef Lamberti 111 81 46 Isabel Martin Castella 92 87 48 Eric Boyer de la Giroday 92 53 1 As per 1 January 2013 new VAT legislation was implemented based on which the Dutch Supervisory Board members qualify as VAT taxable persons and are obliged to charge 21% VAT to ING on their remuneration.
ING shares held by the members of the Supervisory Board number of shares 2015 2014 2013 Jeroen van der Veer 119,469 119,469 119,469
Committee fees (annual amounts) Chairman Audit Committee Member Audit Committee Chairman Corporate Governance Committee Member Corporate Governance Committee Chairman Other Committee Member Other Committee
Attendance fees (per meeting) Attendance fee Audit Committee Chairman Attendance fee Audit Committee members Attendance fee other Committee Chairman Attendance fee other Committee members Attendance fee outside country of residence Attendance fee outside continent of residence
The ex-ante assessment process aims to check, verify and consider the full range of any current and potential future risks. As part of this process, ING takes into account the company performance at bank level, business line performance and individual performance and applies a solvency test. A set of risk requirements is agreed for all Identified Staff holding risk taker roles. These risk requirements set the minimum standard to be obtained during the performance year. Deviation there from may lead to full or partial reduction of variable remuneration via a so called risk modifier.
The ex-post assessment process aims to perform an analysis, including as to whether the outcomes of the initial ex ante risk assessment process were correct. This is an explicit risk alignment measure for ING to adjust any variable remuneration downwards, e.g. by applying a holdback of any unpaid or unvested variable remuneration.
Compensation packages related to control functions (such as risk management functions) are structured such that they provide for a reduced emphasis on variable remuneration. To ensure the autonomy of the individual, financial performance metrics are dependent on objectives determined at the divisional level (i.e. not at the level of the relevant business). In addition, performance assessments are not only determined by business management, but also by the functional line.
2015 Remuneration all staff The total amount of variable remuneration awarded to employees over 2015 was EUR 364 million. This includes both discretionary variable remuneration as well as collective variable remuneration such as profit sharing arrangements resulting from collective labour agreements negotiated with relevant unions. In 2015 there were 24 employees, working in the Corporate Staff, Wholesale Banking and Retail Banking business lines, to whom total annual remuneration (incl. employer pension contributions) of EUR 1 million or more was awarded. Most of these employees work outside the Netherlands.
Restructuring Plan 250 54 Other events 255 55 Subsequent events 259 Risk management 260 Capital management 329
Other information Independent auditor’s report 349 Proposed appropriation of result and subsequent events 353
Anchor investment transaction. Reference is made to Note 1 ‘Accounting policies’ – Change in accounting approach NN Group Anchor investment transaction.
Items that will not be reclassified to the profit and loss account: Remeasurement of the net defined benefit asset/liability 41 24 –289 –942
Reference is made to Note 39 ‘Taxation’ for the disclosure on the income tax effects on each component of the other comprehensive income.
– other financial assets at fair value through profit and loss –256 –553 1,899
– other financial liabilities at fair value through profit and loss –1,582 –1,018 –3,429
4 Proceeds from partial divestment of NN Group includes EUR 1,040 million proceeds (excluding the repurchase by NN Group) from the sale of shares of NN Group in February 2015, prior to loss of control.
Total amount recognised directly in equity (other comprehensive income) 996 996 126 1,122 Net result from continuing and discontinued operations 4,010 4,010 403 4,413
Changes in the composition of the group and other changes –136 –136 –72 –208 1 Exchange rate difference and other include the transfer of Revaluation reserves to Other reserves due to the partial sale of NN Group in February 2015.
NN Group Anchor investment transaction. Reference is made to Note 1 ‘Accounting policies’ – Change in accounting approach NN Group Anchor investment transaction.
Changes in the composition of the group and other changes 824 824 –112 712
1 Accounting policies ING Group applies International Financial Reporting Standards (‘IFRS’) as adopted by the European Union (‘EU’). IFRS requires the consistent application of accounting policies. In the annual accounts, the terms ‘IFRS’ and ‘IFRS-EU’ is used to refer to International Financial Reporting Standards as adopted by the EU, including the decisions ING Group made with regard to the options available under IFRS-EU.
• ING’s accounting policy for Property for own use is fair value, with changes in fair value reflected in the revaluation reserve in equity (‘Other comprehensive income’). A net negative revaluation on individual properties is reflected immediately in the profit and loss account.
d) Other significant changes in 2015 Changes in the composition of ING Group During 2015 and 2014, the following changes in the composition of ING Group occurred: • Voya was classified as held for sale and discontinued operations in September 2013. A number of divestment transactions resulted in Voya being deconsolidated as of 31 March 2014; • Following changes to the governance structure of ING Vysya in 2014, ING Vysya was no longer consolidated as of 31 March 2014; and • In September 2014, NN Group was classified as held for sale and discontinued operations. A number of divestment transactions resulted in NN Group being deconsolidated at the end of May 2015.
NN Group In February 2015, ING Group sold 52 million ordinary shares of NN Group, reducing its ownership in NN Group from 68.14%, at 31 December 2014, to 54.58%. The transaction did not impact the profit and loss account of ING Group as NN Group continued to be fully consolidated. The transaction had a negative impact of EUR 1,769 million on the shareholder’s equity of ING Group.
With the injection of capital and deconsolidation of NN Group, ING Group fulfils its commitment to the EC, per the EC decision of 16 November 2012. The restrictions from this decision regarding acquisition and price leadership will no longer apply to ING Group.
In June 2015, NN Group repurchased 2.1 million ordinary shares from ING Group. This transaction reduced ING’s remaining interest in NN Group to 37.61%.
As at 31 December 2015, ING Group no longer has nominees in the Supervisory Board of NN Group.
On 2 February 2016, ING settled the exchange of the third and final tranche of EUR 337.5 million mandatory exchangeable subordinated notes which were issued in 2014 as part of the anchor investment in NN Group. EUR 208 million of the notes were exchanged into 6.9 million NN Group ordinary shares with the three anchor investors. EUR 129.5 million of notes were settled in cash with RRJ Capital. This transaction reduced ING’s remaining stake in NN Group from 16.22% to 14.09%. The transaction did not have a material impact on the shareholder’s equity or the profit and loss account of ING Group.
The financial impact on ING Group’s 2015 amounts is disclosed in the press release dated 11 January 2016.
ING Vysya Bank In April 2015, the merger between ING Vysya Bank (‘ING Vysya’) and Kotak Mahindra Bank (‘Kotak’) was completed and the legal entity ING Vysya ceased to exist. As a result of this transaction, ING holds a stake of 6.5% in the combined company, which operates under the Kotak brand. The transaction resulted in a gain of EUR 367 million and is recognised in the line ‘Share of result from associates and joint ventures’. The transaction did not materially impact the shareholders’ equity of ING Group. As at 31 December 2015, ING accounts for the investment in Kotak as an Available-for-sale equity investment.
Impact on ING Group Balance sheet and Profit and loss account items: ING Group Annual Report 2015 117
IFRS 9 ‘Financial Instruments’ IFRS 9 ‘Financial Instruments’ was issued by the IASB in July 2014. IFRS 9 will replace IAS 39 ‘Financial Instruments: Recognition and Measurement’ and includes requirements for classification and measurement of financial assets and liabilities, impairment of financial assets and micro hedge accounting. The new requirements become effective as of 1 January 2018. The classification and measurement and impairment requirements will be applied retrospectively by adjusting the opening balance sheet and opening equity at 1 January 2018, with no restatement of comparative periods. IFRS 9 is not yet endorsed by the EU. When the actual endorsement will take place is not clear; the current expectation is in the second half of 2016. It is expected that the implementation of IFRS 9, if and when endorsed by the EU, will have a significant impact on Shareholders’ equity, Net result and/or Other comprehensive income and disclosures.
Impairment The recognition and measurement of impairment is intended to be more forward-looking, based on an expected credit loss (‘ECL’) model, than under IAS 39 which is of an incurred loss model. The ECL model applies to on-balance financial assets accounted for at amortised cost and FVOCI, such as loans, debt securities and trade receivables, and off-balance items such as lease receivables, and certain loan commitments financial guarantee.
Three stage approach ING Group will apply the IFRS 9 three stage approach to measure expected credit losses: • Stage 1: 12 month ECL - performing
IFRS 16 ‘Leases’ In January 2016, the IASB issued IFRS 16 ‘Leases’ the new accounting standard for leases. The new standard is effective for annual periods beginning on or after 1 January 2019 and will replace IAS 17 ‘Leases’ and IFRC 4 ‘Determining whether an Arrangement contains a Lease’. Early adoption is permitted for companies that also apply IFRS 15 ‘Revenue from Contracts with Customers’. IFRS 16 is not yet endorsed by the EU. The new standard removes the classification of leases as either operating leases or finance leases, resulting in all leases for lessees being treated comparable to finance leases. All leases will be recognised on the balance sheet with the exception of short-term leases with a lease term of less than 12 months and leases of low-value assets (for example tablets or personal computers. The main reason for this change is to increase comparability between companies and increase the visibility of these types of assets and liabilities. Lessor accounting remains largely unchanged. The standard permits a lessee to choose either a full retrospective or a modified retrospective transition approach as well as some practical transitional relieves. ING Group is currently assessing the impact of this standard.
Loan loss provisions Loan loss provisions are recognised based on an incurred loss model. Considerable judgement is exercised in determining the extent of the loan loss provision (impairment) and is based on management’s evaluation of the risk in the portfolio, current economic conditions, loss experience in recent years and credit, industry, geographical and concentration trends. Changes in such judgements and analyses may lead to changes in the loan loss provisions over time.
All debt and equity securities (other than those carried at fair value through profit and loss) are subject to impairment testing every reporting period. The carrying value is reviewed in order to determine whether an impairment loss has been incurred. Evaluation for impairment includes both quantitative and qualitative considerations. For debt securities, such considerations include actual and estimated incurred credit losses indicated by payment default, market data on (estimated) incurred losses and other current evidence that the issuer may be unlikely to pay amounts when due. Equity securities are impaired when management believes that, based on a significant or prolonged decline of the fair value below the acquisition price, there is sufficient reason to believe that the acquisition cost may not be recovered. ‘Significant’ and ‘prolonged’ are interpreted on a case-by-case basis for specific equity securities. Generally 25% and 6 months are used as triggers. Upon impairment, the full difference between the (acquisition) cost and fair value is removed from equity and recognised in net result. Impairments on debt securities may be reversed if there is a decrease in the amount of the impairment which can be objectively related to an observable event. Impairments on equity securities cannot be reversed.
Control exists if ING Group is exposed to variable returns and having the ability to affect those returns through power over the investee.
Disposal groups held for sale and discontinued operations Disposal groups (and groups of non-current assets) are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This is only the case when the sale is highly probable and the disposal group (or group of assets) is available for immediate sale in its present condition; management must be committed to the sale, which is expected to occur within one year from the date of classification as held for sale.
Exchange rate differences in the profit and loss account are generally included in Net trading income. Reference is made to Note 26 ‘Net trading income’, which discloses the amounts included in the profit and loss account. 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 profit and loss account in Result on disposal of group companies. Reference is also made to Note 13 ‘Equity’, which discloses the amounts included in the profit and loss account.
Recognition and derecognition of financial instruments Recognition of financial assets All purchases and sales of financial assets classified as fair value through profit and loss, held-to-maturity and available-for-sale that require delivery within the time frame established by regulation or market convention (‘regular way’ purchases and sales) are recognised at trade date, which is the date on which the Group commits to purchase or sell the asset. Loans and receivables are recognised at settlement date, which is the date on which the Group receives or delivers the asset.
Derecognition of financial assets Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or where the Group has transferred substantially all risks and rewards of ownership. If the Group neither transfers nor retains substantially all the risks and rewards of ownership of a financial asset, it derecognises the financial asset if it no longer has control over the asset.
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 banking operations and Investment income in the profit and loss account. Dividend income from equity instruments classified as available- for-sale is generally recognised in Investment income in the profit and loss account when the dividend has been declared. Unrealised gains and losses arising from changes in the fair value are recognised in equity. When the securities are disposed of, the related accumulated fair value adjustments are included in the profit and loss account as Investment income. For impairments of available-for-sale financial assets reference is made to the section ‘Impairments of other financial assets’. Investments in prepayment sensitive securities such as Interest- Only and Principal-Only strips are generally classified as available-forsale.
Credit risk management classification Credit risk management disclosures are provided in the section ‘Risk management – Credit risk’. The relationship between credit risk classifications in that section and the consolidated balance sheet classifications above is explained below: • Pre-settlement risk arises when a counterparty defaults on a transaction before settlement and ING Group has to replace the contract by a trade with another counterparty at the then prevailing (possibly unfavourable) market price. The pre-settlement risk classification mainly relates to the balance sheet classification Financial assets at fair value through profit and loss (trading assets and non-trading derivatives) and to securities financing; • Money market risk arises when ING Group places short term deposits with a counterparty in order to manage excess liquidity and among others relates to the balance sheet classifications Amounts due from banks and Loans and advances to customers; • Lending risk arises when ING Group grants a loan to a customer, or issues guarantees on behalf of a customer and mainly relates to the balance sheet classification Loans and advances to customers and off balance sheet items e.g. obligations under financial guarantees and letters of credit; • Investment risk comprises the credit default and migration risk that is associated with ING Group’s investment portfolio and mainly relates to the balance sheet classification Investments (available-for-sale and held-to-maturity); and
ING Group applies fair value hedge accounting to portfolio hedges of interest rate risk (macro hedging) under the EU ‘carve out’ of IFRSEU. 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 under-hedging strategies. Under the IFRS-EU ‘carve-out’, hedge accounting may be applied to core deposits and ineffectiveness only arises when the revised estimate of the amount of cash flows in scheduled time buckets falls below the designated amount of that bucket.
Leases The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement at inception date.
Goodwill is only capitalised on acquisitions. Goodwill is allocated to reporting units for the purpose of impairment testing. These reporting units represent the lowest level at which goodwill is monitored for internal management purposes. This test is performed annually or more frequently if there are indicators of impairment. Under the impairment tests, the carrying value of the reporting units (including goodwill) is compared to its recoverable amount which is the higher of its fair value less costs to sell and its value in use.
Defined contribution plans For defined contribution plans, the Group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as staff expenses in the profit and loss when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.
The net cash flow shown in respect of Loans and advances to customers relates only to transactions involving actual payments or receipts. The Addition to loan loss provision which is deducted from the item Loans and advances to customers in the balance sheet has been adjusted accordingly from the result before tax and is shown separately in the statement of cash flows.
In 2015, the increase in Cash and balances with central banks is mainly as a result of excess liquidity resulting in higher placements with central banks mainly in the Netherlands, UK, Japan, Switzerland and Belgium.
Reference is made to Note 44 ‘Assets not freely disposable’ for restrictions on Cash balances with central banks.
Loans and advances to banks include balances (mainly short-term deposits) with central banks amounting to EUR 1,104 million (2014: EUR 3,105 million).
In 2015, the merger between ING Vysya and Kotak was completed. As a result of this transaction, ING Group holds 6.5% in Kotak, recognised as an Available-for-sale equity investment at EUR 1.2 billion as at 31 December 2015. Reference is made to Note 7 ‘Investments in associates and joint ventures’, Note 11 ‘Assets and liabilities held for sale’ and Note 54 ‘Other events’.
Exposure to debt securities ING Group’s exposure to debt securities is included in the following balance sheet lines: Available-for-sale investments 82,566 92,684
Reference is made to Note 45 ‘Transfer of financial assets’ for information on securities lending as well as sale and repurchase transactions.
The comparison of movement tables between 2015 and 2014 is impacted by NN Group, for which movements in 2014 are included in the respective line items until classification as held for sale at 30 September 2014.
Effect on result (before tax) for the period/year if reclassification had not been made nil nil nil nil nil nil nil
Recognised provision for credit losses (before tax) for the period/year nil nil nil nil nil nil nil
The decrease in the carrying value of the reclassified Loans and advances in 2012 compared to 2011 was mainly due to disposals.
As at 31 December 2015, Loans and advances to customers includes receivables with regard to securities which have been acquired in reverse repurchase transactions amounting to EUR 418 million (2014: EUR 1,779 million).
Reclassifications to Loans and advances to customers and Amounts due from banks - Q4 2008
Changes in the composition of the group and other changes 33 –165 –63 33 –228
The ‘Increase in loan loss provisions’ is presented as ‘Addition to loan loss provisions’ in the Consolidated profit and loss account.
In general, the reporting dates of all significant associates and joint ventures are consistent with the reporting date of the Group. However, the reporting dates of certain associates and joint ventures can differ from the reporting date of the Group, but by no more than three months.
In 2014, Changes in the composition of the group and other changes included EUR –1,022 million related to the classification of NN Group as held for sale. Reference is made to Note 54 ‘Other events’.
The cost or the purchase price amounted to EUR 1,404 million (2014: EUR 1,475 million). Cost or the purchase price less accumulated depreciation and impairments would have been EUR 563 million (2014: EUR 655 million) had property in own use been valued at cost instead of at fair value.
In 2014, goodwill of EUR 103 million was written-off, as NN Group was expected to be sold below its carrying value. Reference is made to Note 30 ‘Discontinued operations’ and Note 54 ‘Other events’. Other changes in 2014 were mainly due to changes in currency exchange rates.
As a first step of the impairment test, the best estimate of the recoverable amount of reporting units to which goodwill is allocated is determined separately for each relevant reporting unit based on Price to Earnings, Price to Book, and Price to Assets under management ratios. The main assumptions in this valuation are the multiples for Price to Earnings, Price to Book and Price to Assets under management; these are developed internally but are either derived from or corroborated against market information that is related to observable transactions in the market for comparable businesses. Earnings and carrying values are equal to or derived from the relevant measure under IFRS-EU where available the test includes the use of market prices for listed business units.
As at 31 December 2015, Assets held for sale relates to the investment of 25.75% in the associate NN Group which amounts to EUR 2,153 million. The investment in associate is presented as Assets held for sale and discontinued operations, because it is assessed highly probable that ING will dispose of NN Group within a year.
Reference is made to Note 5 ‘Investments’, Note 7 ‘Investments in associates and joint ventures’, Note 30 ‘Discontinued operations’, and Note 54 ‘Other events’.
Notes to the Consolidated annual accounts of ING Group - continued a) NN Group Proportional interest held and key information The proportional interest held and key information on NN Group are included in the tables below.
Minority interests 1 NN Group’s comprehensive income, until deconsolidation at the end of May 2015. 2 ING Group’s share of NN Group comprehensive income, until deconsolidation at the end of May 2015.
Level 3 Financial assets at fair value Financial assets measured at fair value in the balance sheet as at 31 December 2014 of EUR 121.8 billion included an amount of EUR 2.7 billion (2.2%) that was classified as Level 3.
Sensitivities If the net multiples (Earnings multiple adjusted for marketability/liquidity) would have been increased or decreased by 10%, this would have had an impact on the on the directly held unquoted private equity investment portfolio of +12% and –12% respectively.
Recognised fair value gains (losses) in shareholders’ equity (before tax) in the year prior to reclassification –971
Accrued interest and rents Accrued interest and rents includes EUR 2,895 million (2014: EUR 3,152 million) accrued interest on assets measured at amortised cost under the IAS 39 classification Loans and receivables.
Issued share capital as at 31 December 2013 3,840,894 921 Issue of shares 17,968 4
Impact of deconsolidation of NN Group relates to the release of revaluation reserves upon deconsolidation of NN Group at the end of May 2015.
Transfer to insurance liabilities/DAC comprises the change in insurance liabilities related to NN Group and Voya (until deconsolidation at the end of March 2014).
Net defined benefit asset/liability remeasurement reserve In 2015, the change in the Net defined benefit asset/liability remeasurement reserve relates mainly to the deconsolidation of NN Group.
Changes in composition of the group and other changes included a decrease of EUR 3,279 million in Retained earnings as result of the transfer of part of the Net defined benefit asset/liability remeasurement reserve due to the financial independence of the Dutch ING Pension Fund. Furthermore, Changes in composition of the group and other changes also included EUR 87 million related to the deconsolidation of Voya. Reference is made to Note 38 ‘Pension and other post- employment benefits’ and Note 54 ‘Other events’.
The repurchase premium of EUR 375 million was paid in relation to the repayment of the EUR 750 million non-voting equity securities. Reference is made to Note 53 ‘Transactions with the Dutch State and the European Commission Restructuring Plan’.
Minority interest In 2015, Minority interest decreased with EUR 7,434 million and is mainly related to the deconsolidation of NN Group. Reference is made to Note 54 ‘Other events’.
Minimum capital requirements for ING Group’s subsidiaries, associates and joint ventures are as follows: 2015 ING Bank NN Group Other Total
Subordinated loans consist of perpetual subordinated bonds issued by ING Groep N.V. These bonds have been issued to raise Tier 1 capital for ING Bank N.V. and previously, until deconsolidation in May 2015, hybrid capital for NN Group (originally issued by ING Verzekeringen N.V.). Under IFRS-EU these bonds are classified as liabilities. They are considered capital for regulatory purposes.
In April 2015, ING Group issued USD 2.25 billion securities that qualify as Additional Tier 1 under CRR /CRD IV. The issuance was in the form of USD denominated Perpetual Additional Tier 1 Contingent Convertible Capital Securities and comprised two separate tranches: a USD 1 billion Perpetual Non-Callable 5 Year with coupon 6.0%; and a USD 1.25 billion Perpetual Non-Callable 10 Year with coupon 6.5%. The securities are subject to full conversion into ordinary shares of ING Group in the event that ING Group’s phased-in CET1 ratio would fall below 7.0%.
Preference shares of group companies comprise non-cumulative guaranteed Trust Preference Securities which are issued by wholly owned subsidiaries of ING Groep N.V. These preference shares are on-lent to ING Bank for regulatory reporting purposes. The securities have a liquidation preference of a certain amount plus any accrued interest and unpaid dividend. Dividends with regard to the preference securities are presented as an interest expense in the profit and loss account. The Trust Preference Securities have no voting rights.
17 Amounts due to banks Amounts due to banks include non-subordinated debt due to banks, other than amounts in the form of debt securities.
In June 2015, ING increased its participation in the targeted longer-term refinancing operations (‘TLTRO’) with EUR 3 billion (2014: EUR 5.7 billion).
ING participates in the TLTRO of the European central bank. The TLTRO aims to stimulate lending to the real economy in the Eurozone. The interest rate on the TLTRO’s is fixed over the life of each operation at 15 bps (i.e. MRO level prevailing at the time of allotment of 5 bps plus a fixed spread of 10 basis points). Starting 24 months after each TLTRO, ING has the option to repay any part of the amounts allotted in that TLTRO at a semi-annual frequency. Parties that utilised the TLTRO’s, but whose eligible net lending in the period from 1 May 2014 to 30 April 2016 is below the benchmark, will be required to repay the TLTRO’s in September 2016.
The decrease in the trading derivatives is mainly due to expiring contracts and changes in fair value resulting from market interest rates and exchange rates. The decrease is substantially mitigated by a similar decrease in Trading derivative assets. Reference is made to Note 4 ‘Financial assets at fair value through profit and loss’ for information on trading assets.
In 2015, the change in the fair value of financial liabilities designated as at fair value through profit and loss attributable to changes in credit risk is EUR 163 million (2014: EUR –98 million) and EUR –119 million (2014: EUR –282 million) on a cumulative basis. This change has been determined as the amount of change in fair value of the financial liability that is not attributable to changes in market conditions that gave rise to market risk (i.e. mainly interest rate risk based on yield curves).
In 2014, the increase in Reorganisation provisions mainly included a reorganisation provision of EUR 349 million which was recognised in the segment Retail Netherlands related to an expected reduction of the workforce of around 1,700 FTE’s over a three year period. In addition, ING will reduce the number of positions employed by external suppliers by 1,075.
Other In 2015, ING Group changed its accounting approach in relation to the NN Group Anchor investment transaction which resulted in an adjustment of EUR 920 million to Other liabilities – Other, as at 31 December 2014 from EUR 3,182 million to EUR 2,262 million. The adjustment comprised the reversal of the provision previously recognised for expected losses on settlement of the two remaining tranches of mandatorily exchangeable notes into NN Group shares. Reference is made to Note 1 ‘Accounting policies’ - Change in accounting approach NN Group Anchor investment transaction, Note 13 ‘Equity’ and Note 54 ‘Other events’.
Other liabilities – Other relates mainly to year-end accruals in the normal course of business.
In 2013, the decrease in total average assets, partly attributable to the disposal of ING Direct Canada and ING Direct UK, and the sale and transfer of assets of WestlandUtrecht Bank to NN Group, led to a decrease of EUR 1,070 million in the interest result. In addition, an improvement of the interest margin of 11 basis points led to a EUR 888 million increase in the interest result.
In 2015, the Result on disposal of group companies includes EUR 7 million realised deferred profits on divestments in prior periods related to Baring Private Equity Partners and a release of goodwill related to the disposal of the remaining portfolios of ING Lease (UK). Reference is made to Note 10 ‘Intangible assets’.
Brokerage and advisory fees 140 87 81 25 Valuation results on non-trading derivatives Valuation results on non-trading derivatives includes the fair value movements on derivatives (used for both hedge accounting and economically hedging exposures) as well as the changes in the fair value of assets and liabilities included in hedging relationships as hedged items. In addition, Valuation results on non-trading derivatives includes the results on assets and liabilities designated as at fair value through profit and loss.
In 2015, Valuation results on assets and liabilities designated as at fair value through profit and loss (excluding trading) includes fair value adjustments on own issued notes amounting to EUR 404 million (2014: EUR –632 million; 2013: EUR –136 million), of which DVA adjustment on own issued notes in 2015 amounted to EUR 163 million (2014: EUR –98 million; 2013: EUR –129 million).
Securities trading results includes the results of market making in instruments such as government securities, equity securities, corporate debt securities, money-market instruments, and interest rate derivatives such as swaps, options, futures and forward contracts. Foreign exchange transactions results includes gains and losses from spot and forward contracts, options, futures, and translated foreign currency assets and liabilities.
Net operating lease income comprises income of EUR 19 million (2014: EUR 23 million; 2013: EUR 18 million) and depreciation of EUR 17 million (2014: EUR 18 million; 2013: EUR 17 million).
In 2013, Other income - Other included EUR 100 million result (before tax) on the unwinding of the Illiquid Assets Back-up Facility. Reference is made to Note 53 ‘Transactions with the Dutch State and the European Commission Restructuring plan’.
ING Group at the end of May 2015. Staff expenses, for the five months ended May 2015 is included in the Consolidated profit and loss account of ING Group in the line item Net result from discontinued operations. Reference is made to Note 30 ‘Discontinued operations’.
As at 31 December 2015, ING Group holds no own shares (2014: nil; 2013: nil) in order to fulfil its obligations with regard to the existing stock option plan.
As per 31 December 2015 total options outstanding consists of 27,657,794 options (2014: 41,685,852; 2013: 55,321,834) relating to equity-settled share-based payment arrangements and 9,653,337 options (2014: 10,873,755; 2013: 12,970,608) relating to cashsettled share-based payment arrangements.
Notes to the Consolidated annual accounts of ING Group - continued 2014 Range of exercise price in euros
As at 31 December 2015, the aggregate intrinsic values of options outstanding and exercisable are EUR 68 million (2014: EUR 68 million; 2013: EUR 82 million) and EUR 68 million (2014: EUR 68 million; 2013: EUR 82 million), respectively.
As at 31 December 2015 total unrecognised compensation costs related to share awards amount to EUR 45 million (2014: EUR 36 million; 2013: EUR 53 million). These costs are expected to be recognised over a weighted average period of 1.4 years (2014: 1.3 years; 2013: 1.5 years).
1 These amounts exclude Group's auditors fees for entities presented as held for sale and discontinued operations. Total Group's auditors fees for 2015, including charges related to NN Group until deconsolidation at the end of May 2015, amounted to EUR 24 million (2014: EUR 32 million; 2013: EUR 40 million).
Fees as disclosed above relate to the network of the Group’s auditors and are the amounts related to the respective years, i.e. on an accrual basis.
The nationalisation of SNS Reaal in 2013 had as a consequence, a one-time bank tax of EUR 1 billion to be paid by ING Bank and other Dutch banks. In accordance with the relevant legislation, the bank tax was charged in three equal instalments. For ING, this resulted in a charge of EUR 304 million in 2014. Also included in this line in 2014, was EUR 138 million (2013: EUR 149 million) related to the Dutch bank tax.
Net result from classification as discontinued operations In 2015, Net result from classification as discontinued operations comprises the impact on the profit and loss account of the change in non-current non-financial assets of NN Group presented as assets and liabilities held for sale, prior to deconsolidation at the end of May 2015.
Reference is made to Note 49 ‘Companies and businesses acquired and divested’ and Note 54 ‘Other events’.
Sales proceeds of 2015 are not included in the table above, but are included in the Consolidated statement of cash flows as follows: • Sales proceeds of EUR 1,040 million from the sale of NN Group shares in February 2015 is included in ‘Net cash flow from financing activities – Proceeds from partial divestment of NN Group’; • Sales proceeds of EUR 1,802 million from the divestment of Voya in March 2015 is included in ‘Net cash flow from investing activities – Disposals and redemptions: available-for-sale investments’; • Sales proceeds of EUR 997 million from the sale of shares of NN Group resulting in loss of control at the end of May 2015 is included in ‘Net cash flow from investing activities – Disposals and redemptions: Group companies’; and • Sales proceeds of EUR 995 million from the further sale of NN Group shares on 30 September 2015 is included in ‘Net cash flow from investing activities – Disposals and redemptions: investments in associates and joint ventures’.
Voya The activities of Voya were previously included in the segments Insurance United States (US), Investment Management US, Insurance US Closed Block VA and in the Corporate Line US before they were classified as discontinued operations and held for sale in 2013. These segments ceased to exist, following the classification of Voya as discontinued operations.
Basic earnings from continuing operations 4,466 1,907 2,524 3,864.8 3,849.7 3,825.0 1.16 0.50 0.66
Basic earnings from discontinued operations –456 –1,406 495 3,864.8 3,849.7 3,825.0 –0.12 –0.37 0.13
Interest received, interest paid and dividends received are included in operating activities in the cash flow statement. Dividend paid is included in financing activities in the cash flow statement.
–2,383 9,156 14,781 Total as included in balance sheet: – amounts due to banks –33,813 –29,999 –27,200
Income from retail and private banking activities in Germany. The main products offered are current and savings accounts, mortgages and other customer lending.
1 As of January 2016, ING’s Commercial Banking activities are renamed to Wholesale Banking.
The accounting policies of the segments are the same as those described in Note 1 ‘Accounting policies’. Transfer prices for intersegment transactions are set at arm’s length. Corporate expenses are allocated to business lines based on time spent by head office personnel, the relative number of staff, or on the basis of income, expenses and/or assets of the segment.
As of 1 January 2015, the segment Retail Rest of the World is renamed to Retail Other. In addition to this, the attribution of ‘Underlying result’ to segments is changed as follows: • ‘Interest benefit on economic capital’ is replaced by ‘Interest benefit on total capital’ resulting in a reallocation between Retail
The presentation of previously reported underlying profit and loss amounts has been adjusted to reflect the above changes.
Following the classification of NN Group as discontinued operations in 2014, the Insurance segments (Netherlands Life, Netherlands Non-Life, Insurance Europe, Japan Life, Investment Management, Other and Japan Closed Block VA) ceased to exist.
In addition to these segments, ING Group reconciles the total segment results to the total result of Banking using Corporate Line Banking. The Corporate Line Banking is a reflection of capital management activities and certain expenses that are not allocated to the banking businesses. ING Group applies a system of capital charging for its banking operations in order to create a comparable basis for the results of business units globally, irrespective of the business units’ book equity and the currency they operate in.
Net result IFRS-EU attributable to equity holder of the parent 2,744 –138 2,606 –1,354 1,251 1 Comprised for the most part the funding charges of ING Groep N.V. (Holding). 2 Insurance Other comprised mainly the net result relating to warrants on the shares of Voya Financial and the net result on the sale of SulAmérica S.A.
Divestments in 2014 reflected the result on the deconsolidation of ING Vysya following changes to the governance structure.
Special items in 2013 was primarily related to the previously announced restructuring programmes in ING Bank which is partly offset by pension curtailments in the Netherlands.
– Total investment and other income 187 434 120 5 330 600 –33 1,642
Notes to the Consolidated annual accounts of ING Group - continued 37 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. The geographical analyses are based on the location of the office from which the transactions are originated. 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 Netherlands is ING Group’s country of domicile.
The table below provides additional information for the year 2015 on names of principal subsidiaries and branches, nature of main activities and average number of employees on a full time equivalent basis by country.
Italy Branch of ING Bank N.V. Wholesale banking/ Retail banking 824 202 15,828 –87 –15
France1 Branch of ING Bank N.V. Wholesale banking/ Retail banking 625 256 7,489 67 23
The Netherlands has a high tax charge, partly due to the non-deductible Dutch bank tax and partly due to the recognition of a deferred tax liability regarding previously deducted (UK) branch losses.
The UK has a low tax charge due to the recognition of previously unrecognised tax losses carried forward.
In 2014, ING reached final agreement with the trade unions, the ING Pension Fund, the Central Works Council and the Association of Retired ING Employees to transfer all future funding and indexation obligations under ING’s closed defined benefit plan in the Netherlands to the Dutch ING Pension Fund. The agreement made the ING Pension Fund financially independent from ING.
The most recent (actuarial) valuations of the plan assets and the present value of the defined benefit obligation were carried out as at 31 December 2015. The present value of the defined benefit obligation, and the related current service cost and past service cost, were determined using the projected unit credit method.
Remeasurements: Actuarial gains and losses arising from changes in demographic assumptions –55 4 8 6
Amounts recognised directly in Other comprehensive income (equity) were as follows: Opening balance –515 –3,802
In 2014, Changes in composition of the group and other changes included EUR 143 million as a result of deconsolidation of Voya and nil as a result of classification of NN Group as held for sale. Reference is made to Note 54 ‘Other events’.
As at 31 December 2015 the various defined benefit plans did not hold any investments in ING Groep N.V. (2014: nil).
The defined benefit plans in the United Kingdom and Belgium are not considered to be significant to the Group. Therefore, no additional detailed information is disclosed.
39 Taxation Balance sheet – Deferred tax Deferred taxes are recognised on all temporary differences under the liability method using tax rates applicable in the jurisdictions in which ING Group is subject to taxation.
The following tax losses carried forward and tax credits will expire as follows as at 31 December: No deferred tax asset recognised Deferred tax asset
The table above includes a breakdown of certain net deferred tax asset positions by jurisdiction for which the utilisation is dependent on future taxable profits whilst the related entities have incurred losses in either the current or the preceding year. In 2015, the aggregate amount for the most significant entities is EUR 269 million (2014: EUR 440 million).
In 2015, the deferred tax asset in the Netherlands decreased compared to 2014 mainly due to the positive result for the year.
Realised gains/losses transferred to profit and loss (reclassifications from equity to profit and loss) 39 49 57
Loans and advances to customers For loans and advances that are repriced frequently and have had no significant changes in credit risk, carrying amounts represent a reasonable estimate of the fair value. The fair value of other loans is estimated by discounting expected future cash flows using a discount rate that reflects credit risk, liquidity and other current market conditions. The fair value of mortgage loans is estimated by taking into account prepayment behaviour. Loans with similar characteristics are aggregated for calculation purposes.
a.2) Financial liabilities Subordinated loans The fair value of publicly traded subordinated loans are based on quoted market prices when available. Where no quoted market prices are available, fair value of the subordinated loans is estimated using discounted cash flows based on interest rates and credit spreads that apply to similar instruments.
Level 1 – (Unadjusted) quoted prices in active markets This category includes financial instruments whose fair value is determined directly by reference to published quotes in an active market that ING Group can access. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions with sufficient frequency and volume to provide pricing information on an ongoing basis. Transfers out of Level 1 into Level 2 occur when ING Group establishes that markets are no longer active and therefore (unadjusted) quoted prices no longer provide reliable pricing information.
Level 3 – Valuation technique supported by unobservable inputs This category includes financial instruments whose fair value is determined using a valuation technique (e.g. a model) for which more than an insignificant part of the inputs in terms of the overall valuation are not market observable. This category also includes financial assets and liabilities whose fair value is determined by reference to price quotes but for which the market is considered inactive. Level 3 Trading assets, Non-trading derivatives and Assets designated at fair value through profit and loss and Level 3 Financial liabilities at fair value through profit and loss include financial instruments with different characteristics and nature, which are valued on the basis of valuation techniques that feature one or more significant inputs that are unobservable. An instrument in its entirety is classified as Level 3 if a significant portion of the instrument’s fair value is driven by unobservable inputs. Unobservable in this context means that there is little or no current market data available from which the price at which an arm’s length transaction would be likely to occur can be derived. More details on the determination of the fair value of these instruments is included above under ‘Derivatives’, ‘Debt securities’ and ‘Loans and advances to customers’.
Financial assets designated as at fair value through profit and loss 242 2,654 338 3,234
Financial assets designated as at fair value through profit and loss 346 2,320 90 2,756
In 2014, Changes in composition of the group and other changes included EUR –2,600 million as a result of the classification of NN Group as held for sale. Reference is made to Note 54 'Other events'.
Financial assets and liabilities in Level 3 include both assets and liabilities for which the fair value was determined using valuation techniques that incorporate unobservable inputs and assets and liabilities for which the fair value was determined using quoted prices, but for which the market was not actively trading at or around the balance sheet date. Unobservable inputs are inputs which are based on ING’s own assumptions about the factors that market participants would use in pricing an asset or liability, developed based on the best information available in the circumstances. Unobservable inputs may include volatility, correlation, spreads to discount rates, default rates and recovery rates, prepayment rates and certain credit spreads. Fair values that are determined using valuation techniques using unobservable inputs are sensitive to the inputs used. Fair values that are determined using quoted prices are not sensitive to unobservable inputs, as the valuation is based on unadjusted external price quotes. These are classified in Level 3 as a result of the illiquidity in the relevant market, but are not significantly sensitive to ING’s own unobservable inputs.
Of the total amount of financial assets classified as Level 3 as at 31 December 2015 of EUR 2.3 billion (31 December 2014: EUR 1.8 billion), an amount of EUR 0.9 billion (39%) (31 December 2014: EUR 0.8 billion, being 50%) 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.
The remaining EUR 1.1 billion (31 December 2014: EUR 0.9 billion) of the fair value classified in Level 3 financial assets is established using valuation techniques that incorporates certain inputs that are unobservable. This relates mainly to assets that are classified as Available-for-sale investments, for which changes in fair value are recognised in shareholders’ equity and do not directly impact profit and loss.
Furthermore, Level 3 financial liabilities includes approximately EUR 0.2 billion (31 December 2014: EUR 0.2 billion) which relates to financial liabilities that are part of structures that are designed to be fully neutral in terms of market risk. As explained above, the fair value of each of the components of these structures may be sensitive to unobservable inputs, but the overall sensitivity is by design not significant.
The remaining EUR 0.5 billion (31 December 2014: EUR 0.4 billion) of the fair value classified in Level 3 financial liabilities is established using valuation techniques that incorporates certain inputs that are unobservable.
Correlation Correlation is a measure of dependence between two underlying references which is relevant in derivatives and other instruments which have more than one underlying reference. For example, correlation between underlying equity names may be a relevant input parameter for basket equity option pricing models. High positive correlation (close to 1) indicates strong positive relationship between underlyings, implying they typically move in the same direction. High negative correlation, on the other hand, implies that underlyings typically move in opposite directions.
–55 –22 –77 41 Derivatives and hedge accounting Use of derivatives and hedge accounting As described in the sections ‘Risk management – Credit risk and Market risk’, ING Group uses derivatives (principally interest rate swaps and cross currency interest rate swaps) for economic hedging purposes in the management of its asset and liability portfolios and structural positions. The objective of economic hedging is to enter into positions with an opposite risk profile to an identified exposure to reduce that exposure. The impact of ING Group’s hedging activities is to optimise the overall cost to the Group of accessing debt capital markets and to mitigate the market risk which would otherwise arise from structural imbalances in the duration and other profiles of its assets and liabilities. In addition, hedging activities are undertaken to hedge against the interest rate risk in the mortgage offer period in relation to retail mortgages and to lock in the interest margin in relation to interest bearing assets and the related funding.
As at 31 December 2015, the fair value of outstanding non-derivatives designated as hedging instruments for cash flow hedge accounting purposes was nil (2014: nil).
Notes to the Consolidated annual accounts of ING Group - continued 42 Assets by contractual maturity Amounts presented in these tables by contractual maturity are the amounts as presented in the balance sheet. Reference is made to the section ‘Risk Management – Funding and liquidity risk’.
Notes to the Consolidated annual accounts of ING Group - continued month1 1–3 months 3–12 months 1–5 years Over 5 years
– designated as at fair value through profit and loss 207 452 1,374 4,835 6,089 –341 12,616
Coupon interest due on financial liabilities4 3,033 1,482 4,595 13,892 8,798 31,800 1 Includes liabilities on demand. 2 This column reconciles the contractual undiscounted cash flows on financial liabilities to the balance sheet values. The adjustments mainly relate to the impact of discounting, and for derivatives, to the fact the contractual cash flows are presented on a gross basis (unless the cash flows are actually settled net). 3 Liabilities held for sale consist of the liabilities of the disposal groups classified as held for sale as disclosed in Note 11 ‘Assets and liabilities held for sale’. For these assets and liabilities, the underlying contractual maturities are no longer relevant for ING. For businesses for which a binding sale agreement exists, all related assets and liabilities held for sale are classified in accordance with the agreed or expected closing date. For other businesses, for which no sale agreement exists, assets and liabilities held for sale are included in ‘Maturity not applicable’.
Customer deposits and other funds on deposit 424,283 27,995 23,806 5,344 2,405 38 483,871
– designated as at fair value through profit and loss 368 549 1,250 5,110 5,979 295 13,551
Coupon interest due on financial liabilities5 976 1,139 4,155 11,874 7,917 26,061 1 Includes liabilities on demand. 2 This column reconciles the contractual undiscounted cash flows on financial liabilities to the balance sheet values. The adjustments mainly relate to the impact of discounting, and for derivatives, to the fact the contractual cash flows are presented on a gross basis (unless the cash flows are actually settled net). 3 Liabilities held for sale consist of the liabilities of the disposal groups classified as held for sale as disclosed in Note 11 ‘Assets and liabilities held for sale’. For these assets and liabilities, the underlying contractual maturities are no longer relevant for ING. For businesses for which a binding sale agreement exists, all related assets and liabilities held for sale are classified in accordance with the agreed or expected closing date. For other businesses, for which no sale agreement exists, assets and liabilities held for sale are included in ‘Maturity not applicable’.
4 Other liabilities is adjusted by EUR 920 million as a result of the change in the accounting approach for the NN Group Anchor investment transaction. Reference is made to Note 1 ‘Accounting policies’ – Change in accounting approach NN Group Anchor investment transaction.
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 53 billion (2014: EUR 52 billion), in Germany to EUR 13 billion (2014: EUR 13 billion), in Belgium EUR 5 billion (2014: EUR 4 billion) and in Australia to EUR 3 billion (2014: EUR 3 billion).
Included in the tables above, are the carrying amounts of transferred assets under repurchase agreements and securities lending that do not qualify for derecognition.
The tables above do not include assets transferred to consolidated securitisation entities as the related assets remain recognised in the consolidated balance sheet.
Financial liabilities at fair value through profit and loss Trading liabilities Derivatives 31,317 –930 30,387 30,153 104 130
Amounts due to banks Repurchase, securities lending and similar agreements 676 676 313 363
Financial liabilities at fair value through profit and loss Trading liabilities Derivatives 33,568 –1,429 32,139 30,927 1,078 134
Furthermore, ING Group leases assets from third parties under operating leases as lessee. The future rental commitments to be paid under non-cancellable operating leases are as follows: 1 Excludes future rental commitments related to businesses classified as held for sale. In 2015, NN Group (2014: mainly NN Group with remainder related to Voya and ING Vysya).
48 Legal proceedings ING Group companies are involved in litigation and arbitration proceedings in the Netherlands and in a number of foreign jurisdictions, including the U.S., involving claims by and against them which arise in the ordinary course of their businesses, including in connection with their activities as lenders, broker-dealers, underwriters, issuers of securities and investors and their position as employers and taxpayers. In certain of such proceedings, very large or indeterminate amounts are sought, including punitive and other damages. While it is not feasible to predict or determine the ultimate outcome of all pending or threatened legal and regulatory proceedings, the Company’s management is of the opinion that some of the proceedings set out below may have or have in the recent past had a significant effect on the financial position, profitability or reputation of the Company.
Proceedings in which ING is involved include complaints and lawsuits concerning the performance of certain interest sensitive products that were sold by a former subsidiary of ING in Mexico. Further, purported class litigation was filed in the United States District Court for the Southern District of New York alleging violations of the federal securities laws with respect to disclosures made in connection with the 2007 and 2008 offerings of ING’s Perpetual Hybrid Capital Securities. The District Court has dismissed all claims related to the 2007 and 2008 offerings. The plaintiffs appealed that decision relating to the 2008 offering. The appellate court affirmed the District Court’s decision dismissing all claims. The plaintiffs then filed an appeal with the U.S. Supreme Court. The U.S. Supreme Court in March 2015 vacated the judgement of the Second Circuit; the case was remanded back to the District Court. In August 2015, the District Court dismissed all remaining claims. No appeal has been filed, therefore the District Court decision has become final.
Divestments effective in 2014 Asia - ING’s Taiwanese investment management business In January 2014, ING agreed to sell ING Investment Management (IM) Taiwan, its Taiwanese asset management business, to Japanbased Nomura Asset Management in partnership with a group of investors. The transaction did not have a significant impact on ING Group results. The transaction closed on 18 April 2014.
Asia - Joint venture ING-BOB Life In July 2013, the 50% interest in the Chinese insurance joint venture ING-BOB Life Insurance Company was agreed to be sold to BNP Paribas Cardif, the insurance arm of BNP Paribas. The transaction closed on 30 December 2014 and did not have a significant impact on the NN Group or ING Group results.
Asia - Insurance in Hong Kong, Macau, Thailand In October 2012, ING reached an agreement to sell its life insurance, general insurance, pension and financial planning units in Hong Kong and Macau, and its life insurance operation in Thailand to Pacific Century Group for a combined consideration of EUR 1.6 billion (USD 2.1 billion) in cash. The transaction closed on 28 February 2013 and resulted in a net gain of EUR 945 million.
Asia - ING’s investment management business in Malaysia In December 2012, ING reached an agreement to sell its 70%-stake in ING Funds Berhad (IFB), ING’s investment management business in Malaysia, to Kenanga Investors Berhad (Kenanga Investors), a wholly owned subsidiary of K & N Kenanga Holdings Berhad (Kenanga). Tab Inter-Asia Services Sdn Berhad has also agreed to sell its 30% stake in IFB to Kenanga Investors. The transaction closed on 19 April 2013.
ING’s mortgage business in Mexico In June 2013, ING reached an agreement to sell ING Hipotecaria, its mortgage business in Mexico, to Banco Santander (México) S.A. This announcement did not affect ING’s Wholesale (formerly named Commercial) Banking activities in Mexico. This transaction resulted in a net loss of EUR 64 million which was recognised in 2013. The transaction closed on 29 November 2013.
ING Direct UK In October 2012, ING reached an agreement to sell ING Direct UK to Barclays. Under the terms of the agreement, the approximately EUR 13.4 billion (GBP 11.6 billion) of savings deposits and approximately EUR 6.4 billion (GBP 5.5 billion) of mortgages of ING Direct UK were transferred to Barclays. The agreement resulted in an after tax loss of EUR 260 million which was recognised in 2012. The transaction closed on 6 March 2013 and a gain of EUR 10 million was recognised on the final settlement. In 2012, ING Direct UK was classified as held for sale. ING Direct UK was included in the segment Retail Rest of World.
NN Group N.V. In 2014, NN Group was classified as held for sale and discontinued operations. In 2015, a number of divestment transactions reduced ING Group’s interest in NN Group from 68.14% (as at 31 December 2014) to 25.75% as at 31 December 2015, resulting in ING Group losing control over NN Group. NN Group was deconsolidated at the end of May 2015. NN Group N.V. has its statutory place of incorporation in the Netherlands and is the holding company of a number of subsidiaries in various jurisdictions. Reference is made to Note 11 ‘Assets and liabilities held for sale’, Note 30 ‘Discontinued operations’ and Note 54 ‘Other events’.
Credit management securitisation programmes, previously entered into by ING Group, were unwound between 2012 and 2014. The last programme ended in 2014 on the scheduled termination date. As at 31 December 2014, there were no remaining Credit management securitisation programmes.
In 2015, there are no minority interests as part of the securitisation structured entities that are significant to ING Group. ING Group for the majority of the securitisation vehicles provides the funding for the entity except for EUR 7.4 billion (2014: EUR 4.8 billion) which are funded by third parties.
3. Consolidated ING sponsored Securitisation programme (‘Mont Blanc’) In the normal course of business, ING Group structures financing transactions for its clients by assisting them in obtaining sources of liquidity by selling (also referred to as ‘factoring’) the clients’ receivables or other financial assets to an ING sponsored SPE.
The types of assets currently in Mont Blanc include trade receivables, consumer finance receivables, credit card receivables, motor vehicle loans and residential mortgage backed securities (‘RMBS’).
The liquidity facilities, including programme wide enhancements, provided to Mont Blanc are EUR 1,072 million (2014: EUR 1,143 million). The drawn liquidity amount is EUR 276 million as at 31 December 2015 (2014: nil).
4. Unconsolidated Securitisation programme In 2013 ING transferred financial assets (mortgages loans) for an amount of approximately EUR 2 billion to a newly established special purpose entity (SPE). The transaction resulted in full derecognition of the financial assets from ING’s balance sheet. The derecognition did not have a significant impact on net result. Following this transfer ING continues to have two types of on-going involvement in the transferred assets: as counterparty to the SPE of a non-standard interest rate swap and as servicer of the transferred assets. ING has an option to unwind the transaction by redeeming all notes at their principal outstanding amount, in the unlikely event of changes in accounting and/or regulatory requirements that significantly impact the transaction. The fair value of the swap as at 31 December 2015 amounted to EUR 1.3 million (2014: EUR 33.7 million); fair value changes on this swap recognised in the profit and loss account in 2015 were EUR –32.4 million (2014: EUR 28.6 million). Fee income recognised in the profit and loss account in 2015 amounted to nil (2014: EUR 0.5 million).
52 Related parties In the normal course of business, ING Group enters into various transactions with related parties. Parties are considered to be related if one party has the ability to control or exercise significant influence over the other party in making financial or operating decisions. Related parties of ING Group include, amongst others, its subsidiaries, associates, joint ventures, key management personnel and various defined benefit and contribution plans. Transactions between related parties include rendering or receiving of services, leases, transfers under finance arrangements and provisions of guarantees or collateral. There are no significant provisions for doubtful debts or individually significant bad debt expenses recognised on outstanding balances with related parties.
In 2015, a number of divestment transactions reduced ING Group’s interest in NN Group, resulting in ING Group losing control over NN Group. NN Group was deconsolidated at the end of May 2015 and accounted for as an Investment in associate held for sale. For further information on transactions with NN Group, reference is made to Associates and joint ventures below and Note 54 ‘Other events’.
Assets to Associates include Subordinated loans receivable from NN Group N.V. amounting to EUR 823 million (2014: EUR 823 million). Assets, liabilities, commitments and income related to Associates and joint ventures result from transactions which are executed as part of the normal Banking business except for the following transactions.
NN Group was deconsolidated from ING Group at the end of May 2015 and accounted for as an Investment in associate held for sale. Included in off-balance sheet commitments, is a EUR 63 million facility to NN Bank which allows NN Bank an unconditional right to draw down additional Tier 1 capital at prevailing market terms, until 31 December 2018. Reference is made to Note 54 ‘Other events’.
On 20 December 2012, NN Group entered into a Financial Collateral Pledge Agreement with ING Bank (all obligations expired on 20 March 2014), by which a right of pledge was created in favour of NN Group on certain securities of ING Bank. The pledge served as security for the duly repayment of the cash deposits that NN Group placed with ING Bank.
Nationale-Nederlanden Bank entered into a service agreement with WestlandUtrecht Bank and RVS Hypotheekbank N.V. on 1 July 2013, for providing certain management services in relation to a housing mortgage loan portfolio of WestlandUtrecht Bank.
In 2015 and 2014, three members of the Executive Board of ING Groep N.V. were also members of the Management Board of ING Bank.
5 The collective fixed allowances consist of two savings allowances applicable to employees in the Netherlands; an individual savings allowance of 3.5% and a collective savings allowance to compensate for loss of pension benefits with respect to salary in excess of EUR 100,000.
6 One of the Board members received an award in a deferred investment in funds that are managed by the respective business.
Supervisory Board members 0 0 1 2015: Includes Loans and advances to Management Board members of ING Bank only (2014: Includes Loans and advances to Management Board members of both ING Bank and NN Group).
The Shareholder agreement has been terminated as of March 2015 (when ING Group first ceased to beneficially own 18.9% (45.6 million) of the outstanding Common Stock of Voya); some provisions thereof, have survived such termination.
European Commission Restructuring Plan In 2009, ING Groep N.V. submitted a Restructuring Plan to the European Commission as part of the process to receive approval for the government support measures. By decision of 18 November 2009, the European Commission, formally approved the Restructuring Plan. The main elements of the Restructuring Plan as announced on 26 October 2009, were as follows: • Elimination of double leverage and significant reduction of ING's balance sheet (with 45%); • Divestment of all Insurance and Investment Management activities; • Divestment of ING Direct USA; • Creation of a new company in the Dutch retail market composed of Interadvies (including Westland Utrecht and the mortgage activities of Nationale-Nederlanden) and the existing consumer lending portfolio of ING Retail in the Netherlands. This business, once separated, needed to be divested; and
Credit Guarantee Scheme As part of the measures adopted to protect the financial sector, the Dutch State introduced a EUR 200 billion credit guarantee scheme for the issuance of medium term debt instruments by banks (the Credit Guarantee Scheme). ING Bank N.V. issued government guaranteed debt instruments under this Credit Guarantee Scheme (‘Government Guaranteed Bonds’) as part of its regular mediumterm funding operations. The relevant Rules of the Credit Guarantee Scheme set forth the rules applicable to any issues under the Credit Guarantee Scheme and include information such as scope, denomination, tenor and fees payable by the banks. ING Group paid a fee of 84 basis points over the issued bonds to the Dutch State to participate in the Credit Guarantee Scheme. In 2014, all these bonds were fully repaid.
and loss (-)11 1 Capital injection into NN Group. 2 Deconsolidation of NN Group; remaining investment in NN Group accounted for as an Investment in associate held for sale. 3 Second tranche exchange of subordinated notes: Anchor investors. 4 NN Group share repurchase. 5 Further divestment of NN Group in September 2015. 6 Loss of significant influence over NN Group. 7 The dilution of ING Group’s ownership in NN Group from 25.76% to 25.75%, as at 31 December 2015, is as a result of shares issued by NN Group as part of its internal stock options and share plans. 8 Final tranche exchange of subordinated notes: Anchor investors. 9 Gross sales proceeds or Capital injection value. 10 Divestment transactions prior to deconsolidation did not impact the profit and loss account of ING Group, but had a negative impact on shareholder’s equity
(parent) of ING Group which reflected the difference between the net proceeds received and the IFRS-EU book value of ING Group’s interest sold at the respective dates. The amounts were recognised in ‘Other reserves’.
NN Group divested in the IPO (including the exercise of the over-allotment option) and • EUR 661 million, being the difference between the market value of the NN Group shares exchanged for the first tranche of the mandatorily exchangeable subordinated notes and the related IFRS-EU carrying value.
During the second half of 2015, the Autoriteit Financiële Markten (‘AFM’; The Netherlands Authority for Financial Markets) performed a review of the 2014 ING Group Annual Report. This review resulted in a recommendation to change the accounting approach for the provision recognised as a direct reduction of ING Group’s shareholder’s equity in 2014 in relation to the Asian Anchor Investment transaction (‘Anchor investment transaction’). Reference is made to Note 1 ‘Accounting policies’ – Change in accounting approach NN Group Anchor investment transaction, Note 13 ‘Equity’ and Note 20 ‘Other liabilities’.
As at 31 December 2014, the pro forma negative impact of the divestment of NN Group on ING Group shareholders’ equity would have been EUR 7.6 billion, representing the difference between the market value of ING Group’s 68.14% stake in NN Group, and the IFRS-EU carrying value of this stake. As at 31 December 2014, the pro forma negative impact of the divestment of NN Group on the profit and loss account of ING Group would have amounted to EUR 1.5 billion. This amount reflects the difference between the negative impact on equity and the release of ING’s pro forma EUR 6.1 billion share in the positive revaluation reserves of NN Group.
February 2015 – Further divestment of NN Group In February 2015, ING Group sold 52 million ordinary shares of NN Group. As part of the transaction, NN Group repurchased 8.3 million ordinary shares. The gross proceeds to ING Group from the offering, including the repurchase by NN Group, amounted to EUR 1.2 billion. The transaction reduced the ownership of ING in NN Group from 68.14% (at 31 December 2014) to 54.58%. The transaction did not impact the profit and loss account of ING Group as NN Group continued to be fully consolidated. The transaction had a negative impact of EUR 1,769 million on the shareholder’s equity of ING Group, being the difference between the net proceeds of the transaction and the IFRS-EU carrying value per the transaction date of the equity stake sold.
May 2015 – Deconsolidation of NN Group On 26 May 2015, ING Group announced a further sale of 45 million ordinary shares of NN Group. As part of the transaction, NN Group repurchased 5.9 million ordinary shares. The gross proceeds to ING Group from the offering, including the repurchase by NN Group, amounted to EUR 1.1 billion. This transaction reduced the ownership of ING in NN Group to 42.43%, resulting in ING Group losing control over NN Group. The share sale and deconsolidation of NN Group resulted in an after tax loss of EUR 1,224 million in 2015 and is recognised in the profit and loss account in the line ‘Net result from disposal of discontinued operations’. The transaction had a negative impact of EUR 6,569 million, including the aforementioned loss, on the shareholder’s equity of ING Group. The profit and loss account of ING Group includes, in the line ‘Net result from discontinued operations’, the result of NN Group until deconsolidation at the end of May 2015.
As at 31 December 2015, ING Group no longer has nominees in the Supervisory Board of NN Group. Reference is made to Note 52 ‘Related parties’.
Reference is made to Note 53 ‘Transactions with the Dutch State and the European Commission Restructuring Plan’ for the Status of the European Commission Restructuring Plan.
VISA ING Bank and other subsidiaries within ING Group are principal members of VISA Europe and together hold 6 redeemable ordinary shares in VISA Europe Limited. These ordinary shares are recognised as available-for-sale equity securities and were valued at EUR 10 per share. In November 2015, VISA Inc. and VISA Europe announced a definitive agreement for VISA Inc.to acquire VISA Europe. The transaction is subject to regulatory approvals and is expected to close in the second quarter of 2016. In December 2015, the principal members of VISA Europe received letters informing them on the calculation of their share in the transfer proceeds.
2014 In the first quarter of 2014, changes to the governance structure of ING Vysya were implemented in order to better align with prevailing regulations. The regulatory requirements necessitated some governance changes. As part of that, ING reduced the number of directors appointed by ING in ING Vysya Bank’s Board of Directors to be proportionate to its shareholding. Although ING Bank’s economic interest of approximately 43% remained unchanged, as a result of these governance changes, ING Bank no longer had a majority representation in the Board of Directors and influence on ING Vysya’s operations were aligned with its shareholding interest. As a result, ING Bank no longer had effective control over ING Vysya and therefore, as of 31 March 2014 ING Vysya was deconsolidated and accounted for as an associate under equity accounting. Before the changes in the governance structure ING Bank had substantial additional powers, including the majority in the Board of Directors and power over operational decision making; as a result, ING Vysya was consolidated by ING. After the deconsolidation, the investment in ING Vysya was recognised as an Investment in associates and joint ventures at its fair value at 31 March 2014 of EUR 617 million. The profit and loss account of 2014 included the consolidated result of ING Vysya until the deconsolidation and the result upon deconsolidation of EUR 202 million. The result upon deconsolidation was recognised in ‘Result on disposal of group companies’.
55 Subsequent events There are no subsequent events to report. In Note 54 ‘Other events’, some events of 2016 are included for information purposes.
ING Group Risk Management Taking measured risks is the core of ING Group’s business. As a global financial institution with a strong European base, offering banking services, ING Group is exposed to a variety of risks. ING Group operates through a comprehensive risk management framework and integrates risk management in its daily business activities and strategic planning. This ensures the identification, measurement and control of risks at all levels of the organisation so that ING Group’s financial strength is safeguarded.
Credit risk is the risk of potential loss due to default by ING Bank’s debtors (including bond issuers) or trading counterparties.
Compliance risk is the risk of impairment of ING Bank’s integrity as a result of failure (or perceived failure) to comply with applicable laws, regulations, ING Bank policies and minimum standards and the ING Values.
• Non-Financial Risk Committee Bank (NFRC Bank): Accountable for the design and maintenance of the Non-Financial Risk Management Framework including Operational Risk Management, Compliance and Legal policies, minimum standards, procedures and guidelines; the NFRC structure; development of tools, methods and key parameters (incl. major changes) for risk identification, measurement and monitoring/ reporting. The minimum frequency of the NFRC Bank is at least quarterly.
Regional and business unit level ING Bank’s regional and business unit management have primary responsibility for the management of risks (credit, market, funding and liquidity, operational, legal and compliance risks) that arise in their daily operations. They are accountable, together with their employees, for the implementation and operation of appropriate risk frameworks affecting their businesses to ensure compliance with procedures and processes set by ING Bank. The local (regional and BU) risk manager is responsible for the analysis, control and management of risks across the whole value chain (from front to back office), based on which a robust control structure is maintained.
In 2015, the risk management organisation was redesigned to effectively address the internal and external (market and regulatory) developments and challenges that ING as a bank is facing. Over the past years, banks have been subject to increasing regulatory and public pressure with regard to their risk management policies, processes and systems. New requirements and regulations have been introduced and implemented. To be able to effectively address these developments and challenges, ING Bank changed the set-up of its risk-management organisation. Risk managers can focus on primary risk management processes and strategic priorities, while a separate ‘Risk services’ department enables and supports these tasks with information management, risk reporting and analytics. The main changes compared to the previous organisation are: • The trading risk and credit risk management departments have been combined into a new department named ‘Credit and Trading
Risk’. This set-up ensures that topics that link traditionally to both credit risk and market risk (such as counterparty credit risk) are approached in an integral way and in line with the applicable regulations; • A ‘Balance Sheet Risk’ department has been established that focuses on the management of different market risks that arise in the Banking Books and Bank Treasury as well as liquidity & funding risk; and
• A separate ‘Risk Services’ department has been created reporting directly to the CRO to service the core risk activities. Risk Services aims to create value for internal and external stakeholders by continuously optimizing the efficiency, transparency and effectiveness of the risk processes.
Despite these changes in the governance structure, the set-up of the Risk management paragraph hasn’t changed since it is based on risk types instead.
The importance of a risk is assessed based on the likelihood the risk materialises and the subsequent financial or reputational impact should the risk occur. Unlikely risks with a potentially high impact need to be controlled. For a risk that is likely to happen regularly, but is expected to have a modest financial impact, business management may decide to not mitigate and accept the consequences when it happens.
Risk appetite framework ING Bank uses an integrated risk management approach for its banking activities. The Management Board Banking uses the bank risk appetite framework to set both boundaries for the Medium Term Plan (MTP) budget process and to monitor and manage the actual risk profile in relation to the risk appetite.
Step 2. Set ING Bank Risk Appetite Framework Based on ING Bank’s risk assessment and risk ambition, specific targets are set for both financial and non-financial risks: Financial risk For financial risks, ING Bank expresses its risk appetite as a tolerance allowed to key ratios deviating from their target levels. Therefore, the high level risk ambition is translated into quantitative targets on ING Bank level for solvency risk, liquidity & funding risk and for concentration and event risk.
Funding and liquidity risk has two dimensions: liquidity risk focuses on having a sufficient buffer to cope with the short-term situation, funding risk ensures long-term compliance with both internal and external targets. Managing funding and liquidity risk focuses both on ‘business as usual’ (based on the run-off profile to show the stickiness of deposits combined with the run-off of assets without new production) and on a stressed situation. There, we define liquidity risk as the time to survive a specific scenario, while for funding risk we focus on the maximum funding gap allowed.
Non-financial risk ING Bank has set up an NFR Risk Appetite Statement (RAS) in which the MBB expresses the type and level of non-financial risk it is willing to tolerate in pursuit of the strategic objectives of the bank, to ensure that the organisation’s actual risk exposure is commensurate with its strategic objectives and that exposure moving beyond the tolerance risk levels is timely identified and acted upon.
Stress testing Stress testing is an important risk management tool that supports the MBB with respect to strategic and capital planning. The purpose of stress testing is to investigate whether ING Bank will be able to meet its solvency and liquidity requirements in severe but plausible stress scenarios. Stress tests provide insight into vulnerabilities of certain portfolios, given certain assumptions related to the economy, financial markets and the political climate. It is also used to assess whether the risk profile of ING Bank is in line with risk appetite.
Types of stress tests Within ING Bank, different types of stress tests are performed. The most comprehensive type of stress tests are the firm-wide scenario analyses, which involve setting scenario assumptions for the relevant macro-economic and market variables in all countries where ING Bank is active. These assumptions are usually complemented by a narrative that provides background for the scenario. In addition to firm-wide scenario analyses, ING Bank also executes scenario analyses for a specific country or asset class. Furthermore, sensitivity analyses are performed, which focus on stressing one or more relevant risk drivers; usually without an underlying scenario narrative. The 1-in-10-year stress scenario used in the risk appetite framework is an example of a sensitivity analysis. Finally, ING Bank also performs reverse stress tests, which aim to determine the circumstances which would lead to a pre-defined severe adverse outcome.
Step 2. Scenario parameter setting After determination of the high level scenarios in the previous step, they need to be worked out in greater detail. Scope, assumptions and input parameters such as GDP growth, unemployment rates, interest rates and real estate price changes are defined for the countries involved in the exercise. The parameters are discussed and endorsed in the STSC and subsequently in the BF&RC.
ING supports the bail-in concepts as they are an important component of the new regulatory framework, aimed at reducing the possibility that tax payer money will be needed to bail-out institutions in the future. The bail-in concept has therefore also been at the heart of the preparatory discussions that ING has had with the resolution authorities since 2012. This resulted in a first resolution assessment that will serve as input for the transitional plan by Single Resolution Board (SRB) wherein SRB together with the local resolution authorities will define (i) the point of entry (either being a Single Point of Entry or a Multiple Point of Entry), (ii) the MREL bailin requirements on a consolidated and a subsidiary level and (iii) the impediments to resolution that need to be addressed.
Principles for Effective Risk Data Aggregation and Risk Reporting In January 2013, the Basel Committee published Principles for Effective Risk Data Aggregation and Risk Reporting (also referred to as PERDARR or BCBS239), following a recommendation made by the Financial Stability Board (FSB). The requirements aim to strengthen risk data aggregation and risk reporting practices at banks to improve their risk management practices. Banks indicated as G-SIBs – including ING Bank – are required to implement the principles by 2016. As a first step of the implementation, ING Bank performed a ’stocktaking’ self-assessment survey in 2013 and another assessment in 2014 to monitor the progress made. The publication of the principles coincide with several projects and programs to strengthen risk data aggregation and risk reporting practices that were already underway before these new requirements were published. During 2015 a project was set-up to ensure compliancy with BCBS239 by addressing the items that are not part of the aforementioned projects and programs.
Macroeconomic developments Several geopolitical and macroeconomic topics impacted ING Bank’s operating environment in 2015, amongst others the ongoing conflict in Ukraine, the re-emerged Greek crisis and impact of the low oil and gas price.
In the light of the ongoing conflict in Ukraine, ING continued the intensified monitoring processes and tightened acceptance criteria that were already ignited in 2014. The economic outlook for both Russia and Ukraine is negative and reflects (i) the increasingly subdued medium-term outlook, exacerbated by the prolongation of the Ukraine crisis, including the impact of expanded international sanctions, (ii) the gradual but ongoing erosion of Russia's FX buffers, (iii) Russian borrower’s restricted international market access and (iv) low oil prices. Our risk appetite will therefore remain limited and only new exposures with sufficient risk mitigation will be considered. We will focus on international business clients and export-oriented companies.
In the course of 2015 the uncertainties around Greece emerged with a peak in the summer where bailout terms were rejected by the Greek people via a referendum and the failure to make the IMF loan repayment in June 2015. In this situation, ING Bank closely monitored its Greek exposure. ING has no banking activities in Greece, but we have a limited direct exposure on Greece and a negligible sovereign exposure. Our Greek exposure consists of corporate lending, mainly to the shipping industry. Since the successful renegotiations and the Greek parliament elections the situation improved and the debate on a potential Grexit has muted.
The Models Development Committee (MDC) serves as a technical advisor to CRC and is a planning body for future model development. The MDC has a delegated mandate to approve credit risk models which cover smaller portfolios. The ING Bank Provisioning Committee (IPC) is the sole Approval Authority that can approve Loan Loss Provisions (LLP) amounts for all ING Bank entities and can decide on the quarterly debt, equity and real estate impairments in Available for Sale (AfS) books.
Credit and Trading Risk is the combination of Market Risk Management Bank (MRMB) in Trading books and Credit Risk Management. This function integrates highly interdependent credit and market risk trading management activities. As such, it takes care of portfolio management for retail, corporate and Financial Institutions/Financial Markets (FI/FM) (including the Market Risk Product Control function), (transaction) approval, restructuring, ESR and policy and regulations within its area.
• Investment risk: is the credit default and risk rating migration risk that is associated with ING Bank’s investments in bonds, commercial paper, securitisations, and other similar publicly traded securities. This can be viewed as the worst-case loss that ING Bank may incur as a result of holding a position in underlying securities whose Issuer's credit quality deteriorates or defaults. All investments in the banking book are classified in the investment risk category. The primary purpose of ING Bank’s investments in the banking books is for liquidity management.
A risk appetite statement in the context of a retail risk portfolio program is a pre-defined set of minimum performance criteria.
The Wholesale Banking risk program is a detailed analysis of a defined product and/or industry that identifies the major risk drivers and mitigants, the internal business mandate, and proposes the minimum risk (including business) parameters – and potentially the maximum product and/or portfolio limit - to undertake that business. A risk program is always prepared by the Front Office responsible for the internal business mandate and requires an approval from the ING Bank Global Credit Committee (unless specifically delegated to a different approval mandate).
Comparing capital levels across banks is a challenging exercise because of different risk profiles, differences in applied risk based drivers, practice based drivers and regulatory environment (e.g. Advanced Internal Rating Based approach or the Standardised Approach). These factors have a substantial impact on the regulatory capital / RWA of a financial institution. ING Bank continues to work with industry groups including Enhanced Disclosure Task Force (EDTF) and strives to adhere to the latest BCBS recommendations to improve the transparent reporting of our capital calculations.
The short overview below shows the main differences between RC and EC, within ING Bank.
For non-Sovereign exposures the PD values are floored at 3 BPS. Non-floored economic PD values are used. For Securitisations the risk weights are determined by applying the CRDIV complaint external rating based look-up tables. For securitisations where ING acts as sponsor the Internal Assessment Approach is used.
Probability of Default (PD): The first is the counterparty’s probability of default, which measures a counterparty’s creditworthiness in terms of likelihood to go into default. The result of this calculation attempts to measure the senior, unsecured standalone creditworthiness of an organisation without consideration of structural elements of the underlying transactions, such as collateral, pricing, or maturity. Each borrower should have a rating which translates into a PD.
• Scenario Simulation approach (Monte Carlo approach): Scenario Simulation approach is the most complex of the methods for PS risk calculations. This approach is the only approach that fully takes into account the daily market conditions, including correlations between the risk factors and portfolio benefits. This approach is also referred to as Monte Carlo (MC) approach and is currently used for the largest volume of derivative products such as FX and interest rate derivatives. ING Bank is in the process of implementing this approach for more products. The monitoring of the PS exposures and the limit setting for the products within the scope of the MC approach are based on the exposures resulting from the MC approach, the pre-deal check exposure assessment is based on the MtM plus model add-on approach. In 2015 ING has transferred its Monte Carlo based measurement of pre-settlement exposure running on external systems, to an internal system which is also used for calculating accounting CVA.
Credit risk rating process In principle all risk ratings are based on a Risk Rating (PD) Model that complies with the minimum requirements detailed in the CRDIV, the ECB Supervisory Rules and EBA guidelines. This concerns all counterparty types and segments, including countries. ING Bank’s PD rating models are based on a 1-22 scale (referred to as the ‘Masterscale’), which roughly corresponds to the same rating grades that are assigned by external rating agencies, such as Standard & Poor’s, Moody’s and Fitch. For example, an ING Bank rating of 1 corresponds to an S&P/Fitch rating of AAA and a Moody’s rating of Aaa; an ING Bank rating of 2 corresponds to an S&P/Fitch rating of AA+ and a Moody’s rating of Aa1, and so on.
The portfolio breakdown of ING Bank per exposure class and per risk category, based on Exposure at Default is shown below. The figures shown in the Credit Risk section are including loans to Group (and also Insurance for 2014) being ‘intercompany loans’, unless stated otherwise: Lending Investment Money Market Pre-Settlement Total Total (ALL) 2015 AIRB SA AIRB SA AIRB SA AIRB SA AIRB SA AIRB + SA
2014 AIRB SA AIRB SA AIRB SA AIRB SA AIRB SA AIRB + SA
ING distinguishes four types of post default scenarios: • No Loss – Cure: the Borrower pays all overdue amounts (to the extent ING Bank is legally entitled to) and the asset becomes nondefaulted again. ING Bank does not experience any loss in the process. The relationship is not terminated. The borrower returns back to performing; • No Loss – Exit without loss: ING Bank (or the borrower) liquidates collaterals and calls guarantees in order to recover the exposure or the Borrower fully repays. Thereafter the relationship is terminated. ING Bank does not experience any loss in the process; • Loss – Exit with loss: ING Bank (or the borrower) liquidates collaterals and calls guarantees in order to recover the exposure. Thereafter the relationship is terminated. ING Bank suffers loss in the process; and
ING Bank as Originator ING Bank occasionally originated own securitisation transactions for economic and regulatory capital purposes, as well as liquidity and funding purposes. Securitisations originated by a company may only be considered for balance sheet de-recognition when the requirements for significant credit risk transfer have been fulfilled. However, for a securitisation transaction to be recognised as for RWA reduction, risk transfer alone may be insufficient due to the increasing impact of the maturity mismatch formula. As a consequence, the RWA of the retained tranches for one of the transactions would be higher than the total RWA of the underlying pool before securitisation. In such cases the RWA calculation for the transaction is performed as if it was not securitised. ING Bank has done a very limited number of external transactions as originator.
Credit risk tools Credit risk policies ING credit risk policies provide for generic rules and roles and responsibilities that should always prevail within ING Bank. While allowance is given for discretionary variation to comply with local regulations, such variations must always comply with the content of a global ING Bank wide credit risk policy and approved by (local) credit risk. All credit risk policies are created according to the policy development standards and reviewed on a regular basis. Each policy has a credit risk sponsor and is created in close consultation with the various stakeholders within credit risk, front office and where applicable other corporate departments. All policies require approval by the Credit Risk Committee (CRC) and where applicable by the Global Credit Committee (GCC).
Credit risk systems and data standards The acceptance, maintenance, measurement, management and reporting of credit risks at all levels of ING Bank is accomplished through promotion of single, common credit risk data standards and the integration into common credit risk tools that support standardised and transparent credit risk practices. ING has chosen to develop the credit risk tools centrally. The philosophy is to re-use the same data for all purposes, in an integrated approach that overlaps the three key areas of ING Bank policy, the regulatory environment in which we operate, and the daily processes which are active throughout the group. Overlapping these three areas is the essential requirement to ensure data quality standards and discipline remains high.
Credit risk portfolio ING Bank’s credit exposure is mainly related to traditional lending to individuals and businesses followed by investments in bonds and other securitised assets. Loans to individuals are mainly mortgage loans secured by residential property. Loans (including guarantees issued) to businesses are often collateralised, but can be unsecured based on internal analysis of the borrowers’ creditworthiness. Bonds in the investment portfolio are generally unsecured. Securitised assets such as Mortgage Backed Securities and Asset Backed Securities are secured by the pro rata portion of the underlying diversified pool of assets (commercial or residential mortgages, car loans and/or other assets) held by the security‘s issuer. The last major credit risk source involves pre-settlement exposures which arise from trading activities, including derivatives, repurchase transactions and securities lending/borrowing and foreign exchange transactions.
Growth Markets2 Corporate Line Total ING Bank 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.
Growth Markets Corporate Line Total ING Bank 1 Based on the total amount of credit risk in the respective column using ING Bank’s internal credit risk measurement methodologies. Economic sectors below 2%
During 2015, the overall portfolio continued to expand, which caused shifts in the concentration per economic sector. A prominent place is taken by Non-Bank Financial Institutions, due to increased positions at CCPs, and by Commercial Banks which are traditionally the largest concentrations. The Central Bank concentration increased mainly due to regulatory reserve deposits at the Central Banks in Europe and Japan. The concentration of mortgages continued to decrease, reflected in the decreased private individuals figure. The share of Real Estate in the bank's portfolio increased slightly due to increased exposure in the primary markets.
Credit quality Upturn witnessed in key markets and a trend of improvement in risk costs signal an economic recovery in the operating environment for ING Bank. Since the beginning of the crisis, the quantity and the share of the total ING credit risk portfolio that required special risk management attention had increased. The number and average turnaround time of problematic files has continued to improve in 2015, however is not yet back to pre-crisis levels. Obviously, the length and intensity of the crisis warrants continuous attention for credit quality.
Consumer lending past due but not impaired (1–90 days) 4,328 5,143 1 Based on lending and investment activities.
• Restructuring of the credit obligation for non-commercial reasons: ING Bank has granted concessions, for economic or legal reasons relating to the Borrower’s financial difficulty, the effect of which is a reduction in ING’s expectation of future cash flows of the financial asset below current Carrying Amount.
• Restructuring: A client is classified as Restructuring when there are serious concerns of the client’s financial stability, credit worthiness and/or its ability to repay, but where the situation does not call for recalling or acceleration of facilities or liquidating the collateral. ING’s actions aim to maintain the going concern status of the client by: • restoring the client’s financial stability; • supporting the client’s turnaround in part or in whole; • restoring the tension between debt and equity; and • restructuring the debt to a sustainable situation.; and
The overall amount of NPLs decreased in 2015, mainly witnessed in the Private Individuals and Real Estate sectors. The decrease in NPLs for the Private Individuals segment is mainly due to the improved credit quality in the Dutch mortgage portfolio resulting from the improved economic conditions in the Netherlands. The decline in NPLs in the real estate sector was driven by both cures as well as write-offs. The most notable increase in NPLs was in the natural resources sector, where the global commodity prices and the ongoing conflict in the Ukraine are impacting client performance and ratings.
Changes in the composition of the group 0 0 0 0 0 –170 0 –170
The forbearance classification on a client shall be discontinued, when all of the following conditions (measured on a quarterly basis) are met: • The contract is considered as performing and has been reported as ‘performing forbearance’ for a minimum of two years; • Regular payments of significant aggregate amounts of principal or interest have been made during at least half of the forbearance reporting period; and • None of the exposure to the client is more than 30 days past-due at the end of the forbearance reporting period.
The overall amount of Wholesale Banking forborne assets remained flat compared to 2014. The forborne assets are mainly concentrated in Real Estate and Natural Resources. Together they account for 63% (2014: 53%) of the total forborne assets portfolio and 68% (2014: 45%) of the total non-performing forborne assets portfolio.